<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December
31, 1997.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period
to .
Commission file number 0-14737
TRENWICK GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1152790
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Metro Center, One Station Place, Stamford, Connecticut 06902
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 353-5500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.10 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
Indicate by check mark whether the 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 such
filing requirements for the past 90 days.
YES ...X.... NO .......
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any
amendment to this Form 10-K. [ ]
The aggregate market value on February 28, 1998 of the voting stock
held by non-affiliates of the registrant was 419,105,702.
The number of shares outstanding of each of the issuer's classes of
common stock as of the close of the period covered by this report:
<TABLE>
<CAPTION>
Class Outstanding at February 28, 1998
<S> <C>
Common Stock, $.10 par value 12,018,010
</TABLE>
The information required by Items 10 through 13 of Form 10-K is incorporated by
reference into Part III hereof from the registrant's proxy statement which will
be filed with the Securities and Exchange Commission within 120 days of the
close of the registrant's fiscal year ended December 31, 1997.
<PAGE> 2
TRENWICK GROUP INC.
Table of Contents
Page
Item Number
PART I
1. Business .............................................................. 1
2. Properties ............................................................ 17
3. Legal Proceedings ..................................................... 17
4. Submission of Matters to a Vote of Security Holders ................... 17
PART II
5. Market for the Corporation's Common Stock and Related Stockholder Matters 17
6. Selected Financial Data ............................................... 18
7. Management's Discussion and Analysis of Financial Condition and
Results of Operation .................................................. 19
8. Financial Statements and Supplementary Data ........................... 27
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .................................................. 55
PART III
10. Directors and Executive Officers ..................................... 55
11. Executive Compensation ............................................... 55
12. Security Ownership of Certain Beneficial Owners and Management ....... 55
13. Certain Relationships and Related Transactions ....................... 55
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ...... 56
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL BACKGROUND AND HISTORY
Trenwick Group Inc. is a holding company incorporated in the state of Delaware
in 1985. Through its wholly owned subsidiary, Trenwick America Corporation, a
Delaware corporation, Trenwick owns and operates Trenwick America Reinsurance
Corporation, (Trenwick America Re), a Connecticut corporation. The term
"Trenwick", as used herein, refers to Trenwick America Re in discussions of that
company's reinsurance business and refers to Trenwick Group Inc. in all other
circumstances. Trenwick America Corporation, which acquired Trenwick America Re
in 1983, became a wholly owned subsidiary of Trenwick in 1985 as a result of a
corporate restructuring. Trenwick also owns two inactive Bermuda subsidiaries.
Trenwick primarily provides reinsurance to insurers of property and casualty
risks in the United States. Trenwick writes both facultative and treaty
reinsurance. Facultative is underwritten on a risk-by-risk basis where Trenwick
applies its own pricing to the individual exposure. Treaty business involves
evaluating groupings of multiple risks or segments of an insurance company's
overall portfolio. Trenwick underwrites treaty business utilizing a variety of
techniques. Blocks of risks where the type of business or the size and longevity
of the account generate credible data are primarily evaluated by actuarial
methods. Specialty classes or lines of business which are less statistically
predictable require a more detailed analysis of the original risks, rates and
coverages within the block of business in addition to quantitative tests.
Trenwick generally obtains all of its business through brokers and reinsurance
intermediaries which seek its participation on reinsurance being placed for
their customers. Reinsurance is provided both on an excess of loss and quota
share basis, which in 1997 amounted to 45% and 55% of its business,
respectively. In underwriting reinsurance, Trenwick does not target types of
clients, classes of business or types of reinsurance. Rather, it selects
transactions based upon the quality of the reinsured, the attractiveness of the
reinsured's insurance rates and policy conditions and the adequacy of the
proposed reinsurance terms.
On February 27, 1998, Trenwick expanded its product mix through the acquisition
of SOREMA (UK) Limited (renamed Trenwick International Limited), a London market
company, which underwrites specialty types of insurance and reinsurance on a
worldwide basis.
LINES AND TYPES OF BUSINESS
Trenwick's net premiums written for its principal lines of business are set
forth in the following table for the periods indicated.
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NET PREMIUMS WRITTEN BY LINES OF BUSINESS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Casualty
Automobile Liability $ 50,187 $ 64,539 $ 61,388
Errors and Omissions 40,063 48,888 50,077
General Liability 20,795 22,519 20,819
Workers' Compensation 18,328 20,502 873
Medical Malpractice 10,293 9,846 6,933
Products Liability 1,743 2,595 3,101
Accident and Health 6,326 205 4
Other Casualty 9,133 10,247 12,727
-------- -------- --------
Total Casualty 156,868 179,341 155,922
Property 38,362 47,023 41,240
-------- -------- --------
Total $195,230 $226,364 $197,162
======== ======== ========
</TABLE>
The major lines of reinsurance currently written by Trenwick are automobile
liability, errors and omissions, general liability and workers' compensation
which account for an aggregate of at least 66% of net premiums written in all
years indicated. These lines as well as products liability and other casualty
have declined as a result of three principal causes. Competition among primary
companies has caused cedants to reduce their own premium writings or restructure
their reinsurance programs, reducing the amount of reinsurance they purchase. As
a result of consolidation within the industry, many ceding companies are now
larger and financially stronger, enabling them to retain more risk. In addition,
increasingly intense competition in the reinsurance markets has driven
reinsurance prices on a number of accounts below pricing levels which Trenwick
will accept. Medical malpractice and accident and health increased by
approximately 65%, as compared to 1996. These increases resulted primarily from
the strategic alliances with Transatlantic Re and Duncanson and Holt,
respectively. In 1997, the amount of property business underwritten by Trenwick
remained constant as a percentage of total net written premiums.
In 1997, 1996 and 1995, twelve programs underwritten by Trenwick accounted for
approximately 45%, 49% and 52%, respectively, of gross premiums written. One
ceding company accounted for 11%, 15% and 19% of gross premiums written for
years 1997, 1996 and 1995, respectively. The majority of this business has been
in force since 1988 and involves working layer excess of loss automobile
liability for trucking risks written by Canal Insurance Company, an established
specialist in this line of business. Canal has an A.M. Best Company rating of A+
and statutory capital and surplus at December 31, 1997 in excess of
$316,000,000. During 1997, Trenwick continued its strategic reinsurance
agreement with PXRE Reinsurance Company (PXRE Re), assuming approximately 15% of
PXRE Re's property business. This program with PXRE Re accounted for
approximately 4%, 6% and 9%, respectively, of gross premiums written in years
1997, 1996 and 1995. Trenwick also obtained approximately 11% and 10% of gross
premiums written in 1997 from American International Group and Travelers Group,
respectively. Trenwick expects to renew these accounts for 1998. While Trenwick
believes that the loss of any one of these accounts would have a material
adverse effect on premiums written, Trenwick does not believe
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that such a loss would result in a concurrent material decrease in its earnings.
Further, Trenwick believes that it would continue to underwrite new business to
replace these accounts, in the event that they were non-renewed.
The table set forth below shows the distribution of net premiums written by type
which classifies the business by type of underwriting methodology used.
NET PREMIUMS WRITTEN BY TYPE OF BUSINESS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
CASUALTY
Treaty $169,692 87% $190,122 84% $158,923 81%
Facultative 3,254 2 6,404 3 6,035 3
-------- -------- -------- -------- -------- --------
172,946 89% 196,526 87% 164,958 84%
PROPERTY 22,284 11% 29,838 13% 32,204 16%
-------- -------- -------- -------- -------- --------
Total $195,230 100% $226,364 100% $197,162 100%
======== ======== ======== ======== ======== ========
</TABLE>
Treaty Reinsurance
Approximately 98% of Trenwick's net premiums written is currently represented by
treaty reinsurance including standard treaty, specialty and property business.
Specialty business underwritten by Trenwick generally includes specialty
coverages and classes such as professional liability, directors' and officers'
liability and other excess and surplus lines exposures. Specialty also
encompasses reinsurance of business written by managing general agents or
alternative risk mechanisms other than insurance companies. Net treaty premiums
written decreased 13% in 1997 and increased 15% and 41% in 1996 and 1995,
respectively. In 1997, Trenwick wrote on a quota share and excess of loss basis
an aggregate of 230 treaties, as compared to 229 treaties in 1996 and 222
treaties in 1995. Trenwick's commitment is currently limited to $2,000,000 per
account on casualty treaty business and $1,500,000 on property business. Larger
commitments are subject to Trenwick's Underwriting Committee referral process.
Facultative Reinsurance
Facultative writings, consisting entirely of casualty business, currently
account for 2% of net premiums written. All facultative business is written on
an excess of loss basis. The average gross limit provided by Trenwick is
$579,000. Maximum facultative gross capacity per risk is $2,000,000. Trenwick
retains the first $500,000 per transaction. In 1997, casualty facultative net
premiums written represented by 297 contracts decreased 49% when compared to
1996. In 1996 and 1995, casualty facultative net premiums written represented by
384 and 318 contracts increased 6% and 45%, respectively, when compared to 1995
and 1994, respectively.
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MARKETING
Trenwick generally obtains all its reinsurance business through reinsurance
brokers which represent the ceding company in negotiations for the purchase of
reinsurance. The process of effecting a brokered reinsurance placement typically
begins when a ceding company enlists the aid of a reinsurance broker in
structuring a reinsurance program. Often the ceding company and the broker will
consult with one or more lead reinsurers as to the pricing and contract terms of
the reinsurance protection being sought. Once the ceding company has approved
the terms quoted by the lead reinsurer, the broker will offer participations to
qualified reinsurers until the program is fully subscribed by reinsurers at
terms agreed to by all parties.
Trenwick pays such intermediaries or brokers commissions representing negotiated
percentages of the premium it writes. These commissions, which currently average
4%, constitute part of Trenwick's total acquisition costs and are included in
its underwriting expenses. Brokers do not have the authority to bind Trenwick
with respect to reinsurance agreements, nor does Trenwick commit in advance to
accept any portion of the business that brokers submit to it. Reinsurance
business from any ceding company, whether new or renewal, is subject to
acceptance by Trenwick.
In 1997, Trenwick's three largest broker sources accounted for 41%, 14% and 10%,
respectively, of Trenwick's gross premiums written. In 1996, the three largest
broker sources accounted for 31%, 18% and 12%, respectively. These brokers are
among the ten largest brokers in the reinsurance industry. Trenwick's
concentration of business through a small number of sources is consistent with
the concentration of the property and casualty broker reinsurance market, in
which a majority of the business is written through the ten largest brokers.
Loss of all or a substantial portion of the business provided by these brokers
could have a material adverse effect on the business and operations of Trenwick.
Trenwick does not believe, however, that the loss of such business would have a
long-term adverse effect because of Trenwick's competitive position within the
broker reinsurance market and the availability of business from other brokers.
UNDERWRITING
Trenwick's underwriting philosophy emphasizes a transactional approach to
underwriting in which any reinsurance transaction for any line of property or
casualty business is considered on its own merits. The underwriter's primary
objective is to assess the potential for an underwriting profit. The risk
assessment process undertaken by Trenwick's underwriters involves a
comprehensive analysis of historical data and estimates of future value of loss
costs which may not be evident in the historical data. The factors which
Trenwick considers include the type of risk, details of the underlying insurance
coverage provided, adequacy of pricing using actuarial analysis and the
reinsurance terms and conditions. Before it agrees to participate in a
transaction, Trenwick frequently conducts underwriting and claims audits of
ceding companies to assist it in evaluating the information submitted by the
ceding companies.
Trenwick's Underwriting Committee, composed of its most senior underwriters and
Chief Actuary, is responsible for its underwriting policy and quality standards.
The quality control process involves both pre-binding referral of individual
transactions and post-binding internal audits of each underwriting department.
The referral process provides a three-tiered system of checks and balances to
reduce the potential for significant loss. Accounts
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displaying characteristics specified in Trenwick's Underwriting Policy Manual
are subject to successive referral to the Department Manager, Underwriting
Committee representatives, and in some cases, the Chief Executive Officer. The
quality control process is supplemented by conducting periodic internal audits
of each underwriting department to ensure compliance with underwriting policies
and procedures.
COMPETITION
Trenwick competes with numerous major international and domestic reinsurance and
insurance companies. These competitors, many of which have substantially greater
financial and staff resources than Trenwick, include independent reinsurance
companies, subsidiaries or affiliates of established insurance companies,
reinsurance departments of certain commercial insurance companies and
underwriting syndicates.
The reinsurance market has two basic segments: reinsurers that primarily obtain
their business directly from insurers and those that primarily obtain business
through reinsurance intermediaries or brokers. Although Trenwick generally
obtains all of its business through reinsurance intermediaries or brokers, and
therefore, competes directly with other reinsurers that obtain their business in
this way, it also competes indirectly with reinsurers who obtain business
directly from primary insurers because Trenwick's brokers must compete with
direct reinsurers for business to be offered to Trenwick.
Competition in the types of reinsurance business which Trenwick underwrites is
based on many factors, including the perceived overall financial strength of the
reinsurer, rates charged, other terms and conditions, A.M. Best rating, service
offered, speed of service (including claims payment) and perceived technical
ability and experience of staff. The number of jurisdictions in which a
reinsurer is licensed or authorized to do business is also a factor. Trenwick is
licensed or otherwise authorized to conduct reinsurance business in every state
and the District of Columbia.
The financial security of insurers and reinsurers has emerged as a key issue of
the 1990's. To be accepted as a reinsurer by ceding companies and their brokers,
a reinsurer must demonstrate higher levels of financial security and solvency
than were previously required. Transactions tend to have fewer and larger
participants, which may negatively affect the availability of underwriting
opportunities. However, ceding companies have become more specialized, which
management believes will favor reinsurers such as Trenwick which possess
technical underwriting and risk assessment skills. The alternative risk segment
of the market has grown, thereby removing some premiums from the traditional
property and casualty primary insurance market. Alternative risk mechanisms,
which depend more heavily on reinsurance than the traditional companies they
have replaced, have created new opportunities for specialized reinsurers.
Trenwick's management believes that the reinsurance industry, including the
intermediary market, will continue to undergo further consolidation and that
size and financial strength will continue to be significant factors in effective
competition. Trenwick's statutory surplus was $322,850,000 at December 31, 1997.
Based on the most recent information prepared by the Reinsurance Association of
America (RAA), this surplus placed Trenwick among the top sixteen ranked
reinsurance companies and the top thirteen reinsurers in the U.S. broker market,
as measured by policyholder surplus, of those companies reporting to the RAA.
The RAA is an industry organization of
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professional property and casualty reinsurers which, among other things,
compiles data on reinsurers and their reinsurance operations.
Trenwick is rated "A+ (Superior)," the second-highest classification accorded by
A.M. Best Company. A.M. Best Company is an independent insurance industry rating
organization. The "A+ (Superior)" rating is assigned to those companies which in
A.M. Best Company's opinion have achieved excellent overall performance when
compared to the norms of the property and casualty insurance industry and which
generally have demonstrated a strong ability to meet their respective
policyholder and other contractual obligations. A.M. Best Company reviews its
ratings at least annually and there is no assurance that Trenwick will be able
to maintain its current rating. Trenwick's Standard & Poor's Insurance Rating
Services Claims-Paying Ability Rating is "A+ (Good)".
CLAIMS ADMINISTRATION
Claims are managed by Trenwick's professional claims staff whose
responsibilities include the review of initial loss reports, creation of claim
files, determination of whether further investigation is required, establishment
and adjustment of case reserves and payment of claims. In addition, the claims
staff conducts comprehensive claims audits of both specific claims and overall
claims procedures at the offices of selected ceding companies. In certain
instances, a claims audit may be performed prior to assuming reinsurance
business as part of a comprehensive risk evaluation process.
UNPAID CLAIMS AND CLAIMS EXPENSES
Insurers and reinsurers establish claims and claims expense reserves
representing estimates of future amounts needed to pay claims and related
expenses with respect to insured events which have occurred. Claims and claims
expense reserves have two components: case reserves, which are reserves for
reported claims, and incurred but not reported ("IBNR") reserves, which are
reserves for claims not yet reported. Significant periods of time may elapse
between the occurrence of an insured claim, the reporting of the claims to the
insurer and the subsequent reporting of the claims to the reinsurer, the
insurer's payment of that claim, and later payments by the reinsurer.
Trenwick first establishes its case reserves for reported claims when it
receives notice of the claim. It is Trenwick's policy to establish reserves for
reported claims in an amount equal to the greater of the reserve recommended by
the ceding company or the claim as estimated by Trenwick's claims personnel.
Trenwick periodically conducts investigations to determine if the amount
reserved by the ceding company is appropriate or should be adjusted. During the
claim settlement period, which may be many years, additional facts regarding
individual claims may become known. As Trenwick learns additional facts, it may
become necessary to refine and adjust upward or downward the estimated reserves
on a claim, and even then the ultimate net reserve may be less than or greater
than the revised estimates. Trenwick does not discount any of its reserves for
reported or unreported claims in any line of its business for anticipated
investment income.
Trenwick uses a combination of actuarial methods to determine its IBNR reserves.
These methods fall into two general categories: (1) methods by which ultimate
claims are estimated based upon historical patterns of reported claim
development experienced by Trenwick, as supplemented by reported industry data,
and (2) methods in which the level of Trenwick's IBNR claim reserves are
established based upon the IBNR claim reserves relative to
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earned premium of other reinsurers, applied by accident year, line of business
and type of reinsurance (excess of loss versus quota share) written by Trenwick.
Reserve methods implicitly recognize the effect of inflation and other factors
affecting claims payments by taking into account changes in historical payment
patterns, the volume of business written, and trends in claim frequency and
severity as reflected in Trenwick's reported claim activity. Due to the inherent
uncertainties of estimating insurance company claim reserves, actual claims and
claims expenses may deviate, perhaps substantially, from estimates of Trenwick's
reserves reflected in the consolidated financial statements. Management believes
that its claim reserve methods are reasonable and prudent and that Trenwick's
reserves for claims and claims expenses at December 31, 1997 are adequate.
Trenwick's known exposure to environmental claims, including asbestos and
pollution liability, is primarily associated with its participation in business
written by its predecessor company between 1978 and 1983. Exposure to
environmental claims on Trenwick's business written since 1983 is generally
limited by exclusions on its own reinsurance contracts and also by exclusions on
policies issued by ceding companies. Casualty business written in 1983 and prior
is not material to Trenwick's overall book of business. As of December 31, 1997
outstanding claims including incurred but not reported claims for environmental
liability were approximately $8,800,000, approximately 2% of Trenwick's total
net outstanding reserves. Under Trenwick's current interpretation of policy
language, management does not believe that it has a material exposure to
environmental claims that requires additional reserves beyond its current
estimates.
The following table presents an analysis of gross and net unpaid claims and
claims expenses and a reconciliation of beginning and ending gross and net
unpaid claims and claims expense balances for 1997, 1996 and 1995. The gross
unpaid claims and claims expense balances for December 31, 1997 and 1996 are
reflected in Trenwick's consolidated balance sheet. The net unpaid claims and
claims expense balances are stated on a net basis after deductions for
reinsurance recoverable on unpaid claims and claims expenses from
retrocessionaires.
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ANALYSIS OF ACTIVITY IN UNPAID CLAIMS AND CLAIMS EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ----------------------- -----------------------
Gross Net Gross Net Gross Net
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Unpaid claims and claims expenses,
beginning of year $ 467,177 $ 386,887 $ 411,874 $ 327,001 $ 389,298 $ 294,008
--------- --------- --------- --------- --------- ---------
Provision for claims and claims expenses:
for claims incurred in the current year 175,133 114,920 161,061 133,755 135,013 115,133
for claims incurred in prior years (4,098) (5,366) (3,669) (4,439) (23,666) (2,065)
--------- --------- --------- --------- --------- ---------
Subtotal 171,035 109,554 157,392 129,316 111,347 113,068
--------- --------- --------- --------- --------- ---------
Payments for claims and claims expenses:
for claims incurred in the current year (22,914) (22,893) (22,603) (22,570) (18,849) (18,271)
for claims incurred in prior years (96,911) (94,197) (79,486) (46,860) (69,922) (61,804)
--------- --------- --------- --------- --------- ---------
Subtotal (119,825) (117,090) (102,089) (69,430) (88,771) (80,075)
--------- --------- --------- --------- --------- ---------
Unpaid claims and claims expenses, end of year $ 518,387 $ 379,351 $ 467,177 $ 386,887 $ 411,874 $ 327,001
========= ========= ========= ========= ========= =========
Reinsurance recoverable on unpaid claims
and claims expenses, end of year $ 139,036 $ 80,290 $ 84,873
========= ========= =========
</TABLE>
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In 1996, Trenwick commuted an aggregate excess of loss reinsurance agreement
covering the years 1989 through 1993. As a result of the commutation, Trenwick
received a total consideration of $29,700,000 representing outstanding reserves
of approximately the same amount. The commutation was recorded in 1996 as a paid
loss recovery.
In 1997, 1996 and 1995, Trenwick recorded decreases of $5,366,000, $4,439,000,
and $2,065,000, respectively, in estimated net claims for claims occurring in
prior accident years. The decrease in 1997 is primarily due to the favorable
development in accident years 1990 and prior, partially offset by unfavorable
development in accident years 1991 through 1993. In 1997, Trenwick recorded a
decrease of $4,098,000 in estimated gross claims for claims occurring in prior
accident years.
The following table presents the development of Trenwick's net unpaid claims and
claims expenses for 1987 through 1997. The top line of the table shows the net
unpaid claims and claims expenses at the balance sheet date for each of the
indicated years. This reflects the net estimated amounts of claims and claims
expenses for claims arising in that year and in all prior years that are unpaid
at the balance sheet date, including claims that had been incurred but not yet
reported to Trenwick. The upper portion of the table shows the net cumulative
subsequently paid amounts as of successive years with respect to that liability.
The middle portion of the table shows the net re-estimated amount of the
previously recorded net unpaid claims and claims expenses based on experience as
of the end of each succeeding year. The estimates change as more information
becomes known about the frequency and severity of claims for individual years. A
redundancy (deficiency) exists when the net re-estimated liability at each
December 31 is less (greater) than the prior net liability estimate. The net
"Cumulative Redundancy (Deficiency)" depicted in the table for any particular
calendar year represents the aggregate change in the initial net estimates over
all subsequent calendar years.
The lower portion of the table presents a reconciliation of the net unpaid
claims and claims expenses as of the end of the year with the related gross
unpaid claims and claims expenses as of December 31, 1991 through 1997.
Additionally, the table presents a reconciliation of the gross re-estimated
unpaid claims and claims expenses as of the end of the latest re-estimation
year, with separate disclosure of the related re-estimated reinsurance
recoverable on unpaid claims and claims expenses. The "gross cumulative
redundancy" depicted in the table for the calendar years 1991 through 1997
represents the aggregate change in the initial gross estimates over all
subsequent calendar years.
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DEVELOPMENT OF UNPAID CLAIMS AND CLAIMS EXPENSES
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net unpaid claims and claims
expenses, end of year 379,351 $386,887 $327,001 $294,008 $268,091 $266,685 $258,774 $245,105 $214,391
Cumulative amount of net
liability paid as of:
One year later -- 94,197 46,860 61,804 52,300 52,260 44,930 42,234 29,407
Two years later -- -- 110,289 81,417 90,382 93,312 80,725 77,183 60,888
Three years later -- -- 121,133 89,445 118,345 111,225 102,590 84,283
Four years later -- -- -- -- 112,119 111,174 127,431 124,129 101,597
Five years later -- -- -- -- -- 125,847 116,224 134,657 116,047
Six years later -- -- -- -- -- -- 127,130 122,089 124,465
Seven years later -- -- -- -- -- -- -- 129,100 110,656
Eight years later -- -- -- -- -- -- -- -- 115,017
Nine years later -- -- -- -- -- -- -- -- --
Ten years later -- -- -- -- -- -- -- -- --
Net liability re-estimated as of:
One year later -- 381,521 322,562 291,943 267,644 255,379 253,781 238,324 206,724
Two years later -- -- 317,199 279,561 263,473 255,379 243,488 233,565 199,864
Three years later -- -- -- 274,283 246,367 252,458 243,586 223,417 196,232
Four years later -- -- -- -- 241,478 236,009 241,600 224,171 188,052
Five years later -- -- -- -- -- 230,488 225,592 223,172 189,148
Six years later -- -- -- -- -- -- 217,852 213,327 188,884
Seven years later -- -- -- -- -- -- -- 205,179 180,619
Eight years later -- -- -- -- -- -- -- -- 176,778
Nine years later -- -- -- -- -- -- -- -- --
Ten years later -- -- -- -- -- -- -- -- --
Net cumulative redundancy
Amount of original liability -- 5,366 9,802 19,725 26,613 36,197 40,922 39,926 37,613
Percentage -- 1% 3% 7% 10% 14% 16% 16% 18%
Gross liability, end of year 518,387 467,177 411,874 389,298 354,582 351,897 332,503
Reinsurance recoverable 139,036 80,290 84,873 95,290 86,491 85,212 73,729
Net liability, end of year 379,351 386,887 327,001 294,008 268,091 266,685 258,774
Gross re-estimated liability-latest 463,079 402,561 348,453 305,121 296,260 275,234
Re-estimated recoverable-latest 81,558 85,362 74,170 63,643 65,772 57,382
Net re-estimated liability-latest 381,521 317,199 274,283 241,478 230,488 217,852
Gross cumulative redundancy 4,098 9,313 40,845 49,461 55,637 57,269
</TABLE>
<TABLE>
<CAPTION>
1988 1987(1)
---- ------
<S> <C> <C>
Net unpaid claims and claims
expenses, end of year $169,785 $123,148
Cumulative amount of net
liability paid as of:
One year later 19,983 21,086
Two years later 34,855 32,409
Three years later 53,243 40,285
Four years later 67,132 48,307
Five years later 77,922 53,827
Six years later 87,397 58,568
Seven years later 93,109 64,172
Eight years later 78,032 67,798
Nine years later 81,381 53,974
Ten years later -- 55,816
Net liability re-estimated as of:
One year later 163,848 123,978
Two years later 154,646 118,452
Three years later 150,470 109,536
Four years later 145,457 106,093
Five years later 137,426 102,436
Six years later 137,818 97,304
Seven years later 138,255 96,900
Eight years later 133,192 98,125
Nine years later 130,422 97,785
Ten years later -- 95,700
Net cumulative redundancy
Amount of original liability 39,363 27,448
Percentage 23% 22%
Gross liability, end of year
Reinsurance recoverable
Net liability, end of year
Gross re-estimated liability-latest
Re-estimated recoverable-latest
Net re-estimated liability-latest
Gross cumulative redundancy
</TABLE>
(1) Amounts for 1987 include claims activity associated with a Bermuda
subsidiary, prior to its sale by Trenwick in 1987.
10
<PAGE> 13
In evaluating the information in the table on the preceding page, it should be
noted that each amount includes the effects of all changes in amounts for prior
periods. For example, if a claim determined in 1991 to be $150,000 was first
reserved in 1986 at $100,000, the $50,000 deficiency (actual claim minus
original estimate) would be included in the gross cumulative redundancy
(deficiency) in each of the years 1986-1991 shown on the preceding page. This
table does not present accident or policy year development data. Conditions and
trends that have affected the development of liability in the past may not
necessarily occur in the future. Accordingly, it may not be appropriate to
extrapolate future redundancies or deficiencies based on this table.
The trend depicted in the table indicates that net unpaid claims and claims
expense liability at December 31, 1996 have developed redundantly due to
favorable development for claims occurring in accident years 1990 and prior,
partially offset by unfavorable development in accident years 1991 through 1993.
RETROCESSION AGREEMENTS
Reinsurance companies enter into retrocessional agreements for the same reasons
insurers seek reinsurance, including reduction of net liability on individual
risks, protection against catastrophic losses and maintenance of acceptable
ratios. Trenwick has various retrocessional facilities, all of which are on a
treaty basis. These retrocessional facilities include one treaty for Trenwick's
facultative casualty reinsurance business which applies on a risk or account
basis and two for its treaty property business which protect it against multiple
claims arising out of a single occurrence or event. As a result of these
facilities, Trenwick's maximum retention generally does not exceed $500,000 per
occurrence on facultative business and $2,000,000 per occurrence on property
catastrophe business. Since 1989, Trenwick has purchased aggregated excess of
loss ratio treaties from several reinsurers. These facilities provided Trenwick
with a layer of protection against adverse results from primarily casualty
business in excess of specified loss ratios.
Trenwick remains liable with respect to reinsurance ceded in the event that the
retrocessionaire is unable to meet its obligations assumed under the reinsurance
agreement. All retrocessionaires must be formally approved by Trenwick's
Security Committee comprising the Chief Executive Officer, as Committee
Chairman, and the Chief Financial Officer. The Security Committee re-evaluates
the financial condition of Trenwick's retrocessionaires at least annually. The
evaluation process involves financial analysis of current audited financial data
and comparative analysis of such data in accordance with guidelines established
by Trenwick. Business may not be conducted with retrocessionaires who are not
currently approved by the Security Committee.
Trenwick's principal retrocessionaires domiciled in the United States are Centre
Reinsurance Company of New York, Continental Casualty Company, Kemper
Reinsurance Company and National Indemnity Company, which are rated A or better
by A.M. Best Company. The principal retrocessionaires domiciled outside the
United States are syndicates at Lloyds of London and Unionamerica Insurance
Company, Limited. At December 31, 1997, Trenwick had no material uncollectible
amounts due from its retrocessionaires.
11
<PAGE> 14
INVESTMENTS
Trenwick's investments comply with the insurance laws of the State of
Connecticut, its domiciliary state, and of the other states in which Trenwick is
licensed or authorized. These laws prescribe the kind, quality and concentration
of investments which may be made by insurance companies. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds,
preferred and common stock, real estate mortgages and real estate. The
Investment Committee of Trenwick's Board of Directors oversees investments and
sets procedures and guidelines for investment strategy. Trenwick's internal
staff manages Trenwick's investments and utilizes the services of an investment
adviser. Trenwick's investment strategy focuses on capital preservation and
income predictability. This strategy also requires that the risks associated
with these objectives are properly managed. Accordingly, the Company emphasizes
investment grade debt investments. At December 31, 1997, 88% of Trenwick's debt
investments were rated Aa or better and none had a Moody's Investors Service
quality rating less than A.
The Company's investment strategy permits an allocation for equity securities.
At December 31, 1997, 5% of the Company's total investments and cash were
invested in common and preferred equities of U.S. corporations. The primary risk
associated with these securities is the exposure to daily market fluctuations.
Trenwick invests in three types of structured securities, collateralized
mortgage obligations (CMO), mortgage-backed securities not backed by U.S.
government agencies (non-agency MBS) and asset-backed securities (ABS), each
accounting for 12%, 9% and 7%, respectively, of Trenwick's portfolio at December
31, 1997.
CMOs consist of planned amortization classes (PACs) which have been constructed
with a certain amount of call protection and CMOs that have lost their PAC
protection (sometimes called "broken" or "busted" PACs), due to actual
prepayments being significantly higher or lower than originally forecast. These
agency backed CMOs are not subject to credit risk, as all holdings are backed
indirectly or directly by the Federal government or one of its agencies. The
material risk inherent to holding these CMOs is prepayment risk, which relates
to the timing of cash flows that result from amortization, whether it
accelerated, because of lower interest rates and therefore higher than expected
prepayments, or decelerated, because of higher interest rates and therefore
lower than expected prepayments. Changes in principal repayments could
negatively affect investment income due to the timing of the reinvested funds.
Non-agency MBSs are constructed primarily from the securitization of mortgages
on commercial or residential real estate and, lacking any agency backing, are
inherently subject to credit risk. They also have an element of prepayment risk
which is contingent on the structure of each security and its underlying
collateral. The non-agency MBS issues Trenwick has purchased have a rating of A
or better from various Nationally Recognized Statistical Rating Organizations.
12
<PAGE> 15
The asset-backed securities owned by Trenwick have primarily credit card, auto
and home equity receivables as collateral and are subject also to credit risk.
These securities have less cash flow uncertainty than non-agency MBS and CMO
issues, because the issuer has the ability to add in new collateral should the
asset-backed security experience faster prepayments, or in the event of default
on the underlying collateral. The asset-backed securities owned by Trenwick are
rated A or better by various Nationally Recognized Statistical Rating
Organizations.
Trenwick also invests in agency pass-through securities which account for 5% of
Trenwick's portfolio at December 31, 1997. As with CMOs, these securities are
subject to prepayment risk.
13
<PAGE> 16
The table below sets forth the distribution of Trenwick's investments at
December 31, 1997 by type, maturity and quality rating.
INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AVERAGE ESTIMATED
MATURITY FAIR AMORTIZED
IN YEARS VALUE COST
-------- -------- --------
<S> <C> <C> <C>
TYPE
U.S. government bonds 4.9 $ 64,814 $ 62,418
Tax-exempt bonds(1) 4.4 384,854 373,867
Mortgage-backed and asset-backed securities 8.8 286,228 278,271
Debt securities issued by foreign governments 2.2 3,175 3,111
Public utilities 4.6 2,970 2,832
Corporate securities 6.4 68,138 66,108
Redeemable preferred stocks 4.6 2,015 2,000
Short-term securities .5 120 120
-------- --------
Total debt securities 6.2 812,314 788,727
Equity securities 39,163 31,603
Cash and cash equivalents -- 12,847 12,847
-------- --------
Total investments and cash $864,324 $833,177
======== ========
MATURITY(DEBT SECURITIES)
Due in one year or less .6 $ 65,473 $ 65,096
Due in one year through five years 3.3 404,906 395,373
Due after five years through ten years 7.3 254,518 244,294
Due after ten years 21.1 87,417 83,964
-------- --------
Total debt securities 6.2 $812,314 $788,727
======== ========
QUALITY (DEBT SECURITIES)
Aaa(2)-U.S. government bonds $ 64,814 $ 62,418
Tax-exempt bonds 351,751 342,156
Mortgage-backed and asset-backed securities 201,464 196,100
Corporate securities 7,213 6,810
Redeemable preferred stocks 2,015 2,000
-------- --------
627,257 609,484
-------- --------
Aa(2)-Tax-exempt bonds 33,103 31,711
Mortgage-backed securities 41,556 39,899
Corporate securities 10,596 10,109
-------- --------
85,255 81,719
-------- --------
A(2)-Mortgage-backed securities 43,208 42,272
Debt securities issued by foreign governments 3,175 3,111
Public utilities 2,970 2,832
Corporate securities 50,329 49,189
-------- --------
99,682 97,404
-------- --------
Short-term securities 120 120
-------- --------
Total debt securities $812,314 $788,727
======== ========
</TABLE>
(1) Tax-exempt bonds include $98,625,000 escrowed in U.S. Government
Securities, $166,090,000 insured by Municipal Bond Investors Assurance
Corporation, Financial Guaranty Insurance Company, AMBAC Indemnity
Corporation, or Financial Security Assurance Corporation and
$45,155,000 both escrowed and insured.
(2) Quality rating as assigned by Moody's Investors Service, Inc. for all
except certain mortgage-backed securities not backed by U.S. government
agencies and certain asset-backed securities. Quality ratings for these
other securities are as assigned by Fitch Investors Service, Standard
and Poor's or Duff and Phelps. Ratings are generally assigned upon the
issuance of the securities, subject to revision on the basis of ongoing
evaluations.
14
<PAGE> 17
REGULATION
NAIC
The National Association of Insurance Commissioners ("NAIC") is an organization
which assists state insurance supervisory officials in achieving insurance
regulatory objectives, including the maintenance and improvement of state
regulation. From time to time various regulatory and legislative changes have
been proposed in the insurance industry, some of which could have an effect on
reinsurers. Among the proposals that have in the past been or are at present
being considered are the possible introduction of federal regulation in addition
to, or in lieu of, the current system of state regulation of insurers, and
proposals in various state legislatures (some of which proposals have been
enacted) to conform portions of their insurance laws and regulations to various
model acts adopted by the NAIC. Trenwick is unable to predict what effect, if
any, these developments may have on its operations and financial condition. See
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RBC
The NAIC's initiative to establish minimum capital requirements, referred to as
Risk Based Capital ("RBC"), for property and casualty companies was completed
and adopted in 1993. This formula is used by state insurance regulators as an
early warning tool to identify, for the purpose of initiating regulatory action,
insurance companies that potentially are inadequately capitalized. The ratios
calculated for Trenwick America Re exceeded all of the RBC trigger points at
December 31, 1997. Trenwick believes its capital will continue to exceed these
RBC capital and surplus requirements for the foreseeable future. See Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
State Insurance Regulation
The premium rates and policy terms of reinsurance agreements generally are not
subject to regulation by any government authority. This contrasts with property
and casualty insurance where the premium rates and policy terms are generally
closely regulated by state insurance departments. As a practical matter,
however, the premium rates charged by insurers may place a limit on the rates
which can be charged by reinsurers.
The regulation and supervision to which Trenwick is subject relate primarily to
the standards of solvency that must be met and maintained, licensing
requirements for reinsurers, the nature of and limitations on investments,
restrictions on the size of risks which may be insured, deposits of securities
for the benefit of a reinsured, methods of accounting, periodic examinations of
the financial condition and affairs of reinsurers, the form and content of
reports of financial condition required to be filed, and reserves for unearned
premiums, losses and other purposes. In general, such regulation is for the
protection of the reinsureds, and ultimately, their policyholders rather than
their security holders. Trenwick believes that it is in compliance with all such
regulations.
15
<PAGE> 18
Trenwick America Re is subject to regulation under the insurance statutes and
insurance holding company statutes of various states, including Connecticut, the
domiciliary state of Trenwick America Re. These laws and regulations vary from
state to state, but generally require an insurance holding company, and insurers
and reinsurers that are subsidiaries of an insurance holding company, to
register with the state regulatory authorities and to file with those
authorities certain reports including information concerning their capital
structure, ownership, financial condition and general business operations.
State laws also require prior notice or regulatory agency approval of direct or
indirect changes in control of an insurer, reinsurer or its holding company and
of certain significant intercorporate transfers of assets within the holding
company structure. An investor who acquires securities representing or
convertible into more than 10% of the voting power of the securities of Trenwick
would become subject to at least some of such regulations and would be subject
to approval by the Connecticut Insurance Commissioner prior to acquiring such
shares. Such investor would also be required to file certain notices and reports
with the Commissioner prior to such acquisition.
Dividends
The principal source of cash for the payment of dividends by Trenwick is the
receipt of dividends from Trenwick America Re. Under the Connecticut insurance
laws and regulations, the maximum amount of shareholder dividends or other
distributions that Trenwick America Re may declare or pay to the Company within
any twelve month period, without the permission of the Connecticut Insurance
Commissioner, is limited to the greater of 10% of policyholder surplus at
December 31 of the preceding year, or 100% of net income excluding realized
capital gains, for the twelve month period ending December 31 of the preceding
year, both determined in accordance with statutory accounting practices. For the
purpose of computing the limitation, carryforward provisions apply with respect
to net income realized in the two previous calendar years which has not already
been paid out as dividends. The maximum amount of dividends which could be paid
by Trenwick America Re in 1998 without regulatory approval would be $84,392,000.
Investment Limitations
Connecticut Law contains rules governing the types and amounts of investments
which are permissible for a Connecticut insurer or reinsurer, including Trenwick
America Re. These rules are designated to ensure the safety and liquidity of the
insurer's investment portfolio. In general, these rules only permit a
Connecticut insurer to purchase investments which are interest bearing, interest
accruing, entitled to dividends or otherwise income earning and not then in
default in any respect, and the insurer must be entitled to receive for its
exclusive account and benefit the interest or income accruing thereon. No
security or investment is eligible for purchase at a price above its fair value
or market value. In addition, these rules require investments by Trenwick to be
diversified. Trenwick believes that it is in compliance with all applicable
Connecticut insurance laws.
16
<PAGE> 19
EMPLOYEES
At December 31, 1997, Trenwick employed a total of 72 persons. Trenwick has no
employees represented by a labor union and believes that its employee relations
are good.
ITEM 2. PROPERTIES
Trenwick's offices in Stamford, Connecticut are occupied pursuant to a lease
covering approximately 27,000 square feet of office space located at Metro
Center, One Station Place. This lease terminates in 1998, and upon its
termination Trenwick will relocate its offices to approximately 46,000 square
feet of space located at One Canterbury Green, Stamford, Connecticut. Trenwick
has entered into a ten-year lease for the new space.
ITEM 3. LEGAL PROCEEDINGS
Trenwick is party to various legal proceedings generally arising in the normal
course of its reinsurance business. Trenwick does not believe that the eventual
outcome of any such proceeding will have a material effect on its financial
condition or business. Trenwick's subsidiaries are regularly engaged in the
investigation and the defense of claims arising out of the conduct of their
reinsurance business. Pursuant to Trenwick's reinsurance arrangements, disputes
between Trenwick America Re and its ceding companies are generally required to
be finally settled by arbitration.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Trenwick Common Stock is listed on the NASDAQ National Market System under the
ticker symbol TREN. There were 126 holders of record and in excess of 1000
beneficial owners of Common Stock as of February 28, 1998. The other information
called for by this item can be found in Item 8, Note 12 of Notes to the
Consolidated Financial Statements.
For a description of restrictions on Trenwick's ability to pay dividends,
reference is made to Item 1, Business - Regulation, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Item 8, Note 6 of Notes to the Consolidated Financial Statements of Trenwick.
17
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- -------- -------- --------- --------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net premiums written $ 195,230 $226,364 $197,162 $ 139,635 $101,392
========== ======== ======== ========= ========
Net premiums earned $ 190,156 $211,069 $177,394 $ 132,683 $ 93,180
Net investment income 48,402 41,226 36,828 33,932 34,954
Net realized investment gains (losses) 2,304 299 368 (196) 1,842
Other income 10 -- -- -- --
---------- -------- -------- --------- --------
Total revenues $ 240,872 $252,594 $214,590 $ 166,419 $129,976
========== ======== ======== ========= ========
Net income $ 35,252 $ 33,848 $ 29,841 $ 20,282 $ 23,739
========== ======== ======== ========= ========
PER SHARE DATA
Basic earnings
Income before extraordinary item $ 3.12 $ 3.40 $ 3.09 $ 2.10 $ 2.44
========== ======== ======== ========= ========
Net income $ 3.03 $ 3.40 $ 3.09 $ 2.10 $ 2.44
========== ======== ======== ========= ========
Weighted average shares outstanding 11,645 9,959 9,674 9,638 9,736
========== ======== ======== ========= ========
Diluted earnings
Income before extraordinary item $ 3.01 $ 2.85 $ 2.59 $ 1.88 $ 2.11
========== ======== ======== ========= ========
Net income $ 3.01 $ 2.85 $ 2.59 $ 1.88 $ 2.11
========== ======== ======== ========= ========
Weighted average shares outstanding 12,265 13,352 13,149 13,056 13,261
========== ======== ======== ========= ========
Dividends $ .97 $ .83 $ .75 $ .67 $ .57
========== ======== ======== ========= ========
BALANCE SHEET DATA
Investments and cash $ 864,324 $754,210 $653,704 $ 551,784 $546,303
Total assets 1,087,923 920,804 820,930 727,245 700,407
Unpaid claims and claims expenses 518,387 467,177 411,874 389,298 354,582
Convertible debentures -- 103,500 103,500 103,500 103,500
Company obligated mandatorily
redeemable preferred capital
securities of subsidiary trust holding
solely junior subordinated debentures
of Trenwick 110,000 -- -- -- --
Common stockholders' equity 357,649 265,753 240,776 188,213 206,763
Shares of common stock outstanding 11,951 10,088 9,886 9,660 9,874
Book value per share $ 29.93 $ 26.34 $ 24.36 $ 19.48 $ 20.94
</TABLE>
18
<PAGE> 21
CERTAIN GAAP FINANCIAL RATIOS
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Combined ratio 96.5% 95.8% 95.6% 103.2% 102.5%
Net premiums written to surplus ratio 0.55:1 0.85:1 0.82:1 0.74:1 0.49:1
Unpaid claims and claims expenses
to surplus ratio 1.45:1 1.76:1 1.71:1 2.07:1 1.71:1
</TABLE>
All share and per share information reflects a 3 for 2 stock split, paid on
April 15, 1997.
The earnings per share amounts have been restated to comply with the newly
adopted accounting standard, "Earnings Per Share."
The other information called for by this item can be found in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operation and Item 8, Financial Statements and Supplementary Data.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
INDUSTRY OVERVIEW
The property and casualty reinsurance industry is currently in its ninth
consecutive year of soft market conditions. Competition has increased in recent
years as a result of the ability of companies to raise additional capital
through public and other financing and the use of both traditional and
non-traditional reinsurance products. The level of excess capital has also been
aided by favorable financial markets and the lower than normal number of major
catastrophe losses in the last several years. These factors have mitigated any
positive impact which may have occurred from the decline in the number of
reinsurance companies through withdrawal or acquisition. Companies are now
larger, offer significantly more capacity to ceding companies and have greater
access to capital through capital markets or their parent organizations.
Further, Lloyd's of London has rebounded from a period of uncertainty and is now
aggressively competitive. The result is an oversupply of capacity in the
reinsurance industry, which is more than capable of writing the current level of
domestic premiums. In 1997, domestic premiums as reported by the RAA amounted to
$19.9 billion, an increase of 5.3% compared to $18.9 billion, in 1996.
Despite soft market conditions, Trenwick has taken advantage of both the
availability of capital in the financial markets and new opportunities in the
business. Trenwick has raised additional capital for its reinsurance operation
to increase its capacity for underwriting risks and to position the Company to
take advantage of market opportunities. Over the past several years, Trenwick
has implemented several strategic initiatives which have enabled it to write new
business during the current soft market. Until 1997, this has resulted in an
overall increase in premium writings. These initiatives included increased
participation in renewal business through increased marketing efforts as
reinsurance buyers consolidated their business within a smaller number of higher
quality reinsurers, such as Trenwick. Growth was further augmented by hiring a
team of senior underwriters in 1995. Trenwick also initiated several strategic
alliances as an entry into lines of business not then written by the Company.
Partners in these alliances include PXRE Re, a leader in property catastrophe
reinsurance, Transatlantic Re, a leading reinsurer in healthcare professional
liability and Duncanson & Holt (a wholly-owned subsidiary of
19
<PAGE> 22
UNUM Corporation), the largest provider of accident and health reinsurance in
the United States. As a result of these initiatives, Trenwick has established
itself as one of the leading broker market reinsurers in the United States. On
February 27, 1998, the Company expanded its product mix through the acquisition
of SOREMA (UK) Limited (renamed Trenwick International Limited), a London market
company, which underwrites specialty types of insurance and reinsurance on a
worldwide basis.
RESULTS OF OPERATIONS
Premiums
In 1997, Trenwick reported net premiums written of $195.2 million, a 14%
decrease compared to 1996. This compares to a 15% increase in premiums written
in 1996 over 1995. The decline in premium volume is due to Trenwick's decision
not to participate in the continuing downward spiral of rates in the U.S.
property/casualty reinsurance market. This decline is magnified by Trenwick's
decision to buy more reinsurance protection in 1997 in light of the continued
general deterioration in reinsurance pricing and the opportunity to buy
additional protection at more favorable terms than in prior years. Trenwick's
net casualty premium writings declined 12% as a result of three principal
causes. Competition among primary companies has caused cedants to reduce their
own premium writings or restructure their reinsurance programs, reducing the
amount of reinsurance they purchase. As a result of consolidation within the
industry, many ceding companies are now larger and financially stronger,
enabling them to retain more risk. In addition, increasingly intense competition
in the reinsurance markets has driven reinsurance prices on a number of accounts
below pricing levels which the Company will accept.
New casualty business on a gross basis increased 8% for the year ended December
31, 1997 over the same period in 1996 and represented approximately 35% of total
premium writings during the period. Continuing casualty business on a gross
basis increased 2% for the year ended December 31, 1997 over the same period in
1996 and represented 55% of the total premium writings during the period.
Net and gross property business declined primarily as a result of PXRE Re's (the
Company's strategic partner in the writing of catastrophe reinsurance)
conservative response to continued erosion in pricing in that segment of the
reinsurance business and represented approximately 10% of total premium writings
for the year ended December 31, 1997. During 1995, Trenwick modified its process
of estimating premiums from ceding companies, resulting in an increase in
accruals for unreported premiums written at December 31, 1997 of $14.1 million
as compared to 1996, and an increase of $15.1 million in 1996 over 1995. These
estimated premiums did not materially affect the Company's earnings in 1997,
1996 or 1995.
The following table sets forth gross premiums written, net premiums written and
net premiums earned for the periods indicated:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Gross premiums written $ 248,662 $ 247,358 $ 214,336
Ceded premiums written (53,432) (20,994) (17,174)
--------- --------- ---------
Net premiums written $ 195,230 $ 226,364 $ 197,162
========= ========= =========
Net premiums earned $ 190,156 $ 211,069 $ 177,394
========= ========= =========
</TABLE>
20
<PAGE> 23
Underwriting Expenses
The combined ratio is one means of measuring the profitability of a property and
casualty reinsurance company. The combined ratio reflects underwriting
experience, but does not reflect income from investments or provisions for
income taxes. A combined ratio below 100% indicates profitable underwriting, and
a combined ratio exceeding 100% indicates unprofitable underwriting. Although a
reinsurer may have unprofitable underwriting results, the reinsurer may still be
profitable because of investment income earned on its accumulated invested
assets. In 1997, 1996 and 1995, Trenwick recorded an underwriting profit of $6.6
million, $8.8 million and $7.7 million, respectively.
The following table sets forth Trenwick's combined ratios and the components
thereof calculated on a GAAP basis for the periods indicated, together with
Trenwick America Re's combined ratios calculated on a statutory basis:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Claims and claims expense ratio 57.6% 61.3% 63.7%
---- ---- ----
Expense ratio:
Policy acquisition expense ratio 30.8 27.8 24.8
Underwriting expense ratio 8.1 6.7 7.1
---- ---- ----
Total expense ratio 38.9 34.5 31.9
---- ---- ----
Combined ratio 96.5% 95.8% 95.6%
==== ==== ====
Trenwick America Re statutory
combined ratio 95.9% 95.7% 95.5%
==== ==== ====
</TABLE>
The most significant underwriting cost affecting a reinsurance company's
underwriting result is represented by its claims and claims expense ratio, which
is the ratio of incurred claims and claims adjustment expenses to net earned
premiums. The claims and claims expense ratio is a function of estimates of
claims associated with business written in the current period and changes in
estimates of claims on business written in prior periods.
As indicated in the preceding table, Trenwick's claims and claims expense ratio
has improved since 1995, reflecting the lack of any material adverse impact from
property catastrophe claims and favorable development of prior year reserves for
claims and claims expense. Trenwick's property premium writings, including
catastrophe business associated with PXRE Re, amounted to $22.3 million, $29.8
million and $32.2 million in 1997, 1996 and 1995, respectively. In 1997, 1996
and 1995, estimates of prior accident year claims were reduced by approximately
$5.4 million, $4.4 million and $2.1 million, respectively. The reduction in 1997
is primarily due to favorable development in accident years 1990 and prior,
partially offset by unfavorable development in accident years 1991 through 1993.
Trenwick's expense ratio, which is the ratio of policy acquisition costs and
underwriting expenses to net earned premiums as determined in accordance with
GAAP, increased in 1997 to 38.9% as compared to 34.5% in 1996 and 31.9% in 1995.
Policy acquisition costs, which include brokerage and ceding commissions, vary
directly with premium volume and are subject to changes in the mix of business.
Trenwick writes business on both an excess of loss and quota share basis. Quota
share business generally carries higher ceding commissions than excess of loss
business. In 1997, quota share business
21
<PAGE> 24
increased to 55% of total premium writings as compared to approximately 43% and
35% for 1996 and 1995, respectively. Underwriting expenses, which generally do
not vary with premium volume, were approximately $15.4 million, $14.2 million
and $12.6 million in 1997, 1996 and 1995, respectively. The underwriting expense
ratio increased 1.4 percentage points in 1997 compared to 1996 primarily as a
result of the decrease in premium writings.
Trenwick America Re's statutory combined ratios for 1997, 1996 and 1995,
provided in the preceding table, were 6.8, 8.1 and 15.6 percentage points
better, respectively, than the weighted average statutory combined ratios for
all reinsurance companies which reported their results to the RAA in those
periods. The statutory combined ratios for this group of reinsurance companies
in 1997, 1996 and 1995 were 102.7%, 103.8% and 111.1%, respectively. The
statutory combined ratios as reported to the RAA by those companies, including
Trenwick America Re, which primarily accept business from brokers, for 1997,
1996 and 1995 were 104.6%, 107.6% and 106.9%, respectively.
Investment Income
Net investment income in 1997 of $48.4 million increased 17% compared to net
investment income of $41.2 million in 1996. Net investment income in 1996
increased 12% compared to net investment income of $36.8 million in 1995.
Pre-tax yields on invested assets, excluding equity securities, increased to
6.4% in 1997 from 6.3% in 1996 and decreased from 6.5% in 1995. The fluctuation
in yield reflected the composition of the maturing securities. During 1997,
yields on the approximately $79 million of maturities were lower than yields on
the approximately $63 million of maturities in 1996. In 1997, maturities
included $31 million in principal repayments associated with Trenwick's
portfolio of structured and agency pass-through securities compared to $24
million in 1996. As a result of the decrease in interest rates during 1997,
principal repayments are expected to remain similar or increase marginally in
1998. The increase in investment income from 1996 to 1997 is due to the
continued growth in Trenwick's invested asset base. This growth resulted
primarily from funds received of $29.7 million from the aggregate excess of loss
commutation recorded in December 1996, coupled with approximately $61 million of
net funds received in January 1997 from Trenwick's private offering of $110
million in 8.82% Subordinated Capital Income Securities. The remaining proceeds
were used to redeem the Company's convertible debentures. Investment income is
expected to increase in 1998 as the Company's invested asset base continues to
grow. During 1997, the Company sold approximately $31 million of U.S. government
and agency securities and reinvested the proceeds primarily in structured
securities in order to increase the overall yield of the portfolio.
Operating Results
Trenwick's income before extraordinary item was $36.3 million, or $3.12 per
share compared to $33.8 million, or $3.40 per share for 1996. Weighted average
shares outstanding for 1997 were increased by 1,784,000 common shares issued in
February 1997 when $57.7 million of Trenwick's debentures converted. On a
diluted basis, income before extraordinary item for 1997 was $3.01 per share,
compared to $2.85 per share for 1996. In 1997, Trenwick recorded an
extraordinary loss of $1.0 million, net of income taxes, associated with the
redemption of $45.8 million principal amount of its 6% convertible debentures.
There were no extraordinary items in 1996.
22
<PAGE> 25
Included in Trenwick's net income were after-tax realized investment gains of
$1.5 million, or $.13 per share, $194,000 or $.02 per share and $239,000 or $.03
per share in 1997, 1996 and 1995, respectively.
Year 2000 Issue
Trenwick completed the modification of its internally developed software to be
year 2000 compliant during 1996, and is currently in the process of monitoring
the compliance of its outside vendors. The total cost of achieving such
compliance is not anticipated to have a material impact on Trenwick's financial
condition or results of operations.
INVESTMENTS
At December 31, 1997, Trenwick had investments and cash of $864.3 million, an
increase of 15% compared to investments and cash of $754.2 million at December
31, 1996. This increase resulted principally from cash provided by financing and
operations. In addition to dividends paid to stockholders, financing cash flow
included $61 million of net funds received in January 1997 from Trenwick's
private offering of $110 million in 8.82% Subordinated Capital Income
Securities. The remaining proceeds were used to redeem the Company's convertible
debentures. All debt and equity investments are classified as "available for
sale" and reported at fair value, with the unrealized gain or loss, net of
income taxes, reported in a separate component of stockholders' equity. Since
December 31, 1996, the market value of the Company's debt and equity investments
increased approximately $13.0 million. In 1996, Trenwick's investments and cash
increased by $100.5 million or approximately 15% when compared to 1995. That
increase resulted principally from cash provided by operations reduced by
dividends paid to stockholders. Operating cash flow included $29.7 million
received in December 1996 for the commutation of a reinsurance agreement
covering the years 1989 through 1993.
The average maturity of debt securities at December 31, 1997 was 6.2 years
compared to 6.0 years at December 31, 1996. During 1997, the proceeds from sales
and maturities of taxable and tax-exempt securities of $117.8 million, together
with cash provided by financing and operations, were invested primarily in
taxable securities consisting of mortgage-backed securities of $72 million,
asset-backed securities of $33 million, U.S. government and agency securities of
$28 million and corporate bonds of $30 million. In addition, $39 million of
tax-exempt securities were purchased along with $9 million of preferred stock
and $6 million of common stock. Debt securities were invested in the average
maturity range of between two to fifteen years. During 1996, the proceeds from
sales and maturities of taxable and tax-exempt securities of $93.1 million,
together with cash provided by operations, were invested primarily in taxable
securities consisting of mortgage-backed securities of $41 million, asset-backed
securities of $24 million, U.S. government securities of $18 million, preferred
stock of $12 million and corporate bonds of $5 million. The proceeds were also
used to invest in $87 million of tax-exempt securities.
The Company's investment policy requires that certain debt investments be
maintained in an amount equal to the discounted present value of net reinsurance
liabilities. The policy also requires that additional debt investments be
maintained in an amount equal to approximately 10% of total reserve liabilities
to ensure adequate liquidity in the event of a significant change in estimated
payments. At December 31, 1997, the debt investments held under this policy had
an average maturity of approximately 4.6 years, as compared to approximately 4.5
years estimated for such liabilities.
23
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
Trenwick is a holding company whose principal asset is its investment in the
common stock of Trenwick America Re. As a holding company, Trenwick's principal
source of funds consists of permissible dividends and tax allocation payments
from Trenwick America Re and investment income on Trenwick's fixed-income
portfolio. Trenwick's principal uses of cash are dividends to its stockholders
and servicing its debt obligations. Trenwick America Re receives cash from
premiums, investment income and proceeds from sales and maturities of portfolio
investments and utilizes cash to pay claims, purchase its own reinsurance
protections, meet operating and capital expenses and purchase fixed-income and
equity securities.
In January 1997, Trenwick completed a private offering of $110 million in 8.82%
Subordinated Capital Income Securities due February 1, 2037 through Trenwick
Capital Trust I, a Delaware statutory business trust. In connection with this
offering, on February 20, 1997, Trenwick called for redemption all $103.5
million aggregate principal amount of the Company's 6% convertible debentures
due December 15, 1999, at a redemption price of 102.57% principal amount plus
accrued interest to the redemption date. Of the $103.5 million principal amount
of debentures outstanding on that date, $45.8 million principal amount were
redeemed and $57.7 million principal amount were converted into an aggregate of
1.8 million shares of Trenwick's common stock.
Cash provided by operating activities of $47 million in 1997 decreased
approximately 57% as compared to $110.5 million in 1996. In 1996, Trenwick
commuted an aggregate excess of loss retrocessional agreement covering the years
1989 through 1993 for which Trenwick received a total consideration of $29.7
million representing outstanding reserves of approximately the same amount. The
commutation was recorded in 1996 as a paid loss recovery. Trenwick expects that
its cash provided by operating activities will be sufficient to meet its
operating and financing requirements in 1998 and its longer term operating
needs.
Cash provided by financing activities increased to $50.6 million compared to
cash used for financing activities of $5.3 million in 1996. This increase
primarily resulted from funds received from the aforementioned private offering
partially offset by the debt redemption.
At December 31, 1997, Trenwick's investments and cash of $864.3 million exceeded
total liabilities, including gross reserves for claims and claims expenses of
$518.4 million, by $244.1 million, compared to $99.2 million and $73.6 million
at December 31, 1996 and 1995, respectively. At December 31, 1997, 1996 and
1995, Trenwick's net book value amounted to $357.6 million, $265.8 million and
$240.8 million, respectively. Trenwick maintains a portion of its investment
portfolio in cash equivalents which are available in the event of unanticipated
changes in cash requirements. At December 31, 1997, Trenwick's investments
consisted principally of fixed-income securities, 88% of which are rated Aa or
better. Trenwick's general policy is to hold these securities to maturity.
However, there may be business reasons which would cause all or a portion of
these securities to be made available for sale prior to maturity; therefore,
Trenwick records these investments at fair value, with market value fluctuations
reflected in stockholders' equity, net of income taxes (see Note 1 to
Consolidated Financial Statements).
24
<PAGE> 27
The ratio of net premiums written to surplus, the "surplus ratio", relates to
the amount of risk to which an insurer's or reinsurer's statutory capital is
exposed, as measured by the amount of premiums written in relation to such
surplus. Property and casualty reinsurance companies currently have a surplus
ratio of approximately 0.7:1. Trenwick America Re's surplus ratios were 0.6:1
for 1997 and 0.8:1 for both 1996 and 1995. Accordingly, Trenwick has sufficient
surplus capacity to write additional business without significantly exceeding
the industry average.
Trenwick purchases reinsurance to reduce its exposure to catastrophe claims
and the frequency and severity of claims in all lines of business. In 1997,
Trenwick's reinsurance treaties consisted principally of an excess of loss
treaty for its facultative casualty business and property catastrophe
reinsurance treaties. In addition, Trenwick purchased an annual aggregate excess
of loss ratio treaty for casualty business effective January 1, 1997. These
coverages were renewed effective January 1, 1998.
REGULATORY MATTERS
The National Association of Insurance Commissioners (NAIC) has adopted
Risk-Based Capital (RBC) requirements for property and casualty insurance
companies to evaluate the adequacy of statutory capital and surplus in relation
to investment and insurance risks such as asset quality, asset and liability
matching, loss reserve adequacy and other business factors. The RBC formula is
used by state insurance regulators as an early warning tool to identify, for the
purpose of initiating regulatory action, insurance companies that potentially
are inadequately capitalized. In addition, the formula defines minimum capital
standards that supplement the system of low fixed minimum capital and surplus
requirements on a state-by-state basis. Regulatory compliance is determined by a
ratio of the enterprise's regulatory total adjusted capital to its authorized
control level RBC, as defined by the NAIC. Enterprises below specific trigger
points or ratios are classified within certain levels, each of which requires
specific corrective action. The ratios of Total Adjusted Capital to Authorized
Control Level RBC for Trenwick America Re exceeded all the RBC trigger points at
December 31, 1997. Trenwick believes its capital will continue to exceed these
RBC capital and surplus requirements for the foreseeable future.
Under Connecticut insurance laws and regulations, the maximum amount of
shareholder dividends or other distributions that Trenwick America Re may
declare or pay to Trenwick within any twelve month period, without the
permission of the Connecticut Insurance Commissioner, is limited to the greater
of 10% of policyholder surplus at December 31 of the preceding year, or 100% of
net income excluding realized capital gains, for the twelve month period ending
December 31 of the preceding year, both determined in accordance with statutory
accounting practices. For the purpose of computing the limitation, carryforward
provisions apply with respect to net income realized in the two previous
calendar years which has not already been paid out as dividends. The maximum
amount of dividends which could be paid by Trenwick America Re in 1998 without
regulatory approval would be $84.4 million.
25
<PAGE> 28
SUBSEQUENT EVENT
On February 27, 1998, Trenwick completed the acquisition of SOREMA (UK) Limited
(renamed Trenwick International Limited) from SOREMA S.A. for cash in the amount
of $60.6 million, which approximated book value. Trenwick International Limited
is based in London and underwrites specialty treaty and facultative insurance
and reinsurance on a worldwide basis. For the year ended December 31, 1997,
Trenwick International Limited had gross and net premiums written of
approximately $102 million and $70 million, respectively. The acquisition will
be accounted for as a purchase and its capital will be doubled to over $125
million. Trenwick believes that the acquisition is an excellent means of
diversifying its current business. Trenwick International Limited's experienced
team of underwriters specializes in shorter-tail classes of insurance and
reinsurance of risks located outside the United States. Trenwick also believes
that the acquisition of an established company in the London insurance market
provides an opportune platform for further international expansion. Pierre
Croizat (former Chief Executive Officer of SOREMA Group), who joined the Company
last September to initiate an international expansion plan, will head Trenwick's
international operations.
26
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TRENWICK GROUP INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Pages
Financial Statements:
Report of Independent Accountants
on Consolidated Financial Statements.......................................28
Consolidated Balance Sheet at December 31, 1997 and 1996......................29
Consolidated Statement of Income
for the three years ended December 31, 1997................................30
Consolidated Statement of Changes in Stockholders' Equity
for the three years ended December 31, 1997................................31
Consolidated Statement of Cash Flows
for the three years ended December 31, 1997................................32
Notes to Consolidated Financial Statements.................................33-54
Financial Statement Schedules:
III - Condensed Financial Information of Registrant .....................S-1-S-3
Report of Independent Accountants on Financial Statement
Schedules..................................................................S-4
Schedules other than those listed above are omitted since they are either not
required or are not applicable or the information required is presented in the
consolidated financial statements, including the notes thereto.
27
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Trenwick Group Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Trenwick Group Inc. and its subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
January 27, 1998
28
<PAGE> 31
TRENWICK GROUP INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
----------- ---------
(dollars in thousands)
<S> <C> <C>
Assets
Securities available for sale at fair value:
Debt securities (amortized cost: $788,727 and $700,476) $ 812,314 $ 713,998
Equity securities (cost: $31,603 and $21,346) 39,163 25,959
Cash and cash equivalents 12,847 14,253
----------- ---------
Total investments and cash 864,324 754,210
Accrued investment income 10,969 10,386
Receivables from ceding insurers 91,867 62,689
Reinsurance recoverable balances, net 66,361 47,772
Deferred policy acquisition costs 22,524 21,805
Net deferred income taxes 12,451 20,231
Other assets 19,427 3,711
----------- ---------
Total assets $ 1,087,923 $ 920,804
=========== =========
Liabilities and Stockholders' Equity
Liabilities:
Unpaid claims and claims expenses $ 518,387 $ 467,177
Unearned premium income 87,020 71,448
Convertible debentures -- 103,500
Other liabilities 14,867 12,926
----------- ---------
Total liabilities 620,274 655,051
----------- ---------
Company-obligated mandatorily redeemable preferred
capital securities of subsidiary trust holding solely junior
subordinated debentures of Trenwick Group Inc. 110,000 --
----------- ---------
Common stockholders' equity:
Common stock, $.10 par value, 30,000,000 shares
authorized; 11,951,060 and 10,087,826 shares outstanding 1,195 1,009
Additional paid-in capital 153,714 94,423
Retained earnings 183,218 159,512
Net unrealized appreciation of securities available for
sale, net of income taxes 20,245 11,789
Deferred compensation under stock award plan (723) (980)
----------- ---------
Total common stockholders' equity 357,649 265,753
----------- ---------
Total liabilities and stockholders' equity $ 1,087,923 $ 920,804
=========== =========
</TABLE>
All share and per share information reflects a 3 for 2 stock split, paid on
April 15, 1997.
The accompanying notes are an integral part of these statements.
29
<PAGE> 32
TRENWICK GROUP INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
--------- -------- --------
(in thousands except per share data)
<S> <C> <C> <C>
Revenues:
Net premiums earned $ 190,156 $211,069 $177,394
Net investment income 48,402 41,226 36,828
Net realized investment gains 2,304 299 368
Other income 10 -- --
--------- -------- --------
Total revenues 240,872 252,594 214,590
--------- -------- --------
Expenses:
Claims and claims expenses incurred 109,554 129,316 113,068
Policy acquisition costs 58,549 58,757 44,024
Underwriting expenses 15,425 14,190 12,589
Interest expense 894 6,503 6,496
Minority interest in subsidiary trust 8,920 -- --
--------- -------- --------
Total expenses 193,342 208,766 176,177
--------- -------- --------
Income before income taxes and
extraordinary item 47,530 43,828 38,413
Income taxes 11,241 9,980 8,572
--------- -------- --------
Income before extraordinary item 36,289 33,848 29,841
Extraordinary loss on debt redemption,
net of $558 income tax benefit (1,037) -- --
--------- -------- --------
Net income $ 35,252 $ 33,848 $ 29,841
========= ======== ========
BASIC EARNINGS PER SHARE
Income before extraordinary item $ 3.12 $ 3.40 $ 3.09
Extraordinary loss (.09) -- --
--------- -------- --------
Net income $ 3.03 $ 3.40 $ 3.09
========= ======== ========
DILUTED EARNINGS PER SHARE
Income before extraordinary item $ 3.01 $ 2.85 $ 2.59
========= ======== ========
Net income $ 3.01 $ 2.85 $ 2.59
========= ======== ========
DIVIDENDS PER COMMON SHARE $ .97 $ .83 $ .75
========= ======== ========
</TABLE>
All share and per share information reflects a 3 for 2 stock split, paid on
April 15, 1997.
The earnings per share amounts prior to 1997 have been restated to comply with
the newly adopted accounting standard, "Earnings Per Share".
The accompanying notes are an integral part of these statements.
30
<PAGE> 33
TRENWICK GROUP INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Stockholders' equity, beginning of year $ 265,753 $ 240,776 $ 188,213
Common stock, $.10 par value, and additional
paid-in capital:
Conversion of debentures (1,783,926 shares) 57,780 -- --
Exercise of employer stock options
(76,750, 221,028 and 198,060 shares) 956 4,001 1,657
Income tax benefits from additional
compensation deductions allowable
for income tax purposes 626 1,467 987
Restricted common stock awarded
(9,782, 15,030 and 31,956 shares) 327 507 933
Restricted common stock awards cancelled
(2,133 and 3,150 shares) (42) (91) --
Common stock purchased and retired
(5,091, 30,699 and 4,584 shares) (171) (1,031) (134)
Retained earnings:
Net income 35,252 33,848 29,841
Cash dividends (11,546) (8,285) (7,287)
Net unrealized appreciation of
investments available for sale:
Change in unrealized appreciation 13,012 (8,551) 41,487
Change in applicable deferred income taxes (4,556) 2,994 (14,519)
Deferred compensation under stock award plan:
Restricted common stock awarded (327) (507) (933)
Restricted common stock awards cancelled 42 91 --
Compensation expense recognized 543 534 531
--------- --------- ---------
Common stockholders' equity, end of year $ 357,649 $ 265,753 $ 240,776
========= ========= =========
</TABLE>
All share and per share information reflects a 3 for 2 stock split, paid on
April 15, 1997.
The accompanying notes are an integral part of these statements.
31
<PAGE> 34
TRENWICK GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Premiums collected $ 149,351 $ 171,017 $ 144,996
Ceded premiums paid (10,026) (6,254) (7,908)
Claims and claims expenses paid (117,916) (102,759) (89,487)
Claims and claims expenses recovered 2,841 34,156 7,942
Underwriting expenses paid (13,753) (12,765) (11,008)
--------- --------- ---------
Cash provided by underwriting activities 10,497 83,395 44,535
Net investment income received 50,469 42,654 38,829
Interest and other expenses paid (5,364) (6,190) (6,239)
Income taxes paid (8,592) (9,381) (9,681)
--------- --------- ---------
Cash provided by operating activities 47,010 110,478 67,444
--------- --------- ---------
Cash flows for investing activities:
Purchases of debt securities (203,554) (177,611) (163,262)
Sales of debt securities 33,980 22,460 43,859
Maturities of debt securities 78,770 62,983 55,600
Purchases of equity securities (12,967) (12,529) (326)
Sales of equity securities 5,009 7,638 37
Additions to premises and equipment (227) (611) (612)
--------- --------- ---------
Cash used for investing activities (98,989) (97,670) (64,704)
--------- --------- ---------
Cash flows for financing activities:
Issuance of mandatorily redeemable preferred
capital securities 110,000 -- --
Redemption of convertible debentures (46,997) -- --
Issuance costs of capital securities (1,669) -- --
Issuance of common stock 956 4,001 1,657
Repurchase of common stock (171) (1,031) (134)
Dividends paid (11,546) (8,285) (7,287)
--------- --------- ---------
Cash provided by (used for) financing activities 50,573 (5,315) (5,764)
--------- --------- ---------
Change in cash and cash equivalents (1,406) 7,493 (3,024)
Cash and cash equivalents, beginning of year 14,253 6,760 9,784
--------- --------- ---------
Cash and cash equivalents, end of year $ 12,847 $ 14,253 $ 6,760
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE> 35
TRENWICK GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles (GAAP), which require
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements OF and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The following is a summary of significant
accounting policies.
CONSOLIDATED FINANCIAL STATEMENTS POLICIES
The consolidated financial statements include the accounts of Trenwick Group
Inc. (Trenwick) and its subsidiaries. Trenwick's principal subsidiary, Trenwick
America Reinsurance Corporation (Trenwick America Re), underwrites reinsurance.
INVESTMENTS AND CASH EQUIVALENTS
Trenwick has classified all of its debt and equity securities as "available for
sale" and reported them at fair value with net unrealized gains and losses
included in stockholders' equity, net of related deferred income taxes. The fair
value of debt securities and equity securities is estimated using quoted market
prices or broker dealer quotes. Cash equivalents represent investments with
maturities at date of purchase of three months or less and are carried at cost
which approximates fair value.
Realized gains or losses on disposition of investments are determined on the
basis of the specific identification method. Investment income consisting of
dividends and interest, net of investment expenses, is recognized in income when
earned. The amortization of premiums and accretion of discount for debt
securities is computed utilizing the interest method. Structured securities,
anticipated prepayments and expected maturities are used in applying the
interest method. When actual prepayments differ significantly from anticipated
prepayments, the effective yield is recalculated to reflect actual payments to
date and anticipated future payments. The net investment in the security is
adjusted to the amount that would have existed had the new effective yield been
applied since the acquisition of the security and that adjustment is included in
net investment income.
REVENUES
Insurance premiums are earned on a pro rata basis over the related contract
period, which is generally one year. Unearned premium income represents the
portion of premiums applicable to the unexpired portion of premium coverage with
renewal dates later than year end. Premiums on contracts are accrued on an
estimated basis throughout the term of such contracts. These estimates may
change in the near term.
33
<PAGE> 36
POLICY ACQUISITION COSTS
Policy acquisition costs are stated net of policy acquisition costs ceded and
consist of commissions and brokerage expenses incurred at policy or contract
issue date. These costs vary with, and are primarily related to, the acquisition
of business and are deferred and amortized over the period in which the related
premiums are earned. Deferred policy acquisition costs are reviewed periodically
to determine that they do not exceed recoverable amounts after allowing for
anticipated investment income.
RESERVE FOR UNPAID CLAIMS AND CLAIMS EXPENSES
Claims are recorded as incurred so as to match such costs with premiums over the
contract periods. The amount provided for unpaid claims consists of any unpaid
reported claims and estimates for incurred but not reported claims, net of
salvage and subrogation. The estimates for claims incurred but not reported were
developed based on Trenwick's historical claims experience and an actuarial
evaluation of expected claims experience. Insurance liabilities are based on
estimates and the ultimate liability may vary from such estimates. Any
adjustments to these estimates are reflected in income when known.
INCOME TAXES
Income taxes are provided based on income reported in the financial statements.
Deferred income taxes are provided based on an asset and liability approach
which requires the recognition of deferred income tax assets and liabilities for
the expected future tax consequences of temporary differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities.
STOCK-BASED COMPENSATION
Trenwick grants stock options for a fixed number of common shares to employees
and non-employee directors with an exercise price equal to the market value of
the shares at the date of grant. The accounting standard, "Accounting for
Stock-Based Compensation", supersedes the previous opinion and establishes a
fair value based method of accounting for stock-based compensation plans.
However, it permits an entity to continue to apply the accounting provisions of
the previous opinion and make pro forma disclosures of net income and earnings
per share, as if the fair market value based method had been applied. Trenwick
continues to account for the stock option grants in accordance with the previous
opinion and has included the pro forma disclosures required by the fair value
based method in Note 7.
34
<PAGE> 37
EARNINGS PER SHARE
Effective December 31, 1997, Trenwick adopted a new accounting standard,
"Earnings Per Share", which specifies the computation, presentation and
disclosure requirements of earnings per share and supersedes the previous
standard. It requires a dual presentation of basic and diluted earnings per
share. Basic earnings per share, which excludes the effect of common stock
equivalents, replaces primary earnings per share. Diluted earnings per share,
which utilizes the average market price per share as opposed to the greater of
the average market price per share or ending market price per share when
applying the treasury stock method in determining common stock equivalents,
replaces fully-diluted earnings per share. In this report, all per share amounts
prior to 1997 have been restated to comply with this standard.
PREMISES AND EQUIPMENT
Premises and equipment, including leasehold improvements, are recorded at cost
and are amortized or depreciated using the straight-line method over their
useful lives, which range from three to ten years.
ISSUANCE COSTS OF CAPITAL SECURITIES AND DEBT
The issuance costs of the capital securities are being amortized over the term
of the junior subordinated debentures.
Debt issuance costs associated with the issuance of convertible debentures were
being amortized over the term of the related debt using the interest method. The
unamortized costs applicable to debentures converted to common stock were
charged to stockholders' equity at the time of conversion.
COMPREHENSIVE INCOME
A new accounting standard, "Reporting Comprehensive Income", which is effective
for Trenwick's interim and annual periods beginning after December 15, 1997,
establishes standards for reporting and presentation of comprehensive income and
its components. Comprehensive income is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources and includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. Adoption of this standard will have no material effect on the earnings
of Trenwick.
35
<PAGE> 38
NOTE 2
INVESTMENTS
The fair value and amortized cost of debt securities at December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
FAIR AMORTIZED FAIR AMORTIZED
(in thousands) VALUE COST VALUE COST
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of
U.S. government
corporations and agencies $ 64,814 $ 62,418 $ 91,702 $ 90,421
Obligations of states and
political subdivisions 384,854 373,867 367,029 360,201
Mortgage-backed and
asset-backed securities 286,228 278,271 211,228 206,774
Debt securities issued by
foreign governments 3,175 3,111 3,227 3,156
Public utilities 2,970 2,832 2,918 2,803
Corporate securities 68,138 66,108 37,774 37,001
Redeemable preferred stock 2,015 2,000 -- --
Short-term securities 120 120 120 120
-------- -------- -------- --------
Total debt securities $812,314 $788,727 $713,998 $700,476
======== ======== ======== ========
</TABLE>
The fair value and amortized cost of debt securities at December 31, 1997 are
shown below by contractual or expected maturity periods. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without penalty. The maturities for
mortgage-backed and asset-backed securities are calculated using expected
maturity dates, adjusted for anticipated prepayments.
<TABLE>
<CAPTION>
FAIR AMORTIZED
(in thousands) VALUE COST
-------- ---------
<S> <C> <C>
Due in one year or less $ 65,473 $ 65,096
Due after one year through five years 404,906 395,373
Due after five years through ten years 254,518 244,294
Due after ten years 87,417 83,964
-------- --------
Total debt securities $812,314 $788,727
======== ========
</TABLE>
36
<PAGE> 39
NET INVESTMENT INCOME AND NET REALIZED INVESTMENT GAINS
During the twelve months ended December 31, 1997, all investments were income
producing. The sources of net investment income for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Debt securities $ 47,400 $ 41,332 $ 37,219
Equity securities 1,257 393 289
Cash and cash equivalents 1,228 719 621
-------- -------- --------
Gross investment income 49,885 42,444 38,129
Investment expenses (1,483) (1,218) (1,301)
-------- -------- --------
Net investment income $ 48,402 $ 41,226 $ 36,828
======== ======== ========
Net realized gains (losses) on sales of investments are as follows:
(in thousands) 1997 1996 1995
---- ---- ----
Debt securities:
Gross realized gains $ 151 $ 137 $ 605
Gross realized losses (146) (1) (274)
Equity securities:
Gross realized gains 2,299 862 37
Gross realized losses -- (699) --
------- ----- -----
Net realized investment gains $ 2,304 $ 299 $ 368
======= ===== =====
</TABLE>
37
<PAGE> 40
UNREALIZED GAINS (LOSSES) ON DEBT AND EQUITY SECURITIES
Unrealized gains and losses at December 31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
------------------- -------------------
GAINS LOSSES GAINS LOSSES
----- ------ ----- ------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 2,396 $ -- $1,319 $ (38)
Obligations of states and
political subdivisions 11,022 (35) 7,173 (345)
Mortgage-backed and
asset-backed securities 7,994 (37) 4,958 (504)
Debt securities issued
by foreign governments 64 -- 71 --
Public utilities 138 -- 115 --
Corporate securities 2,030 -- 775 (2)
Redeemable preferred stock 15 -- -- --
------- ---- ------- -----
Total debt securities $23,659 $(72) $14,411 $(889)
======= ==== ======= =====
Equity securities $ 7,560 $-- $ 4,616 $ (3)
======= ==== ======= =====
</TABLE>
NET UNREALIZED APPRECIATION OF INVESTMENTS AVAILABLE FOR SALE
The components of the net unrealized appreciation of investments available for
sale at December 31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
---- ----
<S> <C> <C>
Unrealized appreciation of debt securities $ 23,587 $ 13,522
Unrealized appreciation of equity securities 7,560 4,613
-------- --------
Unrealized appreciation of investments 31,147 18,135
Deferred income taxes (10,902) (6,346)
-------- --------
Net unrealized appreciation
of investments available for sale,
net of income taxes $ 20,245 $ 11,789
======== ========
</TABLE>
INVESTMENTS HELD AS COLLATERAL OR ON DEPOSIT
Debt securities with a carrying value of $102,921,000 are being held
in trust as collateral for certain reinsurance obligations. In
addition, investments with a carrying value of $7,962,000 at December
31, 1997 were on deposit with various state or governmental insurance
departments in order to comply with insurance laws.
38
<PAGE> 41
NOTE 3 REINSURANCE ACTIVITY AND RESERVE FOR UNPAID CLAIMS AND CLAIMS EXPENSES
REINSURANCE ACTIVITY
Trenwick's subsidiary, Trenwick America Re, primarily provides reinsurance to
insurers of property and casualty risks in the United States. Trenwick America
Re generally obtains all of its business through brokers and reinsurance
intermediaries which seek its participation on reinsurance being placed for
their customers. Trenwick America Re writes treaty and facultative reinsurance
both on an excess of loss and quota share basis. In underwriting reinsurance,
Trenwick America Re does not target types of clients, classes of business or
types of reinsurance. Rather, it selects transactions based upon the quality of
the reinsured, the attractiveness of the reinsured's insurance rates and policy
conditions and the adequacy of the proposed reinsurance terms.
Trenwick America Re obtained approximately 65% of its gross written premiums
from three brokers in 1997 and 62% from three brokers in 1996 and 1995. Trenwick
America Re's concentration of business through a small number of sources is
consistent with the concentration of the property and casualty broker
reinsurance market, in which a majority of the business is written through the
top ten largest brokers in the reinsurance industry. Loss of all or a
substantial portion of the business provided by these brokers could have a
material adverse effect on the business and operations of Trenwick America Re.
Trenwick does not believe, however, that the loss of such business would have a
long-term adverse effect because of Trenwick's competitive position within the
broker reinsurance market and the availability of business from other brokers.
In 1997, 1996 and 1995, Trenwick America Re obtained approximately 11%, 11% and
10%; 15%, 12% and 10%; 19%, 11% and 9%, respectively, of its gross written
premiums from three ceding companies.
Included in receivables from ceding insurers at December 31, 1997 and 1996 are
accrued premiums of approximately $77,115,000 and $59,070,000, respectively,
which have estimated payment dates ranging from 1997 to 2002. Premium payment
dates are estimated using the anticipated payout pattern of claims which result
in the additional premium due from ceding companies. The fair value of the
accrued premiums for 1997 and 1996 is approximately $74,739,000 and $57,300,000,
respectively, which is estimated using cash flows discounted at an interest rate
of 5%.
39
<PAGE> 42
The effects of reinsurance on premiums written, premiums earned and claims and
claims expenses incurred for the three years ended December 31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Assumed premiums written $ 248,662 $ 247,358 $ 214,336
Ceded premiums written (53,432) (20,994) (17,174)
--------- --------- ---------
Net premiums written $ 195,230 $ 226,364 $ 197,162
========= ========= =========
Assumed premiums earned $ 233,090 $ 231,960 $ 194,592
Ceded premiums earned (42,934) (20,891) (17,198)
--------- --------- ---------
Net premiums earned $ 190,156 $ 211,069 $ 177,394
========= ========= =========
Assumed claims and claims
expenses incurred $ 170,343 $ 156,819 $ 111,351
Ceded claims and claims
expenses incurred (60,789) (27,503) 1,717
--------- --------- ---------
Net claims and claims
expenses incurred $ 109,554 $ 129,316 $ 113,068
========= ========= =========
</TABLE>
UNPAID CLAIMS AND CLAIMS EXPENSES
The following table presents an analysis of gross and net unpaid claims and
claims expenses and a reconciliation of beginning and ending net unpaid claims
and claims expense balances for 1997, 1996 and 1995. The gross unpaid claims and
claims expense balances at December 31, 1997 and 1996 are reflected in
Trenwick's consolidated balance sheet. The net unpaid claims and claims expense
balances are stated on a net basis after deductions for reinsurance recoverable
on unpaid claims and claims expenses from retrocessionaires.
40
<PAGE> 43
Activity in the reserve for unpaid claims and claims expenses, net of
reinsurance recoverable, for the years ended December 31 is summarized below:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Reserve for unpaid claims and claims expenses, net of
related reinsurance recoverable, at beginning of year $ 386,887 $ 327,001 $ 294,008
Provision for claims and claims expenses, net of reinsurance:
For claims incurred in the current year 114,920 133,755 115,133
For claims incurred in prior years (5,366) (4,439) (2,065)
--------- --------- ---------
Subtotal 109,554 129,316 113,068
--------- --------- ---------
Payments for claims and claims expenses, net of reinsurance:
For claims incurred in the current year (22,893) (22,570) (18,271)
For claims incurred in prior years (94,197) (46,860) (61,804)
--------- --------- ---------
Subtotal (117,090) (69,430) (80,075)
--------- --------- ---------
Reserve for unpaid claims and claims expenses, net of
related reinsurance recoverable, at end of year 379,351 386,887 327,001
Reinsurance recoverable on unpaid claims and
claims expenses, at end of year 139,036 80,290 84,873
--------- --------- ---------
Reserve for unpaid claims and claims expenses, gross of
reinsurance recoverable on unpaid claims, at end of year $ 518,387 $ 467,177 $ 411,874
========= ========= =========
</TABLE>
In 1997, 1996 and 1995, Trenwick recorded decreases of $5,366,000, $4,439,000
and $2,065,000, respectively, in estimates for claims occurring in prior
accident years. The reduction in 1997 is primarily due to favorable development
in 1990 and prior years, partially offset by unfavorable development in 1991
through 1993.
In 1996, Trenwick commuted an aggregate excess of loss retrocessional agreement
covering the years 1989 through 1993 for which Trenwick received a total
consideration of $29,700,000 representing outstanding reserves of approximately
the same amount. The commutation was recorded in 1996 as a paid loss recovery.
41
<PAGE> 44
Inflation raises the cost of economic losses and non-economic damages covered by
insurance contracts and therefore is a factor in determining effective rates of
reinsurance. The methods used by Trenwick to estimate individual case reserves
and reserves for claims incurred but not yet reported implicitly incorporate the
effects of inflation in the projection of ultimate losses.
Due to the inherent uncertainties of estimating insurance company claim
reserves, actual claims and claims expenses may deviate, perhaps substantially,
from estimates of Trenwick's reserves reflected in Trenwick's consolidated
financial statements. Trenwick's management believes that its claim reserve
methods are reasonable and prudent and that Trenwick's reserve for claims and
claims expenses at December 31, 1997 are adequate.
EXPOSURE TO ENVIRONMENTAL CLAIMS
Trenwick's exposure to environmental claims, including asbestos and pollution
liability, is primarily associated with its participation in business written by
its predecessor company between 1978 and 1983. Exposure to environmental claims
on Trenwick's business written since 1983 is generally limited by exclusions on
its own reinsurance contracts and also by exclusions on policies issued by
ceding companies. Casualty business written in 1983 and prior is not material to
Trenwick's overall book of business. As of December 31, 1997, outstanding claims
including incurred but not reported claims for environmental liability were
approximately $8,800,000, approximately 2% of Trenwick's total net outstanding
reserves.
Under Trenwick's current interpretation of policy language, management does not
believe that it has a material exposure to environmental claims that requires
additional reserves beyond its current estimates.
REINSURANCE RECOVERABLE
The components of reinsurance recoverable balances, net on the balance sheet at
December 31 are as follows:
(in thousands) 1997 1996
---- ----
Paid claims $ 1,267 $ 1,505
Unpaid claims and claims expenses 139,036 80,290
Funds held liability (60,967) (33,353)
Reinsurance balances payable (12,975) (670)
--------- --------
Reinsurance recoverable balances, net $ 66,361 $ 47,772
========= ========
Trenwick America Re purchases reinsurance to reduce its exposure to catastrophe
losses and the frequency of large losses in all lines of business. Trenwick
America Re, however, remains liable in the event that its retrocessionaires do
not meet their contractual obligations.
At December 31, 1997, letters of credit in the amount of $1,945,000 have been
arranged in favor of Trenwick America Re in respect of certain outstanding
claims recoverable and the unearned portion of premiums ceded.
42
<PAGE> 45
At December 31, 1997, approximately $76,346,000 and $33,517,000 of reinsurance
recoverables on unpaid claims and claims expenses are recoverable from Centre
Reinsurance Company of New York and Continental Casualty Company, respectively.
There are no prepaid reinsurance premiums which relate to these reinsurers.
For the years ended December 31, 1997, 1996 and 1995, Trenwick America Re earned
commissions on cessions to retrocessionaires of $4,503,000, $1,235,000 and
$13,000, respectively.
NOTE 4 INCOME TAXES
Trenwick files a consolidated United States income tax return with its United
States subsidiaries. In 1997, the income tax provision includes an income tax
benefit of $558,000 applicable to an extraordinary loss on debt redemption. The
components of the provision for income taxes for the years ended December 31 are
as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current income tax provision $ 7,459 $ 13,633 $7,821
Deferred income tax provision 3,224 (3,653) 751
------- -------- ------
Income tax provision $10,683 $ 9,980 $8,572
======= ======== ======
</TABLE>
Trenwick's effective income tax rates were 23% for the years ended December 31,
1997 and 1996 and 22% for the year ended December 31, 1995. The income tax
provision for each of the years presented differs from the amounts determined by
applying the applicable U.S. statutory federal income tax rate of 35% to income
before income taxes as a result of the following:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income before income taxes $ 45,935 $ 43,828 $ 38,413
======== ======== ========
Income taxes at statutory rate $ 16,077 $ 15,340 $ 13,445
Effect of tax-exempt investment income (5,757) (5,286) (4,963)
Other, net 363 (74) 90
-------- -------- --------
Income tax provision $ 10,683 $ 9,980 $ 8,572
======== ======== ========
</TABLE>
The components of the net deferred income tax provision for the years
ended December 31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discounting of unpaid claims $ 2,782 $(4,541) $(1,369)
Unearned premium income (355) (1,071) (1,384)
Policy acquisition costs deferred 251 1,778 2,112
Alternative minimum taxes 10 (10) 908
Accretion of market discount on
fixed maturity investments 315 518 378
Other, net 221 (327) 106
------- ------- -------
Total deferred income tax provision $ 3,224 $(3,653) $ 751
======= ======= =======
</TABLE>
43
<PAGE> 46
Deferred income tax assets (liabilities) are attributable to the following
temporary differences as of December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996
---- ----
<S> <C> <C>
DEFERRED INCOME TAX ASSET
Discounting of unpaid claims $ 26,455 $ 29,237
Unearned premium income 5,335 4,980
Employee stock option plans 120 439
Alternative minimum taxes -- 10
Other 652 524
-------- --------
Gross deferred income tax assets 32,562 35,190
-------- --------
DEFERRED INCOME TAX LIABILITY
Policy acquisition costs deferred (7,883) (7,632)
Unrealized appreciation of
investments available for sale (10,902) (6,346)
Accretion of market discount on fixed
maturity investments (1,211) (896)
Other (115) (85)
-------- --------
Gross deferred income tax liabilities (20,111) (14,959)
-------- --------
Net deferred income tax assets $ 12,451 $ 20,231
======== ========
</TABLE>
44
<PAGE> 47
Trenwick's management has concluded that the deferred income tax assets are more
likely than not to be realized. Therefore, no valuation allowance has been
provided. Estimates used in the development of the net deferred income tax
assets may change in the near term.
NOTE 5 MANDATORILY REDEEMABLE PREFERRED CAPITAL SECURITIES
On January 28, 1997, Trenwick completed a private offering of $110,000,000 in
8.82% Subordinated Capital Income Securities through Trenwick Capital Trust I, a
Delaware statutory business trust. Trenwick owns all of the common securities of
the trust. Concurrently with the issuance of the capital securities, the trust
invested the proceeds of their sale, together with the consideration paid to the
trust by Trenwick for the common securities, in Trenwick's junior subordinated
debentures, whose terms are similar to those of the capital securities.
The trust was formed for the sole purpose of issuing the capital securities and
the common securities, investing the proceeds thereof in the junior subordinated
debentures and making distributions to the holders of the capital securities.
The capital securities mature on February 1, 2037; require preferential
cumulative cash distributions at an annual rate of 8.82%, payable semiannually
on February 1 and August 1 (beginning August 1, 1997) from the payment of
interest on the junior subordinated debentures; and are guaranteed by Trenwick,
within certain limits, as to the payment of distributions and liquidation or
redemption payments. They are subject to mandatory redemption, (i) in whole but
not in part at maturity, upon repayment of the junior subordinated debentures,
at a redemption price equal to the principal amount plus accrued and unpaid
interest; (ii) in whole but not in part at any time, contemporaneously with the
optional prepayment of the junior subordinated debentures upon the occurrence
and continuation of certain events, at a redemption price equal to the greater
of the principal amount or the present value of principal and interest payable
to February 1, 2007, plus accrued and unpaid interest and possible additional
sums; and (iii) in whole or in part, after February 1, 2007, contemporaneously
with the optional prepayment of the junior subordinated debentures, at a
redemption price equal to the principal amount plus accrued and unpaid interest
and possible additional sums. Upon the occurrence and continuation of an event
of default with respect to the junior subordinated debentures, the capital
securities shall have a preference over the common securities. Upon the
occurrence of an event of default with respect to the junior subordinated
debentures which is attributable to Trenwick's failure to make required payments
or with respect to Trenwick's guarantee, the holders of the capital securities
may institute a direct action against Trenwick.
In accordance with their terms, the capital securities were subsequently
exchanged for fully registered capital securities, which are not subject to
restrictions on transfer.
NOTE 6 INSURANCE REGULATION
Trenwick's reinsurance subsidiary, Trenwick America Re, is domiciled in and
subject to the insurance statutes of Connecticut.
During 1997, 1996 and 1995, Trenwick America Re paid dividends of $8,250,000,
$4,100,000 and $9,500,000, respectively. The statutory limitation on dividends
which can be paid without prior approval of the Connecticut Insurance
Commissioner, applicable to Trenwick America Re, is the greater of 10% of
policyholder surplus at December 31 of the preceding year or 100% of net income,
not including realized capital gains, for the twelve month period ending
December 31 of the preceding year, both determined in accordance with statutory
accounting practices. For the purpose of computing the limitation, carryforward
provisions apply with respect to net income realized in the two previous
calendar years
45
<PAGE> 48
which has not already been paid out as dividends. The amount of dividends or
other distributions that could be paid by Trenwick America Re without prior
approval as of December 31, 1997 was $84,392,000.
The differences between GAAP and statutory accounting practices for Trenwick
America Re are the treatment of acquisition costs, deferred income taxes, other
deferred charges and the carrying value of debt securities. The following tables
set forth a reconciliation of Trenwick America Re's net income and statutory
surplus, as filed with the insurance regulatory authorities, to its net income
and stockholders' equity as determined in accordance with GAAP for the years
ended and as of December 31:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME
Statutory net income of
Trenwick America Re $ 42,797 $ 29,555 $ 28,060
Change in deferred policy acquisition costs 719 5,080 6,034
Provision for deferred income taxes (3,021) 3,307 (690)
Other -- (6) (12)
-------- --------- ---------
GAAP net income of Trenwick America Re $ 40,495 $ 37,936 $ 33,392
======== ========= =========
(in thousands) 1997 1996 1995
-------- --------- ---------
RECONCILIATION OF SURPLUS
Statutory capital and surplus of
Trenwick America Re $322,850 $ 286,284 $ 257,590
Deferred policy acquisition costs 22,524 21,805 16,725
Unrealized appreciation
of investments 23,981 13,556 23,526
Net deferred income taxes 11,914 19,365 13,144
Unauthorized reinsurance 2,878 2,669 2,336
Non-admitted assets 210 208 2,142
-------- --------- ---------
GAAP stockholders' equity of
Trenwick America Re $384,357 $ 343,887 $ 315,463
======== ========= =========
</TABLE>
NOTE 7 STOCKHOLDERS' EQUITY
PREFERRED STOCK
Trenwick has 2,000,000 shares of $.10 par value preferred stock authorized and
none outstanding.
COMMON STOCK
On May 21, 1997, Trenwick's Board of Directors approved a stock repurchase
program covering up to 1,000,000 shares of the Company's common stock; no shares
have been repurchased to date.
46
<PAGE> 49
On March 6, 1997, Trenwick's Board of Directors approved a three-for-two common
stock split which was paid on April 15, 1997 to stockholders of record at the
close of business on March 18, 1997. An amount equal to the par value of the
additional shares issued has been transferred from additional paid-in capital to
common stock. All share and per share data have been retroactively restated to
reflect the common stock split.
CONVERTIBLE DEBENTURES
Trenwick called for redemption all $103,500,000 aggregate principal amount of
Trenwick's 6% convertible debentures due December 15, 1999, on February 20,
1997, at a redemption price of 102.57% principal amount plus accrued interest to
the redemption date. Of the $103,500,000 principal amount of debentures
outstanding on that date, $45,819,000 principal amount were redeemed and
$57,681,000 principal amount were converted into an aggregate of 1,783,926
shares of Trenwick's common stock.
As a result of the redemption, Trenwick recorded an extraordinary loss of
$1,037,000, net of a tax benefit of $558,000.
STOCK OPTIONS
Trenwick has several plans through which it makes options in common stock
available to Trenwick employees at the discretion of the Board of Directors.
Non-employee directors receive automatic grants under a separate plan. Exercise
prices are generally fixed at the market value at the date of grant. Options
vest and are exercisable on various terms, usually either over a five year
period or up to a ten year period. All options have an expiration date not
exceeding ten years. Total authorized common stock reserved for issuance under
all stock benefit plans at December 31, 1997 is 999,362. Transactions under the
stock option plans are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NUMBER OF SHARES
Outstanding, beginning of year 981,195 1,137,528 1,190,838
Granted 8,250 81,750 144,750
Cancelled (1,500) (17,055) --
Exercised (76,750) (221,028) (198,060)
-------- ---------- ----------
Outstanding, end of year 911,195 981,195 1,137,528
======== ========== ==========
Exercisable, end of year 312,807 337,770 511,316
======== ========== ==========
AVERAGE EXERCISE PRICE
Granted $ 32.88 $ 31.63 $ 29.33
Cancelled 30.92 19.43 --
Exercised 12.46 18.10 8.37
Outstanding, end of year 25.82 24.73 22.86
Exercisable, end of year 21.81 18.79 17.40
</TABLE>
47
<PAGE> 50
Included in the table on the preceding page are options granted to certain
senior officers under the 1993 Stock Option Plan. The exercise and vesting of
these options are accelerated if the price of Trenwick's common stock achieves
certain specified levels, subject to certain conditions.
Trenwick applies the provisions of the previous opinion and related
interpretations in accounting for its stock-based compensation plans. Since
stock options under Trenwick's plans are issued at fair market value on the date
of grant, no compensation expense has been recognized for these stock options.
Had Trenwick applied the fair value based method, net income and net income per
share would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income
As reported $ 35,252 $ 33,848 $ 29,841
Pro forma $ 35,056 $ 33,694 $ 29,760
Basic earnings per share
As reported $ 3.03 $ 3.40 $ 3.09
Pro forma $ 3.01 $ 3.38 $ 3.08
</TABLE>
The pro forma adjustments relate to options granted during 1995, 1996, and 1997
for which a fair value on the date of grant was determined using the
Black-Scholes option pricing model. No effect has been given to options granted
prior to 1995. Valuation and related assumption information are presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Valuation Assumptions:
Expected volatility
Employees -- 27% 29%
Non-employee directors 18% 16% 21%
Risk-Free interest rate
Employees -- 6.5% 6.8%
Non-employee directors 5.8% 5.7% 6.1%
Dividend Yield 2.6% 2.7% 2.0%
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
Trenwick's stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its stock options.
RESTRICTED COMMON STOCK AWARDS
Trenwick awards restricted common stock to key employees, primarily under the
terms of the 1989 Stock Plan. In 1997, 9,782 shares were awarded at an average
value of $33.42 per share (approximately
48
<PAGE> 51
$327,000), which vest over five years. Shares awarded in 1996 and 1995 vest over
three to seven years. Shares repurchased in 1997, 1996 and 1995 have been in
connection with the satisfaction of employees' withholding taxes payable upon
the vesting of previously awarded shares. Trenwick has recognized compensation
expense of $543,000, $534,000 and $531,000 for 1997, 1996 and 1995,
respectively, determined by the award value of the shares amortized over the
applicable vesting period.
RETIREMENT PLANS
Trenwick has a pension plan and a 401(k) savings plan for substantially all
full-time employees. Effective July 1, 1995, Trenwick contributes 8% of an
eligible employee's total compensation to the pension plan. Prior to this date,
Trenwick contributed 4% of an eligible employee's total compensation, plus 3% of
the eligible employee's total compensation above the FICA limit. No employee
contributions are made to the plan. Effective January 1, 1996, Trenwick matches
100% of employees' contributions to the savings plan up to 6% of each eligible
employee's total compensation. Prior to January 1, 1996, Trenwick matched 100%
of employees' contributions up to the lesser of 6% of an eligible employee's
total compensation or $2,000. Assets of both plans are administered by life
insurance companies. Trenwick's contributions to the pension plan were $503,000,
$432,000 and $297,000 for 1997, 1996 and 1995, respectively; its contributions
to the savings plan were $330,000, $314,000 and $122,000 for 1997, 1996 and
1995, respectively.
STOCKHOLDER RIGHTS PLAN
During 1997, Trenwick adopted a new stockholder rights plan, replacing the plan
adopted in 1989, and redeemed the rights issued under the 1989 plan.
Stockholders of record at the close of business on September 24, 1997 received
$0.01 for each redeemed right (equivalent to $0.00667 per share) and received
one new right for each share of common stock held. The rights are exercisable
only if a person or group acquires beneficial ownership of 15% or more of
Trenwick's common stock or commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 15% or more of
Trenwick's common stock. Each right entitles a stockholder to buy 1/200 of a
share of Trenwick's Series B Junior Participating Preferred Stock at an exercise
price of $125, subject to adjustment. Trenwick has reserved 200,000 shares of
such preferred stock for possible issuance under the plan.
In the event that an acquiror accumulates 15% or more of Trenwick's common
stock, all rights holders except the acquiror may purchase, for the exercise
price, in lieu of the Series B Junior Participating Preferred Stock, shares of
common stock of Trenwick having a market value of twice the exercise price of
each right. If Trenwick is acquired in a merger or other business combination
after the acquisition of 15% of Trenwick's common stock, all rights holders
except the acquiror may purchase the acquiror's shares at a similar discount.
Trenwick is entitled to redeem the rights at $0.01 per right, subject to certain
restrictions. The rights will expire on September 23, 2007.
49
<PAGE> 52
NOTE 8 SUPPLEMENTAL CASH FLOWS INFORMATION
A reconciliation of cash provided by operations for the three years ended
December 31 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income $ 35,252 $ 33,848 $ 29,841
Adjustments to reconcile net income
to net cash provided by operating
activities:
Extraordinary loss on debt redemption 1,595 -- --
Amortization of premiums on
investments, net 2,557 1,579 1,003
Deferred income taxes 3,224 (3,653) 750
Net realized investment gains (2,304) (299) (368)
Amortization of debt issuance costs 32 295 276
Other 929 900 907
Change in:
Receivables from ceding insurers (29,178) (13,710) (21,181)
Deferred policy acquisition costs (719) (5,080) (6,034)
Accrued interest (583) (188) 134
Other assets (4,685) (152) 459
Unpaid claims and claims expenses,
net of reinsurance recoverable balances 32,621 75,980 42,099
Unearned premium income, net of
prepaid reinsurance premiums 5,073 15,295 19,769
Other liabilities 3,196 5,663 (211)
-------- --------- --------
Net cash provided by operating activities $ 47,010 $ 110,478 $ 67,444
======== ========= ========
</TABLE>
NOTE 9 OTHER ASSETS AND LIABILITIES
Other assets comprise:
<TABLE>
<CAPTION>
DECEMBER 31,
(in thousands) 1997 1996
---- ----
<S> <C> <C>
Prepaid reinsurance premiums $10,804 $ 305
Deferred issuance costs of capital
securities, net of accumulated amortization of $5 1,681 --
Deferred debt issuance costs, net of
accumulated amortization of $1,075 -- 986
Premises and equipment, net of accumulated
depreciation and amortization of $2,693 and $2,373 972 1,135
Funds held in escrow 515 515
Deposits 4,712 177
Other 743 593
------- ------
Total other assets $19,427 $3,711
======= ======
</TABLE>
50
<PAGE> 53
Trenwick entered into a new ten-year operating lease agreement for office space
as its current operating lease agreement expires on July 15, 1998. Assuming
the new operating lease commences on July 16, 1998, Trenwick's minimum
non-cancellable office space lease commitments totalling $15,317,000 would be
payable as follows: 1998 - $1,094,000; 1999 - $1,419,000; 2000 - $1,419,000;
2001 $1,419,000; 2002 - $1,419,000; thereafter - $8,547,000.
Total office rent expense for the years ended December 31, 1997, 1996 and 1995
was $917,000, $918,000 and $883,000, respectively.
NOTE 10 FAIR VALUE FINANCIAL INSTRUMENTS
Accounting literature defines the fair value of a financial instrument as the
amount at which the OF instrument could be exchanged in a current transaction
between willing parties and requires disclosure of fair value information about
financial instruments for which it is practicable to estimate that value. In the
event that quoted market prices were not available, fair values were based on
estimates using discounted cash flow or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rates and estimates of the amount and timing of future cash flows.
These fair value estimates may vary in the near term. The following table
presents in summary form the carrying amounts and estimated fair values of
Trenwick's financial instruments at December 31:
<TABLE>
<CAPTION>
RELATED
1997 1996 FOOTNOTE
CARRYING FAIR CARRYING FAIR CROSS
AMOUNT VALUE AMOUNT VALUE REFERENCE
------ ----- ------ ----- ---------
<S> <C> <C> <C> <C> <C>
(in thousands)
ASSETS:
Debt securities $812,314 $812,314 $713,998 $713,998 Notes 1&2
Equity securities 39,163 39,163 25,959 25,959 Notes 1&2
Cash and cash equivalents 12,847 12,847 14,253 14,253 Note 1
Accrued premiums 77,115 74,739 59,070 57,300 Note 3
Funds held in escrow 515 515 515 515 Note 9
LIABILITIES:
Convertible debentures $ - $ - $103,500 $108,675 Note 7
COMPANY-OBLIGATED
MANDATORILY REDEEMABLE
PREFERRED CAPITAL SECURITIES
OF SUBSIDIARY TRUST HOLDING
SOLELY JUNIOR SUBORDINATED
DEBENTURES OF TRENWICK $110,000 $112,160 $ - $ - Note 5
</TABLE>
51
<PAGE> 54
NOTE 11 EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
INCOME AVAILABLE TO COMMON STOCKHOLDERS:
Income before extraordinary item (basic) $36,289 $33,848 $29,841
Add interest on convertible debentures,
net of income taxes 578 4,228 4,216
------- ------- -------
Income before extraordinary item (diluted) $36,867 $38,076 $34,057
======= ======= =======
Net income (basic) $35,252 $33,848 $29,841
Add interest on convertible debentures and
loss on debt redemption, net of income taxes 1,615 4,228 4,216
------- ------- -------
Net income (diluted) $36,867 $38,076 $34,057
======= ======= =======
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Weighted average shares outstanding (basic) 11,645 9,959 9,674
Weighted average shares issuable on
conversion of debt 447 3,201 3,201
Weighted average shares issuable on exercise of
employee stock options, net of assumed
repurchases 173 192 274
------- ------- -------
Weighted average shares outstanding (diluted) 12,265 13,352 13,149
======= ======= =======
PER SHARE AMOUNTS:
Basic
Income before extraordinary item $ 3.12 $ 3.40 $ 3.09
======= ======= =======
Net income $ 3.03 $ 3.40 $ 3.09
======= ======= =======
Diluted
Income before extraordinary item $ 3.01 $ 2.85 $ 2.59
======= ======= =======
Net income $ 3.01 $ 2.85 $ 2.59
======= ======= =======
</TABLE>
52
<PAGE> 55
NOTE 12 UNAUDITED QUARTERLY FINANCIAL DATA
Summarized unaudited quarterly financial data reported by Trenwick for the years
ended December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER JUNE MARCH
Quarter ended 31 30 30 31
-- -- -- --
(dollars in thousands,
except per share data)
<S> <C> <C> <C> <C> <C>
Earned premiums 1997 $ 45,414 $ 43,723 $ 47,105 $ 53,914
1996 54,994 55,008 53,376 47,691
1995 46,032 43,200 43,698 44,464
Net investment income 1997 12,372 12,178 12,123 11,729
1996 10,840 10,332 10,185 9,869
1995 9,737 9,354 9,193 8,544
Net realized 1997 388 -- 1 1,915
investment gains 1996 281 (21) (11) 50
(losses) 1995 87 131 52 98
Net income 1997 9,122 8,773 8,593 8,764
1996 8,819 8,520 8,327 8,182
1995 8,041 7,956 7,340 6,504
Basic earnings 1997 .77 .74 .72 .81
per common share 1996 .88 .85 .84 .83
1995 .83 .82 .76 .68
Diluted earnings 1997 .75 .73 .71 .81
per common share 1996 .74 .72 .70 .69
1995 .69 .68 .64 .58
Dividends per common 1997 .24 .25 .24 .24
share 1996 .21 .21 .21 .21
1995 .19 .19 .19 .19
Common stock 1997 38.75 39.50 39.63 34.00
price: high 1996 35.83 36.17 35.67 37.83
1995 38.33 35.33 30.50 29.50
Common stock 1997 34.00 34.75 31.83 30.67
price: low 1996 30.67 32.50 30.67 33.50
1995 33.00 28.50 27.83 27.17
</TABLE>
All share and per share information reflects a 3-for-2 stock split, paid on
April 15, 1997.
The earnings per share amounts prior to 1997 have been restated to comply with
the newly adopted accounting standard, "Earnings Per Share".
The stock prices are based on closing prices reported by the NASDAQ National
Market System.
53
<PAGE> 56
NOTE 13 SUBSEQUENT EVENT (UNAUDITED)
On February 27, 1998, Trenwick completed the acquisition of SOREMA (UK) Limited
(renamed Trenwick International Limited) from SOREMA S.A. for cash in the
amount of $60,619,000 which approximated book value. Trenwick International
Limited is based in London and underwrites specialty treaty and facultative
insurance and reinsurance on a worldwide basis. For the year ended December 31,
1997, Trenwick International Limited had gross and net premiums written of
approximately $101,811,000 and $70,035,000, respectively. The acquisition will
be accounted for as a purchase.
54
<PAGE> 57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Incorporated by reference to the captions "Board of Directors", "Management",
and "Executive Compensation" in the Proxy Statement for the Annual Meeting in
1998 ("Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the caption "Executive Compensation" in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the caption "Principal Stockholders" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the caption "Certain Relationships and Related
Transactions" in the Proxy Statement.
55
<PAGE> 58
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) Documents
(1)&(2) The Financial Statements, Schedules and the Report of Independent
Accountants on the Financial Statement Schedules, listed in the
accompanying index on Page 27, are filed as part of this Report.
(3) Exhibits
3.1 Restated Certificate of Incorporation of Trenwick Group Inc.
with Certificates of Amendment thereto. Incorporated by
reference to Exhibit 3.1 to Trenwick's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997. File No.
0-14737.
3.2 (a) Certificate of Elimination amending Trenwick's
Restated Certificate of Incorporation to eliminate
all reference to Series A Junior Participating
Preferred Stock. Incorporated by reference to Exhibit
3.1(a) to Trenwick's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997. File No.
0-14737.
(b) Certificate of Designation amending the Restated
Certificate of Incorporation of Trenwick Group Inc.
to create Series B Junior Participating Preferred
Stock. Incorporated by reference to Exhibit 3.2(b) to
Trenwick's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997. File No. 0-14737.
3.3 Trenwick's By-laws. Incorporated by reference to Exhibit 3.2
to Trenwick's Registration Statement on Form S-1, File No.
33-5085.
4.1 Rights Agreement dated as of September 24, 1997 between
Trenwick and First Chicago Trust Company of New York
including, as Exhibit A thereto, a form of Rights Certificate.
Incorporated by reference to Exhibit 1 to Trenwick's Form 8-A
filed September 24, 1997, File No. 0-14737.
4.2 (a) Indenture dated as of January 31, 1997, between The
Chase Manhattan Bank and Trenwick. Incorporated by
reference to Exhibit 4.2(a) to Trenwick's Annual
Report on Form 10-K for the year ended December 31,
1996, File No. 0-14737.
(b) Amended and Restated Declaration of Trust of Trenwick
Capital Trust I dated as of January 31, 1997.
Incorporated by reference to Exhibit 4.2(b) to
Trenwick's Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 0-14737.
(c) Exchange Capital Securities Guarantee Agreement dated
as of July 25, 1997, between Trenwick and The Chase
Manhattan Bank, as Trustee. Incorporated by reference
to Exhibit 4.7 to Trenwick's Registration Statement
on Form S-4, File No. 333-28707.
56
<PAGE> 59
+10.1 Trenwick Incentive Stock Option Plan, as amended through
August 3, 1993. Incorporated by reference to Exhibit 10.1 to
Trenwick's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-14737.
10.2 Incentive Stock Option Agreement between Trenwick and James F.
Billett, Jr. Incorporated by reference to Exhibit 10.11 to
Trenwick's Registration Statement on Form S-1, File No.
33-5085.
10.3 Form of Stock Option Agreement for executive officers
(performance options). Incorporated by reference to Exhibit
10.32 to Trenwick's Annual Report on Form 10-K for the year
ended December 31, 1988, File No. 0-14737.
10.4 Form of Restricted Stock Agreement for executive officers.
Incorporated by reference to Exhibit 10.31 to Trenwick's
Annual Report on Form 10-K for the year ended December 31,
1988, File No. 0-14737.
10.5 Trenwick 1989 Stock Plan, as amended through August 3, 1993.
Incorporated by reference to Exhibit 10.8 to Trenwick's Annual
Report on Form 10-K for the year ended December 31, 1994, File
No. 0-14737.
10.6 Form of Non-qualified Stock Option Agreement for executive
officers. Incorporated by reference to Exhibit 10.36 to
Trenwick's Annual Report on Form 10-K for the year ended
December 31, 1989, File No. 0-14737.
10.7 Trenwick 1993 Stock Option Plan, as amended. Incorporated by
reference to Appendix A to Trenwick's Proxy Statement for the
1997 Annual Meeting of Stockholders, File No. 0-14737.
10.8 Form of 1993 Stock Option Plan Non-qualified Stock Option
Agreement for executive officers. Incorporated by reference to
Exhibit 10.11 to Trenwick's Annual Report on Form 10-K for the
year ended December 31, 1994, File No. 0-14737.
10.9 Trenwick 1993 Stock Option Plan for Non-Employee Directors.
Incorporated by reference to Exhibit 10.2 to Trenwick's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994, File No. 0-14737.
10.10 Trenwick Near Term Cash Bonus Plan. Incorporated by reference
to Exhibit 10.10 to Trenwick's Registration Statement on Form
S-1, File No. 33-5085.
10.11 Trenwick Unfunded Supplemental Executive Retirement Plan, as
amended through December 14, 1993. Incorporated by reference
to Exhibit 10.14 to Trenwick's Annual Report on Form 10-K for
the year ended December 31, 1994, File No. 0-14737.
+ As required by Item 14, each of Exhibits 10.1 through 10.15 is hereby
identified as a management contract or compensatory plan or
arrangement.
57
<PAGE> 60
10.12 Leased Automobile Policy for executive officers. Incorporated
by reference to Exhibit 10.15 to Trenwick's Annual Report on
Form 10-K for the year ended December 31, 1994, File No.
0-14737.
10.13 Description of life insurance and long-term disability
insurance coverage for executive officers. Incorporated by
reference to Exhibit 10.16 to Trenwick's Annual Report on Form
10-K for the year ended December 31, 1994, File No. 0-14737.
10.14 Trenwick Directors Deferred Compensation Plan. Incorporated by
reference to Exhibit 10.17 to Trenwick's Annual Report on Form
10-K for the year ended December 31, 1994, File No. 0-14737.
10.15 Description of Trenwick Directors Retirement Plan.
Incorporated by reference to Exhibit 10.18 to Trenwick's
Annual Report on Form 10-K for the year ended December 31,
1994, File No. 0-14737.
10.16 Office lease between Trenwick and EOP-Canterbury Green, L.L.C.
dated as of January 29, 1998.
10.17 Aggregate Excess of Loss Reinsurance Agreement between
Trenwick and National Indemnity Company dated December 31,
1984 and amendment thereto. Incorporated by reference to
Exhibit 10.29 to Trenwick's registration statement on Form
S-1, File No. 33-5085.
10.18 Automobile Liability First Excess of Loss/Quota Share
Reinsurance Agreement between Trenwick and the Canal Insurance
Company/Canal Indemnity Company.*
10.19 Interests and Liabilities Agreement between Trenwick and
Kemper Reinsurance Group and participants thereon.*
10.20 Property Catastrophe Treaty between Trenwick and numerous
reinsurers.*
10.21 Special Catastrophe Excess of Loss Reinsurance Agreement
Placement Slip between Trenwick and each of Continental
Casualty Company, Zurich Reinsurance Company of New York,
Folksamerica Reinsurance Company, and Kemper Reinsurance
Company.*
10.22 Property Quota Share Retrocession Placement Slip between
Trenwick and each of Toa-Re Insurance Co. (U.K.) Ltd. and
Underwriters at Lloyd's.*
10.23 Property Pro Rata Retrocessional Agreement between PXRE
Reinsurance Company and Trenwick. Incorporated by reference to
Exhibit 10.24 to Trenwick's Annual Report on Form 10-K for the
year ended December 31, 1993, File No. 0-14737.
* Incorporated by reference to Exhibits 10.40, 10.41, 10.43, 10.44 and
10.45 to Amendment No. 1 to Trenwick's Annual Report on Form 10-K for
the year ended December 31, 1991, filed with the Commission on December
8, 1992, File No. 0-14737.
58
<PAGE> 61
10.24 Coinsured Aggregate Excess of Loss Reinsurance Agreement
between Trenwick and Centre Reinsurance Company of New York.
Incorporated by reference to Exhibit 10.28 to Trenwick's
Annual Report on Form 10-K for the year ended December 31,
1994, File No. 0-14737.
10.25 1995 First Facultative Casualty Excess of Loss Reinsurance
Agreement between Trenwick and numerous reinsurers.
Incorporated by reference to Exhibit 10.3 to Trenwick's Annual
Report on Form 10-K for the year ended December 31, 1995, File
No. 0-14737.
10.26 1996 First Facultative Casualty Excess of Loss Reinsurance
Agreement between Trenwick and numerous reinsurers.
Incorporated by reference to Exhibit 10.31 to Trenwick's
Annual Report on Form 10-K for the year ended December 31,
1996, File No. 0-14737.
10.27 1996 Coinsured Aggregate Excess of Loss Reinsurance Agreement
between Trenwick and Centre Reinsurance Company of New York
and CNA Re. Incorporated by reference to Exhibit 10.32 to
Trenwick's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 0-14737.
10.28 1997 First Layer Property Catastrophe Excess of Loss Agreement
with Trenwick and several reinsurers.
10.29 1997 Special Catastrophe Excess of Loss Retrocessional
Agreement between Trenwick and several reinsurers.
10.30 1997 Catastrophe Excess of Loss Reinsurance Agreement
Placement Slip between Trenwick and several reinsurers.
10.31 1997 First and Second Coinsured Aggregate Excess of Loss
Reinsurance Agreement between Trenwick and Centre Reinsurance
Company of New York and CNA Re.
10.32 1997 First Casualty Retrocessional Excess of Loss Reinsurance
Agreement between Trenwick and several reinsurers.
10.33 1997 Reverse Franchise Catastrophe Excess of Loss Reinsurance
Agreement between Trenwick and several reinsurers.
12.0 Computation of Ratios.
21.0 List of Subsidiaries.
23.0 Consent of Price Waterhouse LLP.
27.0 Financial Data Schedule.
28.0 Information from reports furnished to state insurance
regulatory authorities.
(B) Reports on Form 8-K
None
59
<PAGE> 62
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
TRENWICK GROUP INC.
(Registrant)
By JAMES F. BILLETT, JR.
----------------------
James F. Billett, Jr.
Chairman, President and
Chief Executive Officer
Dated: March 19, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
JAMES F. BILLETT, JR. Chairman of the Board, March 19, 1998
- ----------------------------
James F. Billett, Jr. President and Chief
Executive Officer and
Director (Principal
Executive Officer)
ALAN L. HUNTE Vice President and March 19, 1998
- ----------------------------
Alan L. Hunte Treasurer (Principal
Financial Officer and
Accounting Officer)
ANTHONY S. BROWN Director March 19, 1998
- ----------------------------
Anthony S. Brown
60
<PAGE> 63
NEIL DUNN Director March 19, 1998
- -----------------------------
Neil Dunn
W. MARSTON BECKER Director March 19, 1998
- -----------------------------
W. Marston Becker
P. ANTHONY JACOBS Director March 19, 1998
- -----------------------------
P. Anthony Jacobs
HERBERT PALMBERGER Director March 19, 1998
- -----------------------------
Herbert Palmberger
JOSEPH D. SARGENT Director March 19, 1998
- -----------------------------
Joseph D. Sargent
FREDERICK D. WATKINS Director March 19, 1998
- -----------------------------
Frederick D. Watkins
STEPHEN R. WILCOX Director March 19, 1998
- -----------------------------
Stephen R. Wilcox
61
<PAGE> 64
TRENWICK GROUP INC. AND SUBSIDIARIES
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Assets:
Investments in consolidated subsidiaries $ 389,604 $346,060
Debt securities available for sale
at fair value (amortized cost: $71,652 and $14,793) 72,032 14,814
Cash and cash equivalents 5,108 2,964
Due from consolidated subsidiaries 6,211 4,303
Deferred debt issuance costs 1,681 986
Accrued investment income 607 2
Net deferred income taxes -- 391
Other assets 8 9
--------- --------
Total assets $ 475,251 $369,529
========= ========
Liabilities:
Convertible debentures -- $103,500
Junior subordinated debentures $ 113,403 --
Accrued interest expense 4,168 276
Net deferred income taxes 14 --
Other liabilities 17 --
--------- --------
Total liabilities 117,602 103,776
Stockholders' equity 357,649 265,753
--------- --------
Total liabilities and stockholders' equity $ 475,251 $369,529
========= ========
</TABLE>
S-1
<PAGE> 65
TRENWICK GROUP INC. AND SUBSIDIARIES
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF
REGISTRANT STATEMENT OF INCOME -- PARENT COMPANY ONLY
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Revenues:
Consolidated subsidiary dividends $ 8,250 $ 9,100 $ 9,500
Net investment income 4,974 1,000 940
-------- -------- --------
Total revenues 13,224 10,100 10,440
Interest and operating expenses 10,090 6,504 6,486
-------- -------- --------
Income before income taxes, extraordinary item and
equity in undistributed income of unconsolidated
subsidiaries 3,134 3,596 3,954
Income tax benefit (1,239) (1,997) (1,954)
-------- -------- --------
Income before extraordinary item and equity in
undistributed income of consolidated subsidiaries 4,373 5,593 5,908
Extraordinary loss on debt redemption,
net of $558 income tax benefit 1,037 -- --
-------- -------- --------
Income before equity in undistributed
income of consolidated subsidiaries 3,336 5,593 5,908
Equity in undistributed income of
consolidated subsidiaries 31,916 28,255 23,933
-------- -------- --------
Net income $ 35,252 $ 33,848 $ 29,841
======== ======== ========
</TABLE>
S-2
<PAGE> 66
TRENWICK GROUP INC. AND SUBSIDIARIES
SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS -- PARENT COMPANY ONLY
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Dividends and net investment income received $ 12,642 $ 10,537 $ 10,436
Interest and operating expenses paid (4,983) (5,642) (5,678)
Income taxes received 794 2,061 2,116
--------- -------- --------
Cash provided by operating activities 8,453 6,956 6,874
--------- -------- --------
Cash flows for investing activities:
Purchases of debt securities (72,932) -- --
Maturities of debt securities 16,050 -- --
Investment in Trenwick Capital Trust I (3,403) -- --
--------- -------- --------
Cash used for investing activities (60,285) -- --
--------- -------- --------
Cash flows for financing activities:
Issuance of mandatorily redeemable preferred
capital securities 113,403 -- --
Redemption of convertible debentures (46,997) -- --
Issuance costs of capital securities (1,669) -- --
Issuance of common stock 956 4,001 1,657
Repurchase of common stock (171) (1,031) (134)
Dividends paid (11,546) (8,285) (7,287)
--------- -------- --------
Cash provided by (used for) financing activities 53,976 (5,315) (5,764)
--------- -------- --------
Change in cash and cash equivalents 2,144 1,641 1,110
Cash and cash equivalents, beginning of year 2,964 1,323 213
--------- -------- --------
Cash and cash equivalents, end of year $ 5,108 $ 2,964 $ 1,323
========= ======== ========
</TABLE>
S-3
<PAGE> 67
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Trenwick Group Inc.
Our audits of the consolidated financial statements referred to in our report
dated January 27, 1998, appearing on Page 28 of this Annual Report on Form 10-K
also included an audit of the Financial Statement Schedules listed in Item 14
of this Form 10-K. In our opinion, these Financial Statement Schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
New York, New York
January 27, 1998
S-4
<PAGE> 1
ONE CANTERBURY GREEN
STAMFORD, CONNECTICUT
STANDARD FORM OFFICE LEASE
BETWEEN
EOP-CANTERBURY GREEN, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY ("LANDLORD"),
AND
TRENWICK AMERICA CORPORATION, A DELAWARE CORPORATION ("TENANT")
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. BASIC LEASE INFORMATION; DEFINITIONS.......................................................1
II. LEASE GRANT................................................................................6
III. ADJUSTMENT OF COMMENCEMENT DATE/POSSESSION.................................................6
IV. RENT.......................................................................................7
V. USE.......................................................................................13
VI. SECURITY DEPOSIT..........................................................................13
VII. SERVICES TO BE FURNISHED BY LANDLORD......................................................13
VIII. LEASEHOLD IMPROVEMENTS....................................................................16
IX. GRAPHICS..................................................................................16
X. REPAIRS AND ALTERATIONS...................................................................17
XI. USE OF ELECTRICAL SERVICES BY TENANT......................................................18
XII. ENTRY BY LANDLORD.........................................................................19
XIII. ASSIGNMENT AND SUBLETTING.................................................................19
XIV. LIENS.....................................................................................21
XV. INDEMNITY AND WAIVER OF CLAIMS............................................................22
XVI. TENANT'S INSURANCE........................................................................23
XVII. SUBROGATION...............................................................................24
XVIII. LANDLORD'S INSURANCE......................................................................24
XIX. CASUALTY DAMAGE...........................................................................25
XX. DEMOLITION................................................................................26
XXI. CONDEMNATION..............................................................................26
XXII. EVENTS OF DEFAULT.........................................................................26
XXIII. REMEDIES..................................................................................27
XXIV. LIMITATION OF LIABILITY...................................................................29
XXV. NO WAIVER.................................................................................29
XXVI. EVENT OF BANKRUPTCY.......................................................................30
XXVII. WAIVER OF JURY TRIAL......................................................................31
XXVIII. RELOCATION................................................................................31
XXIX. HOLDING OVER..............................................................................31
XXX. SUBORDINATION TO MORTGAGES; ESTOPPEL CERTIFICATE..........................................31
XXXI. ATTORNEYS' FEES...........................................................................32
XXXII. NOTICE....................................................................................33
XXXIII. LANDLORD'S LIEN...........................................................................33
XXXIV. EXCEPTED RIGHTS...........................................................................33
XXXV. SURRENDER OF PREMISES.....................................................................34
XXXVI. MISCELLANEOUS.............................................................................34
XXXVII. ENTIRE AGREEMENT..........................................................................36
</TABLE>
i
<PAGE> 3
OFFICE LEASE AGREEMENT
This Office Lease Agreement (the "Lease") is made and entered into as
of the ____ day of __________, 1998, by and between EOP-CANTERBURY GREEN,
L.L.C., A DELAWARE LIMITED LIABILITY COMPANY ("Landlord") and TRENWICK AMERICA
CORPORATION, A DELAWARE CORPORATION ("Tenant").
I. BASIC LEASE INFORMATION; DEFINITIONS.
A. The following are some of the basic lease information and
defined terms used in this Lease.
1. "Additional Base Rental" shall mean Tenant's Pro Rata
Share of Basic Costs and any other sums (exclusive of
Base Rental) that are required to be paid by Tenant
to Landlord hereunder, which sums are deemed to be
additional rent under this Lease. Additional Base
Rental and Base Rental are sometimes collectively
referred to herein as "Rent".
2. "Base Rental" shall mean the sums that Tenant is
required to pay to Landlord in accordance with the
following schedule. The aggregate amount of Base
Rental that Tenant is required to pay to Landlord
during the initial Lease Term is ten million seven
hundred twenty-eight thousand two hundred fifty-five
and 60/100 dollars ($10,728,255.60), plus the amount
of any Base Rental payable with respect to any
partial month in which the Commencement Date occurs.
Such Base Rental shall be payable by Tenant to
Landlord as follows:
a. sixty (60) equal installments of eighty-nine
thousand four hundred two and 13/100 Dollars
($89,402.13), each payable on or before the
first day of each month during the period
beginning on the Commencement Date
(hereinafter defined) and ending on the last
day of the sixtieth (60th) full calendar
month of the Lease Term, provided that the
installment of Base Rental for the third
(3rd) full calendar month of the Lease Term
shall be payable upon the execution of this
Lease by Tenant. In the event that the
Commencement Date does not occur on the
first day of a calendar month, Tenant shall
pay Base Rental for such initial partial
calendar month at the rate of two thousand
nine hundred thirty-nine and 25/100 dollars
($2,939.25) per day. Notwithstanding the
foregoing to the contrary, provided Tenant
is not in default after the expiration of
applicable cure periods, Tenant shall be
entitled to receive a full abatement of Base
Rental with respect to the first sixty (60)
days of the Lease Term (the "Abatement
Period"). In addition to performing Initial
Alterations (hereinafter defined) during the
Abatement Period, Tenant shall be entitled
to use the Premises for the Permitted Use
during the Abatement Period without any
obligation to pay Base Rental.
b. sixty (60) equal installments of
ninety-eight thousand twenty-six and 13/100
Dollars ($98,026.13), each payable on or
before the first day of each month during
the period beginning on the first day of the
sixty-first (61st) full calendar month of
the Lease Term and ending on the Termination
Date (hereinafter defined).
3. "Building" shall mean the office building located at
One Canterbury Green, County of Fairfield, State of
Connecticut, commonly known as Canterbury Green.
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<PAGE> 4
4. The "Commencement Date," "Lease Term" and
"Termination Date" shall have the meanings set forth
in subsection I.A.4.a. below or subsection I.A.4.b.
below (delete one):
a. The "Lease Term" shall mean a period of one
hundred twenty (120) months commencing on
the Commencement Date, provided if the
Commencement Date does not occur on the
first day of a calendar month, the Lease
Term shall automatically be extended by the
number of days in the period beginning on
the Commencement Date and ending on the last
day of the month in which the Commencement
Date occurs. For purposes hereof, the
Commencement Date shall mean the date on
which Landlord delivers the Premises to
Tenant free from occupancy by NationsCredit
Commercial Corporation ("Nations"), the
existing tenant in the Premises, or any
other party. The "Termination Date" shall,
unless sooner terminated as provided herein,
mean the last day of the Lease Term. Tenant
acknowledges that Nations is currently
leasing the Premises, exclusive of the
Stamford Atlanta Space (hereinafter defined)
pursuant to the terms of a lease (the
"Nations Lease") that is currently scheduled
to expire on September 16, 1998. Landlord
agrees to use good faith efforts to
negotiate an agreement with Nations pursuant
to which the Nations Lease would terminate
prior to its scheduled expiration date. In
the event Landlord and Nations enter into an
agreement accelerating the expiration date
of the Nations Lease, Landlord shall provide
Tenant with written notice (the "Early
Commencement Notice") setting forth the new
expiration date of the Nations Lease and the
date on which Landlord intends to provide
Tenant with possession of the Premises (i.e.
the targeted Commencement Date). Such Early
Commencement Notice shall be delivered to
Tenant not less than fifteen (15) days prior
to the date on which Landlord intends to
provide Tenant with possession of the
Premises. Notwithstanding the foregoing, in
no event shall the Commencement Date occur
prior to May 1, 1998 without the written
consent of Tenant.
Notwithstanding the foregoing to the
contrary, Tenant acknowledges that a 2,741
rentable square foot portion of the fourth
floor (the "Stamford Atlanta Space") is
currently leased to Stamford Atlanta Capital
("Stamford Atlanta") for a lease term that
is currently scheduled to expire on October
31, 1998. In the event that Tenant has not
exercised its Substitution Option
(hereinafter defined) and Landlord is unable
to deliver the Stamford Atlanta Space on or
before the date on which is delivers the
remainder of the Premises, the Commencement
Date with respect to the Stamford Atlanta
Space only shall be postponed, and all Rent
with respect to the Stamford Atlanta Space
abated, until the date on which the Stamford
Atlanta Space is delivered. The Commencement
Date for the remainder of the Premises shall
commence in accordance with the terms and
conditions hereof. In addition, if Landlord
fails to provide Tenant with possession of
the Stamford Atlanta Space on or before
November 1, 1998 (the "Outside Delivery
Date"), Tenant shall be entitled to a rent
abatement following the delivery of the
Stamford Atlanta Space in the amount of two
hundred thirty-three and 55/100 dollars
($233.55) per day for every day in the
period beginning on the Outside Delivery
Date and ending on the day prior to the date
on which Landlord provides Tenant with
possession of the Stamford Atlanta Space.
For example, if Landlord provides Tenant
with possession of the Stamford Atlanta
Space on November 15, 1998,
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<PAGE> 5
Tenant shall not be obligated to pay Rent
with respect to the Stamford Atlanta Space
with respect to the period prior to November
15, 1998 and, in addition, Tenant shall be
entitled to receive an abatement of Rent in
the amount of $3,269.70 (i.e. 14 x $233.55 =
$3,269.70).
b. Intentionally Omitted.
5. "Premises" shall mean the area located on the second
(2nd) and fourth (4th) floors of the Building, as
outlined on Exhibits A and A-1 attached hereto.
Landlord and Tenant hereby stipulate and agree that
the "Rentable Area of the Premises" shall mean 34,496
square feet, consisting of 22,797 square feet on the
2nd floor as shown on Exhibit A and 11,699 square
feet on the fourth (4th) floor as shown on Exhibit
A-1 (the "Fourth Floor Space"). The "Rentable Area of
the Building" shall mean 217,500 square feet. If the
Premises being leased to Tenant hereunder include one
or more floors within the Building in their entirety,
the definition of Premises with respect to such full
floor(s) shall include all corridors and restroom
facilities located on such floor(s). Unless
specifically provided herein to the contrary, the
Premises shall not include any telephone closets,
electrical closets, janitorial closets, equipment
rooms or similar areas on any full or partial floor
that are used by Landlord for the operation of the
Building.
Notwithstanding anything herein to the contrary,
Landlord and Tenant acknowledge that the Third Floor
Space (hereinafter defined) is currently leased by
Coopers & Lybrand ("Coopers") for a term that is
currently scheduled to expire on November 17, 1998.
Such expiration, however, is subject to Coopers right
to extend the term of its lease for up to two (2)
additional periods of five (5) years each. In the
event that Coopers does not elect to extend the term
of its Lease, pursuant to an exercise of its renewal
option, Landlord shall provide Tenant with written
notice (the "Substitution Notice") of the fact that
the Coopers lease will not be extended. Upon receipt
of a Substitution Notice from Landlord, Tenant, by
written notice that is delivered to Landlord within
ten (10) days after Tenant's receipt of the
Substitution Notice, shall have the right (the
"Substitution Option") to elect to substitute the
Third Floor Space for the Fourth Floor Space as
Premises hereunder. For purposes hereof, the Third
Floor Space shall mean the 13,936 square feet of
space shown on Exhibit A-2 attached hereto. In the
event Tenant exercises its Substitution Option,
Landlord and Tenant shall promptly enter into an
amendment to this Lease to modify (i) the total
square footage, (ii) the definition of the Premises,
(iii) Tenant's Pro Rata Share, (iv) the aggregate
amount of Base Rental and the amount of the monthly
installments thereof, and (v) the amount of the
Allowance. Landlord and Tenant acknowledge and agree
that, if Tenant is entitled to and appropriately
exercises its Substitution Option, the Third Floor
Space shall be leased upon the same terms and
conditions as a set forth herein with respect to the
remainder of the Premises, including, without
limitation, the same rate per square foot for Base
Rental and Allowance. Notwithstanding the foregoing,
the Commencement Date for the Third Floor Space shall
mean the date on which Landlord delivers the Third
Floor Space to Tenant free from occupancy by Coopers
or any other party, provided that, without the
written consent of Tenant, in no event shall the
Commencement Date for the Third Floor Space occur
prior to the Commencement Date for the remainder of
the Premises. The Commencement Date for the remainder
of the Premises shall be as set forth in Section
I.A.4. above. In the event the Commencement Date for
the Third Floor Space occurs subsequent to the
Commencement Date for the remainder of the Premises,
the Lease Term shall be determined based upon the
initial Commencement Date, it being agreed that
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<PAGE> 6
the Lease Term for the Third Floor Space and the
remainder of the Premises shall expire coterminously.
6. "Permitted Use" shall mean general office use.
7. "Security Deposit" shall mean the sum of Zero Dollars
($0).
8. "Tenant's Pro Rata Share" shall mean FIFTEEN AND
EIGHTY-SIX ONE HUNDREDTHS PERCENT (15.86%), which is
the quotient (expressed as a percentage), derived by
dividing the Rentable Area of the Premises by the
Rentable Area of the Building.
9. "Guarantor(s)" shall mean any party that agrees in
writing to guarantee the Lease.
10. "Notice Addresses" shall mean the following addresses
for Tenant and Landlord, respectively:
Tenant:
On and after the Commencement Date, notices shall be
sent to Tenant at the Premises.
Prior to the Commencement Date, notices shall be sent
to Tenant at the following address:
Trenwick America Corporation
Metro Center
One Station Place
Stamford, CT 06902
Attention: Michelle Diener
Landlord:
EOP - Canterbury Green, L.L.C.
c/o Equity Office Properties
One Canterbury Green
Stamford, CT 06901
Attention: Building Manager
With a copy to:
Equity Office Properties
Two North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Attention: General Counsel for Property Operations
Payments of Rent only shall be made payable to the
order of:
EQUITY OFFICE PROPERTIES
at the following address:
Equity Office Properties
dba Canterbury Green
Dept. 0426
P.O. Box 40000
Hartford, CT 06151-0426
B. The following are additional definitions of some of the
defined terms used in the Lease.
1. "Base Year" shall mean the calendar year 1999. Tenant
acknowledges that Taxes are billed to Landlord based
upon a fiscal year of July 1st through June 30th.
Tenant further acknowledges that Taxes for the Base
Year shall be the average
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<PAGE> 7
of the Taxes payable by Landlord for the fiscal year
of July 1, 1998 to June 30, 1999 and the fiscal year
of July 1, 1999 to June 30, 2000. Likewise, Taxes for
any subsequent calendar year after the Base Year
shall reflect the average of Taxes for the two (2)
fiscal years that fall within such calendar year.
2. "Basic Costs" shall mean Taxes (hereinafter defined)
and all costs and expenses paid or incurred in
connection with operating, maintaining, repairing and
managing the Building and the Property, as further
described in Article IV hereof. Notwithstanding the
foregoing, for the purpose of determining Tenant's
Pro Rata Share of Basic Costs, Basic Costs shall
include only Taxes and Expenses attributable to the
Rentable Area of the Office Portions of the Building
(i.e. 217,500 square feet), it being understood that
the Building includes residential, office and retail
portions. The Taxes and Expenses attributable only to
the Rentable Area of the Office Portions of the
Building and Property are determined as follows: (i)
Taxes are split between the residential portion of
the Building and the Commercial Portion of the
Building (hereinafter defined) on a 30/70 basis, with
30% of Taxes being allocated to the residential
portions and 70% being allocated to the Commercial
Portion. For purposes hereof, the "Commercial Portion
of the Building" shall consist collectively of the
office and retail portions and shall exclude the
residential portions; (ii) Expenses that are common
to the entire Building and Property (e.g.
landscaping) are split between the residential
portion of the Building and the Commercial Portion of
the Building on a 30/70 basis, with 30% of common
Expenses being allocated to the residential portions
and 70% being allocated to the Commercial Portion;
(iii) any Expenses that are contracted only for or
separately for either the residential portion of the
Building or the Commercial Portion of the Building
(e.g. elevator maintenance) shall be included in
Basic Costs only if such Expenses are contracted for
with respect to the Commercial Portion of the
Building; and (iv) once Basic Costs (i.e. Taxes and
Expenses) for the Commercial Portions of the Building
have been determined, such Basic Costs are allocated
on a 95/5 basis, with 95% of Basic Costs being
attributable to the office portions of the Building
and 5% being attributed to the Rentable Area of the
Retail Portions of the Building.
3. "Broker" means Albert B. Ashforth, Inc..
4. "Building Standard" shall mean the type, grade,
brand, quality and/or quantity of materials Landlord
designates from time to time to be the minimum
quality and/or quantity to be used in the Building.
5. "Business Day(s)" shall mean Mondays through Fridays
exclusive of the normal business holidays
("Holidays") of New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Landlord, from time to time during the
Lease Term, shall have the right to designate
additional Holidays, provided that such additional
Holidays are commonly recognized by other office
buildings in the area where the Building is located.
6. "Common Areas" shall mean those areas provided for
the common use or benefit of all tenants generally
and/or the public, such as corridors, elevator
foyers, common mail rooms, restrooms, vending areas,
lobby areas (whether at ground level or otherwise)
and other similar facilities.
7. Intentionally Omitted.
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<PAGE> 8
8. "Maximum Rate" shall mean the greatest per annum rate
of interest permitted from time to time under
applicable law.
9. "Normal Business Hours" for the Building shall mean
8:00 A.M. to 6:00 P.M. Mondays through Fridays,
exclusive of Holidays.
10. "Prime Rate" shall mean the per annum interest rate
publicly announced by The First National Bank of
Chicago or any successor thereof from time to time
(whether or not charged in each instance) as its
prime or base rate in Chicago, Illinois.
11. "Property" shall mean the Building and the parcel(s)
of land on which it is located and the Building
garage and all other improvements owned by Landlord
and serving the Building and the tenants thereof and
the parcel(s) of land on which they are located.
II. LEASE GRANT.
Subject to and upon the terms herein set forth, Landlord leases to
Tenant and Tenant leases from Landlord the Premises, together with the right, in
common with others, to use the Common Areas.
III. ADJUSTMENT OF COMMENCEMENT DATE/POSSESSION.
A. Promptly after the determination of the Commencement Date,
Landlord and Tenant shall enter into a letter agreement (the
"Commencement Letter") on the form attached hereto as Exhibit
C setting forth the Commencement Date, the Termination Date
and any other dates that are affected by the adjustment of the
Commencement Date. Tenant, within five (5) days after receipt
thereof from Landlord, shall execute the Commencement Letter
and return the same to Landlord.
B. By taking possession of the Premises, Tenant is deemed to have
accepted the Premises and agreed that the Premises is in good
order and satisfactory condition, with no representation or
warranty by Landlord as to the condition of the Premises or
the Building or suitability thereof for Tenant's use.
Notwithstanding the foregoing, Landlord hereby represents to
Tenant that the Premises, as currently demised, is in a
condition and configuration that can be occupied by Tenant for
the Permitted Use in accordance with any applicable building
codes and zoning ordinances.
C. Notwithstanding anything to the contrary contained in the
Lease, Landlord shall not be obligated to tender possession of
any portion of the Premises or other space leased by Tenant
from time to time hereunder that, on the date possession is to
be delivered, is occupied by a tenant or other occupant or
that is subject to the rights of any other tenant or occupant,
nor shall Landlord have any other obligations to Tenant under
this Lease with respect to such space until the date Landlord:
(1) recaptures such space from such existing tenant or
occupant; and (2) regains the legal right to possession
thereof. This Lease shall not be affected by any such failure
to deliver possession and Tenant shall have no claim for
damages against Landlord as a result thereof, all of which are
hereby waived and released by Tenant. Notwithstanding the
foregoing, if Landlord is unable to deliver possession of the
Premises, or applicable portion thereof, within sixty (60)
days after the date on which possession of such space is to
delivered in accordance with the terms hereof and the existing
occupant thereof is not actively engaged in the process of
vacating such space, Landlord shall thereafter proceed in good
faith and with due diligence to commence and pursue such
actions as are reasonably necessary to obtain possession of
such space for the benefit of Tenant, including the
commencement of necessary eviction and forcible detainer
proceedings. In addition, if Landlord is unable to obtain
possession of the Premises within ninety (90) days after the
date on which possession of such space
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<PAGE> 9
is to be delivered in accordance with the terms hereof,
Tenant, as its sole remedy, shall have the right to terminate
this Lease by written notice to Landlord given on or before
the date on which Landlord obtains possession of the Premises.
Notwithstanding the foregoing, Tenant shall not have the right
to terminate this Lease due solely to Landlord's failure to
deliver the Stamford Atlanta Space within the time periods
described above.
D. If Tenant takes possession of the Premises prior to the
Commencement Date, such possession shall be subject to all the
terms and conditions of the Lease and Tenant shall pay Base
Rental and Additional Base Rental to Landlord for each day of
occupancy prior to the Commencement Date. Notwithstanding the
foregoing, if Tenant, with Landlord's prior approval, takes
possession of the Premises prior to the Commencement Date for
the sole purpose of performing any Landlord-approved
improvements therein or installing furniture, equipment or
other personal property of Tenant, such possession shall be
subject to all of the terms and conditions of the Lease,
except that Tenant shall not be required to pay Base Rental or
Additional Base Rental with respect to the period of time
prior to the Commencement Date during which Tenant performs
such work. Tenant shall, however, be liable for the cost of
any services (e.g. electricity, HVAC, freight elevators) that
are provided to Tenant or the Premises during the period of
Tenant's possession prior to the Commencement Date. Nothing
herein shall be construed as granting Tenant the right to take
possession of the Premises prior to the Commencement Date,
whether for construction, fixturing or any other purpose,
without the prior consent of Landlord.
IV. RENT.
A. During each calendar year, or portion thereof, falling within
the Lease Term, Tenant shall pay to Landlord as Additional
Base Rental hereunder the sum of (1) Tenant's Pro Rata Share
of the amount, if any, by which Taxes (hereinafter defined)
for the applicable calendar year (determined in accordance
with Section I.B.1. above) exceed Taxes for the Base Year plus
(2) Tenant's Pro Rata Share of the amount, if any, by which
Expenses (hereinafter defined) for the applicable calendar
year exceed Expenses for the Base Year. For purposes hereof,
"Expenses" shall mean all Basic Costs with the exception of
Taxes. Tenant's Pro Rata Share of increases in Taxes and
Tenant's Pro Rata Share of increases in Expenses shall be
computed separately and independently of each other prior to
being added together to determine the "Excess." In the event
that Taxes and/or Expenses, as the case may be, in any
calendar year decrease below the amount of Taxes or Expenses
for the Base Year, Tenant's Pro Rata Share of Taxes and/or
Expenses, as the case may be, for such calendar year shall be
deemed to be $0, it being understood that Tenant shall not be
entitled to any credit or offset if Taxes and/or Expenses
decrease below the corresponding amount for the Base Year.
Prior to January 1, 2000 and prior to January 1 of each
calendar year during the Lease Term, or as soon thereafter as
practical, Landlord shall make a good faith estimate of the
Excess for the applicable calendar year and Tenant's Pro Rata
Share thereof. On or before the first day of each month during
such calendar year, Tenant shall pay to Landlord, as
Additional Base Rental, a monthly installment equal to
one-twelfth of Tenant's Pro Rata Share of Landlord's estimate
of the Excess. Landlord shall have the right from time to time
during any such calendar year (but not more than once in any
calendar year) to revise the estimate of Basic Costs and the
Excess for such year and provide Tenant with a revised
statement therefor, and thereafter the amount Tenant shall pay
each month shall be based upon such revised estimate. If
Landlord does not provide Tenant with an estimate of the Basic
Costs and the Excess by July 1 of any calendar year, Tenant
shall continue to pay a monthly installment based on the
previous year's estimate until such time as Landlord provides
Tenant with an estimate of Basic Costs and the Excess for the
current year. Upon receipt of such current year's estimate, an
adjustment shall be made for any month
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<PAGE> 10
during the current calendar year with respect to which Tenant
paid monthly installments of Additional Base Rental based on
the previous year's estimate. Tenant shall pay Landlord for
any underpayment within thirty (30) days after demand. Any
overpayment shall, at Landlord's option, be refunded to Tenant
or credited against the installment of Base Rental and
Additional Base Rental due for the months immediately
following the furnishing of such estimate. Any amounts paid by
Tenant based on any estimate shall be subject to adjustment
pursuant to the immediately following paragraph when actual
Basic Costs are determined for such calendar year.
As soon as is practical following the end of each calendar
year during the Lease Term, Landlord shall furnish to Tenant a
statement of Landlord's actual Basic Costs and the actual
Excess for the previous calendar year. If the estimated Excess
actually paid by Tenant for the prior year is in excess of
Tenant's actual Pro Rata Share of the Excess for such prior
year, then Landlord shall apply such overpayment against Base
Rental and Additional Base Rental due or to become due
hereunder, provided if the Lease Term expires prior to the
determination of such overpayment, Landlord, simultaneously
with the delivery of such statement to Tenant, shall refund
such overpayment to Tenant after first deducting the amount of
any Rent due hereunder. Likewise, Tenant shall pay to
Landlord, within thirty (30) days after demand, any
underpayment with respect to the prior calendar year, whether
or not the Lease has terminated prior to receipt by Tenant of
a statement for such underpayment, it being understood that
this clause shall survive the expiration of the Lease.
B. "Basic Costs" as defined in Section I.B.2. above shall
include, without limitation, the following:
1. All labor costs for all persons performing services
required or utilized in connection with the
operation, repair, replacement and maintenance of and
control of access to the Building and the Property,
including but not limited to amounts incurred for
wages, salaries and other compensation for services,
payroll, social security, unemployment and other
similar taxes, workers' compensation insurance,
uniforms, training, disability benefits, pensions,
hospitalization, retirement plans, group insurance or
any other similar or like expenses or benefits.
2. All management fees, the cost of equipping and
maintaining a management office at the Building,
accounting services, legal fees not attributable to
leasing and collection activity, and all other
administrative costs relating to the Building and the
Property. If management services are not provided by
a third party, Landlord shall be entitled to a
management fee comparable to that due and payable to
third parties provided Landlord or management
companies owned by, or management divisions of,
Landlord perform actual management services of a
comparable nature and type as normally would be
performed by third parties. In the event that any of
the Building's management and administrative
personnel perform material services in connection
with the operation and management of buildings other
than the Building, including, without limitation, the
building located at 177 Broad Street, the labor costs
in connection with such personnel shall be equitably
apportioned between the Building and such other
buildings. Likewise, if the Building management
office serves as a management office for buildings in
addition to the Building, the costs of equipping and
maintaining such management office shall be equitably
apportioned between the Building and such other
buildings.
3. All rental and/or purchase costs of materials,
supplies, tools and equipment used in the operation,
repair, replacement and
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<PAGE> 11
maintenance and the control of access to the Building
and the Property.
4. All amounts charged to Landlord by contractors and/or
suppliers for services, replacement parts,
components, materials, equipment and supplies
furnished in connection with the operation, repair,
maintenance, replacement of and control of access to
any part of the Building, or the Property generally,
including the heating, air conditioning, ventilating,
plumbing, electrical, elevator and other systems and
equipment. At Landlord's option, major repair items
may be amortized over a period of up to five (5)
years. Notwithstanding the foregoing, except to the
extent set forth in Subsection IV.B.11 below, it is
hereby agreed that any costs in connection with
replacements that would properly be considered to be
capital improvements under generally accepted
accounting principles shall be excluded from Basic
Costs.
5. All premiums and deductibles paid by Landlord for
fire and extended coverage insurance, earthquake and
extended coverage insurance, liability and extended
coverage insurance, rental loss insurance, elevator
insurance, boiler insurance and other insurance
customarily carried from time to time by landlords of
comparable office buildings or required to be carried
by Landlord's Mortgagee.
6. Charges for water, gas, steam and sewer, but
excluding those charges for which Landlord is
otherwise reimbursed by tenants, and charges for
Electrical Costs. For purposes hereof, the term
"Electrical Costs" shall mean: (i) all charges paid
by Landlord for electricity supplied to the Building,
Property and Premises, regardless of whether such
charges are characterized as distribution charges,
transmission charges, generation charges, public good
charges, disconnection charges, competitive
transaction charges, stranded cost recoveries or
otherwise; (ii) except to the extent otherwise
included in Basic Costs, any costs incurred in
connection with the energy management program for the
Building, Property and Premises, including any costs
incurred for the replacement of lights and ballasts
and the purchase and installation of sensors and
other energy saving equipment; and (iii) if and to
the extent permitted by law, a reasonable fee for the
services provided by Landlord in connection with the
selection of utility companies and the negotiation
and administration of contracts for the generation of
electricity. Notwithstanding the foregoing,
Electrical Costs shall be adjusted as follows: (a)
any amounts received by Landlord as reimbursement for
above standard electrical consumption shall be
deducted from Electrical Costs, (b) any amounts
received by Landlord as a rebate from the utility
provider with respect to the period of time for which
Electrical Costs are being determined shall be
deducted from Electrical Costs, (c) the cost of
electricity incurred in providing overtime HVAC to
specific tenants shall be deducted from Electrical
Costs, it being agreed that the electrical component
of overtime HVAC Costs shall be calculated as a
reasonable percentage of the total HVAC costs charged
to such tenants, and (d) if Tenant is billed directly
for the cost of electricity to the Premises as a
separate charge in addition to Base Rental and Basic
Costs, the cost of electricity to individual tenant
spaces in the Building shall be deducted from
Electrical Costs (whether collected by Landlord
through a fixed electrical charge, submetered charge
or otherwise). In the event that the total amount
received by Landlord pursuant to subsections (a),
(b), (c) and (d) of the foregoing sentence with
respect to any given calendar year is in excess of
Landlord's actual electrical bill for the Building
with respect to such calendar year, any such excess
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<PAGE> 12
amount received by Landlord shall be credited against
Basic Costs for the applicable calendar year.
7. "Taxes", which for purposes hereof, shall mean: (a)
all real estate taxes and assessments on the
Property, the Building or the Premises, and taxes and
assessments levied in substitution or supplementation
in whole or in part of such taxes, (b) all personal
property taxes for the Building's personal property,
including license expenses, (c) all taxes imposed on
services of Landlord's agents and employees, (d) all
other taxes, fees or assessments now or hereafter
levied by any governmental authority on the Property,
the Building or its contents or on the operation and
use thereof (except as relate to specific tenants),
and (e) all costs and fees incurred in connection
with seeking reductions in or refunds in Taxes
including, without limitation, any costs incurred by
Landlord to challenge the tax valuation of the
Building, but excluding income taxes. For the purpose
of determining real estate taxes and assessments for
any given calendar year, the amount to be included in
Taxes for such year shall be as follows: (1) with
respect to any special assessment that is payable in
installments, Taxes for such year shall include the
amount of the installment (and any interest) due and
payable during such year; and (2) with respect to all
other real estate taxes, Taxes for such year shall,
at Landlord's election, include either the amount
accrued, assessed or otherwise imposed for such year
or the amount due and payable for such year, provided
that Landlord's election shall be applied
consistently throughout the Lease Term. If a
reduction in Taxes is obtained for any year of the
Lease Term during which Tenant paid its Pro Rata
Share of Basic Costs, then Basic Costs for such year
will be retroactively adjusted and Landlord shall
provide Tenant with a credit, if any, based on such
adjustment. Likewise, if a reduction is subsequently
obtained for Taxes for the Base Year (if Tenant's Pro
Rata Share is based upon increases in Basic Costs
over a Base Year), Basic Costs for the Base Year
shall be restated and the Excess for all subsequent
years recomputed. Tenant shall pay to Landlord
Tenant's Pro Rata Share of any such increase in the
Excess within thirty (30) days after Tenant's receipt
of a statement therefor from Landlord.
8. All landscape expenses and costs of maintaining,
repairing, resurfacing and striping of the parking
areas and garages of the Property, if any.
9. Cost of all maintenance service agreements, including
those for equipment, alarm service, window cleaning,
drapery or venetian blind cleaning, janitorial
services, pest control, uniform supply, plant
maintenance, landscaping, and any parking equipment.
10. Cost of all other repairs, replacements and general
maintenance of the Property and Building neither
specified above nor directly billed to tenants.
11. The amortized cost of capital improvements made to
the Building or the Property which are: (a) primarily
for the purpose of reducing operating expense costs
or otherwise improving the operating efficiency of
the Property or Building; or (b) required to comply
with any laws, rules or regulations of any
governmental authority or a requirement of Landlord's
insurance carrier. The cost of such capital
improvements shall be amortized over a period equal
to the lesser of ten (10) years or the useful life of
such capital improvement and shall, at Landlord's
option, include interest at a rate that is reasonably
equivalent to the interest rate that Landlord would
be required to pay to finance the cost of the capital
improvement in question as of the date such capital
improvement is performed, provided if the payback
period for any
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<PAGE> 13
capital improvement is less than the amortization
period provided above, Landlord may amortize the cost
of such capital improvement over the payback period.
Notwithstanding the foregoing, the portion of the
annual amortized costs to be included in Basic Costs
in any calendar year with respect to a capital
improvement which is intended to reduce expenses or
improve the operating efficiency of the Property or
Building shall equal the lesser of: a) such annual
amortized costs; and b) the actual annual amortized
reduction in expenses (as reasonably determined by
Landlord) for that portion of the amortization period
of the capital improvement which falls within the
Lease Term.
12. Any other expense or charge of any nature whatsoever
which, in accordance with general industry practice
with respect to the operation of a first-class office
building, would be construed as an operating expense.
Basic Costs shall not include (i) the cost of capital
improvements (except as set forth above and as distinguished
from replacement parts or components purchased and installed
in the ordinary course), (ii) depreciation, (iii) interest
(except as provided above with respect to the amortization of
capital improvements), (iv) the cost of maintaining and
operating a leasing office, (v) leasing commissions,
brochures, marketing supplies, attorney's fees, costs, and
disbursements and other expenses incurred in connection with
negotiation of leases with prospective tenants, (vi) principal
payments on mortgage and other non-operating debts of
Landlord, and (vii) expenses incurred by Landlord to the
extent the same are reimbursed to Landlord by other tenants or
occupants of the Building or by other third parties. If the
Building is not at least ninety-five percent (95%) occupied
during any calendar year of the Lease Term or if Landlord is
not supplying services to at least ninety-five percent (95%)
of the total Rentable Area of the Building at any time during
any calendar year of the Lease Term, actual Basic Costs for
purposes hereof shall be determined as if the Building had
been ninety-five percent (95%) occupied and Landlord had been
supplying services to ninety-five percent (95%) of the
Rentable Area of the Building during such year. If Tenant pays
for its Pro Rata Share of Basic Costs based on increases over
a "Base Year" and Basic Costs for any calendar year during the
Lease Term are determined as provided in the foregoing
sentence, Basic Costs for such Base Year shall also be
determined as if the Building had been ninety-five percent
(95%) occupied and Landlord had been supplying services to
ninety-five percent (95%) of the Rentable Area of the
Building. Any necessary extrapolation of Basic Costs under
this Article shall be performed by adjusting the cost of those
components of Basic Costs that are impacted by changes in the
occupancy of the Building (including, at Landlord's option,
Taxes) to the cost that would have been incurred if the
Building had been ninety-five percent (95%) occupied and
Landlord had been supplying services to ninety-five percent
(95%) of the Rentable Area of the Building. In addition, if
Tenant's Pro Rata Share of Basic Costs is determined based
upon increases over a Base Year and Basic Costs for the Base
Year include exit and disconnection fees, stranded cost
charges and/or competitive transaction charges, such fees and
charges may, at Landlord's option, be imputed as a Basic Cost
for subsequent years in which such fees and charges are not
incurred. In no event, however, shall the amount of such
imputed fees and charges exceed the actual amount of exit and
disconnection fees, stranded cost charges and/or competitive
transaction charges that were actually included in Basic Costs
for the Base Year.
C. Tenant, within ninety (90) days after receiving Landlord's
statement of actual Basic Costs for a particular calendar
year, shall have the right to provide Landlord with written
notice (the "Review Notice") of its intent to review
Landlord's books and records relating to the Basic Costs for
such calendar year. Within a reasonable time after receipt of
a timely Review
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<PAGE> 14
Notice, Landlord shall make such books and records available
to Tenant or Tenant's agent for its review at either
Landlord's home office or at the office of the Building,
provided that if Tenant retains an agent to review Landlord's
books and records for any calendar year, such agent must be
CPA firm licensed to do business in the state in which the
Building is located. Tenant shall be solely responsible for
any and all costs, expenses and fees incurred by Tenant or
Tenant's agent in connection with such review. If Tenant
elects to review Landlord's books and records, within sixty
(60) days after such books and records are made available to
Tenant, Tenant shall have the right to give Landlord written
notice stating in reasonable detail any objection to
Landlord's statement of actual Basic Costs for such calendar
year. If Tenant fails to give Landlord written notice of
objection within such sixty (60) day period or fails to
provide Landlord with a Review Notice within the ninety (90)
day period provided above, Tenant shall be deemed to have
approved Landlord's statement of Basic Costs in all respects
and shall thereafter be barred from raising any claims with
respect thereto. Notwithstanding the foregoing, if a
subsequent review of Expenses in accordance with the terms
hereof discloses that a particular material item of Expenses
has been overstated by more than two and one half percent
(2.5%) and there is a reasonable basis to assume such item was
similarly overstated in any prior year, Landlord shall allow
Tenant to perform a review of Landlord's books and records
with respect to such particular item(s) for any previous
calendar year in which Tenant elected not to review Landlord's
books and records. In addition, if Landlord's statement of
Basic Costs for any calendar year was fraudulently prepared by
Landlord (as evidenced by Landlord's admission or a judgment
against Landlord by a court of proper jurisdiction), Tenant
shall not be barred from raising claims with respect to the
statement for such calendar year. Upon Landlord's receipt of a
timely objection notice from Tenant, Landlord and Tenant shall
work together in good faith to resolve the discrepancy between
Landlord's statement and Tenant's review. If Landlord and
Tenant determine that Basic Costs for the calendar year in
question are less than reported, Landlord shall provide Tenant
with a credit against future Base Rental and Additional Base
Rental in the amount of any overpayment by Tenant. Likewise,
if Landlord and Tenant determine that Basic Costs for the
calendar year in question are greater than reported, Tenant
shall forthwith pay to Landlord the amount of underpayment by
Tenant. Any information obtained by Tenant pursuant to the
provisions of this Section shall be treated as confidential.
Notwithstanding anything herein to the contrary, Tenant shall
not be permitted to examine Landlord's books and records or to
dispute any statement of Basic Costs unless Tenant has paid to
Landlord the amount due as shown on Landlord's statement of
actual Basic Costs, said payment being a condition precedent
to Tenant's right to examine Landlord's books and records.
D. Tenant covenants and agrees to pay to Landlord during the
Lease Term, without any setoff or deduction whatsoever, the
full amount of all Base Rental and Additional Base Rental due
hereunder. In addition, Tenant shall pay and be liable for, as
additional rent, all rental, sales and use taxes (but
excluding income taxes) imposed upon or measured by the Rent
payable by Tenant, provided that Tenant is the party
responsible for paying such tax under the provisions of the
applicable law, order, rule or regulation (regardless of
whether Landlord is the party responsible for collecting such
amounts from Tenant). Any such payments shall be paid
concurrently with the payments of the Rent on which the tax is
based. The Base Rental, Tenant's Pro Rata Share of Basic Costs
and any recurring monthly charges due hereunder shall be due
and payable in advance on the first day of each calendar month
during the Lease Term without demand, provided that the
installment of Base Rental for the third (3rd) full calendar
month of the Lease Term shall be payable upon the execution of
this Lease by Tenant. All other items of Rent shall be due and
payable by Tenant on or before thirty (30) days after billing
by Landlord. If the Lease Term commences on a day other than
the first day of a calendar month or terminates on a day other
than the last day
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<PAGE> 15
of a calendar month, then the monthly Base Rental and Tenant's
Pro Rata Share of Basic Costs for such month shall be prorated
for the number of days in such month occurring within the
Lease Term based on a fraction, the numerator of which is the
number of days of the Lease Term that fell within such
calendar month and the denominator of which is thirty (30).
All such payments shall be by a good and sufficient check. No
payment by Tenant or receipt or acceptance by Landlord of a
lesser amount than the correct amount of Rent due under this
Lease shall be deemed to be other than a payment on account of
the earliest Rent due hereunder, nor shall any endorsement or
statement on any check or any letter accompanying any check or
payment be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's
right to recover the balance or pursue any other available
remedy. The acceptance by Landlord of any Rent on a date after
the due date of such payment shall not be construed to be a
waiver of Landlord's right to declare a default for any other
late payment. Tenant's covenant to pay Rent shall be
independent of every other covenant set forth in this Lease.
E. All Rent not paid when due and payable shall bear interest
from the date due until paid at the lesser of: (1) the Prime
Rate plus five percent (5%) per annum; or (2) the Maximum
Rate. In addition, if Tenant fails to pay any installment of
Rent when due and payable hereunder and such failure continues
for ten (10) days after written notice from Landlord, a
service fee equal to five percent (5%) of such unpaid amount
will be due and payable immediately by Tenant to Landlord.
V. USE.
The Premises shall be used for the Permitted Use and for no other
purpose. Tenant agrees not to use or permit the use of the Premises for any
purpose which is illegal, dangerous to life, limb or property or which, in
Landlord's reasonable opinion, creates a nuisance or which would increase the
cost of insurance coverage with respect to the Building. Tenant shall conduct
its business and control its agents, servants, contractors, employees,
customers, licensees, and invitees in such a manner as not to interfere with,
annoy or disturb other tenants, or in any way interfere with Landlord in the
management and operation of the Building. Tenant will maintain the Premises in a
clean and healthful condition, and comply with all laws, ordinances, orders,
rules and regulations of any governmental entity with reference to the operation
of Tenant's business and to the use, condition, configuration or occupancy of
the Premises, including without limitation, the Americans with Disabilities Act
(collectively referred to as "Laws"). Tenant, within ten (10) days after receipt
thereof, shall provide Landlord with copies of any notices it receives with
respect to a violation or alleged violation of any Laws. Tenant will comply with
the rules and regulations of the Building attached hereto as Exhibit B and such
other rules and regulations adopted and altered by Landlord from time to time
and will cause all of its agents, servants, contractors, employees, customers,
licensees and invitees to do so. Notwithstanding the foregoing, Tenant shall not
be required to comply with any rules and regulations or revisions to rules and
regulations not listed on Exhibit B until such time as a copy of such new rules
or revisions have been delivered to Tenant. All changes to such rules and
regulations will be reasonable and shall be sent by Landlord to Tenant in
writing.
VI. SECURITY DEPOSIT.
Intentionally Omitted.
VII. SERVICES TO BE FURNISHED BY LANDLORD.
A. Landlord, as part of Basic Costs (except as otherwise
provided), agrees to furnish Tenant the following services:
1. Hot and cold water for use in the lavatories on the
floor(s) on which the Premises is located. If Tenant
desires water in the Premises for any approved
reason, including a private lavatory or kitchen, cold
water shall be supplied, at Tenant's sole cost and
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<PAGE> 16
expense, from the Building water main through a line
and fixtures installed at Tenant's sole cost and
expense with the prior reasonable consent of
Landlord. If Tenant desires hot water in the
Premises, Tenant, at its sole cost and expense and
subject to the prior reasonable consent of Landlord,
may install a hot water heater in the Premises.
Tenant shall be solely responsible for maintenance
and repair of any such hot water heater.
2. Central heat and air conditioning in season during
Normal Business Hours in accordance with the
specifications attached hereto as Exhibit G, or as
required by governmental authority, provided that
Landlord shall not be liable for any failure to
maintain the temperatures ranges set forth on Exhibit
G to the extent that such failure arises directly out
of any of the foregoing circumstances: (a) an excess
density or electrical load within the Premises beyond
any density or load limits specified in this Lease,
or (b) alterations performed to the HVAC system by
Tenant or any contractors retained by Tenant where
the performance or design of such alterations is the
direct cause of the failure of the HVAC system to
meet the specifications set forth on Exhibit G, or
(c) Tenant's failure to keep the window covering in
the Premises closed during periods when the Premises
are exposed to direct sunlight. In the event that
Tenant requires central heat, ventilation or air
conditioning at hours other than Normal Business
Hours, such central heat, ventilation or air
conditioning shall be furnished only upon the written
request of Tenant delivered to Landlord at the office
of the Building prior to 3:00 P.M. at least one
Business Day in advance of the date for which such
usage is requested. Tenant shall pay Landlord, as
Additional Base Rental, the entire cost of additional
service as such costs are determined by Landlord from
time to time. As of the date hereof, the cost of
after hours HVAC service is fifty dollars ($50.00)
per hour. In the event Tenant requires heat or air
conditioning during hours other than Normal Business
Hours, charges for such services will be prorated by
Landlord between each requesting user-tenant (if more
than one tenant in the same service zone requests
additional heating or air conditioning at the same
time) and the proration shall be based on the area of
the Building leased to such tenants and their
respective periods of use.
3. Maintenance and repair of all Common Areas in the
manner and to the extent standard for buildings of
similar class, size, age and location.
4. Janitor service on Business Days in accordance with
the specifications attached hereto as Exhibit H (or
such reasonably comparable specifications as Landlord
may designate from time to time); provided, however,
if Tenant's use, floor covering or other improvements
require special services, Tenant shall pay the
additional cost reasonably attributable thereto as
Additional Base Rental.
5. Passenger elevator service in common with other
tenants of the Building. Subject to Force Majeure, at
least two (2) passenger elevators shall be available
to serve the Premises during Normal Business Hours
and at least one (1) passenger elevator shall be
available to serve the Premises twenty-four (24)
hours per day, seven (7) days per week.
6. Electricity to the Premises for general office use,
in accordance with and subject to the terms and
conditions set forth in Article XI of this Lease.
7. Tenant, without additional charge, shall have the
right to use the loading dock for the Building in
common with other tenants of the
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<PAGE> 17
Building and other parties that are permitted by
Landlord to use such loading dock. Any usage of the
loading dock for a period in excess of one hour must
be scheduled in advance with Landlord.
8. Security service at a level reasonably comparable to
the average level of security service provided at
other first class buildings in Stamford, Connecticut.
B. The failure by Landlord to any extent to furnish, or the
interruption or termination of, any services in whole or in
part, resulting from adherence to laws, regulations and
administrative orders, wear, use, repairs, improvements,
alterations or any causes beyond the reasonable control of
Landlord shall not render Landlord liable in any respect nor
be construed as a constructive eviction of Tenant, nor give
rise to an abatement of Rent, nor relieve Tenant from the
obligation to fulfill any covenant or agreement hereof. In
such event, Landlord, to the extent the restoration of such
service is reasonably within its control, shall use reasonable
diligence to repair such equipment or machinery or to
otherwise take such steps as are reasonably necessary to
restore the service in question. In the event any such
interruption of services renders the Premises untenantable for
a period in excess of two (2) Business Days, Landlord, as soon
as reasonably possible thereafter, shall provide Tenant with a
written estimate (the "Restoration Estimate") of the date on
which such service will be restored so as to return the
Premises to a tenantable condition. If the interruption of the
service in question involves a building system, building
contract (e.g. janitorial service) or other agency that is
reasonably within the control of Landlord, such Restoration
Estimate shall be based upon the reasonable judgment of
Landlord or Landlord's contractors. If the interruption of
service is outside of Landlord's reasonable control to restore
(e.g. electrical service to the Building), such Restoration
Estimate shall be based upon the reasonable estimate of the
party providing such service to the Building (e.g. the utility
company). If the Restoration Estimate indicates that the
Premises cannot be made tenantable within nine (9) months
after the date the Premises were first rendered untenantable,
Tenant shall have the right to terminate this Lease by giving
written notice to Landlord of such election within ten (10)
days after its receipt of the Restoration Estimate. Tenant,
however, shall not have the right to terminate this Lease in
the event that the interruption of service in question was
caused by the negligence or intentional misconduct of Tenant
or any Tenant Related Parties. If the Restoration Estimate
indicates that the Premises can be made tenantable within nine
(9) months, Landlord, to the extent the same is within its
control, shall proceed with reasonable promptness to restore
the service in question so as to return the Premises to a
tenantable condition. Notwithstanding the foregoing, if the
service in question is not restored within nine (9) months
following the date on which the Premises are rendered
untenantable, Tenant may terminate this Lease by written
notice to Landlord prior to the date on which the service in
question is restored and the Premises returned to a tenantable
condition. Landlord and Tenant acknowledge that in the event
any service is interrupted as a result of a fire or other
casualty to the Building, Tenant's rights and remedies shall
be controlled by Article XIX.
C. Tenant expressly acknowledges that Landlord shall not be
deemed to have warranted the efficiency of any security
personnel, service, procedures or equipment and Landlord shall
not be liable in any manner for the failure of any such
security personnel, services, procedures or equipment to
prevent or control, or apprehend anyone suspected of personal
injury, property damage or any criminal conduct in, on or
around the Property.
VIII. LEASEHOLD IMPROVEMENTS.
A. Any trade fixtures, unattached and movable equipment or
furniture, or other personalty brought into the Premises by
Tenant ("Tenant's
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<PAGE> 18
Property") shall be owned and insured by Tenant. Tenant shall
remove all such Tenant's Property from the Premises in
accordance with the terms of Article XXXV hereof. Any and all
alterations, additions and improvements to the Premises,
including any built-in furniture (collectively, "Leasehold
Improvements") shall be owned and insured by Landlord and
shall remain upon the Premises, all without compensation,
allowance or credit to Tenant. Landlord may, nonetheless, at
any time prior to, or within six (6) months after, the
expiration or earlier termination of this Lease or Tenant's
right to possession, require Tenant to remove any Leasehold
Improvements performed by or for the benefit of Tenant and all
electronic, phone and data cabling as are designated by
Landlord (the "Required Removables") at Tenant's sole cost. In
the event that Landlord so elects, Tenant shall remove such
Required Removables within twenty (20) days after notice from
Landlord, provided that in no event shall Tenant be required
to remove such Required Removables prior to the expiration or
earlier termination of this Lease or Tenant's right to
possession. In addition to Tenant's obligation to remove the
Required Removables, Tenant shall repair any damage caused by
such removal and perform such other work as is reasonably
necessary to restore the Premises to a "move in" condition. If
Tenant fails to remove any specified Required Removables or to
perform any required repairs and restoration within the time
period specified above, Landlord, at Tenant's sole cost and
expense, may remove, store, sell and/or dispose of the
Required Removables and perform such required repairs and
restoration work. Tenant, within five (5) days after demand
from Landlord, shall reimburse Landlord for any and all
reasonable costs incurred by Landlord in connection with the
Required Removables.
B. Notwithstanding Section VIII.A. above to the contrary, Tenant
shall not be obligated to remove any portion of the Initial
Alterations unless Landlord, within five (5) days after its
approval of the final plans for the Initial Alterations,
advises Tenant that such removal will be required. With
respect to any subsequent alterations, additions or
improvements performed by Tenant, Tenant may request in
writing at the time it submits its plans and specifications
for an alteration, addition or improvement, that Landlord
advise Tenant whether Landlord will require Tenant to remove,
at the termination of this Lease or Tenant's right to
possession hereunder, such alteration, addition or
improvement, or any particular portion thereof. Landlord,
within ten (10) days after receipt of Tenant's request, shall
advise Tenant in writing as to whether Landlord will require
removal of such alteration, addition or improvement, or any
particular portion thereof. Landlord shall not require Tenant
to remove any usual office improvements such as gypsum board,
partitions, ceiling grids and tiles, Building Standard
fluorescent lighting panels, building standard doors and
non-glued down carpeting.
IX. GRAPHICS.
Landlord shall provide and install, at Tenant's cost, any suite numbers
and Tenant identification on the exterior of the Premises using the standard
graphics for the Building. Notwithstanding the foregoing, Tenant, at its sole
cost and expense (subject to the Allowance), shall have the right to install
additional custom signage identifying Tenant on any full floors leased by
Tenant, provided that such signage is not visible from outside the Building.
Tenant shall also be entitled to ___ lines on the building directory. Tenant
shall not be charged a fee for the initial installation of any names on the
Building directory. Tenant shall, however, be required to pay Landlord's then
standard fee (which fee must be reasonable) for any additional names to be added
to the Building directory or any replacement of previously existing names.
Tenant shall not be permitted to install any signs or other identification
without Landlord's prior written consent, which consent shall not be
unreasonably withheld with respect to the placement of Tenant's name or logo on
any entry door to the Premises.
X. REPAIRS AND ALTERATIONS.
A. Except to the extent such obligations are imposed upon
Landlord hereunder, Tenant, at its sole cost and expense,
shall perform all
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maintenance and repairs to the Premises as are necessary to
keep the same in good condition and repair throughout the
entire Lease Term, reasonable wear and tear excepted. Tenant's
repair and maintenance obligations with respect to the
Premises shall include, without limitation, any necessary
repairs with respect to: (1) any carpet or other floor
covering, (2) any interior partitions, (3) any doors, (4) the
interior side of any demising walls, (5) any telephone and
computer cabling that serves Tenant's equipment exclusively,
(6) any supplemental air conditioning units, private showers
and kitchens, including any plumbing in connection therewith,
and similar facilities serving Tenant exclusively, and (7)
alterations, additions or improvements performed by
contractors retained by Tenant, provided if alterations,
additions or improvements are made to the Building systems
with Landlord's approval, Tenant shall only be responsible for
the repairs of those portions of the Building systems that
were altered, improved or added to by Tenant if and to the
extent that the need for any such repairs results from work
that was improperly performed or designed by Tenant or its
contractors. All such work shall be performed in accordance
with section X.B. below and the rules, policies and procedures
reasonably enacted by Landlord from time to time for the
performance of work in the Building. If Tenant fails to make
any necessary repairs to the Premises, Landlord may, at its
option, make such repairs, and Tenant shall pay the cost
thereof to the Landlord on demand as Additional Base Rental,
together with an administrative charge in an amount equal to
ten percent (10%) of the cost of such repairs. Landlord shall,
at its expense (except as included in Basic Costs), keep and
maintain in good repair and working order and make all repairs
to and perform necessary maintenance upon: (a) all structural
elements of the Building; and (b) all mechanical, electrical
and plumbing systems that serve the Building and Premises,
except to the extent such repair and maintenance is the
responsibility of Tenant pursuant to subsections (6) and (7)
above; and (c) the Building facilities common to all tenants
including, but not limited to, the ceilings, walls and floors
in the Common Areas.
B. Tenant shall not make or allow to be made any alterations,
additions or improvements to the Premises without first
obtaining the written consent of Landlord in each such
instance, which approval or disapproval shall not be
unreasonably withheld or delayed. Notwithstanding the
foregoing, Landlord's consent shall not be required for any
alteration, addition or improvement that satisfies all of the
following criteria: 1) costs less than $25,000.00; 2) is of a
cosmetic nature such as painting, wallpapering, moving
partitions, hanging pictures and installing carpeting; 3) is
not visible from the exterior of the Premises or Building; and
4) will not affect the systems or structure of the Building
and does not require work to be performed inside the walls or
above the ceiling of the Premises; provided that even if
consent is not required, Tenant shall still comply with all
the other provisions of this Section X.B. Prior to commencing
any such work and as a condition to obtaining Landlord's
consent, Tenant must furnish Landlord with plans and
specifications reasonably acceptable to Landlord; names and
addresses of contractors reasonably acceptable to Landlord;
copies of contracts; necessary permits and approvals; and
evidence of contractor's and subcontractor's insurance in
accordance with Article XVI section B. hereof. All such
improvements, alterations or additions shall be constructed in
a good and workmanlike manner using new or like new materials
of first class quality. Landlord, to the extent reasonably
necessary to avoid any disruption to the tenants and occupants
of the Building, shall have the right to designate the time
when any such alterations, additions and improvements may be
performed and to otherwise designate reasonable rules,
regulations and procedures for the performance of work in the
Building. Upon completion, Tenant shall furnish "as-built"
plans, contractor's affidavits and full and final waivers of
lien and receipted bills covering all labor and materials. All
improvements, alterations and additions shall comply with all
insurance requirements, codes, ordinances, laws and
regulations, including without limitation, the Americans with
Disabilities Act. Tenant shall reimburse Landlord upon demand
as Additional Base Rental for all
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sums, if any, expended by Landlord for third party examination
of the architectural, mechanical, electric and plumbing plans
for any alterations, additions or improvements, provided that
Tenant shall not be required to reimburse Landlord for any
such costs in connection with the Initial Alterations. In
addition, if Landlord so requests, Landlord shall be entitled
to oversee the construction of any alterations, additions or
improvements that may affect the structure of the Building or
any of the mechanical, electrical, plumbing or life safety
systems of the Building. Landlord's approval of Tenant's plans
and specifications for any work performed for or on behalf of
Tenant shall not be deemed to be a representation by Landlord
that such plans and specifications comply with applicable
insurance requirements, building codes, ordinances, laws or
regulations or that the alterations, additions and
improvements constructed in accordance with such plans and
specifications will be adequate for Tenant's use.
XI. USE OF ELECTRICAL SERVICES BY TENANT.
A. Tenant, at its sole cost and expense, shall submeter
electrical consumption in the Premises as part of the Initial
Alterations. Tenant, as Additional Base Rental, shall pay to
Landlord within ten (10) days after receipt of an invoice from
Landlord, the sum of (a) an amount computed by applying
Tenant's consumption and demand for the billing period in
question (as measured by the submeter(s) installed in the
Premises) to Landlord's Monthly Cost Rate, as such term is
hereinafter defined, plus, (b) three percent (3%) of the
amount determined in (a). As used herein, the term "Landlord's
Monthly Cost Rate" shall mean an amount equal to Landlord's
average monthly cost of purchasing electricity from the
utility provider(s) servicing the Building for the relevant
monthly billing period by the total kilowatt hours consumed by
the Building for such monthly period carried to six decimal
places. If any tax is imposed on Landlord's receipt from the
sale or resale of electric energy to Tenant by any federal,
state or municipal authority, Tenant covenants and agrees that
where permitted by law, Tenant's pro rata share of such taxes
shall be passed on to, and included in the bill of, and paid
by, Tenant to Landlord.
B. Tenant's use of electrical service in the Premises shall not
exceed, either in voltage, rated capacity, use beyond Normal
Business Hours or overall load, that which Landlord deems to
be standard for the Building. Landlord hereby represents that
the standard electrical usage for the Building is five (5)
watts per square foot for lighting and power. In the event
Tenant shall consume (or request that it be allowed to
consume) electrical service in excess of the standard for the
Building, Landlord may refuse to consent to such excess usage
or may condition its consent to such excess usage upon such
conditions as Landlord reasonably elects (including the
installation of utility service upgrades, submeters, air
handlers or cooling units), and all such additional usage (to
the extent permitted by law), installation and maintenance
thereof shall be paid for by Tenant as Additional Base Rental.
Landlord, at any time during the Lease Term, shall have the
right to separately meter electrical usage for the Premises or
to measure electrical usage by survey or any other method that
Landlord, in its reasonable judgment, deems to be appropriate.
C. Notwithstanding Section A. above to the contrary, if Landlord
permits Tenant to purchase electrical power for the Premises
from a provider other than Landlord's designated company(ies),
such provider shall be considered to be a contractor of Tenant
and Tenant shall indemnify and hold Landlord harmless from
such provider's acts and omissions while in, or in connection
with their services to, the Building or Premises in accordance
with the terms and conditions of Article XV. In addition, at
the request of Landlord, Tenant shall allow Landlord to
purchase electricity from Tenant's provider at Tenant's rate
or at such lower rate as
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can be negotiated by the aggregation of Landlord's and
Tenant's requirements for electricity power.
XII. ENTRY BY LANDLORD.
Landlord and its agents or representatives shall have the right to
enter the Premises to inspect the same, or to show the Premises to prospective
purchasers, mortgagees, tenants (during the last twelve months of the Lease Term
or earlier in connection with a potential relocation) or insurers, or to clean
or make repairs, alterations or additions thereto, including any work that
Landlord deems necessary for the safety, protection or preservation of the
Building or any occupants thereof, or to facilitate repairs, alterations or
additions to the Building or any other tenants' premises. Except for any entry
by Landlord in an emergency situation or to provide normal cleaning and
janitorial service, Landlord shall provide Tenant with reasonable prior notice
of any entry into the Premises, which notice may be given verbally. If
reasonably necessary for the protection and safety of Tenant and its employees,
Landlord shall have the right to temporarily close the Premises to perform
repairs, alterations or additions in the Premises, provided that Landlord shall
use reasonable efforts to perform all such work on weekends and after Normal
Business Hours. Entry by Landlord hereunder shall not constitute a constructive
eviction or entitle Tenant to any abatement or reduction of Rent by reason
thereof.
XIII. ASSIGNMENT AND SUBLETTING.
A. Restrictions against Transfers. Tenant shall not assign,
sublease, transfer or encumber this Lease or any interest
therein or grant any license, concession or other right of
occupancy of the Premises or any portion thereof or otherwise
permit the use of the Premises or any portion thereof by any
party other than Tenant (any of which events is hereinafter
called a "Transfer") without the prior written consent of
Landlord, which consent shall not be unreasonably withheld
with respect to any proposed assignment or subletting.
Landlord's consent shall not be considered unreasonably
withheld if: (1) in connection with a proposed assignment of
this Lease by Tenant, the proposed transferee's financial
responsibility does not meet the same criteria Landlord uses
to select Building tenants; (2) the proposed transferee's
business is not suitable for the Building considering the
business of the other tenants and the Building's prestige or
would result in a violation of an exclusive right granted to
another tenant in the Building; (3) the proposed use is
different than the Permitted Use; (4) the proposed transferee
is a government agency or, subject to the limitations
described below, the proposed transferee is an occupant of the
Building; (5) Tenant is in default; or (6) any portion of the
Building or Premises would become subject to additional or
different governmental laws or regulations as a consequence of
the proposed Transfer and/or the proposed transferee's use and
occupancy of the Premises. Notwithstanding subsection (4)
above to the contrary, if: (i) Landlord, pursuant to a Prior
Notice (defined below), elected not to recapture any
particular space that Tenant intended to sublet or assign, and
(ii) Tenant proposes to sublet or assign such space to an
occupant of the Building within six (6) months following
Landlord's election, Landlord shall not be entitled to
withhold its consent to such proposed Transfer solely because
the proposed transferee is an occupant of the Building. Tenant
acknowledges that the foregoing is not intended to be an
exclusive list of the reasons for which Landlord may
reasonably withhold its consent to a proposed Transfer. Any
attempted Transfer in violation of the terms of this Article
shall, at Landlord's option, be void. Consent by Landlord to
one or more Transfers shall not operate as a waiver of
Landlord's rights as to any subsequent Transfers. In addition,
Tenant shall not, without Landlord's consent, publicly
advertise the proposed rental rate for any Transfer, provided
that Tenant shall be entitled to distribute customary direct
broker mailings containing the proposed rental rate for a
Transfer.
B. Permitted Transfers. Notwithstanding anything to the contrary
contained herein or in Section XIII.D., Tenant may assign its
entire interest under this Lease or sublet the Premises to a
wholly owned corporation,
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partnership or other legal entity or controlled subsidiary or
parent of Tenant or to any successor to Tenant by purchase,
merger, consolidation or reorganization (hereinafter,
collectively, referred to as "Permitted Transfer") without the
consent of Landlord, provided: (i) Tenant is not in default
under this Lease; (ii) if such proposed transferee is a
successor to Tenant by purchase, merger, consolidation or
reorganization, the continuing or surviving entity shall own
all or substantially all of the assets of Tenant and shall
have a net worth which is at least equal to the greater of
Tenant's net worth at the date of this Lease or Tenant's net
worth at the date of the Transfer; (iii) such proposed
transferee operates the business in the Premises for the
Permitted Use and no other purpose; and (iv) in no event shall
any Transfer release or relieve Tenant from any of its
obligations under this Lease. Tenant shall give Landlord
written notice at least thirty (30) days prior to the
effective date of such Permitted Transfer. As used herein: (a)
'parent' shall mean a company which owns a majority of
Tenant's voting equity; (b) "controlled" or "subsidiary" shall
mean a entity wholly owned by Tenant or at least fifty-one
percent (51%) of whose voting equity is owned by Tenant; and
(c) 'affiliate' shall mean an entity controlled, controlling
or under common control with Tenant. Notwithstanding the
foregoing, sale of the shares of equity of any affiliate or
subsidiary to which this Lease has been assigned or
transferred other than to another parent, subsidiary or
affiliate of the original Tenant named hereunder shall be
deemed to be an assignment requiring the consent of Landlord
hereunder. In no event shall Landlord have the right to
terminate this Lease with respect to any space that Tenant
assigns or sublets pursuant to a Permitted Transfer.
C.. Procedure for Obtaining Consent to Transfer. Tenant, prior to
entering into a sublease or assignment (except pursuant to a
Permitted Transfer), shall have the obligation to advise
Landlord (the "Prior Notice") of its intention to sublet the
Premises or assign this Lease. Such Prior Notice shall
describe the space Tenant intends to sublet or assign and the
effective date thereof. Landlord, within sixty (60) days after
receipt of the Prior Notice, shall have the right to terminate
this Lease with respect to the space that Tenant intends to
sublet or assign as of the effective date set forth in the
Prior Notice. If Landlord fails to exercise its right to
terminate within sixty (60) days after the Prior Notice, for
the next six (6) months thereafter Landlord shall not have the
right to recapture the space that was described in Tenant's
Prior Notice and Tenant shall have the right to sublet or
assign such space subject only to Landlord's right to
reasonably grant or withhold consent to the proposed Transfer
as described below. If Tenant requests Landlord's consent to a
Transfer, Tenant, together with such request for consent,
shall provide Landlord with the name of the proposed
transferee and the nature of the business of the proposed
transferee, the term, use, rental rate and all other material
terms and conditions of the proposed Transfer, including,
without limitation, a copy of the proposed assignment,
sublease or other contractual documents and evidence
satisfactory to Landlord that the proposed transferee is
financially responsible. Landlord, within thirty (30) days
after its receipt of all information and documentation
required herein, shall either consent to or reasonably refuse
to consent to such Transfer in writing. Notwithstanding the
foregoing, if (i) the proposed Transfer is not a Permitted
Transfer, and (ii) Tenant failed to provide Landlord with a
Prior Notice, Landlord, within sixty (60) days after its
receipt of all information and documentation required herein,
may either reasonably grant or refuse to grant consent to the
proposed transfer or may cancel and terminate this Lease with
respect to the space and the portion of the Lease Term that
Tenant proposes to Transfer. In the event Landlord fails to
respond to any request for consent within the thirty (30) day
or sixty (60) day period set forth above, as applicable,
Tenant shall have the right to provide Landlord with a second
request for consent. If Landlord's failure to respond
continues for ten (10) days after its receipt of such second
request for consent, the Transfer for which Tenant has
requested consent shall be deemed to have been approved by
Landlord. Tenant's second request for consent shall state that
Landlord's failure to
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respond within a period of ten (10) days shall be deemed to be
an approval by Landlord. In the event Landlord consents to any
such Transfer, the Transfer and consent thereto shall be in a
form approved by Landlord, and Tenant shall bear all actual
costs and expenses reasonably incurred by Landlord in
connection with the review and approval of such documentation.
D. Proceeds of Transfer. In addition to the Rent hereunder,
Tenant hereby covenants and agrees to pay to Landlord sixty
percent (60%) of all rent and other consideration which it
receives which is in excess of the Rent payable hereunder
(without regard to any rent credits and abatements herein
granted to Tenant) within ten (10) days following receipt
thereof by Tenant. In determining excess rent in connection
with an assignment or subletting, Tenant may deduct all of its
reasonable expenses in connection with such subletting or
assignment, including the following expenditures resulting
from such subletting or assignment: 1) brokerage and marketing
fees; 2) legal fees; 3) construction costs, including, without
limitation, design fees; and 4) financial concessions granted
in such sublease or assignment. In addition to any other
rights Landlord may have in connection with an uncured event
of default by Tenant, Landlord shall have the right to contact
any transferee and require that all payments made pursuant to
the Transfer shall be made directly to Landlord.
E. Change of Ownership. If Tenant is a corporation, limited
liability company or similar entity, and if at any time during
the Lease Term the entity or entities who own the voting
shares at the time of the execution of this Lease cease for
any reason (including but not limited to merger, consolidation
or other reorganization involving another corporation) to own
a majority of such shares, or if Tenant is a partnership and
if at any time during the Lease Term the general partner or
partners who own the general partnership interests in the
partnership at the time of the execution of this Lease, cease
for any reason to own a majority of such interests (except as
the result of transfers by gift, bequest or inheritance to or
for the benefit of members of the immediate family of such
original shareholder[s] or partner[s]), such an event shall be
deemed to be a Transfer. The preceding sentence shall not
apply whenever Tenant is a corporation, the outstanding stock
of which is listed on a recognized security exchange, or if at
least eighty percent (80%) of its voting stock is owned by
another corporation, the voting stock of which is so listed.
F. No Release. Any Transfer consented to by Landlord in
accordance with this Article XIII shall be only for the
Permitted Use and for no other purpose. In no event shall any
Transfer release or relieve Tenant or any Guarantors from any
obligations under this Lease.
XIV. LIENS.
Tenant will not permit any mechanic's liens or other liens to be placed
upon the Premises or Tenant's leasehold interest therein, the Building, or the
Property. Landlord's title to the Building and Property is and always shall be
paramount to the interest of Tenant, and nothing herein contained shall empower
Tenant to do any act that can, shall or may encumber Landlord's title. In the
event any such lien does attach, Tenant shall, within five (5) days of notice of
the filing of said lien, either discharge or bond over such lien to the
satisfaction of Landlord and Landlord's Mortgagee (as hereinafter defined), and
in such a manner as to remove the lien as an encumbrance against the Building
and Property. If Tenant shall fail to so discharge or bond over such lien, then,
in addition to any other right or remedy of Landlord, Landlord may, but shall
not be obligated to bond over or discharge the same. Any amount paid by Landlord
for any of the aforesaid purposes, including reasonable attorneys' fees (if and
to the extent permitted by law) shall be paid by Tenant to Landlord on demand as
Additional Base Rental. Landlord shall have the right to post and keep posted on
the Premises any notices that may be provided by law or which Landlord may deem
to be proper for the protection of Landlord, the Premises and the Building from
such liens.
XV. INDEMNITY AND WAIVER OF CLAIMS.
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A. Tenant shall indemnify, defend and hold Landlord, its members,
principals, beneficiaries, partners, officers, directors,
employees, Mortgagee(s) and agents, and the respective
principals and members of any such agents (collectively the
"Landlord Related Parties") harmless against and from all
liabilities, obligations, damages, penalties, claims, costs,
charges and expenses, including, without limitation,
reasonable attorneys' fees and other professional fees (if and
to the extent permitted by law), which may be imposed upon,
incurred by, or asserted against Landlord or any of the
Landlord Related Parties and arising, directly or indirectly,
out of or in connection with the use, occupancy or maintenance
of the Premises by, through or under Tenant including, without
limitation, any of the following: (1) any work or thing done
in, on or about the Premises or any part thereof by Tenant or
any of its transferees, agents, servants, contractors,
employees, customers, licensees or invitees; (2) any use,
non-use, possession, occupation, condition, operation or
maintenance of the Premises or any part thereof; (3) any act
or omission of Tenant or any of its transferees, agents,
servants, contractors, employees, customers, licensees or
invitees, regardless of whether such act or omission occurred
within the Premises; (4) any injury or damage to any person or
property occurring in, on or about the Premises or any part
thereof; or (5) any failure on the part of Tenant to perform
or comply with any of the covenants, agreements, terms or
conditions contained in this Lease with which Tenant must
comply or perform. In case any action or proceeding is brought
against Landlord or any of the Landlord Related Parties by
reason of any of the foregoing, Tenant shall, at Tenant's sole
cost and expense, resist and defend such action or proceeding
with counsel approved by Landlord or, at Landlord's option,
reimburse Landlord for the cost of any counsel retained
directly by Landlord to defend and resist such action or
proceeding.
B. Landlord and the Landlord Related Parties shall not be liable
for, and Tenant hereby waives, all claims for loss or damage
to Tenant's business or damage to person or property sustained
by Tenant or any person claiming by, through or under Tenant
[including Tenant's principals, agents and employees
(collectively, the "Tenant Related Parties")] resulting from
any accident or occurrence in, on or about the Premises, the
Building or the Property, including, without limitation,
claims for loss, theft or damage resulting from: (1) the
Premises, Building, or Property, or any equipment or
appurtenances becoming out of repair; (2) wind or weather; (3)
any defect in or failure to operate, for whatever reason, any
sprinkler, heating or air-conditioning equipment, electric
wiring, gas, water or steam pipes; (4) broken glass; (5) the
backing up of any sewer pipe or downspout; (6) the bursting,
leaking or running of any tank, water closet, drain or other
pipe; (7) the escape of steam or water; (8) water, snow or ice
being upon or coming through the roof, skylight, stairs,
doorways, windows, walks or any other place upon or near the
Building; (9) the falling of any fixture, plaster, tile or
other material; or (10) any act, omission or negligence of
other tenants, licensees or any other persons or occupants of
the Building or of adjoining or contiguous buildings, or
owners of adjacent or contiguous property or the public, or by
construction of any private, public or quasi-public work.
Notwithstanding the foregoing, except as provided in Article
XVII to the contrary, Tenant shall not be required to waive
any claims against Landlord (other than for loss or damage to
Tenant's business) where such loss or damage is due to
Landlord's negligence or willful misconduct or Landlord's
failure to make repairs within a reasonable period after
receiving notice from Tenant of the need for such repairs.
Nothing herein shall be construed as to diminish the repair
and maintenance obligations of Landlord contained elsewhere in
this Lease. To the maximum extent permitted by law, Tenant
agrees to use and occupy the Premises, and to use such other
portions of the Building as Tenant is herein given the right
to use, at Tenant's own risk.
XVI. TENANT'S INSURANCE.
A. At all times commencing on and after the earlier of the
Commencement Date and the date Tenant or its agents, employees
or contractors enters
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the Premises for any purpose, Tenant shall carry and maintain,
at its sole cost and expense:
1. Commercial General Liability Insurance applicable to
the Premises and its appurtenances providing, on an
occurrence basis, a minimum combined single limit of
Two Million Dollars ($2,000,000.00), with a
contractual liability endorsement covering Tenant's
indemnity obligations under this Lease.
2. All Risks of Physical Loss Insurance written at
replacement cost value and with a replacement cost
endorsement covering all of Tenant's Property in the
Premises.
3. Workers' Compensation Insurance as required by the
state in which the Premises is located and in amounts
as may be required by applicable statute, and
Employers' Liability Coverage of One Million Dollars
($1,000,000.00) per occurrence.
4. Whenever good business practice, in Landlord's
reasonable judgment, indicates the need of additional
insurance coverage or different types of insurance in
connection with the Premises or Tenant's use and
occupancy thereof, Tenant shall, upon request, obtain
such insurance at Tenant's expense and provide
Landlord with evidence thereof.
B. Except for items for which Landlord is responsible under the
Work Letter Agreement, before any repairs, alterations,
additions, improvements, or construction are undertaken by or
on behalf of Tenant, Tenant shall carry and maintain, at its
expense, or Tenant shall require any contractor performing
work on the Premises to carry and maintain, at no expense to
Landlord, in addition to Workers' Compensation Insurance as
required by the jurisdiction in which the Building is located,
All Risk Builder's Risk Insurance in the amount of the
replacement cost of any alterations, additions or improvements
(or such other amount reasonably required by Landlord) and
Commercial General Liability Insurance (including, without
limitation, Contractor's Liability coverage, Contractual
Liability coverage and Completed Operations coverage,) written
on an occurrence basis with a minimum combined single limit of
Two Million Dollars ($2,000,000.00) and adding "the named
Landlord hereunder (or any successor thereto), Equity Office
Properties Trust, a Maryland real estate investment trust, EOP
Operating Limited Partnership, a Delaware limited partnership,
and their respective members, principals, beneficiaries,
partners, officers, directors, employees, agents and any
Mortgagee(s)", and other designees of Landlord as the interest
of such designees shall appear, as additional insureds
(collectively referred to as the "Additional Insureds").
C. Any company writing any insurance which Tenant is required to
maintain or cause to be maintained pursuant to the terms of
this Lease (all such insurance as well as any other insurance
pertaining to the Premises or the operation of Tenant's
business therein being referred to as "Tenant's Insurance"),
as well as the form of such insurance, shall at all times be
subject to Landlord's reasonable approval, and each such
insurance company shall have an A.M. Best rating of "A-" or
better and shall be licensed and qualified to do business in
the state in which the Premises is located. All policies
evidencing Tenant's Insurance (except for Workers'
Compensation Insurance) shall specify Tenant as named insured
and the Additional Insureds as additional insureds. Provided
that the coverage afforded Landlord and any designees of
Landlord shall not be reduced or otherwise adversely affected,
all of Tenant's Insurance may be carried under a blanket
policy covering the Premises and any other of Tenant's
locations. All policies of Tenant's Insurance shall contain
endorsements that the insurer(s) will give to Landlord and its
designees at least thirty (30) days' advance written notice of
any change, cancellation, termination or lapse of said
insurance. Tenant shall be solely responsible for payment of
premiums for all of Tenant's Insurance. Tenant shall deliver
to Landlord at least fifteen (15) days prior to the time
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Tenant's Insurance is first required to be carried by Tenant,
and upon renewals at least fifteen (15) days prior to the
expiration of any such insurance coverage, a certificate of
insurance of all policies procured by Tenant in compliance
with its obligations under this Lease. The limits of Tenant's
Insurance shall in no event limit Tenant's liability under
this Lease.
D. Tenant shall not do or fail to do anything in, upon or about
the Premises which will: (1) violate the terms of any of
Landlord's insurance policies; (2) prevent Landlord from
obtaining policies of insurance acceptable to Landlord or any
Mortgagees; or (3) result in an increase in the rate of any
insurance on the Premises, the Building, any other property of
Landlord or of others within the Building. In the event of the
occurrence of any of the events set forth in this Section,
Tenant shall pay Landlord upon demand, as Additional Base
Rental, the cost of the amount of any increase in any such
insurance premium, provided that the acceptance by Landlord of
such payment shall not be construed to be a waiver of any
rights by Landlord in connection with a default by Tenant
under the Lease. If Tenant fails to obtain the insurance
coverage required by this Lease, Landlord may, at its option,
obtain such insurance for Tenant, and Tenant shall pay, as
Additional Base Rental, the cost of all premiums thereon and
all of Landlord's costs associated therewith.
XVII. SUBROGATION.
Notwithstanding anything set forth in this Lease to the contrary,
Landlord and Tenant do hereby waive any and all right of recovery, claim, action
or cause of action against the other, their respective principals,
beneficiaries, partners, officers, directors, agents, and employees, and, with
respect to Landlord, its Mortgagee(s), for any loss or damage that may occur to
Landlord or Tenant or any party claiming by, through or under Landlord or
Tenant, as the case may be, with respect to their respective property, the
Building, the Property or the Premises or any addition or improvements thereto,
or any contents therein, by reason of fire, the elements or any other cause,
regardless of cause or origin, including the negligence of Landlord or Tenant,
or their respective principals, beneficiaries, partners, officers, directors,
agents and employees and, with respect to Landlord, its Mortgagee(s), which loss
or damage is (or would have been, had the insurance required by this Lease been
carried) covered by insurance. Since this mutual waiver will preclude the
assignment of any such claim by subrogation (or otherwise) to an insurance
company (or any other person), Landlord and Tenant each agree to give each
insurance company which has issued, or in the future may issue, policies of
insurance, with respect to the items covered by this waiver, written notice of
the terms of this mutual waiver, and to have such insurance policies properly
endorsed, if necessary, to prevent the invalidation of any of the coverage
provided by such insurance policies by reason of such mutual waiver. For the
purpose of the foregoing waiver, the amount of any deductible applicable to any
loss or damage shall be deemed covered by, and recoverable by the insured under
the insurance policy to which such deductible relates. In the event that Tenant
is permitted to and self-insures any risk which would have been covered by the
insurance required to be carried by Tenant pursuant to Article XVI of the Lease,
or if Tenant fails to carry any insurance required to be carried by Tenant
pursuant to Article XVI of this Lease, then all loss or damage to Tenant, its
leasehold interest, its business, its property, the Premises or any additions or
improvements thereto or contents thereof shall be deemed covered by and
recoverable by Tenant under valid and collectible policies of insurance.
XVIII. LANDLORD'S INSURANCE.
Landlord shall maintain liability insurance as well as property
insurance on the Building in such amounts as Landlord reasonably elects,
provided that during the Lease Term Landlord shall maintain standard so-called
"all risk" property insurance covering the Building in an amount equal to the
replacement cost thereof (excluding the core and foundation) at the time in
question. The cost of such insurance shall be included as a part of the Basic
Costs, and payments for losses and recoveries thereunder shall be made solely to
Landlord or the Mortgagees of Landlord as their interests shall appear.
XIX. CASUALTY DAMAGE.
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A. If the Premises or any part thereof shall be damaged by fire
or other casualty, Tenant shall give prompt written notice
thereof to Landlord. In case the Building shall be so damaged
that in Landlord's reasonable judgment, substantial alteration
or reconstruction of the Building shall be required (whether
or not the Premises has been damaged by such casualty) or in
the event Landlord will not be permitted by applicable law to
rebuild the Building in substantially the same form as existed
prior to the fire or casualty or in the event the Premises has
been materially damaged and there is less than two (2) years
of the Lease Term remaining on the date of such casualty or in
the event any Mortgagee should require that the insurance
proceeds payable as a result of a casualty be applied to the
payment of the mortgage debt or in the event of any material
uninsured loss to the Building, Landlord may, at its option,
terminate this Lease by notifying Tenant in writing of such
termination within ninety (90) days after the date of such
casualty. Such termination shall be effective as of the date
of fire or casualty, with respect to any portion of the
Premises that was rendered untenantable, and the effective
date of termination specified in Landlord's notice, with
respect to any portion of the Premises that remained
tenantable. If Landlord does not elect to terminate this
Lease, Landlord shall commence and proceed with reasonable
diligence to restore the Building (provided that Landlord
shall not be required to restore any unleased premises in the
Building) and the Leasehold Improvements (but excluding any
improvements, alterations or additions made by Tenant in
violation of this Lease) located within the Premises to
substantially the same condition they were in immediately
prior to the happening of the casualty. Notwithstanding the
foregoing, Landlord's obligation to restore the Building, and
the Leasehold Improvements, if any, shall not require Landlord
to expend for such repair and restoration work more than the
insurance proceeds actually received by the Landlord as a
result of the casualty. When repairs to the Premises have been
completed by Landlord, Tenant shall complete the restoration
or replacement of all Tenant's Property necessary to permit
Tenant's reoccupancy of the Premises, and Tenant shall present
Landlord with evidence satisfactory to Landlord of Tenant's
ability to pay such costs prior to Landlord's commencement of
repair and restoration of the Premises. Landlord shall not be
liable for any inconvenience or annoyance to Tenant or injury
to the business of Tenant resulting in any way from such
damage or the repair thereof, except that, subject to the
provisions of the next sentence, Landlord shall allow Tenant a
fair diminution of Rent on a per diem basis during the time
and to the extent any damage to the Premises causes the
Premises to be rendered untenantable and not used by Tenant.
If the Premises or any other portion of the Building is
damaged by fire or other casualty resulting from the
negligence of Tenant or any Tenant Related Parties, the Rent
hereunder shall not be diminished during any period during
which the Premises, or any portion thereof, is untenantable
(except to the extent Landlord is entitled to be reimbursed by
the proceeds of any rental interruption insurance), and Tenant
shall be liable to Landlord for the cost of the repair and
restoration of the Building caused thereby to the extent such
cost and expense is not covered by insurance proceeds.
Landlord and Tenant hereby waive the provisions of any law
from time to time in effect during the Lease Term relating to
the effect upon leases of partial or total destruction of
leased property. Landlord and Tenant agree that their
respective rights in the event of any damage to or destruction
of the Premises shall be those specifically set forth herein.
B. Notwithstanding anything in this Article XIX to the contrary,
if all or any portion of the Premises shall be made
untenantable by a fire or other casualty, Landlord shall with
reasonable promptness, cause an architect or general
contractor selected by Landlord to estimate the amount of time
required to substantially complete repair and restoration of
the Premises and make the Premises tenantable again, using
standard working methods (the "Completion Estimate"). If the
Completion Estimate indicates that the Premises cannot be made
tenantable within
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nine (9) months after the date of the casualty, either party
shall have the right to terminate this Lease by giving written
notice to the other of such election within ten (10) days
after its receipt of the Completion Estimate. Tenant, however,
shall not have the right to terminate this Lease in the event
that the fire or casualty in question was caused by the
negligence or intention misconduct of Tenant or any Tenant
Related Parties. If the Completion Estimate indicates that the
Premises can be made tenantable within nine (9) months after
the date of the casualty and Landlord has not otherwise
exercised its right to terminate the Lease pursuant to the
terms hereof, or if the Completion Estimate indicates that the
Premises cannot be made tenantable within nine (9) months but
neither party terminates this Lease pursuant to this Article
XIX, Landlord shall proceed with reasonable promptness to
repair and restore the Premises. Notwithstanding the
foregoing, if Tenant was entitled to but elected not to
exercise its right to terminate the Lease and Landlord does
not substantially complete the repair and restoration the
Premises within two (2) months after the expiration of the
estimated period of time set forth in the Completion Estimate,
which period shall be extended to the extent of any
Reconstruction Delays, then Tenant may terminate this Lease by
written notice to Landlord within fifteen (15) days after the
expiration of such period, as the same may be extended. For
purposes of this Lease, the term "Reconstruction Delays" shall
mean: (i) any delays caused by Tenant; and (ii) any delays
caused by events of Force Majeure.
XX. DEMOLITION.
Intentionally Omitted.
XXI. CONDEMNATION.
If (a) the whole or any substantial part of the Premises or (b) any
portion of the Building or Property which would leave the remainder of the
Building unsuitable for use as an office building comparable to its use on the
Commencement Date, shall be taken or condemned for any public or quasi-public
use under governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, then Landlord may, at its
option, terminate this Lease effective as of the date the physical taking of
said Premises or said portion of the Building or Property shall occur. In the
event this Lease is not terminated, the Rentable Area of the Building, the
Rentable Area of the Premises and Tenant's Pro Rata Share shall be appropriately
adjusted. In addition, Rent for any portion of the Premises so taken or
condemned shall be abated during the unexpired term of this Lease effective when
the physical taking of said portion of the Premises shall occur. All
compensation awarded for any such taking or condemnation, or sale proceeds in
lieu thereof, shall be the property of Landlord, and Tenant shall have no claim
thereto, the same being hereby expressly waived by Tenant, except for any
portions of such award or proceeds which are specifically allocated by the
condemning or purchasing party for the taking of or damage to trade fixtures of
Tenant, which Tenant specifically reserves to itself.
XXII. EVENTS OF DEFAULT.
The following events shall be deemed to be events of default under this
Lease:
A. Tenant shall fail to pay when due any Base Rental, Additional
Base Rental or other Rent under this Lease and such failure
shall continue for three (3) days after written notice from
Landlord (hereinafter sometimes referred to as a "Monetary
Default").
B. Any failure by Tenant (other than a Monetary Default) to
comply with any term, provision or covenant of this Lease,
including, without limitation, the rules and regulations,
which failure is not cured within ten (10) days after delivery
to Tenant of notice of the occurrence of such failure (or such
longer period of time as may be reasonably necessary to cure
(not to exceed 60 days), provided that Tenant commences to
cure such default within ten (10) days after notice from
Landlord and, from time to time upon request of Landlord,
furnishes Landlord with evidence that
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demonstrates, in Landlord's reasonable judgment, that Tenant
is diligently pursuing a course that will remedy such
failure), provided that if any such failure creates a
hazardous condition, the hazardous condition must be cured
immediately. Notwithstanding the foregoing, if Tenant fails to
comply with any particular provision or covenant of this
Lease, including, without limitation, Tenant's obligation to
pay Rent when due, on three (3) occasions during any twelve
(12) month period, any subsequent violation of such provision
or covenant shall be considered to be an incurable default by
Tenant.
C. Tenant or any Guarantor shall become insolvent, or shall make
a transfer in fraud of creditors, or shall commit an act of
bankruptcy or shall make an assignment for the benefit of
creditors, or Tenant or any Guarantor shall admit in writing
its inability to pay its debts as they become due.
D. Tenant or any Guarantor shall file a petition under any
section or chapter of the United States Bankruptcy Code, as
amended, pertaining to bankruptcy, or under any similar law or
statute of the United States or any State thereof, or Tenant
or any Guarantor shall be adjudged bankrupt or insolvent in
proceedings filed against Tenant or any Guarantor thereunder;
or a petition or answer proposing the adjudication of Tenant
or any Guarantor as a debtor or its reorganization under any
present or future federal or state bankruptcy or similar law
shall be filed in any court and such petition or answer shall
not be discharged or denied within sixty (60) days after the
filing thereof.
E. A receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant or any Guarantor or
of the Premises or of any of Tenant's Property located thereon
in any proceeding brought by Tenant or any Guarantor, or any
such receiver or trustee shall be appointed in any proceeding
brought against Tenant or any Guarantor and shall not be
discharged within sixty (60) days after such appointment or
Tenant or such Guarantor shall consent to or acquiesce in such
appointment.
F. The leasehold estate hereunder shall be taken on execution or
other process of law or equity in any action against Tenant.
G. The liquidation, termination, dissolution, forfeiture of right
to do business, or death of Tenant or any Guarantor.
H. Tenant is in default beyond any notice and cure period under
any other lease with Landlord.
XXIII. REMEDIES.
A. Upon the occurrence of any event or events of default under
this Lease, Landlord shall have the option to pursue any one
or more of the following remedies without any notice (except
as expressly prescribed in Article XXII above) or demand
whatsoever (and without limiting the generality of the
foregoing, Tenant hereby specifically waives notice and demand
for payment of Rent or other obligations due [except as
expressly prescribed in Article XXII above] and waives any and
all other notices or demand requirements imposed by applicable
law):
1. Terminate this Lease or Tenant's right to possession,
in which event Tenant shall immediately surrender the
Premises to Landlord. If Tenant fails to surrender
the Premises upon termination of the Lease or
Tenant's right to possession, Landlord may without
prejudice to any other remedy which it may have,
enter upon and take possession of the Premises and
expel or remove Tenant and any other person who may
be occupying said Premises, or any part thereof, and
Tenant hereby agrees to pay to Landlord on demand the
amount of all loss and damage, including
consequential damage, which Landlord may suffer by
reason of such termination, whether through inability
to relet the
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Premises on satisfactory terms or otherwise,
specifically including but not limited to all Costs
of Reletting (hereinafter defined) and any deficiency
that may arise by reason of any reletting or failure
to relet. Any reletting by Landlord shall be on such
conditions (which may include concessions, free rent
and alterations of the Premises) and for such uses as
Landlord in its absolute discretion may determine,
and Landlord may collect and receive any rents
payable by reason of such reletting. Landlord agrees
to use reasonable efforts to mitigate damages,
provided that such reasonable efforts shall not
require Landlord to relet the Premises in preference
to any other space in the Building or to relet the
Premises to any party that Landlord could reasonably
reject as a transferee pursuant to Article XIII
hereof.
2. Intentionally Omitted.
3. Enter upon the Premises without having any civil or
criminal liability therefor, and do whatever Tenant
is obligated to do under the terms of this Lease, and
Tenant agrees to reimburse Landlord on demand for any
expense which Landlord may incur in thus affecting
compliance with Tenant's obligations under this Lease
together with interest at the lesser of a per annum
rate equal to: (a) the Maximum Rate, or (b) the Prime
Rate plus five percent (5%).
4. In order to regain possession of the Premises and to
deny Tenant access thereto in any instance in which
Landlord has terminated this Lease or Tenant's right
to possession, or to limit access to the Premises in
accordance with local law in the event of a default
by Tenant, Landlord or its agent may, at the expense
and liability of the Tenant, alter or change any or
all locks or other security devices controlling
access to the Premises without posting or giving
notice of any kind to Tenant. Landlord shall have no
obligation to provide Tenant a key or grant Tenant
access to the Premises so long as Tenant is in
default under this Lease. Tenant shall not be
entitled to recover possession of the Premises,
terminate this Lease, or recover any actual,
incidental, consequential, punitive, statutory or
other damages or award of attorneys' fees, by reason
of Landlord's alteration or change of any lock or
other security device. Landlord may, without notice,
remove and either dispose of or store, at Tenant's
expense, any property belonging to Tenant that
remains in the Premises after Landlord has regained
possession thereof.
5. Terminate this Lease, in which event, Tenant shall
immediately surrender the Premises to Landlord and
pay to Landlord the sum of: (a) all Rent accrued
hereunder through the date of termination, and, upon
Landlord's determination thereof, (b) an amount equal
to: the total Rent that Tenant would have been
required to pay for the remainder of the Lease Term
discounted to present value at the Prime Rate then in
effect, minus the then present fair rental value of
the Premises for the remainder of the Lease Term,
similarly discounted, after deducting all anticipated
Costs of Reletting (as defined below).
B. For purposes of this Lease, the term "Costs of Reletting"
shall mean all costs and expenses incurred by Landlord in
connection with the reletting of the Premises, including
without limitation, the cost of cleaning, renovation, repairs,
decoration and alteration of the Premises for a new tenant or
tenants, advertisement, marketing, brokerage and legal fees
(if and to the extent permitted by law), the cost of
protecting or caring for the Premises while vacant, the cost
of removing and storing any property located on the Premises,
any increase in insurance premiums caused by the vacancy of
the Premises and any other out-of-pocket expenses incurred by
Landlord including tenant incentives, allowances and
inducements.
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C. Except as otherwise herein provided, no repossession or
re-entering of the Premises or any part thereof pursuant to
Article XXIII hereof or otherwise shall relieve Tenant or any
Guarantor of its liabilities and obligations hereunder, all of
which shall survive such repossession or re-entering.
Notwithstanding any such repossession or re-entering by reason
of the occurrence of an event of default, Tenant will pay to
Landlord the Rent required to be paid by Tenant pursuant to
this Lease. In no event, however, shall Landlord be entitled
to a double recovery of damages in connection with Landlord's
exercise of one or more of the remedies provided herein.
D. No right or remedy herein conferred upon or reserved to
Landlord is intended to be exclusive of any other right or
remedy, and each and every right and remedy shall be
cumulative and in addition to any other right or remedy given
hereunder or now or hereafter existing by agreement,
applicable law or in equity. In addition to other remedies
provided in this Lease, Landlord shall be entitled, to the
extent permitted by applicable law, to injunctive relief, or
to a decree compelling performance of any of the covenants,
agreements, conditions or provisions of this Lease, or to any
other remedy allowed to Landlord at law or in equity.
Forbearance by Landlord to enforce one or more of the remedies
herein provided upon an event of default shall not be deemed
or construed to constitute a waiver of such default. In no
event, however, shall Landlord be entitled to a double
recovery of damages in connection with Landlord's exercise of
one or more of the remedies provided herein.
E. This Article XXIII shall be enforceable to the maximum extent
such enforcement is not prohibited by applicable law, and the
unenforceability of any portion thereof shall not thereby
render unenforceable any other portion.
XXIV. LIMITATION OF LIABILITY.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE
LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD HEREUNDER) TO TENANT SHALL
BE LIMITED TO THE INTEREST OF LANDLORD IN THE BUILDING, AND TENANT AGREES TO
LOOK SOLELY TO LANDLORD'S INTEREST IN THE BUILDING FOR THE RECOVERY OF ANY
JUDGMENT OR AWARD AGAINST THE LANDLORD, IT BEING INTENDED THAT NEITHER LANDLORD
NOR ANY MEMBER, PRINCIPAL, PARTNER, SHAREHOLDER, OFFICER, DIRECTOR OR
BENEFICIARY OF LANDLORD SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR
DEFICIENCY. TENANT HEREBY COVENANTS THAT, PRIOR TO THE FILING OF ANY SUIT FOR AN
ALLEGED DEFAULT BY LANDLORD HEREUNDER, IT SHALL GIVE LANDLORD AND ALL MORTGAGEES
WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES OR DEED OF TRUST LIENS ON THE
PROPERTY, BUILDING OR PREMISES NOTICE AND REASONABLE TIME TO CURE SUCH ALLEGED
DEFAULT BY LANDLORD.
XXV. NO WAIVER.
Failure of Landlord to declare any default immediately upon its
occurrence, or delay in taking any action in connection with an event of default
shall not constitute a waiver of such default, nor shall it constitute an
estoppel against Landlord, but Landlord shall have the right to declare the
default at any time and take such action as is lawful or authorized under this
Lease. Failure by Landlord to enforce its rights with respect to any one default
shall not constitute a waiver of its rights with respect to any subsequent
default. Receipt by Landlord of Tenant's keys to the Premises shall not
constitute an acceptance or surrender of the Premises.
XXVI. EVENT OF BANKRUPTCY.
In addition to, and in no way limiting the other remedies set forth
herein, Landlord and Tenant agree that if Tenant ever becomes the subject of a
voluntary or involuntary bankruptcy, reorganization, composition, or other
similar type proceeding under the federal bankruptcy laws, as now enacted or
hereinafter amended, then:
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A. "Adequate protection" of Landlord's interest in the Premises
pursuant to the provisions of Section 361 and 363 (or their
successor sections) of the Bankruptcy Code, 11 U.S.C. Section
101 et seq., (such Bankruptcy Code as amended from time to
time being herein referred to as the "Bankruptcy Code"), prior
to assumption and/or assignment of the Lease by Tenant shall
include, but not be limited to all (or any part) of the
following:
1. the continued payment by Tenant of the Base Rental
and all other Rent due and owing hereunder and the
performance of all other covenants and obligations
hereunder by Tenant;
2. the furnishing of an additional/new security deposit
by Tenant in the amount of three (3) times the then
current monthly Base Rental.
B. "Adequate assurance of future performance" by Tenant and/or
any assignee of Tenant pursuant to Bankruptcy Code Section 365
will include (but not be limited to) payment of an
additional/new Security Deposit in the amount of three (3)
times the then current monthly Base Rental payable hereunder.
C. Any person or entity to which this Lease is assigned pursuant
to the provisions of the Bankruptcy Code, shall be deemed
without further act or deed to have assumed all of the
obligations of Tenant arising under this Lease on and after
the effective date of such assignment. Any such assignee
shall, upon demand by Landlord, execute and deliver to
Landlord an instrument confirming such assumption of
liability.
D. Notwithstanding anything in this Lease to the contrary, all
amounts payable by Tenant to or on behalf of the Landlord
under this Lease, whether or not expressly denominated as
"Rent," shall constitute "rent" for the purposes of Section
502(b) (6) of the Bankruptcy Code.
E. If this Lease is assigned to any person or entity pursuant to
the provisions of the Bankruptcy Code, any and all monies or
other considerations payable or otherwise to be delivered to
Landlord (including Base Rentals and other Rent hereunder),
shall be and remain the exclusive property of Landlord and
shall not constitute property of Tenant or of the bankruptcy
estate of Tenant. Any and all monies or other considerations
constituting Landlord's property under the preceding sentence
not paid or delivered to Landlord shall be held in trust by
Tenant or Tenant's bankruptcy estate for the benefit of
Landlord and shall be promptly paid to or turned over to
Landlord.
F. If Tenant assumes this Lease and proposes to assign the same
pursuant to the provisions of the Bankruptcy Code to any
person or entity who shall have made a bona fide offer to
accept an assignment of this Lease on terms acceptable to the
Tenant, then notice of such proposed offer/assignment, setting
forth: (1) the name and address of such person or entity, (2)
all of the terms and conditions of such offer, and (3) the
adequate assurance to be provided Landlord to assure such
person's or entity's future performance under the Lease, shall
be given to Landlord by Tenant no later than twenty (20) days
after receipt by Tenant, but in any event no later than ten
(10) days prior to the date that Tenant shall make application
to a court of competent jurisdiction for authority and
approval to enter into such assumption and assignment, and
Landlord shall thereupon have the prior right and option, to
be exercised by notice to Tenant given at any time prior to
the effective date of such proposed assignment, to accept an
assignment of this Lease upon the same terms and conditions
and for the same consideration, if any, as the bona fide offer
made by such persons or entity, less any brokerage commission
which may be payable out of the consideration to be paid by
such person for the assignment of this Lease.
G. To the extent permitted by law, Landlord and Tenant agree that
this Lease is a contract under which applicable law excuses
Landlord from accepting performance from (or rendering
performance to) any person or
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entity other than Tenant within the meaning of Sections 365(c)
and 365(e) (2) of the Bankruptcy Code.
XXVII. WAIVER OF JURY TRIAL.
Landlord and Tenant hereby waive any right to a trial by jury in any
action or proceeding based upon, or related to, the subject matter of this
Lease. This waiver is knowingly, intentionally, and voluntarily made by Tenant,
and Tenant acknowledges that neither Landlord nor any person acting on behalf of
Landlord has made any representations of fact to induce this waiver of trial by
jury or in any way to modify or nullify its effect. Tenant further acknowledges
that it has been represented (or has had the opportunity to be represented) in
the signing of this Lease and in the making of this waiver by independent legal
counsel, selected of its own free will, and that it has had the opportunity to
discuss this waiver with counsel.
XXVIII. RELOCATION.
Intentionally Omitted.
XXIX. HOLDING OVER.
In the event of holding over by Tenant after expiration or other
termination of this Lease or in the event Tenant continues to occupy the
Premises after the termination of Tenant's right of possession pursuant to
Articles XXII and XXIII hereof, occupancy of the Premises subsequent to such
termination or expiration shall be that of a tenancy at sufferance and in no
event for month-to-month or year-to-year. Tenant shall, throughout the entire
holdover period, be subject to all the terms and provisions of this Lease and
shall pay for its use and occupancy an amount (on a per month basis without
reduction for any partial months during any such holdover) equal to one hundred
fifty percent (150%) of the sum of the Base Rental and Additional Base Rental
due for the period immediately preceding such holding over, provided that in no
event shall Base Rental and Additional Base Rental during the holdover period be
less than the fair market rental for the Premises. Notwithstanding the
foregoing, if such holding over continues for more than sixty (60) days,
effective as of the sixty-first (61st) day, holdover rent shall increase to 200%
of the sum of the Base Rental and Additional Base Rental due for the period
immediately preceding such holding over. No holding over by Tenant or payments
of money by Tenant to Landlord after the expiration of the term of this Lease
shall be construed to extend the Lease Term or prevent Landlord from recovery of
immediate possession of the Premises by summary proceedings or otherwise. In
addition to the obligation to pay the amounts set forth above during any such
holdover period, Tenant also shall be liable to Landlord for all damage,
including any consequential damage, which Landlord may suffer by reason of any
holding over by Tenant, and Tenant shall indemnify Landlord against any and all
claims made by any other tenant or prospective tenant against Landlord for delay
by Landlord in delivering possession of the Premises to such other tenant or
prospective tenant. Notwithstanding the foregoing, Tenant shall not be liable
for consequential damages unless: (1) Landlord notifies Tenant that it has
entered into a lease for the Premises; and (2) Tenant fails to vacate the
Premises within thirty (30) days after the later to occur of the date of
Landlord's notice or the termination date of the Lease. Landlord agrees to use
reasonable efforts to mitigate any consequential damages.
XXX. SUBORDINATION TO MORTGAGES; ESTOPPEL CERTIFICATE.
A. Tenant accepts this Lease subject and subordinate to any
mortgage, deed of trust, ground lease or other lien presently
existing or hereafter arising upon the Premises, or upon the
Building and/or the Property and to any renewals,
modifications, refinancings and extensions thereof (any such
mortgage, deed of trust, lease or other lien being hereinafter
referred to as a "Mortgage", and the person or entity having
the benefit of same being referred to hereinafter as a
"Mortgagee"), but Tenant agrees that any such Mortgagee shall
have the right at any time to subordinate such Mortgage to
this Lease on such terms and subject to such conditions as
such Mortgagee may deem appropriate in its discretion. This
clause shall be self-operative and no further instrument of
subordination shall be required. However, Landlord is hereby
irrevocably vested with full power and authority to
subordinate this Lease
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to any Mortgage, and Tenant agrees upon demand to execute such
further instruments subordinating this Lease, acknowledging
the subordination of this Lease or attorning to the holder of
any such Mortgage as Landlord may request. If any person shall
succeed to all or part of Landlord's interests in the Premises
whether by purchase, foreclosure, deed in lieu of foreclosure,
power of sale, termination of lease or otherwise, and if and
as so requested or required by such successor-in-interest,
Tenant shall, without charge, attorn to such
successor-in-interest. Tenant agrees that it will from time to
time upon request by Landlord and, within five (5) days of the
date of such request, execute and deliver to such persons as
Landlord shall request an estoppel certificate or other
similar statement in recordable form certifying that this
Lease is unmodified and in full force and effect (or if there
have been modifications, that the same is in full force and
effect as so modified), stating the dates to which Rent and
other charges payable under this Lease have been paid, stating
that Landlord is not in default hereunder (or if Tenant
alleges a default stating the nature of such alleged default)
and further stating such other matters as Landlord shall
reasonably require.
B. Notwithstanding Section XXX.A. above to the contrary, this
agreement shall be contingent upon the execution of a
subordination, non-disturbance and attornment agreement by
Tenant and Landlord's current Mortgagee on the form attached
hereto as Exhibit I. In addition, Landlord will obtain a
non-disturbance, subordination and attornment agreement from
any future Mortgagee on such future Mortgagee's then current
standard form of agreement. Landlord's failure to obtain a
non-disturbance, subordination and attornment agreement for
Tenant shall have no effect on the rights, obligations and
liabilities of Landlord and Tenant or be considered to be a
default by Landlord hereunder. Landlord's failure to obtain a
non-disturbance, subordination and attornment agreement for
Tenant from any future Mortgagee shall have no effect on the
rights, obligations and liabilities of Landlord and Tenant or
be considered to be a default by Landlord hereunder, provided
that if such future Mortgagee is unwilling to enter into a
non-disturbance, subordination and attornment agreement with
Tenant on its then current standard form, Tenant shall not be
required to subordinate its leasehold interest to the interest
of such future Mortgagee. If, however, Tenant is unwilling to
enter into a non-disturbance, subordination and attornment
agreement on such future Mortgagee's standard form of
agreement, such refusal shall be considered to be a default
hereunder by Tenant and this Lease shall automatically be
subordinated to the interest of such future Mortgagee.
XXXI. ATTORNEYS' FEES.
In the event that Landlord should retain counsel and/or institute any
suit against Tenant for violation of or to enforce any of the covenants or
conditions of this Lease, or should Tenant institute any suit against Landlord
for violation of any of the covenants or conditions of this Lease, or should
either party intervene in any suit in which the other is a party to enforce or
protect its interest or rights hereunder, the prevailing party in any such suit
shall be entitled to all of its costs, expenses and reasonable fees of its
attorney(s) (if and to the extent permitted by law) in connection therewith.
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XXXII. NOTICE.
Whenever any demand, request, approval, consent or notice ("Notice")
shall or may be given to either of the parties by the other, each such Notice
shall be in writing and shall be sent by registered or certified mail with
return receipt requested, or sent by overnight courier service (such as Federal
Express) at the respective addresses of the parties for notices as set forth in
Section I.A.10. of this Lease, provided that if Tenant has vacated the Premises
or is in default of this Lease Landlord may serve Notice by any manner permitted
by law. Any Notice under this Lease delivered by registered or certified mail
shall be deemed to have been given, delivered, received and effective on the
earlier of (a) the third day following the day on which the same shall have been
mailed with sufficient postage prepaid or (b) the delivery date indicated on the
return receipt. Notice sent by overnight courier service shall be deemed given,
delivered, received and effective upon the day after such notice is delivered to
or picked up by the overnight courier service. Either party may, at any time,
change its Notice Address by giving the other party Notice stating the change
and setting forth the new address.
XXXIII. LANDLORD'S LIEN.
INTENTIONALLY OMITTED, provided that the deletion of this Article shall not be
construed to be a waiver of Landlord's lien rights as provided by law.
XXXIV. EXCEPTED RIGHTS.
This Lease does not grant any rights to light or air over or about the
Building. Landlord specifically excepts and reserves to itself the use of any
roofs, the exterior portions of the Premises, all rights to the land and
improvements below the improved floor level of the Premises, the improvements
and air rights above the Premises and the improvements and air rights located
outside the demising walls of the Premises, and such areas within the Premises
as are required for installation of utility lines and other installations
required to serve any occupants of the Building and the right to maintain and
repair the same, and no rights with respect thereto are conferred upon Tenant
unless otherwise specifically provided herein. If Landlord needs to perform work
in the Premises in connection with the performance of alterations, additions or
improvements for another tenant in the Building, Landlord agrees (i) to perform
such work so that, following the completion thereof, there will not be any
change to the appearance or use of the Premises, and (ii) to perform such work
in a manner that will not materially interfere with Tenant's ability to use the
Premises for the Permitted Use during Tenant's normal hours of operation.
Without limiting the foregoing, any lines or cables that Landlord desires to run
through the Premises shall be located above the ceiling or within the walls.
Landlord further reserves to itself the right from time to time: (a) to change
the Building's name or street address; (b) to install, fix and maintain signs on
the exterior and interior of the Building; (c) to designate and approve window
coverings; (d) to make any decorations, alterations, additions, improvements to
the Building, or any part thereof (including the Premises) which Landlord shall
desire, or deem necessary for the safety, protection, preservation or
improvement of the Building, or as Landlord may be required to do by law; (e) to
have access to the Premises to perform its duties and obligations and to
exercise its rights under this Lease; (f) to retain at all times and to use
pass-keys to all locks within and into the Premises; (g) to approve the weight,
size, or location of heavy equipment, or articles in and about the Premises; (h)
to close or restrict access to the Building at all times other than Normal
Business Hours subject to Tenant's right to admittance at all times under such
regulations as Landlord may prescribe from time to time, or to close
(temporarily or permanently) any of the entrances to the Building; (i) to change
the arrangement and/or location of entrances of passageways, doors and doorways,
corridors, elevators, stairs, toilets and public parts of the Building; (j) if
Tenant has vacated the Premises during the last six (6) months of the Lease
Term, to perform additions, alterations and improvements to the Premises in
connection with a reletting or anticipated reletting thereof without being
responsible or liable for the value or preservation of any then existing
improvements to the Premises; and (k) to grant to anyone the exclusive right to
conduct any business or undertaking in the Building. Landlord, in accordance
with Article XII hereof, shall have the right to enter the Premises in
connection with the exercise of any of the rights set forth herein and such
entry into the Premises and the performance of any work therein shall not
constitute a constructive eviction or entitle Tenant to any abatement or
reduction of Rent by reason thereof.
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<PAGE> 36
XXXV. SURRENDER OF PREMISES.
At the expiration or earlier termination of this Lease or Tenant's
right of possession hereunder, Tenant shall remove all Tenant's Property from
the Premises, remove all Required Removables designated by Landlord and quit and
surrender the Premises to Landlord, broom clean, and in good order, condition
and repair, ordinary wear and tear excepted. If Tenant fails to remove any of
Tenant's Property within one (1) day after the termination of this Lease or
Tenant's right to possession hereunder, Landlord, at Tenant's sole cost and
expense, shall be entitled to remove and/or store such Tenant's Property and
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. Tenant shall pay Landlord, upon demand, any and all
expenses caused by such removal and all storage charges against such property so
long as the same shall be in the possession of Landlord or under the control of
Landlord. In addition, if Tenant fails to remove any Tenant's Property from the
Premises or storage, as the case may be, within ten (10) days after written
notice from Landlord, Landlord, at its option, may deem all or any part of such
Tenant's Property to have been abandoned by Tenant and title thereof shall
immediately pass to Landlord.
XXXVI. MISCELLANEOUS.
A. If any term or provision of this Lease, or the application
thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or
circumstances other than those as to which it is held invalid
or unenforceable, shall not be affected thereby, and each term
and provision of this Lease shall be valid and enforced to the
fullest extent permitted by law. This Lease represents the
result of negotiations between Landlord and Tenant, each of
which has been (or has had opportunity to be) represented by
counsel of its own selection, and neither of which has acted
under duress or compulsion, whether legal, economic or
otherwise. Consequently, Landlord and Tenant agree that the
language in all parts of the Lease shall in all cases be
construed as a whole according to its fair meaning and neither
strictly for nor against Landlord or Tenant.
B. Tenant agrees not to record this Lease without Landlord's
prior written consent; provided, however, Landlord agrees to
consent to the recordation or registration of a memorandum or
notice of this Lease, at Tenant's cost and expense (and in
form reasonably satisfactory to Landlord). If this Lease is
terminated before the Lease Term expires, than upon Landlord's
request that parties shall execute, deliver and record an
instrument acknowledging such fact and the date of termination
of this Lease, and Tenant hereby appoints Landlord as its
attorney-in-fact in its name and behalf to execute such
instrument if Tenant shall fail to execute and deliver such
instrument after Landlord's request therefor within ten (10)
days.
C. This Lease and the rights and obligations of the parties
hereto shall be interpreted, construed, and enforced in
accordance with the laws of the state in which the Building is
located.
D. Events of "Force Majeure" shall mean strikes, riots, acts of
God, shortages of labor or materials (unless any such shortage
of materials was reasonably anticipatable and alternate
sources of materials were available), war, and changes in
governmental law, regulations or restrictions. Whenever a
period of time is herein prescribed for the taking of any
action by Landlord or Tenant, such party shall not be liable
or responsible for, and there shall be excluded from the
computation of such period of time, any delays due to events
of Force Majeure. In no event, however, shall Landlord's or
Tenant's obligation to pay any Rent or other sums due
hereunder be postponed or delayed as a result of events of
Force Majeure. In addition, in no event shall Landlord's or
Tenant's economic or financial difficulties or hardship ever
be considered to be an event of Force Majeure.
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<PAGE> 37
E. Landlord shall have the right to transfer and assign, in whole
or in part, all of its rights and obligations hereunder and in
the Building and Property referred to herein, and in such
event and upon such transfer Landlord shall be released from
any further obligations hereunder, and Tenant agrees to look
solely to such successor in interest of Landlord for the
performance of such obligations.
F. Tenant hereby represents to Landlord that it has dealt
directly with and only with the Broker as a broker in
connection with this Lease. Tenant agrees to indemnify and
hold Landlord and the Landlord Related Parties harmless from
all claims of any brokers claiming to have represented Tenant
in connection with this Lease. Landlord agrees to indemnify
and hold Tenant and the Tenant Related Parties harmless from
all claims of any brokers claiming to have represented
Landlord in connection with this Lease.
G. If there is more than one Tenant, or if the Tenant is
comprised of more than one person or entity, the obligations
hereunder imposed upon Tenant shall be joint and several
obligations of all such parties. All notices, payments, and
agreements given or made by, with or to any one of such
persons or entities shall be deemed to have been given or made
by, with or to all of them.
H. In the event Tenant is a corporation (including any form of
professional association), partnership (general or limited),
or other form of organization other than an individual (each
such entity is individually referred to herein as an
"Organizational Entity"), then Tenant hereby covenants,
warrants and represents: (1) that such individual is duly
authorized to execute or attest and deliver this Lease on
behalf of Tenant in accordance with the organizational
documents of Tenant; (2) that this Lease is binding upon
Tenant; (3) that Tenant is duly organized and legally existing
in the state of its organization, and is qualified to do
business in the state in which the Premises is located; and
(4) that the execution and delivery of this Lease by Tenant
will not result in any breach of, or constitute a default
under any mortgage, deed of trust, lease, loan, credit
agreement, partnership agreement or other contract or
instrument to which Tenant is a party or by which Tenant may
be bound. If Tenant is an Organizational Entity, upon request,
Tenant will, prior to the Commencement Date, deliver to
Landlord true and correct copies of all organizational
documents of Tenant, including, without limitation, copies of
an appropriate resolution or consent of Tenant's board of
directors or other appropriate governing body of Tenant
authorizing or ratifying the execution and delivery of this
Lease, which resolution or consent will be duly certified to
Landlord's satisfaction by an appropriate individual with
authority to certify such documents, such as the secretary or
assistant secretary or the managing general partner of Tenant.
I. Tenant acknowledges that the financial capability of Tenant to
perform its obligations hereunder is material to Landlord and
that Landlord would not enter into this Lease but for its
belief, based on its review of Tenant's financial statements,
that Tenant is capable of performing such financial
obligations. Tenant hereby represents, warrants and certifies
to Landlord that its financial statements previously furnished
to Landlord were at the time given true and correct in all
material respects and that there have been no material
subsequent changes thereto as of the date of this Lease.
J. Except as expressly otherwise herein provided, with respect to
all required acts of Tenant, time is of the essence of this
Lease. This Lease shall create the relationship of Landlord
and Tenant between the parties hereto.
K. This Lease and the covenants and conditions herein contained
shall inure to the benefit of and be binding upon Landlord and
Tenant and their respective permitted successors and assigns.
35
<PAGE> 38
L. Notwithstanding anything to the contrary contained in this
Lease, the expiration of the Lease Term, whether by lapse of
time or otherwise, shall not relieve Landlord or Tenant from
it's obligations accruing prior to the expiration of the Lease
Term, and such obligations shall survive any such expiration
or other termination of the Lease Term.
M. The headings and titles to the paragraphs of this Lease are
for convenience only and shall have no affect upon the
construction or interpretation of any part hereof.
N. LANDLORD HAS DELIVERED A COPY OF THIS LEASE TO TENANT FOR
TENANT'S REVIEW ONLY, AND THE DELIVERY HEREOF DOES NOT
CONSTITUTE AN OFFER TO TENANT OR OPTION. THIS LEASE SHALL NOT
BE EFFECTIVE UNTIL AN ORIGINAL OF THIS LEASE EXECUTED BY BOTH
LANDLORD AND TENANT AND AN ORIGINAL GUARANTY, IF ANY, EXECUTED
BY EACH GUARANTOR IS DELIVERED TO AND ACCEPTED BY LANDLORD.
O. Quiet Enjoyment. Tenant shall, and may peacefully have, hold,
and enjoy the Premises, subject to the other terms of this
Lease (including, without limitation, Article XXX hereof),
provided that Tenant pays the Rent herein recited to be paid
by Tenant and performs all of Tenant's covenants and
agreements herein contained. This covenant and any and all
other covenants of Landlord shall be binding upon Landlord and
its successors only during its or their respective periods of
ownership of the Landlord's interest hereunder.
XXXVII. ENTIRE AGREEMENT.
This Lease Agreement, including the following Exhibits:
Exhibit A - Outline and Location of 2nd Floor Premises
Exhibit A-1 - Outline and Location of Fourth Floor Space
Exhibit A-2 - Outline and Location of Third Floor Space
Exhibit B - Rules and Regulations
Exhibit C - Commencement Letter
Exhibit D - Initial Alterations
Exhibit E - Additional Provisions
Exhibit F - Location of Reserved Parking Spaces
Exhibit G - HVAC Specifications
Exhibit H - Cleaning Specifications
Exhibit I - Form of Non-Disturbance Agreement
constitutes the entire agreement between the parties hereto with
respect to the subject matter of this Lease and supersedes all prior
agreements and understandings between the parties related to the
Premises, including all lease proposals, letters of intent and similar
documents. TENANT EXPRESSLY ACKNOWLEDGES AND AGREES THAT LANDLORD HAS
NOT MADE AND IS NOT MAKING, AND TENANT, IN EXECUTING AND DELIVERING
THIS LEASE, IS NOT RELYING UPON, ANY WARRANTIES, REPRESENTATIONS,
PROMISES OR STATEMENTS, EXCEPT TO THE EXTENT THAT THE SAME ARE
EXPRESSLY SET FORTH IN THIS LEASE. ALL UNDERSTANDINGS AND AGREEMENTS
HERETOFORE MADE BETWEEN THE PARTIES ARE MERGED IN THIS LEASE WHICH
ALONE FULLY AND COMPLETELY EXPRESSES THE AGREEMENT OF THE PARTIES,
NEITHER PARTY RELYING UPON ANY STATEMENT OR REPRESENTATION NOT EMBODIED
IN THIS LEASE. THIS LEASE MAY BE MODIFIED ONLY BY A WRITTEN AGREEMENT
SIGNED BY LANDLORD AND TENANT. LANDLORD AND TENANT EXPRESSLY AGREE THAT
THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY,
HABITABILITY, SUITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY
OTHER KIND ARISING OUT OF THIS LEASE, ALL OF WHICH ARE HEREBY WAIVED BY
TENANT, AND THAT THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE
EXPRESSLY SET FORTH IN THIS LEASE.
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<PAGE> 39
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the day and year first above written.
WITNESS/ATTEST: LANDLORD: EOP-CANTERBURY GREEN,
L.L.C., A DELAWARE LIMITED LIABILITY
COMPANY
By: EOP Operating Limited Partnership,
a Delaware limited
partnership, its
managing member
By: Equity Office Properties Trust, a
Maryland real estate investment
trust, its managing general partner
- -----------------------------
Name (print): By:
-------------------------------------
Name:
- ----------------------------- -----------------------------------
Name (print): Title:
---------------- ----------------------------------
WITNESS/ATTEST: TENANT: TRENWICK AMERICA
CORPORATION, A DELAWARE
CORPORATION
- -----------------------------
By:
-------------------------------------
Name (print):
----------------
Name:
-----------------------------------
Title:
----------------------------------
Name (print):
----------------
37
<PAGE> 40
EXHIBIT A
PREMISES
This Exhibit is attached to and made a part of the Lease dated
_____________, 1998, by and between EOP-CANTERBURY GREEN, L.L.C., A DELAWARE
LIMITED LIABILITY COMPANY ("Landlord") and TRENWICK AMERICA CORPORATION, A
DELAWARE CORPORATION ("Tenant") for space in the Building commonly known as One
Canterbury Green.
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<PAGE> 41
EXHIBIT B
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply, where applicable, to
the Premises, the Building, the parking garage associated therewith (if any),
the Property and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways and other similar
areas shall not be obstructed by Tenant or used by Tenant for any
purpose other than ingress and egress to and from the Premises. No
rubbish, litter, trash, or material of any nature shall be placed,
emptied, or thrown in those areas. At no time shall Tenant permit
Tenant's employees to loiter in common areas or elsewhere in or about
the Building or Property.
2. Plumbing fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or placed therein. Damage resulting to any
such fixtures or appliances from misuse by Tenant or its agents,
employees or invitees, shall be paid for by Tenant, and Landlord shall
not in any case be responsible therefor.
3. No signs, advertisements or notices shall be painted or affixed on or
to any windows, doors or other parts of the Building, except those of
such color, size, style and in such places as shall be first approved
in writing by Landlord. Except in connection with the hanging of
lightweight pictures, wall hanging and decorations, no nails, hooks or
screws shall be driven or inserted into any part of the Premises or
Building except by the Building maintenance personnel, nor shall any
part of the Building be defaced by Tenant.
4. Landlord may provide and maintain in the first floor (main lobby) of
the Building an alphabetical directory board listing all Tenants, and
no other directory shall be permitted unless previously consented to by
Landlord in writing.
5. Tenant shall not place any additional lock or locks on any door in the
Premises or Building without Landlord's prior written consent. A
reasonable number of keys to the locks on the doors in the Premises
shall be furnished by Landlord to Tenant at the cost of Tenant, and
Tenant shall not have any duplicate keys made. All keys shall be
returned to Landlord at the expiration or earlier termination of this
Lease.
6. All contractors, contractor's representatives, and installation
technicians performing work in the Building shall be subject to
Landlord's prior approval and shall be required to comply with
Landlord's standard rules, regulations, policies and procedures, as the
same may be revised from time to time. Tenant shall be solely
responsible for complying with all applicable laws, codes and
ordinances pursuant to which said work shall be performed.
7. Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by Tenant of any merchandise or materials which
require the use of elevators, stairways, lobby areas, or loading dock
areas, shall be restricted to hours reasonably designated by Landlord,
provided that Tenant shall not be required to schedule use of the
loading dock for periods of less than one hour. Tenant must seek
Landlord's prior approval by providing in writing a detailed listing of
any such activity, which approval shall not be unreasonably withheld or
delayed. Landlord may prohibit any article, equipment or any other item
from being brought into the Building if, in Landlord's reasonable
judgment, the bringing of such article, equipment or other item into
the Building would create a dangerous condition. Tenant is to assume
all risk for damage to articles moved and injury to any persons
resulting from such activity. If any equipment, property, and/or
personnel of Landlord or of any other tenant is damaged or injured as a
result of or in connection with such activity, Tenant shall be solely
liable for any and all damage or loss resulting therefrom.
8. Landlord shall have the power to prescribe the weight and position of
safes and other heavy equipment or items, which in all cases shall not
in the opinion of
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<PAGE> 42
Landlord exceed acceptable floor loading and weight distribution
requirements. All damage done to the Building by the installation,
maintenance, operation, existence or removal of any property of Tenant
shall be repaired at the expense of Tenant.
9. Corridor doors, when not in use, shall be kept closed.
10. Tenant shall not: (1) make or permit any improper, objectionable or
unpleasant noises or odors in the Building, or otherwise interfere in
any way with other tenants or persons having business with them; (2)
solicit business or distribute, or cause to be distributed, in any
portion of the Building any handbills, promotional materials or other
advertising; or (3) conduct or permit any other activities in the
Building that might constitute a nuisance.
11. No animals, except seeing eye dogs, shall be brought into or kept in,
on or about the Premises.
12. No inflammable, explosive or dangerous fluid or substance shall be used
or kept by Tenant in the Premises or Building. Tenant shall not,
without Landlord's prior written consent, use, store, install, spill,
remove, release or dispose of within or about the Premises or any other
portion of the Property, any asbestos- containing materials or any
solid, liquid or gaseous material now or hereafter considered toxic or
hazardous under the provisions of 42 U.S.C. Section 9601 et seq. or any
other applicable environmental law which may now or hereafter be in
effect. If Landlord does give written consent to Tenant pursuant to the
foregoing sentence, Tenant shall comply with all applicable laws, rules
and regulations pertaining to and governing such use by Tenant, and
shall remain liable for all costs of cleanup or removal in connection
therewith.
13. Tenant shall not use or occupy the Premises in any manner or for any
purpose which would injure the reputation or impair the present or
future value of the Premises or the Building; without limiting the
foregoing, Tenant shall not use or permit the Premises or any portion
thereof to be used for lodging, sleeping or for any illegal purpose.
14. Tenant shall not take any action which would violate Landlord's labor
contracts affecting the Building or which would cause any work
stoppage, picketing, labor disruption or dispute, or any interference
with the business of Landlord or any other tenant or occupant of the
Building or with the rights and privileges of any person lawfully in
the Building. Tenant shall take any actions necessary to resolve any
such work stoppage, picketing, labor disruption, dispute or
interference and shall have pickets removed and, at the request of
Landlord, immediately terminate at any time any construction work being
performed in the Premises giving rise to such labor problems, until
such time as Landlord shall have given its written consent for such
work to resume. Tenant shall have no claim for damages of any nature
against Landlord or any of the Landlord Related Parties in connection
therewith, nor shall the date of the commencement of the Term be
extended as a result thereof.
15. Tenant shall utilize the termite and pest extermination service
designated by Landlord to control termites and pests in the Premises.
Except as included in Basic Costs, Tenant shall bear the cost and
expense of such extermination services.
16. Tenant shall not install, operate or maintain in the Premises or in any
other area of the Building, any electrical equipment which does not
bear the U/L (Underwriters Laboratories) seal of approval, or which
would overload the electrical system or any part thereof beyond its
capacity for proper, efficient and safe operation as determined by
Landlord, taking into consideration the overall electrical system and
the present and future requirements therefor in the Building. Tenant
shall not furnish any cooling or heating to the Premises, including,
without limitation, the use of any electronic or gas heating devices,
without Landlord's prior written consent. Tenant shall not use more
than its proportionate share of telephone lines available to service
the Building.
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<PAGE> 43
17. Tenant shall not operate or permit to be operated on the Premises any
coin or token operated vending machine or similar device (including,
without limitation, telephones, lockers, toilets, scales, amusement
devices and machines for sale of beverages, foods, candy, cigarettes or
other goods), except for those vending machines or similar devices
which are for the sole and exclusive use of Tenant's employees, and
then only if such operation does not violate the lease of any other
tenant of the Building.
18. Bicycles and other vehicles are not permitted inside or on the walkways
outside the Building, except in those areas specifically designated by
Landlord for such purposes.
19. Landlord may from time to time adopt appropriate systems and procedures
for the security or safety of the Building, its occupants, entry and
use, or its contents. Tenant, Tenant's agents, employees, contractors,
guests and invitees shall comply with Landlord's reasonable
requirements relative thereto.
20. Landlord shall have the right to prohibit the use of the name of the
Building or any other publicity by Tenant that in Landlord's opinion
may tend to impair the reputation of the Building or its desirability
for Landlord or other tenants. Upon written notice from Landlord,
Tenant will refrain from and/or discontinue such publicity immediately.
21. Tenant shall carry out Tenant's permitted repair, maintenance,
alterations, and improvements in the Premises only during times agreed
to in advance by Landlord and in a manner which will not interfere with
the rights of other tenants in the Building.
22. Canvassing, soliciting, and peddling in or about the Building is
prohibited. Tenant shall cooperate and use its reasonable efforts to
prevent the same.
23. At no time shall Tenant permit or shall Tenant's agents, employees,
contractors, guests, or invitees smoke in any common area of the
Building, unless such common area has been declared a designated
smoking area by Landlord, or to allow any smoke from the Premises to
emanate into the common areas or any other tenant's premises. Landlord
shall have the right at any time to designate the Building as a
non-smoking building.
24. Tenant shall observe Landlord's rules with respect to maintaining
standard window coverings at all windows in the Premises so that the
Building presents a uniform exterior appearance. Tenant shall ensure
that to the extent reasonably practicable, window coverings are closed
on all windows in the Premises while they are exposed to the direct
rays of the sun.
25. All deliveries to or from the Premises shall be made only at such
times, in the areas and through the entrances and exits designated for
such purposes by Landlord. Tenant shall not permit the process of
receiving deliveries to or from the Premises outside of said areas or
in a manner which may interfere with the use by any other tenant of its
premises or of any common areas, any pedestrian use of such area, or
any use which is inconsistent with good business practice.
26. The work of cleaning personnel shall not be hindered by Tenant after
6:00 P.M., and such cleaning work may be done at any time when the
offices are vacant. Windows, doors and fixtures may be cleaned at any
time. Tenant shall provide adequate waste and rubbish receptacles
necessary to prevent unreasonable hardship to Landlord regarding
cleaning service.
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<PAGE> 44
EXHIBIT C
COMMENCEMENT LETTER
Date
------------------------------
Tenant
----------------------------
- ----------------------------------
Address
---------------------------
- ----------------------------------
- ----------------------------------
- ----------------------------------
- ----------------------------------
Re: Commencement Letter with respect to that certain Lease dated
_______________ by and between
_________________________________________, as Landlord, and
______________________________________________________, as
Tenant, for __________________ square feet of Rentable Area on the
___________ floor of the Building located at
______________________________________________.
Dear
-------------------------:
In accordance with the terms and conditions of the above referenced Lease,
Tenant hereby accepts possession of the Premises and agrees as follows:
1. The Commencement Date of the Lease is
- -----------------------------------------;
2. The Termination Date of the Lease is
- --------------------------------------------.
Please acknowledge your acceptance of possession and agreement to the terms set
forth above by signing all three (3) copies of this Commencement Letter in the
space provided and returning two (2) fully executed copies of the same to my
attention.
Sincerely,
- -------------------------------------
Property Manager
Agreed and Accepted:
Tenant:
------------------------------------------
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
Date:
--------------------------------------------
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<PAGE> 45
EXHIBIT D
INITIAL ALTERATIONS
This Exhibit is attached to and made a part of the Lease dated
_________________________, 1998, by and between EOP-CANTERBURY GREEN, L.L.C., A
DELAWARE LIMITED LIABILITY COMPANY ("Landlord") and TRENWICK AMERICA
CORPORATION, A DELAWARE CORPORATION ("Tenant") for space in the Building
commonly known as Canterbury Green.
I. ALTERATIONS AND ALLOWANCE.
A. Tenant, upon the Commencement Date, shall have the right to
perform alterations and improvements in the Premises (the
"Initial Alterations"). Notwithstanding the foregoing, Tenant
and its contractors shall not have the right to perform
Initial Alterations in the Premises unless and until Tenant
has complied with all of the terms and conditions of Article
X.B. of this Lease, including, without limitation, approval by
Landlord of the final plans for the Initial Alterations and
the contractors to be retained by Tenant to perform such
Initial Alterations. Landlord's approval of the contractors to
perform the Initial Alterations shall not be unreasonably
withheld. The parties agree that Landlord's approval of the
general contractor to perform the Initial Alterations shall
not be considered to be unreasonably withheld if any such
general contractor (i) does not have trade references
reasonably acceptable to Landlord, (ii) does not maintain
insurance as required pursuant to the terms of this Lease,
(iii) does not have the ability to be bonded for the work to
be performed, (iv) does not provide current financial
statements reasonably acceptable to Landlord, or (v) is not
licensed as a contractor in the state/municipality in which
the Premises is located. Tenant acknowledges the foregoing is
not intended to be an exclusive list of the reasons why
Landlord may reasonably withhold its consent to a general
contractor.
B. Provided Tenant is not in default, Landlord agrees to
contribute the sum of three hundred forty-four thousand nine
hundred sixty and 00/100 dollars ($344,960.00) (the
"Allowance") toward the cost of performing the Initial
Alterations in preparation of Tenant's occupancy of the
Premises. The amount of such Allowance, however, shall be
adjusted in the event Landlord exercises its Substitution
Option. The Allowance, less a 10% retainage (which retainage
shall be payable as part of the final draw), shall be paid to
Tenant or, at Landlord's option, to the order of the general
contractor that performs the Initial Alterations, in periodic
disbursements within thirty (30) days after receipt of the
following documentation: (i) an application for payment and
sworn statement of contractor substantially in the form of AIA
Document G-702 covering all work for which disbursement is to
be made to a date specified therein; (ii) a certification from
an AIA architect substantially in the form of the Architect's
Certificate for Payment which is located on AIA Document G702,
Application and Certificate of Payment; (iii) Contractor's,
subcontractor's and material supplier's waivers of liens which
shall cover all Initial Alterations for which disbursement is
being requested and all other statements and forms required
for compliance with the mechanics' lien laws of the State of
Connecticut, together with all such invoices, contracts, or
other supporting data as Landlord or Landlord's Mortgagee may
reasonably require; (iv) a cost breakdown for each trade or
subcontractor performing the Initial Alterations; (v) plans
and specifications for the Initial Alterations, together with
a certificate from an AIA architect that such plans and
specifications comply in all material respects with all laws
affecting the Building, Property and Premises; (vi) copies of
all construction contracts for the Initial Alterations,
together with copies of all change orders, if any; and (vii) a
request to disburse from Tenant containing an approval by
Tenant of the work done and a good faith estimate of the cost
to complete the Initial Alterations. Upon completion of the
Initial Alterations, and prior to final disbursement of the
Allowance, Tenant shall furnish Landlord with: (1) general
contractor and architect's completion affidavits, (2) full and
final waivers of lien, (3) receipted bills covering all labor
and materials expended and used, (4) as-built plans of the
Initial Alterations, and (5) the certification of Tenant and
its architect that the Initial Alterations have been installed
in a good
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<PAGE> 46
and workmanlike manner in accordance with the approved plans,
and in accordance with applicable laws, codes and ordinances.
In no event shall Landlord be required to disburse the
Allowance more than one time per month. If the Initial
Alterations exceed the Allowance, Tenant shall be entitled to
the Allowance in accordance with the terms hereof, but each
individual disbursement of the Allowance shall be disbursed in
the proportion that the Allowance bears to the total cost for
the Initial Alterations, less the 10% retainage referenced
above. Notwithstanding anything herein to the contrary,
Landlord shall not be obligated to disburse any portion of the
Allowance during the continuance of an uncured default under
the Lease, and Landlord's obligation to disburse shall only
resume when and if such default is cured.
C. In no event shall the Allowance be used for the purchase of
equipment, furniture or other items of personal property of
Tenant. In the event Tenant does not use the entire Allowance
in connection with the performance of the Initial Alterations,
any unused amount shall accrue to the sole benefit of
Landlord, it being understood that Tenant shall not be
entitled to any credit, abatement or other concession in
connection therewith.
D. Except as provided in Section III.B. of the Lease to the
contrary, Tenant agrees to accept the Premises in its "as-is"
condition and configuration, it being agreed that Landlord
shall not be required to perform any work or, except as
provided above with respect to the Allowance, incur any costs
in connection with the construction or demolition of any
improvements in the Premises. The foregoing, however, shall
not be construed to be a waiver or modification of Landlord's
repair and maintenance obligations as set forth in this Lease
or of Landlord's obligation to provide heating or
air-conditioning in accordance with Exhibit G. Landlord shall
be entitled to receive a fee of one thousand dollars
($1,000.00) for its review of Tenant's plans for the Initial
Alterations. Landlord shall be entitled to deduct such fee
directly from the Allowance.
E. This Exhibit shall not be deemed applicable to any additional
space added to the original Premises at any time or from time
to time, whether by any options under the Lease or otherwise,
or to any portion of the original Premises or any additions to
the Premises in the event of a renewal or extension of the
original Term of this Lease, whether by any options under the
Lease or otherwise, unless expressly so provided in the Lease
or any amendment or supplement to the Lease.
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<PAGE> 47
IN WITNESS WHEREOF, Landlord and Tenant have executed this exhibit as of the day
and year first above written.
WITNESS/ATTEST: LANDLORD: EOP-CANTERBURY GREEN,
L.L.C., A DELAWARE LIMITED LIABILITY
COMPANY
By: EOP Operating Limited Partnership,
a Delaware limited
partnership, its
managing member
By: Equity Office Properties Trust, a
Maryland real estate investment
trust, its managing general partner
- -----------------------------
Name (print): By:
-------------------------------------
Name:
- ----------------------------- -----------------------------------
Name (print): Title:
---------------- ----------------------------------
WITNESS/ATTEST: TENANT: TRENWICK AMERICA
CORPORATION, A DELAWARE
CORPORATION
- -----------------------------
By:
-------------------------------------
Name (print):
----------------
Name:
-----------------------------------
Title:
----------------------------------
Name (print):
----------------
45
<PAGE> 48
EXHIBIT E
ADDITIONAL PROVISIONS
This Exhibit is attached to and made a part of the Lease dated
______________________________, 1998, by and between EOP-CANTERBURY GREEN,
L.L.C., A DELAWARE LIMITED LIABILITY COMPANY ("Landlord") and TRENWICK AMERICA
CORPORATION, A DELAWARE CORPORATION ("Tenant") for space in the Building
commonly known as Canterbury Green.
1) PARKING
A. Tenant shall be obligated to lease seventy-eight (78) non-reserved
parking spaces and two (2) reserved parking spaces in the Building parking
garage (the "Garage"). The location of such reserved parking spaces is shown on
Exhibit F attached hereto. In addition to the foregoing, Tenant shall have the
right to lease additional non-reserved spaces at the rate of 2.18 spaces for
each 1,000 rentable square feet leased by Tenant over and above the initial
Premises, including any increase in square footage as a result of Tenant's
exercise of its Substitution Option. If Landlord master leases the Garage to a
third party operator (the "Operator"), Tenant shall lease any such spaces
directly from the Operator and, upon request, enter into such Operator's
standard form parking agreement. Except for particular spaces and areas
designated by Landlord for reserved parking, all parking in the Garage shall be
on an unreserved, first-come, first-served basis. Tenant acknowledges that
Landlord shall have the right to operate the Garage through the use of valet
parking.
B. Tenant shall pay Landlord (or, at Landlord's option, the Operator) Rent
for each non-reserved parking space as follows: (i) sixty-five dollars ($65.00)
per space per month with respect to the first sixty-eight (68) spaces, plus any
applicable tax imposed thereon; and (ii) seventy-five dollars ($75.00) per space
per month with respect to the next ten (10) spaces, plus any applicable tax
imposed thereon. Tenant shall pay Rent for the two (2) reserved spaces at the
rate of one hundred fifty dollars ($150.00) per space per month, plus any
applicable tax imposed thereon. Such monthly rate shall be subject to increase
from time to time to reflect the prevailing market rate for parking in the
Garage.
C. Landlord shall not be responsible for money, jewelry, automobiles or
other personal property lost in or stolen from the Garage regardless of whether
such loss or theft occurs when the Garage or other areas therein are locked or
otherwise secured against entry. Except as caused by the negligence or willful
misconduct of Landlord, Landlord shall not be liable for any loss, injury or
damage to persons using the Garage or automobiles or other property therein, it
being agreed that the use of the Garage and the parking spaces shall be at the
sole risk of Tenant and its employees.
D. Landlord shall have the right from time to time to promulgate reasonable
rules and regulations regarding the Garage, the parking spaces and the use
thereof, including, but not limited to, rules and regulations controlling the
flow of traffic to and from various parking areas, the angle and direction of
parking and the like. Tenant shall comply with and cause its employees to comply
with all such rules and regulations as well as all reasonable additions and
amendments thereto.
E. Tenant shall not store or permit its employees to store any automobiles
in the Garage without the prior written consent of Landlord, which consent shall
not be unreasonably conditioned, withheld or delayed in emergency circumstances.
Except for emergency repairs, Tenant and its employees shall not perform any
work on any automobiles while located in the Garage or on the Property. If it is
necessary for Tenant or its employees to leave an automobile in the Garage for a
period of seven (7) or more days, Tenant shall provide Landlord with prior
notice thereof designating the license plate number and model of such
automobile.
F. Landlord shall have the right to temporarily close the Garage or certain
areas therein in order to perform necessary repairs, maintenance and
improvements to the Garage. Landlord agrees to use reasonable efforts to provide
Tenant with reasonable
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<PAGE> 49
advance notice of any such closure. In the event that the Garage is closed for
three (3) or more consecutive Business Days, Tenant shall be entitled to receive
an abatement of Rent for the Spaces leased by Tenant hereunder beginning on the
fourth (4th) consecutive Business Day of such closure, which abatement shall
continue until such time as the Garage is once again open and available for use
by Tenant and its employees. In the event that a closure relates to only a
portion of the Building, such abatement shall be prorated based upon the number
of Spaces that are unavailable for use (and not actually used) by Tenant and its
employees.
G. Except in connection with an assignment of this Lease or a subletting of
a portion of the Premises, Tenant shall not assign or sublease any of the
parking spaces. Landlord shall have the right to terminate Tenant' parking
rights with respect to any parking spaces that Tenant desires to sublet or
assign in violation of the foregoing sentence.
H. Landlord may elect to provide parking cards or keys to control
access to the Garage. In such event, Landlord shall provide Tenant with one card
or key for each Space that Tenant is leasing hereunder, provided that Landlord
shall have the right to require Tenant or its employees to place a reasonable
deposit on such access cards or keys and to pay a fee for any lost or damaged
cards or keys.
2) RIGHT OF FIRST OFFER.
A. Tenant shall have the right of first offer with respect to any space
that becomes Available for Lease (hereinafter defined) on the remaining balance
of the fourth (4th) floor (the "Offering Space"), provided if Tenant exercises
its Substitution Option, the Offering Space shall consist of the remaining
balance of the third (3rd) floor. Offering Space shall be deemed to be
"Available for Lease" when Landlord has determined that the then current tenant
in the Offering Space, or portion thereof, will not extend or renew the term of
its lease for the Offering Space pursuant to either (a) a contractual right to
extend or renew in such tenant's lease, or (b) pursuant to a negotiated
extension or renewal that is executed prior to the expiration of any option to
extend or renew in such tenant's lease. Any renewal or extension pursuant to
(b), however, must be for substantially the same length of term that such party
was entitled to extend or renew pursuant to the contractual right contained in
its lease. Within a reasonable time after Landlord has determined that a
particular portion of the Offering Space is Available for Lease (but prior to
leasing such portion of the Offering Space to a third party), Landlord shall
advise Tenant (the "Advice") of the square footage and location of such portion
of the Offering Space and the terms (i.e. Base Rental and Additional Base
Rental) under which Landlord is prepared to lease such Offering Space to Tenant
for the remainder of the Lease Term, which terms shall reflect the Prevailing
Market (hereinafter defined) rate for such Offering Space as reasonably
determined by Landlord. Tenant may lease such portion of the Offering Space in
its entirety only, under such terms, by delivering written notice of exercise to
Landlord ("Notice of Exercise") within twenty (20) days after the date of the
Advice, except that Tenant shall have no such Right of First Offer and Landlord
need not provide Tenant with an Advice, if:
1. Tenant is in default under the Lease at the time Landlord would
otherwise deliver the Advice; or
2. more than twenty-five percent (25%) of the Premises is sublet at the
time Landlord would otherwise deliver the Advice (except in connection
with a Permitted Transfer); or
3. the Lease has been assigned prior to the date Landlord would
otherwise deliver the Advice (except in connection with a Permitted
Transfer); or
4. the Offering Space is not intended for the exclusive use of Tenant
during the Lease Term; or
5. the Offering Space is defined as the remaining balance of the third
(3rd) floor and Howard Systems is the prospect that is interested in
leasing such Offering Space, it being agreed that Landlord, without
offering such space to Tenant, shall have the right to enter into a
lease with Howard Systems for a term of not more than six (6) years.
Notwithstanding subsection 6 above to the
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<PAGE> 50
contrary, Tenant's Right of First Offer shall be superior to any rights
of Howard Systems to extend the term of its lease, or
6. Tenant's Renewal Option has lapsed for failure by Tenant to exercise
the same or as a result of a condition precedent for the exercise of
such Renewal Option. In addition, it is hereby agreed that if (i) there
is less than thirty-six (36) months remaining in the initial Lease
Term, and (ii) Tenant's Renewal Option has not lapsed for failure of
Tenant to exercise the same or as a result of a condition precedent for
the exercise of such Renewal Option, Tenant's Notice of Exercise shall
be contingent upon Tenant's simultaneous exercise of its Renewal
Option, or
7. there is less thirty-six (36) months remaining in the Renewal Term
at the time Landlord would otherwise provide Tenant with an Advice.
B.1 The term for the Offering Space shall commence upon the
commencement date stated in the Advice and thereupon such Offering
Space shall be considered a part of the Premises, provided that all of
the terms stated in the Advice shall govern Tenant's leasing of the
Offering Space and only to the extent that they do not conflict with
the Advice, the terms and conditions of this Lease shall apply to the
Offering Space.
2. Tenant shall pay Base Rental and Additional Base Rental for the
Offering Space in accordance with the terms and conditions of the
Advice, which terms and conditions shall reflect the Prevailing Market
rate for the Offering Space as determined in Landlord's reasonable
judgment.
3. The Offering Space (including improvements and personalty, if any)
shall be accepted by Tenant in its condition and as-built configuration
existing on the earlier of the date Tenant takes possession of the
Offering Space or as of the date the term for such Offering Space
commences, provided that such Offering Space shall be delivered to
Tenant vacant, broom clean and free of claims and possession of third
parties.
C. The rights of Tenant hereunder with respect to any portion of the
Offering Space for which Landlord provides Tenant with an Advice shall terminate
on the earlier to occur of: (i) Tenant's failure to exercise its Right of First
Offer within the twenty (20) day period provided in paragraph A above, and (ii)
the date Landlord would have provided Tenant an Advice if Tenant had not been in
violation of one or more of the conditions set forth in Paragraph A above. In
addition, if Landlord provides Tenant with an Advice that contains expansion
rights (whether such rights are described as an expansion option, right of first
refusal, right to first offer or otherwise) and Tenant does not exercise its
Right of First Offer to lease the Offering Space described in the Advice,
Tenant's Right of First Offer shall be subject and subordinate to all such
expansion rights contained in the Advice. Notwithstanding the foregoing, if (i)
Tenant was entitled to exercise its Right of First Offer, but failed to provide
Landlord with a Notice of Exercise within the twenty (20) day period provided in
paragraph A above, and (ii) Landlord does not enter into a lease for such
portion of the Offering Space within a period of six (6) months following the
date of the Advice, Tenant shall once again have a Right of First Offer with
respect to such portion of the Offering Space. In addition, if Landlord does
enter into a lease for such portion of the Offering Space, Tenant shall have a
Right of First Offer on such Offering Space (subject to the terms and conditions
set forth herein) upon the expiration of the lease with the prospect.
D. If Tenant exercises its Right of First Offer, Landlord shall prepare
an amendment (the "Offering Amendment") adding the Offering Space to the
Premises on the terms set forth in the Advice and reflecting the changes in the
Base Rental, Rentable Area of the Premises, Tenant's Pro Rata Share and other
appropriate terms. A copy of the Offering Amendment shall be (i) sent to Tenant
within a reasonable time after receipt of the Notice of Exercise executed by
Tenant, and (ii) revised by Landlord to address any requested changes by Tenant
that are necessary to accurately reflect the terms and conditions hereof; (iii)
executed by Tenant and returned to Landlord within fifteen (15) days thereafter.
E. For purposes hereof, "Prevailing Market" shall mean the arms length
fair
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<PAGE> 51
market annual rental rate per rentable square foot under leases and amendments
entered into on or about the date on which the Prevailing Market is being
determined hereunder for space comparable to the Offering Space in the Building
and office buildings comparable to the Building in Stamford, Connecticut. The
determination of Prevailing Market shall take into account any material economic
differences between the terms of this Lease and any comparison lease, such as
rent abatements, construction costs and other concessions and the manner, if
any, in which the landlord under any such lease is reimbursed for operating
expenses and taxes.
F. In the event that: (i) any existing tenant in the Offering Space
desires to sublet or assign all or a portion of such Offering Space, and (ii)
Landlord, in its reasonable judgment, believes that it has the right to
recapture such space pursuant to the terms and conditions of its lease with such
tenant, Landlord, prior to consenting to such proposed subletting or assignment,
shall provide Tenant with an Advice that is contingent upon Landlord's
successful recapture of the Offering Space, or applicable portion thereof. In
such event, however, (a) Tenant's Notice of Exercise shall be due within five
(5) days after Tenant's receipt of the Advice, and (b) the Base Rental for the
Offering Space shall be the greater of the Prevailing Market rate or the rental
rate (including scheduled increases) under the existing lease for the Offering
Space, or portion thereof, to be recaptured. In the event Tenant exercises its
right to first offer with respect to such Offering Space, Landlord shall
recapture the Offering Space in question. Notwithstanding the foregoing, in the
event the tenant in the Offering Space contests Landlord's legal right to
recapture the Offering Space in question, Landlord shall have the right to
withdraw its Advice and, if previously delivered by Tenant, to declare Tenant's
Notice of Exercise to be null and void.
3) RENEWAL OPTION
A. Tenant shall have the right to extend the Lease Term (the "Renewal
Option") for one additional period of five (5) years commencing on the day
following the Termination Date of the initial Lease Term and ending on the fifth
(5th) anniversary of the Termination Date (the "Renewal Term"), if:
1. Landlord receives notice of exercise ("Initial Renewal Notice") not
less then twelve (12) full calendar months prior to the expiration of
the initial Lease Term and not more than fifteen (15) full calendar
months prior to the expiration of the initial Lease Term; and
2. Tenant is not in default under the Lease beyond any applicable cure
periods at the time that Tenant delivers its Initial Renewal Notice or
at the time Tenant delivers its Binding Notice; and
3. No more than fifty percent (50%) of the Premises is sublet (except
in connection with a Permitted Transfer) for a term that extends beyond
the date of Tenant's Initial Renewal Notice; and
4. The Lease has not been assigned (except in connection with a
Permitted Transfer) prior to the date that Tenant delivers its Initial
Renewal Notice or prior to the date Tenant delivers its Binding Notice.
B. The initial Base Rental rate per rentable square foot for the
Premises during the Renewal Term shall equal the Prevailing Market (hereinafter
defined) rate per rentable square foot for the Premises.
C. Tenant shall pay Additional Base Rental (i.e. Basic Costs) for the
Premises during the Renewal Term in accordance with the terms and conditions of
the Lease. In addition, if such is standard in the market at the time, the Base
Year shall be adjusted to a current Base Year. Such new Base Year, however,
shall be given appropriate consideration in the determination of the Prevailing
Market rate.
D. Within thirty (30) days after receipt of Tenant's Initial Renewal
Notice, Landlord shall advise Tenant of the applicable Base Rental rate for the
Premises for the Renewal Term. Tenant, within fifteen (15) days after the date
on which Landlord advises Tenant of the applicable Base Rental rate for the
Renewal Term, shall either (i) give Landlord final binding written notice
("Binding Notice") of Tenant's exercise of its
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<PAGE> 52
option, or (ii) if Tenant disagrees with Landlord's determination, provide
Landlord with written notice of rejection (the "Rejection Notice"). If Tenant
fails to provide Landlord with either a Binding Notice or Rejection Notice
within such fifteen (15) day period, Tenant's Renewal Option shall be null and
void and of no further force and effect. If Tenant provides Landlord with a
Binding Notice, Landlord and Tenant shall enter into the Renewal Amendment upon
the terms and conditions set forth herein. If Tenant provides Landlord with a
Rejection Notice, Landlord and Tenant shall work together in good faith to agree
upon the Prevailing Market Base Rental rate for the Premises during the Renewal
Term. Upon agreement Tenant shall provide Landlord with Binding Notice and
Landlord and Tenant shall enter into the Renewal Amendment in accordance with
the terms and conditions hereof. Notwithstanding the foregoing, if Landlord and
Tenant are unable to agree upon the Prevailing Market Base Rental rate for the
Premises within thirty (30) days after the date on which Tenant provides
Landlord with a Rejection Notice, Tenant's Renewal Option shall be null and void
and of no force and effect.
E. If Tenant is entitled to and properly exercises its Renewal Option,
Landlord shall prepare an amendment (the "Renewal Amendment") to reflect changes
in the Base Rental, Lease Term, Termination Date and other appropriate terms.
The Renewal Amendment shall be:
1. sent to Tenant within a reasonable time after receipt of the Binding
Notice; and
2. revised by Landlord to the extent necessary to address any requested
revisions by Tenant that are reasonably necessary to accurately reflect
the terms and conditions hereof; and
2. executed by Tenant and returned to Landlord within fifteen (15) days
after receipt by Tenant.
F. For purposes hereof, "Prevailing Market" shall mean the arms length
fair market annual rental rate per rentable square foot under renewal leases and
amendments entered into on or about the date on which the Prevailing Market is
being determined hereunder for space comparable to the Premises in the Building
and office buildings comparable to the Building in Stamford, Connecticut. The
determination of Prevailing Market shall take into account any material economic
differences between the terms of this Lease and any comparison lease, such as
rent abatements, construction costs and other concessions and the manner, if
any, in which the landlord under any such lease is reimbursed for operating
expenses and taxes. The determination of Prevailing Market shall also take into
consideration any reasonably anticipated changes in the Prevailing Market rate
from the time such Prevailing Market rate is being determined and the time such
Prevailing Market rate will become effective under this Lease.
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<PAGE> 53
IN WITNESS WHEREOF, Landlord and Tenant have executed this exhibit as of the day
and year first above written.
WITNESS/ATTEST: LANDLORD: EOP-CANTERBURY GREEN,
L.L.C., A DELAWARE LIMITED LIABILITY
COMPANY
By: EOP Operating Limited Partnership,
a Delaware limited
partnership, its
managing member
By: Equity Office Properties Trust, a
Maryland real estate investment
trust, its managing general partner
- -----------------------------
Name (print): By:
-------------------------------------
Name:
- ----------------------------- -----------------------------------
Name (print): Title:
---------------- ----------------------------------
WITNESS/ATTEST: TENANT: TRENWICK AMERICA
CORPORATION, A DELAWARE
CORPORATION
- -----------------------------
By:
-------------------------------------
Name (print):
----------------
Name:
-----------------------------------
Title:
----------------------------------
Name (print):
----------------
51
<PAGE> 1
EXHIBIT 10.28
FIRST LAYER PROPERTY CATASTROPHE EXCESS OF LOSS
RETROCESSIONAL AGREEMENT
ARTICLE PAGE
------- ----
COVERAGE I 2
TERM II 3
EXTENDED TERMINATION III 3
TERRITORY IV 4
EXCLUSIONS V 4
DEFINITIONS VI 7
RETENTION AND LIMIT VII 8
REINSTATEMENT VIII 8
NET RETAINED LIABILITY IX 9
RATE AND PREMIUM X 9
EXTRA CONTRACTUAL OBLIGATIONS AND
EXCESS LIMITS LIABILITY XI 10
REPORTS AND REMITTANCES XII 11
RESERVES AND LETTERS OF CREDIT XIII 12
LOSS NOTICES AND SETTLEMENTS XIV 14
OFFSET XV 15
SALVAGE AND SUBROGATION XVI 15
WARRANTY XVII 16
DELAYS, ERRORS, OR OMISSIONS XVIII 16
AMENDMENTS XIX 17
ACCESS TO RECORDS XX 17
INSOLVENCY XXI 17
ARBITRATION XXII 19
TAXES XXIII 20
FEDERAL EXCISE TAX XXIV 20
CURRENCY XXV 21
SERVICE OF SUIT XXVI 21
INTERMEDIARY XXVII 23
1
<PAGE> 2
FIRST LAYER PROPERTY CATASTROPHE EXCESS OF LOSS
RETROCESSIONAL AGREEMENT
THIS AGREEMENT is made and entered into by and between TRENWICK AMERICA
REINSURANCE CORPORATION, a Connecticut corporation (hereinafter called the
"Retrocedent") of the one part, and the various Retrocessionaires as identified
by the Interests and Liabilities Agreements attaching to and forming a part of
this Agreement (hereinafter called the "Retrocessionaires") of the other part.
WITNESSETH:
That in consideration of the mutual covenants hereinafter contained and
upon the terms and conditions hereinbelow set forth, the parties hereto agree as
follows:
ARTICLE I
COVERAGE
The Retrocessionaires will indemnify the Retrocedent, subject to the
limits set forth in the Retention and Limit Article for any loss or losses
occurring during the term of this Agreement under all original contracts
underwritten by the Retrocedent and classified by the Retrocedent as:
PROPERTY REINSURANCE BUSINESS ASSUMED, INCLUDING THE PROPERTY PORTIONS
OF MULTI-LINE BUSINESS AND WORKERS COMPENSATION AND/OR EMPLOYERS
LIABILITY LOSSES ARISING FROM ONE OR MORE OF THE FOLLOWING PERILS:
FIRE, LIGHTNING, EXPLOSION, STRUCTURAL COLLAPSE, WINDSTORM, HAIL,
FLOOD, SEISMIC ACTIVITY, VOLCANIC ERUPTION, COLLISION, RIOTS AND
STRIKES, CIVIL COMMOTION, OR MALICIOUS MISCHIEF, AND ANY PHYSICAL
DAMAGE AND/OR CONSEQUENTIAL LOSS COVERAGE CONTINGENT THEREON EFFECTED
BY AN INSURED ON BEHALF OF ANOTHER PARTY.
2
<PAGE> 3
All reinsurance for which the Retrocessionaires will be obligated by
virtue of this Agreement will be subject to the same terms, conditions,
interpretations, waivers, modifications, and alterations as the respective
original contracts of the Retrocedent to which this Agreement applies. Nothing
herein will in any manner create any obligations or establish any rights against
the Retrocessionaires in favor of any third parties or any persons not parties
to this Agreement except as provided in the Insolvency Article.
ARTICLE II
TERM
This Agreement will apply to all losses occurring during the 12-month
term incepting at 12:01 a.m. Eastern Standard Time on January 1, 1997.
Notwithstanding the expiration of this Agreement as hereinabove
provided, its provisions will continue to apply to all unfinished business
hereunder to the end that all obligations and liabilities incurred by each party
hereunder will be fully performed and discharged.
ARTICLE III
EXTENDED TERMINATION
Should this Agreement expire while a loss occurrence covered hereunder
is in progress, subject to the other conditions of this Agreement, the
Retrocessionaires will indemnify the Retrocedent as if the entire loss
occurrence had arisen during the term of this Agreement, and provided that no
part of said loss occurrence is claimed against any renewal of this Agreement.
3
<PAGE> 4
ARTICLE IV
TERRITORY
The territorial limits of this Agreement will include the United States
of America, the District of Columbia, Canada, and incidental locations
elsewhere.
ARTICLE V
EXCLUSIONS
No reinsurance indemnity will be afforded under this Agreement for:
A. Loss or damage directly caused by war and/or civil war, but
this exclusion will not apply to business written in
accordance with the Market War and/or Civil War Exclusion
Agreement.
B. Any loss or liability accruing to the Retrocedent directly or
indirectly and whether as insurer or reinsurer from any pool
of insurers or reinsurers formed for the purposes of covering
Atomic or Nuclear Energy Risks.
C. Nuclear risks as defined in the following:
1. Nuclear Incident Exclusion Clause -- Physical Damage
-- Reinsurance (U.S.A.) attached to this Agreement,
or as may be revised hereafter by the Lloyd's
Underwriters' Non-Marine Association.
2. Nuclear Incident Exclusion Clause -- Physical Damage
-- Reinsurance (Canada) attached to this Agreement,
or as may be revised hereafter by the Lloyd's
Underwriters' Non-Marine Association.
3. Nuclear Energy Risks Exclusion Clause (Reinsurance)
(1994) (Worldwide Excluding U.S.A. & Canada) attached
to this Agreement, or as may be revised hereafter by
the Lloyd's Underwriters' Non-Marine Association.
4
<PAGE> 5
4. Nuclear Incident Exclusion Clauses -- Physical Damage
and Liability (Boiler and Machinery Policies) --
Reinsurance (U.S.A. and Canada) attached to this
Agreement, or as may be revised hereafter by the
Lloyd's Underwriters' Non-Marine Association.
D. Financial Guarantee, Insolvency, or Credit Business.
E. Fidelity and Surety.
F. Reinsurance of Coastal Pools when written as such.
G. Life business, other than Accidental Death and Dismemberment.
H. Aviation, Aerospace, and Satellite business.
I. Casualty business, except as set forth in the Coverage
Article.
J. Hail damage to growing or standing crops.
K. Banking or Funding Plans.
L. Target Risks as excluded in the Retrocedent's original
contracts or the original policies of the Retrocedent's
reinsureds.
M. Loss or liability excluded by the Insolvency Funds Exclusion
Clause attached to this Agreement.
N. Reinsurance assumed on an excess of loss and/or pro rata
reinsurance basis issued in the name of and for the account of
a Lloyd's Syndicate or of an insurance or reinsurance company,
whether such liability is accepted either directly or under
any form of reinsurance from other insurers and/or reinsurers,
and all such liability is excluded from the protection of this
Reinsurance and cannot be taken into account in arriving at
the amount in the excess of which this Reinsurance attaches or
the ultimate net loss sustained by the Retrocedent.
O. All losses sustained by the Retrocedent howsoever and
wheresoever arising including all Business Interruption,
Consequential Loss and/or other contingent losses proximately
caused by a peril insured in respect of the Retrocedent's
exposures from:
1. All marine business when written as such; however,
not to exclude such exposures if they emanate from a
multi-line insurance contract and/or policy.
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2. All Offshore exposures arising from business of any
description connected with the oil and/or gas and/or
sulphur and/or uranium exploration and production
industries in all their phases and including all
associated support and/or service industries.
"Offshore" will be defined as:
(a) That area encompassing locations covered by
oceans or seas in which the water ebbs and
flows
and/or
(b) Other navigable waters or waterways which
will mean any water which is in fact
navigable by ships or vessels, whether or
not the tide ebbs and flows there, and
whether or not there is a public right of
navigation on that water.
P. Losses in respect of overhead transmission and distribution
lines and their supporting structures other than those on or
within 500 feet of the insured premises; however, public
utilities extension and/or suppliers extension and/or
contingent business interruption coverages are not subject to
this exclusion, provided that these are not part of a
transmitter's or distributor's policy.
Q. Auto Collision.
The exclusions set forth above will not apply where the Retrocedent is
obliged to provide coverage by reason of membership in any state plan, pool,
facility, joint underwriting association or similar involuntary participation.
The Retrocedent may submit to the Retrocessionaires, for special
acceptance hereunder, business not covered by this Agreement. If said business
is accepted by the Retrocessionaires, it will be subject to the terms of this
Agreement, except as such terms are modified by such acceptance.
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ARTICLE VI
DEFINITIONS
The following words and phrases used in this Agreement will have the
indicated meanings:
A. "Original contracts" as used in this Agreement will mean any
and all policies, binders, certificates, acceptances,
contracts, or agreements of reinsurance, whether written or
oral.
B. "Net written premium" as used in this Agreement will mean 100%
of the gross written premium on property business and 5% of
the gross written premium on Workers Compensation and
Employers Liability business both the subject of and accounted
for during the term of this Agreement, less returned premiums,
and less premiums paid for reinsurance, recoveries under which
inure to the benefit of this Agreement.
C. "Loss occurrence" as used in this Agreement will mean all
losses arising out of or following one event. As regards
aggregate and/or stop loss original contracts assumed by the
Retrocedent, the proportion of such loss or losses that forms
part of the Retrocedent's ultimate net loss under this
Agreement will be the proportion of the whole aggregate
recovery that the original reinsured's individual catastrophe
loss bears to its total losses used in arriving at aggregate
excess recoveries.
D. "Ultimate net loss" as used in this Agreement will mean the
actual loss or losses sustained by the Retrocedent both as
regards the original contracts and this Agreement, including
100% of any extra contractual obligations and/or excess limits
liabilities incurred by any original reinsured and 80% of any
extra contractual obligations and/or excess limits liabilities
incurred by the Retrocedent, on its net retained liability
after making deductions for all recoveries, salvages, and all
reinsurance (other than underlying reinsurance) whether
collectible or not. Ultimate net loss will cover loss expense
incurred by the Retrocedent (both as regards the original
contracts and this Agreement) and arising from the settlement
of claims, including interest and court costs incurred in
investigation, adjustment, and litigation and a pro rata share
of salaries and expenses of the field adjusters of the
original reinsured and the Retrocedent while adjusting such
claims, and expenses of other employees of the original
reinsured and the Retrocedent who have been temporarily
diverted from their normal and customary duties as a result of
such claims. However, both salaries of other employees and
office expenses of the original reinsured and Retrocedent
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will be excluded. All salvages, recoveries, or reinsurance
payments received subsequent to any loss settlement hereunder
will be applied as if received prior to the settlement, and
all necessary adjustments will be made by the parties hereto.
Nothing in this definition, however, should be construed to
mean that losses under this Agreement are not recoverable
until the Retrocedent's ultimate net loss has been
ascertained.
ARTICLE VII
RETENTION AND LIMIT
No claim will be made hereunder unless the Retrocedent has first
sustained an ultimate net loss in excess of $4,000,000 each and every loss
occurrence. The Retrocessionaires will then be liable for the amount of ultimate
net loss in excess of $4,000,000 each and every loss occurrence, but the limit
of liability of the Retrocessionaires will not exceed $6,000,000 with respect to
each and every loss occurrence.
ARTICLE VIII
REINSTATEMENT
In the event that all or any portion of the reinsurance under this
Agreement is exhausted by loss, the amount so exhausted will be reinstated from
the time of occurrence of such loss. The Retrocessionaires' liability will not
exceed $6,000,000 in respect of each and every loss occurrence nor $12,000,000
during the 12-month term of this Agreement.
For each amount so reinstated, the Retrocedent will pay an additional
premium based upon the pro rata amount of the reinstatement only. The
provisional reinstatement
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premium, based on the minimum and deposit premium and finally adjusted as set
forth in the Rate and Premium Article, will be paid by the Retrocedent at the
time of the reinstatement.
ARTICLE IX
NET RETAINED LIABILITY
In computing the amount or amounts in excess of which this Agreement
attaches, only a loss or losses in respect to that portion of any reinsurance
that the Retrocedent retains net for its own account will be included. The
amount of the Retrocessionaires' liability hereunder with respect to any loss or
losses will not be increased by the inability of the Retrocedent to collect from
any other Retrocessionaires any amounts that may have become due from them,
whether such inability arises from the insolvency of such Retrocessionaires or
otherwise.
ARTICLE X
RATE AND PREMIUM
For the term of this Agreement, there will be a minimum and deposit
premium hereon of $1,200,000, payable in equal semi-annual installments of
$600,000 on January 1 and July 1. At Agreement expiration, the Retrocedent will
adjust the minimum and deposit premium against a rate of 85% of the net written
premium (excluding any reinstatement premium) for business classified by the
Retrocedent as catastrophe business
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and 5.95% of the net written premium (excluding any reinstatement premium) for
all other business covered hereunder.
ARTICLE XI
EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY
This Agreement will extend to cover losses arising from claims related
extra contractual obligations and/or excess limits liabilities whether incurred
by the original reinsured or the Retrocedent in accordance with the percent
factors as set forth in the ultimate net loss definition.
"Extra contractual obligations" as used in this Agreement will mean
those liabilities not covered under any other provision of this Agreement, which
arise from the handling of any claim on business covered hereunder, such
liabilities arising because of, but not limited to, the following: failure to
settle within the policy limit, by reason of alleged or actual negligence,
fraud, or bad faith in rejecting an offer of settlement, in the preparation of
the defense, in the trial of any action against the insured or reinsured, or in
the preparation or prosecution of an appeal consequent upon such action.
"Excess limits liabilities" as used in this Agreement will mean damages
payable in excess of the original reinsured's policy limit as a result of
alleged or actual negligence, fraud, or bad faith in failing to settle and/or
rejecting a settlement within the policy limit, in the preparation of the
defense, in the trial of any action against the insured or reinsured, or in the
preparation or prosecution of an appeal consequent upon such action. Excess
limits liabilities will mean any amounts for which the original reinsured or the
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Retrocedent would have been contractually liable to pay had it not been for the
limits of the original policy.
There will be no recovery hereunder for an extra contractual obligation
and/or excess limits liability loss that has been incurred due to fraud
committed by a member of the board of directors or a corporate officer of an
original reinsured or the Retrocedent, acting individually, collectively, or in
collusion with a member of the board of directors, a corporate officer, or a
partner of any other corporation, partnership, or organization involved in the
defense or settlement of a claim on behalf of an original reinsured or the
Retrocedent.
The date on which any extra contractual obligation and/or excess limits
liability is incurred by an original reinsured or the Retrocedent will be
deemed, in all circumstances, to be the date of the related occurrence under the
original policy. Nothing in this Article will be construed to create a separate
or distinct loss occurrence apart from the original covered loss occurrence that
gave rise to the extra contractual obligations and/or excess limits liabilities
discussed in the preceding paragraphs. In no event will the total limit of
liability of the Retrocessionaires exceed their applicable limit of liability as
set forth in the Retention and Limit Article.
ARTICLE XII
REPORTS AND REMITTANCES
Within 60 days of the close of each quarter, the Retrocedent will
furnish the Retrocessionaires with a report of reinsurance premium due them for
that annual period.
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Such report will show and properly segregate the Retrocedent's premium to which
the reinsurance rate applies as well as contain such other information as may be
required by the Retrocessionaires for completion of their NAIC annual
statements. Within 60 days of Agreement expiration, the premium due the
Retrocessionaires will be balanced against the minimum and deposit premium set
forth in the Rate and Premium Article, and any balance shown to be due the
Retrocessionaires will be remitted with said annual report. Any balance shown to
be due the Retrocedent will be paid within 30 days following receipt of the
annual report by the Retrocessionaires.
ARTICLE XIII
RESERVES AND LETTERS OF CREDIT
(This Article is only applicable to those Retrocessionaires who cannot
qualify for credit by each state or governmental authority having
jurisdiction over the Retrocedent's loss reserves.)
As regards original contracts issued by the Retrocedent coming within
the scope of this Agreement, the Retrocedent agrees that, when it files with the
Insurance Department or sets up on its books reserves for known losses that have
been reported to the Retrocessionaires (including loss and loss expense paid by
the Retrocedent but not recovered from the Retrocessionaires and loss and loss
expense reported and outstanding), which it is required by law to set up, it
will forward to the Retrocessionaires a statement showing the proportion of such
loss reserves applicable to them. The Retrocessionaires hereby agree that they
will apply for and secure delivery to the Retrocedent of a clean, irrevocable,
and unconditional Letter of Credit, dated on or before
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December 31 of the year in which the request is made, and issued by Citibank,
N.A. (or another member of the Federal Reserve System) or any bank approved for
use by the NAIC Securities Valuation Office, and containing provisions
acceptable to the insurance regulatory authorities having jurisdiction over the
Retrocedent's reserves in an amount equal to the Retrocessionaires' proportion
of such reserves as shown in the statement prepared by the Retrocedent. Under no
circumstances will any amount relating to reserves in respect of Incurred But
Not Reported losses be included in the amount of the Letter of Credit.
The Letter of Credit will be issued for a period of not less than one
year, and will be automatically extended for one year from its date of
expiration or any future expiration date unless 30 days prior to any expiration
date the issuing bank notifies the Retrocedent by registered mail that it elects
not to consider the Letter of Credit extended for any additional period. An
issuing bank, not a member of the Federal Reserve System or not chartered in the
state of domicile of the Retrocedent, will provide 60 days notice to the
Retrocedent prior to any expiration in the event of nonextension.
Notwithstanding any other provisions of this Agreement, the Retrocedent
or its court-appointed successor in interest may draw upon such credit at any
time without diminution because of the insolvency of the Retrocedent or of any
Retrocessionaire for one or more of the following purposes only:
A. To pay the Retrocessionaire's share or to reimburse the
Retrocedent for the Retrocessionaire's share of any loss
reinsured by this Agreement, which has not been otherwise
paid.
B. To make refund of any sum in excess of the actual amount
required to pay the Retrocessionaire's share of any liability
reinsured by this Agreement.
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C. In the event of nonextension of the Letter of Credit as
provided for above, to establish deposit of the
Retrocessionaire's share of reserves for losses under this
Agreement. Such cash deposit will be held in an interest
bearing account separate from the Retrocedent's other assets,
and interest thereon will accrue to the benefit of the
Retrocessionaires.
The issuing bank will have no responsibility whatsoever in connection
with the propriety of withdrawals made by the Retrocedent or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the order
of properly authorized representatives of the Retrocedent.
At annual intervals, or more frequently as agreed but never more
frequently than semi-annually, the Retrocedent will prepare a specific
statement, for the sole purpose of amending the Letter of Credit, of the
Retrocessionaires' share of reserves for losses. If the statement shows that the
Retrocessionaires' share of such reserves exceeds the balance of credit as of
the statement date, the Retrocessionaires will, within 30 days after receipt of
notice of such excess, secure delivery to the Retrocedent of an amendment of the
Letter of Credit, increasing the amount of credit by the amount of such
difference. If, however, the statement shows that the Retrocessionaires' share
of such reserves is less than the balance of credit as of the statement date,
the Retrocedent will, within 30 days after receipt of written request from the
Retrocessionaires, 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.
ARTICLE XIV
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LOSS NOTICES AND SETTLEMENTS
The Retrocedent will advise the Retrocessionaires promptly of all
losses that, in the opinion of the Retrocedent, appear to involve the
Retrocessionaires under this Agreement and of all subsequent developments
pertaining thereto that, in the opinion of the Retrocedent, may materially
affect them as well. Inadvertent omission in dispatching the aforementioned
notices will in no way affect the obligation of the Retrocessionaires under this
Agreement, providing the Retrocedent informs the Retrocessionaires of such
omission promptly upon discovery.
The Retrocedent will have the right to settle all claims under this
Agreement. The loss settlements of the original reinsured, provided they are
within the terms of the original contracts, and the loss settlements of the
Retrocedent, provided they are within the terms of this Agreement, will be
unconditionally binding on the Retrocessionaires in proportion to their
participation in this Agreement. Amounts due the Retrocedent hereunder in the
settlement of loss and loss expense will be payable by the Retrocessionaires
immediately upon being furnished by the Retrocedent with reasonable evidence of
the amount paid or to be paid in excess of the Retrocedent's ultimate net loss
retention as set forth in the Retention and Limit Article, by reason of any one
loss occurrence.
ARTICLE XV
OFFSET
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The Retrocedent and each Retrocessionaire hereunder will be entitled to
deduct from amounts due the other party under this Agreement any amounts due
itself from the other party under this Agreement.
ARTICLE XVI
SALVAGE AND SUBROGATION
The Retrocessionaires will be credited with their share of salvage
and/or subrogation (i.e., reimbursement obtained or recovery made by the
Retrocedent less expense incurred in obtaining such reimbursement or making such
recovery) pertaining to the claims and settlements involving reinsurance
hereunder.
Salvage and/or subrogation will always be used to reimburse the excess
Retrocessionaires (and the Retrocedent if it carries a portion of the excess
coverage net) in the reverse order of their participation in said loss before
being used in any way to reimburse the Retrocedent for the loss within its
primary retention. If salvage and/or subrogation is insufficient to cover the
expense incurred in its recovery, the net expense (after deduction of the amount
recovered, if any) will be added to ultimate net loss as will loss expense
incurred by the Retrocedent prior to any reimbursement for salvage and/or
subrogation.
ARTICLE XVII
WARRANTY
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It is hereby warranted that no claim will be paid hereunder unless two
or more original risks are involved in the same loss occurrence. It is further
warranted that the Retrocedent will retain 5% net and unreinsured.
ARTICLE XVIII
DELAYS, ERRORS, OR OMISSIONS
Inadvertent delays, errors, or omissions made in connection with this
Agreement or any transaction hereunder will not relieve either party from any
liability that would have attached had such delay, error, or omission not
occurred, provided always that such error or omission is rectified immediately
upon discovery. The liability of the Retrocessionaires under this Agreement will
in no event exceed the limits specified in the Retention and Limit Article, nor
will the Retrocessionaires' liability be extended to cover any risks, perils, or
classes of insurance excluded herein except as set forth in the Exclusions
Article.
ARTICLE XIX
AMENDMENTS
This Agreement may be altered or amended in any of its terms and
conditions by mutual consent of the Retrocedent and the Retrocessionaires by
addenda hereto, which will then constitute a part of this Agreement.
ARTICLE XX
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ACCESS TO RECORDS
Provided that the Retrocedent has been given reasonable notice, the
Retrocessionaires will have the right to inspect at any reasonable time, through
their designated representatives, all records of the Retrocedent that pertain in
any way to this Agreement.
ARTICLE XXI
INSOLVENCY
In the event of the Retrocedent's insolvency, the reinsurance under
this Agreement will be payable by the Retrocessionaires directly to the
Retrocedent, its liquidator, receiver, conservator, or statutory successor, on
the basis of the Retrocedent's liability under the original contracts without
diminution because of the Retrocedent's insolvency or because the liquidator,
receiver, conservator, or statutory successor of the Retrocedent has failed to
pay all or a portion of any claims, subject however, to the right of the
Retrocessionaires to offset from such funds due hereunder, any sums that may be
payable to it by said insolvent Retrocedent in accordance with the Offset
Article.
As a condition precedent to the Retrocessionaires' foregoing
obligation, however, the liquidator, receiver, conservator, or statutory
successor of the Retrocedent will give written notice of the pendency of a claim
against the insolvent Retrocedent on the original contract or contracts
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding. During the pendency of such claim, the Retrocessionaires may
investigate such claim and interpose, at their own expense, in the proceeding
where such
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claim is to be adjudicated, any defense that they may deem available to the
Retrocedent, its liquidator, receiver, conservator, or statutory successor. The
expense thus incurred by the Retrocessionaires will be chargeable against the
Retrocedent, subject to court approval, as part of the expense of conservation
or liquidation to the extent that such proportionate share of the benefit will
accrue to the Retrocedent solely as a result of the defense undertaken by the
Retrocessionaires. Where two or more Retrocessionaires are involved in the same
claim and a majority in interest elect to interpose defense to such claim, the
expense will be apportioned in accordance with the terms of this Agreement as
though such expense had been incurred by the Retrocedent.
ARTICLE XXII
ARBITRATION
In the event of any arbitration between the Retrocedent and its
original reinsureds under the terms of any original contract, the
Retrocessionaires agree unreservedly to abide by the result of such arbitration.
If any dispute will arise between the parties to this Agreement with
reference to the interpretation of this Agreement or their rights with respect
to any transaction involved, whether such dispute arises before or after
termination of this Agreement, such dispute, upon the written request of either
party, will be submitted to three arbitrators, one to be chosen by each party,
and the third by the two so chosen. If either party refuses or neglects to
appoint an arbitrator within thirty days after the receipt of written notice
from the other party requesting it to do so, the requesting party may appoint
two arbitrators. If
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the two arbitrators fail to agree in the selection of a third arbitrator within
thirty days of their appointment, the third arbitrator will be selected from a
panel of three names to be supplied by the Insurance Arbitration Forums. If the
two arbitrators cannot mutually agree on the arbitrator to be chosen from this
panel, each party to the arbitration will have the right to reject one member of
the panel. This rejection process will be sequential, with the right of first
rejection to be decided by a toss of a coin. All arbitrators will be active or
retired disinterested officers of insurance or reinsurance companies not under
the control of either party to this Agreement.
The arbitrators will interpret this Agreement as an honorable
engagement and not as merely a legal obligation. The arbitrators will adopt
their own rules and procedures. They will make their award with a view of
effecting the general purpose of this Agreement in a reasonable manner rather
than in accordance with a literal interpretation of the language. Each party
will submit its case to its arbitrator within thirty days of the appointment of
the third arbitrator.
The decision in writing of any two arbitrators, when filed with the
parties hereto, will be final and binding on both parties. Judgment may be
entered upon the final decision of the arbitrators in any court having
jurisdiction. Each party will bear the expense of its own arbitrator and will
jointly and equally bear with the other party the expense of the third
arbitrator and of the arbitration. Said arbitration will take place in the City
in which the Retrocedent's Head Office is located unless some other place is
mutually agreed upon by the parties to this Agreement.
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ARTICLE XXIII
TAXES
The Retrocedent will pay all taxes (except Federal Excise Tax) on
premiums reported to the Retrocessionaires on this Agreement.
ARTICLE XXIV
FEDERAL EXCISE TAX
(This Article applies to Retrocessionaires domiciled outside the United
States of America, excepting Lloyd's London Underwriters and other
Retrocessionaires exempt from Federal Excise Tax.)
The Retrocessionaires will allow for the purpose of paying Federal
Excise Tax the applicable percentage of the premium payable hereon (as imposed
under Section 4371 of the Internal Revenue Service Code) to the extent such
premium is subject to such tax. In the event of any return of premium, the
Retrocessionaires will deduct the aforesaid percentage from the return premium
payable hereon and the Retrocedent or its agent will recover such tax from the
United States Government.
ARTICLE XXV
CURRENCY
The use of the sign "$" in this Agreement is in reference to United
States of America Dollars. Therefore, premiums due the Retrocessionaires and
loss payments due the Retrocedent hereunder will be in United States of America
Dollars.
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ARTICLE XXVI
SERVICE OF SUIT
(This Article applies to those Retrocessionaires domiciled outside the
United States of America as well as those Retrocessionaires
unauthorized in the Retrocedent's state of domicile. This Article is
not intended to conflict with or override the parties' obligation to
arbitrate their disputes in accordance with the Arbitration Article.)
In the event of the failure of any Retrocessionaire hereon to pay any
amount claimed to be due hereunder, the Retrocessionaire, at the request of the
Retrocedent, 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 Retrocessionaire's right to
commence an action in any Court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another Court as permitted by the laws of the United States or of any
state in the United States. Service of process in such suit may be made upon
Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or another
party specifically designated in the applicable Interests and Liabilities
Agreement attached hereto. In any suit instituted against it upon this
Agreement, the Retrocessionaire 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 Retrocessionaire in any such suit and/or upon the
request of the Retrocedent to give a written undertaking to the Retrocedent that
they will enter a general appearance upon the Retrocessionaire's behalf in the
event such a suit is instituted.
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Further, pursuant to any statute of any state, territory, or district
of the United States that makes provision therefor, the Retrocessionaire hereby
designates the Superintendent, Commissioner, or Director of Insurance or other
officer specified for that purpose in the statute (or his successor or
successors in office) as its true and lawful attorney upon whom may be served
any lawful process in any action, suit, or proceeding instituted by or on behalf
of the Retrocedent 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.
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ARTICLE XXVII
INTERMEDIARY
Aon Re Inc. is hereby recognized as the Intermediary negotiating this
Agreement for all business hereunder. All communications (including but not
limited to notices, statements, premiums, return premiums, commissions, taxes,
losses, loss expenses, salvages, and loss settlements) relating thereto will be
transmitted to the Retrocedent or the Retrocessionaires through Aon Re Inc., 123
N. Wacker Drive, Chicago, Illinois 60606. Payments by the Retrocedent to the
Intermediary will be deemed payment to the Retrocessionaires. Payments by the
Retrocessionaires to the Intermediary will be deemed payment to the Retrocedent
only to the extent that such payments are actually received by the Retrocedent.
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EXHIBIT 10.29
SPECIAL CATASTROPHE EXCESS OF LOSS
RETROCESSIONAL AGREEMENT
ARTICLE PAGE
------- ----
COVERAGE I 2
TERM AND CANCELLATION II 3
EXTENDED TERMINATION III 3
TERRITORY IV 4
EXCLUSIONS V 4
DEFINITIONS VI 7
LIMIT VII 8
NET RETAINED LIABILITY VIII 8
PREMIUM IX 9
CONTINGENT PROFIT COMMISSION X 10
EXTRA CONTRACTUAL OBLIGATIONS AND
EXCESS LIMITS LIABILITY XI 11
REPORTS AND REMITTANCES XII 13
RESERVES AND LETTERS OF CREDIT XIII 13
LOSS NOTICES AND SETTLEMENTS XIV 16
OFFSET XV 16
SALVAGE AND SUBROGATION XVI 17
DELAYS, ERRORS, OR OMISSIONS XVII 17
AMENDMENTS XVIII 18
ACCESS TO RECORDS XIX 18
INSOLVENCY XX 18
ARBITRATION XXI 20
TAXES XXII 21
FEDERAL EXCISE TAX XXIII 22
CURRENCY XXIV 22
SERVICE OF SUIT XXV 23
INTERMEDIARY XXVI 24
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SPECIAL CATASTROPHE EXCESS OF LOSS
RETROCESSIONAL AGREEMENT
THIS AGREEMENT is made and entered into by and between TRENWICK AMERICA
REINSURANCE CORPORATION, a Connecticut corporation (hereinafter called the
"Retrocedent") of the one part, and the various Retrocessionaires as identified
by the Interests and Liabilities Agreements attaching to and forming a part of
this Agreement (hereinafter called the "Retrocessionaires") of the other part.
WITNESSETH:
That in consideration of the mutual covenants hereinafter contained and
upon the terms and conditions hereinbelow set forth, the parties hereto agree as
follows:
ARTICLE I
COVERAGE
The Retrocessionaires will indemnify the Retrocedent, subject to the
limits set forth in the Limit Article for any loss or losses occurring on or
after inception of this Agreement under all original contracts underwritten by
the Retrocedent and classified by the Retrocedent as:
PROPERTY REINSURANCE BUSINESS ASSUMED, INCLUDING THE PROPERTY PORTIONS
OF MULTI-LINE BUSINESS AND WORKERS COMPENSATION AND/OR EMPLOYERS
LIABILITY LOSSES ARISING FROM ONE OR MORE OF THE FOLLOWING PERILS:
FIRE, LIGHTNING, EXPLOSION, STRUCTURAL COLLAPSE, WINDSTORM, HAIL,
FLOOD, SEISMIC ACTIVITY, VOLCANIC ERUPTION, COLLISION, RIOTS AND
STRIKES, CIVIL COMMOTION, OR MALICIOUS MISCHIEF, AND ANY PHYSICAL
DAMAGE AND/OR CONSEQUENTIAL LOSS COVERAGE CONTINGENT THEREON EFFECTED
BY AN INSURED ON BEHALF OF ANOTHER PARTY.
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All reinsurance for which the Retrocessionaires will be obligated by
virtue of this Agreement will be subject to the same terms, conditions,
interpretations, waivers, modifications, and alterations as the respective
original contracts of the Retrocedent to which this Agreement applies, except as
modified herein. Nothing herein will in any manner create any obligations or
establish any rights against the Retrocessionaires in favor of any third parties
or any persons not parties to this Agreement except as provided in the
Insolvency Article.
ARTICLE II
TERM AND CANCELLATION
This Agreement will apply to all losses occurring on or after 12:01
a.m. Eastern Standard Time on January 1, 1997, and will remain in full force and
effect until 12:01 a.m. Eastern Standard Time on January 1, 2000.
This Agreement may be canceled any January 1 by either party giving at
least 60 days prior notice by certified or registered mail to the other party.
During any such period of notice, the Retrocessionaires will remain bound by the
terms of this Agreement; however, the Retrocessionaires will not be liable for
any losses occurring on or after the cancellation or expiration date.
ARTICLE III
EXTENDED TERMINATION
Should this Agreement expire while a loss occurrence covered hereunder
is in progress, subject to the other conditions of this Agreement, the
Retrocessionaires will
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indemnify the Retrocedent as if the entire loss occurrence had arisen during the
term of this Agreement, and provided that no part of said loss occurrence is
claimed against any renewal of this Agreement.
ARTICLE IV
TERRITORY
The territorial limits of this Agreement will include the United States
of America, the District of Columbia, Canada, and incidental locations
elsewhere.
ARTICLE V
EXCLUSIONS
No reinsurance indemnity will be afforded under this Agreement for:
A. Loss or damage directly caused by war and/or civil war, but
this exclusion will not apply to business written in
accordance with the Market War and/or Civil War Exclusion
Agreement.
B. Any loss or liability accruing to the Retrocedent directly or
indirectly and whether as insurer or reinsurer from any pool
of insurers or reinsurers formed for the purposes of covering
Atomic or Nuclear Energy Risks.
C. Nuclear risks as defined in the following:
1. Nuclear Incident Exclusion Clause -- Physical Damage
-- Reinsurance (U.S.A.) attached to this Agreement,
or as may be revised hereafter by the Lloyd's
Underwriters' Non-Marine Association.
2. Nuclear Incident Exclusion Clause -- Physical Damage
-- Reinsurance (Canada) attached to this Agreement,
or as may be revised hereafter by the Lloyd's
Underwriters' Non-Marine Association.
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<PAGE> 5
3. Nuclear Energy Risks Exclusion Clause (1994)
(Reinsurance) (Worldwide Excluding U.S.A. & Canada)
attached to this Agreement, or as may be revised
hereafter by the Lloyd's Underwriters' Non-Marine
Association.
4. Nuclear Incident Exclusion Clause -- Physical Damage
and Liability (Boiler and Machinery Policies) --
Reinsurance (U.S.A.) and (Canada) attached to this
Agreement, or as may be revised hereafter by the
Lloyd's Underwriters' Non-Marine Association.
D. Financial Guarantee, Insolvency, or Credit Business.
E. Fidelity and Surety.
F. Reinsurance of Coastal Pools when written as such.
G. Life business, other than Accidental Death and Dismemberment.
H. Aviation, Aerospace, and Satellite business.
I. Casualty business, except as set forth in the Coverage
Article.
J. Hail damage to growing or standing crops.
K. Banking or Funding Plans.
L. Target Risks as excluded in the Retrocedent's original
contracts or the original policies of the Retrocedent's
reinsureds.
M. Loss or liability excluded by the Insolvency Funds Exclusion
Clause attached to this Agreement.
N. Reinsurance assumed on an excess of loss and/or pro rata
reinsurance basis issued in the name of and for the account of
a Lloyd's Syndicate or of an insurance or reinsurance company,
whether such liability is accepted either directly or under
any form of reinsurance from other insurers and/or reinsurers,
and all such liability is excluded from the protection of this
reinsurance and cannot be taken into account in arriving at
the amount in the excess of which this reinsurance attaches.
The Retrocedent will be the sole judge as to which insurance
or reinsurance companies come within the scope of this
definition.
O. All losses sustained by the Retrocedent howsoever and
wheresoever arising including all Business Interruption,
Consequential Loss and/or
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other contingent losses proximately caused by a peril insured
in respect of the Retrocedent's exposures from:
1. All marine business when written as such, however not
to exclude such exposures if they emanate from a
multi-line insurance contract and/or policy.
2. All Offshore exposures arising from business of any
description connected with the oil and/or gas and/or
sulphur and/or uranium exploration and production
industries in all their phases and including all
associated support and/or service industries.
"Offshore" will be defined as:
a. That area encompassing locations covered by
oceans or seas in which the water ebbs and
flows
and/or
b. Other navigable waters or waterways which
will mean any water which is in fact
navigable by ships or vessels, whether or
not the tide ebbs and flows there, and
whether or not there is a public right of
navigation on that water.
P. Losses in respect of overhead transmission and distribution
lines and their supporting structures other than those on or
within 500 feet of the insured premises; however, public
utilities extension and/or suppliers extension and/or
contingent business interruption coverages are not subject to
this exclusion, provided that these are not part of a
transmitter's or distributor's policy.
The exclusions set forth above will not apply where the Retrocedent is
obliged to provide coverage by reason of membership in any state plan, pool,
facility, joint underwriting association or similar involuntary participation.
The Retrocedent may submit to the Retrocessionaires, for special
acceptance hereunder, business not covered by this Agreement. If said business
is accepted by the
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<PAGE> 7
Retrocessionaires, it will be subject to the terms of this Agreement, except as
such terms are modified by such acceptance.
ARTICLE VI
DEFINITIONS
The following words and phrases used in this Agreement will have the
indicated meanings:
A. "Original contracts" as used in this Agreement will mean any
and all policies, binders, certificates, acceptances,
contracts, or agreements of reinsurance, whether written or
oral.
B. "Loss occurrence" as used in this Agreement will mean all
losses arising out of or following one event. As regards
aggregate and/or stop loss original contracts assumed by the
Retrocedent, the proportion of such loss or losses that forms
part of the Retrocedent's ultimate net loss under this
Agreement will be the proportion of the whole aggregate
recovery that the original reinsured's individual catastrophe
loss bears to its total losses used in arriving at aggregate
excess recoveries.
C. "Ultimate net loss" as used in this Agreement will mean the
actual loss or losses sustained by the Retrocedent both as
regards the original contracts and this Agreement, including
100% of any claims related extra contractual obligations
and/or excess limits liabilities incurred by any original
reinsured and 80% of any claims related extra contractual
obligations and/or excess limits liabilities incurred by the
Retrocedent, on its net retained liability after making
deductions for all recoveries, salvages, and all reinsurance
(other than underlying reinsurance) whether collectible or
not. Ultimate net loss will cover loss expense incurred by the
Retrocedent (both as regards the original contracts and this
Agreement) and arising from the settlement of claims,
including interest and court costs incurred in investigation,
adjustment, and litigation and a pro rata share of salaries
and expenses of the field adjusters of the original reinsured
and the Retrocedent while adjusting such claims, and expenses
of other employees of the original reinsured and the
Retrocedent who have been temporarily diverted from their
normal and customary duties as a result of such claims.
However, both salaries of other employees and office expenses
of the original reinsured and Retrocedent will be excluded.
All salvages, recoveries, or reinsurance payments received
subsequent to any loss settlement hereunder will be applied as
if received prior to the
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<PAGE> 8
settlement, and all necessary adjustments will be made by the
parties hereto. Nothing in this definition, however, should be
construed to mean that losses under this Agreement are not
recoverable until the Retrocedent's ultimate net loss has been
ascertained.
D. "Agreement year" as used in this Agreement will mean a period
of 12 consecutive months, commencing with the inception of
this Agreement, or any anniversary thereof.
ARTICLE VII
LIMIT
The Retrocessionaires will be liable for up to $8,000,000 of the amount
of ultimate net loss incurred by the Retrocedent during the term of this
Agreement, subject to no more than $4,000,000 any one Agreement year in respect
of any loss or losses on the Retrocedent's net retained liability as follows:
<TABLE>
<CAPTION>
Retrocedent's Catastrophe Layer Net
------------------------------- ---
<S> <C>
100% of $2,000,000 Excess of $ 2,000,000 $2,000,000
100% of $2,000,000 Excess of $10,000,000 $2,000,000.
</TABLE>
The structure of the limit for the second and subsequent Agreement
years will be mutually agreed upon at the commencement of each Agreement year.
ARTICLE VIII
NET RETAINED LIABILITY
In computing the amount or amounts in excess of which this Agreement
attaches, only a loss or losses in respect to that portion of any reinsurance
that the Retrocedent retains net for its own account will be included. The
amount of the Retrocessionaires' liability hereunder with respect to any loss or
losses will not be increased by the inability
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<PAGE> 9
of the Retrocedent to collect from any other retrocessionaires any amounts that
may have become due from them, whether such inability arises from the insolvency
of such retrocessionaires or otherwise.
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<PAGE> 10
ARTICLE IX
PREMIUM
For the first Agreement year, there will be a deposit premium of
$1,450,000, payable in equal quarterly installments of $362,500 on January 1,
1997, April 1, 1997, July 1, 1997, and October 1, 1997.
For the second Agreement year, there will be a deposit premium of
$1,450,000, payable in equal quarterly installments of $362,500 on January 1,
1998, April 1, 1998, July 1, 1998, and October 1, 1998. At January 1, 1998, the
Retrocedent will also pay an additional premium equal to 33% of losses incurred
during the first Agreement year.
For the third Agreement year, there will be a deposit premium of
$1,450,000, payable in equal quarterly installments of $362,500 on January 1,
1999, April 1, 1999, July 1, 1999, and October 1, 1999. At January 1, 1999, the
Retrocedent will also pay an additional premium equal to 100% of losses incurred
during the first two Agreement years, less previously paid additional premium.
At January 1, 2000, the Retrocedent will pay a final additional premium
of 100% of losses incurred during the three-year term of this Agreement, less
previously paid additional premium, subject, however, to a maximum additional
premium payment for the entire three-year term of $2,544,500. In no event,
however, will the total premium paid as deposit premium and additional premium
exceed $6,894,500 for the entire three-year term of this Agreement.
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All premiums due hereunder will be payable by wire transfer and will be
received by the Retrocessionaires within 30 days of inception of this Agreement
and within 30 days of each calendar quarter thereafter.
ARTICLE X
CONTINGENT PROFIT COMMISSION
The Retrocessionaires will allow the Retrocedent a contingent profit
commission of 100% of the net profit of this Agreement. "Net profit" as used
herein is the earned reinsurance premium as in A. below, less reinsurance losses
as in B. below:
A. "Earned reinsurance premium" is 85% of the deposit premium and
100% of any additional premium.
B. "Reinsurance losses" are the Retrocessionaires' portion of
payments (including loss expense) made on losses occurring
during the adjustment period, plus the Retrocedent's estimate
of the Retrocessionaires' portion of the reserve for
outstanding losses (including loss expenses) occurring during
said period.
The adjustment period will extend from January 1, 1997 through and
including December 31, 1999. If, by reason of cancellation of this Agreement,
the adjustment period is less than three years, it will be subject to adjustment
as if it were a complete adjustment period. The contingent profit commission
will be computed and a statement forwarded to the Retrocessionaires within 30
days following expiration or early cancellation. Upon verification of amount
due, the Retrocessionaires will immediately pay the Retrocedent.
Notwithstanding expiration or early cancellation of this Agreement,
annual computations for the adjustment period will continue to be made until all
accounts
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<PAGE> 12
relating to income and outgo for the adjustment period have been closed. If an
incurred loss is reported in the Agreement year preceding an adjustment, the
Retrocedent has an additional 60 days to recalculate the contingent profit
commission. In the event that reinsurance losses used in any contingent profit
commission computation are found to have been over- or under- estimated by
subsequent developments, then either party on an annual basis may request a
revision of previous computations to reflect such developments. The Retrocedent
will refund to the Retrocessionaires, or the Retrocessionaires will pay the
Retrocedent, whatever amount is due as a result of the revision. Such revision
may be requested even though this Agreement has expired or been terminated prior
to the time of such request.
ARTICLE XI
EXTRA CONTRACTUAL OBLIGATIONS AND EXCESS LIMITS LIABILITY
This Agreement will extend to cover losses arising from claims related
extra contractual obligations and/or excess limits liabilities whether incurred
by the original reinsured or the Retrocedent in accordance with the percent
factors as set forth in the ultimate net loss definition.
"Extra contractual obligations" as used in this Agreement will mean
those liabilities not covered under any other provision of this Agreement, which
arise from the handling of any claim on business covered hereunder, such
liabilities arising because of, but not limited to, the following: failure to
settle within the policy limit, by reason of alleged or actual negligence,
fraud, or bad faith in rejecting an offer of settlement, in the
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<PAGE> 13
preparation of the defense, in the trial of any action against the insured or
reinsured, or in the preparation or prosecution of an appeal consequent upon
such action.
"Excess limits liabilities" as used in this Agreement will mean damages
payable in excess of the original reinsured's policy limit as a result of
alleged or actual negligence, fraud, or bad faith in failing to settle and/or
rejecting a settlement within the policy limit, in the preparation of the
defense, in the trial of any action against the insured or reinsured, or in the
preparation or prosecution of an appeal consequent upon such action. Excess
limits liabilities will mean any amounts for which the original reinsured or the
Retrocedent would have been contractually liable to pay had it not been for the
limits of the original policy.
There will be no recovery hereunder for an extra contractual obligation
and/or excess limits liability loss that has been incurred due to fraud
committed by a member of the board of directors or a corporate officer of an
original reinsured or the Retrocedent, acting individually, collectively, or in
collusion with a member of the board of directors, a corporate officer, or a
partner of any other corporation, partnership, or organization involved in the
defense or settlement of a claim on behalf of an original reinsured or the
Retrocedent.
The date on which any extra contractual obligation and/or excess limits
liability is incurred by an original reinsured or the Retrocedent will be
deemed, in all circumstances, to be the date of the related occurrence under the
original policy. Nothing in this Article will be construed to create a separate
or distinct loss occurrence apart from the original covered loss occurrence that
gave rise to the extra contractual obligations and/or excess
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limits liabilities discussed in the preceding paragraphs. In no event will the
total limit of liability of the Retrocessionaires exceed their applicable limit
of liability as set forth in the Limit Article.
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<PAGE> 15
ARTICLE XII
REPORTS AND REMITTANCES
As soon as possible following the end of each Agreement year, the
Retrocedent will furnish the Retrocessionaires with a report of reinsurance
premium due them for that period. Such report will contain such other
information as may be required by the Retrocessionaires for completion of their
NAIC annual statements. The premium due the Retrocessionaires will be balanced
against amounts previously paid as set forth in the Premium Article, and any
balance shown to be due the Retrocessionaires will be remitted with said annual
report.
ARTICLE XIII
RESERVES AND LETTERS OF CREDIT
(This Article is only applicable to those Retrocessionaires who cannot
qualify for credit by each state or governmental authority having
jurisdiction over the Retrocedent's loss reserves.)
As regards original contracts issued by the Retrocedent coming within
the scope of this Agreement, the Retrocedent agrees that, when it files with the
Insurance Department or sets up on its books reserves for known losses that have
been reported to the Retrocessionaires (including loss and loss expense paid by
the Retrocedent but not recovered from the Retrocessionaires and loss and loss
expense reported and outstanding), which it is required by law to set up, it
will forward to the Retrocessionaires a statement showing the proportion of such
loss reserves applicable to them. The Retrocessionaires hereby agree that they
will apply for and secure delivery to the
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<PAGE> 16
Retrocedent of a clean, irrevocable, and unconditional Letter of Credit, dated
on or before December 31 of the year in which the request is made, and issued by
Citibank, N.A. (or another member of the Federal Reserve System) or any bank
approved for use by the NAIC Securities Valuation Office, and containing
provisions acceptable to the insurance regulatory authorities having
jurisdiction over the Retrocedent's reserves in an amount equal to that
Retrocessionaire's proportion of such reserves as shown in the statement
prepared by the Retrocedent. Under no circumstances will any amount relating to
reserves in respect of Incurred But Not Reported losses be included in the
amount of the Letter of Credit.
The Letter of Credit will be issued for a period of not less than one
year, and will be automatically extended for one year from its date of
expiration or any future expiration date unless 30 days prior to any expiration
date the issuing bank notifies the Retrocedent by registered mail that it elects
not to consider the Letter of Credit extended for any additional period. An
issuing bank, not a member of the Federal Reserve System or not chartered in the
state of domicile of the Retrocedent, will provide 60 days notice to the
Retrocedent prior to any expiration in the event of nonextension.
Notwithstanding any other provisions of this Agreement, the Retrocedent
or its court-appointed successor in interest may draw upon such credit at any
time without diminution because of the insolvency of the Retrocedent or of any
Retrocessionaire for one or more of the following purposes only:
A. To pay the Retrocessionaire's share or to reimburse the
Retrocedent for the Retrocessionaire's share of any loss
reinsured by this Agreement, which has not been otherwise
paid.
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<PAGE> 17
B. To make refund of any sum in excess of the actual amount
required to pay the Retrocessionaire's share of any liability
reinsured by this Agreement.
C. In the event of nonextension of the Letter of Credit as
provided for above, to establish deposit of the
Retrocessionaire's share of reserves for losses under this
Agreement. Such cash deposit will be held in an interest
bearing account separate from the Retrocedent's other assets,
and interest thereon will accrue to the benefit of the
Retrocessionaires.
The issuing bank will have no responsibility whatsoever in connection
with the propriety of withdrawals made by the Retrocedent or the disposition of
funds withdrawn, except to ensure that withdrawals are made only upon the order
of properly authorized representatives of the Retrocedent.
At annual intervals, or more frequently as agreed but never more
frequently than semi-annually, the Retrocedent will prepare a specific
statement, for the sole purpose of amending the Letter of Credit, of the
Retrocessionaires' share of reserves for losses. If the statement shows that the
Retrocessionaires' share of such reserves exceeds the balance of credit as of
the statement date, the Retrocessionaires will, within 30 days after receipt of
notice of such excess, secure delivery to the Retrocedent of an amendment of the
Letter of Credit, increasing the amount of credit by the amount of such
difference. If, however, the statement shows that the Retrocessionaires' share
of such reserves is less than the balance of credit as of the statement date,
the Retrocedent will, within 30 days after receipt of written request from the
Retrocessionaires, 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.
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ARTICLE XIV
LOSS NOTICES AND SETTLEMENTS
The Retrocedent will advise the Retrocessionaires promptly of all
losses that, in the opinion of the Retrocedent, appear to involve the
Retrocessionaires under this Agreement and of all subsequent developments
pertaining thereto that, in the opinion of the Retrocedent, may materially
affect them as well. Inadvertent omission in dispatching the aforementioned
notices will in no way affect the obligation of the Retrocessionaires under this
Agreement, providing the Retrocedent informs the Retrocessionaires of such
omission promptly upon discovery.
The Retrocedent will have the right to settle all claims under this
Agreement. The loss settlements of the original reinsured, provided they are
within the terms of the original contracts, and the loss settlements of the
Retrocedent, provided they are within the terms of this Agreement, will be
unconditionally binding on the Retrocessionaires in proportion to their
participation in this Agreement. Amounts due the Retrocedent hereunder in the
settlement of ultimate net loss will be payable by the Retrocessionaires
immediately upon reasonable evidence of the amount paid or to be paid being
furnished by the Retrocedent.
ARTICLE XV
OFFSET
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The Retrocedent and each Retrocessionaire hereunder will be entitled to
deduct from amounts due the other party under this Agreement any amounts due
itself from the other party under this Agreement.
ARTICLE XVI
SALVAGE AND SUBROGATION
The Retrocessionaires will be credited with their share of salvage
and/or subrogation, less recovery expense, pertaining to the claims and
settlements involving reinsurance hereunder.
Salvage and/or subrogation will always be used to reimburse the
Retrocessionaires in the reverse order of their participation (including the
Retrocedent's pro rata share in excess layers) in said loss before being used in
any way to reimburse the Retrocedent for the loss as set forth in the Limit
Article. If salvage and/or subrogation is insufficient to cover the expense
incurred in its recovery, the net expense (after deduction of the amount
recovered, if any) will be added to ultimate net loss as will loss expense
incurred by the Retrocedent prior to any reimbursement for salvage and/or
subrogation.
ARTICLE XVII
DELAYS, ERRORS, OR OMISSIONS
Inadvertent delays, errors, or omissions made in connection with this
Agreement or any transaction hereunder will not relieve either party from any
liability that would have attached had such delay, error, or omission not
occurred, provided always that such
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<PAGE> 20
error or omission is rectified immediately upon discovery. The liability of the
Retrocessionaires under this Agreement will in no event exceed the limits
specified in the Limit Article, nor will the Retrocessionaires' liability be
extended to cover any risks, perils, or classes of insurance excluded herein
except as set forth in the Exclusions Article.
ARTICLE XVIII
AMENDMENTS
This Agreement may be altered or amended in any of its terms and
conditions by mutual consent of the Retrocedent and the Retrocessionaires by
addenda hereto, which will then constitute a part of this Agreement.
ARTICLE XIX
ACCESS TO RECORDS
Provided that the Retrocedent has been given reasonable notice, the
Retrocessionaires will have the right to inspect at any reasonable time, through
their designated representatives, all records of the Retrocedent that pertain in
any way to this Agreement.
ARTICLE XX
INSOLVENCY
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In the event of the Retrocedent's insolvency, the reinsurance under
this Agreement will be payable by the Retrocessionaires directly to the
Retrocedent, its liquidator, receiver, conservator, or statutory successor, on
the basis of the Retrocedent's liability under the original contracts without
diminution because of the Retrocedent's insolvency or because the liquidator,
receiver, conservator, or statutory successor of the Retrocedent has failed to
pay all or a portion of any claims, subject however, to the right of the
Retrocessionaires to offset from such funds due hereunder, any sums that may be
payable to it by said insolvent Retrocedent in accordance with the Offset
Article.
The liquidator, receiver, conservator, or statutory successor of the
Retrocedent will give written notice of the pendency of a claim against the
insolvent Retrocedent on the original contract or contracts reinsured within a
reasonable time after such claim is filed in the insolvency proceeding. During
the pendency of such claim, the Retrocessionaires may investigate such claim and
interpose, at their own expense, in the proceeding where such claim is to be
adjudicated, any defense that they may deem available to the Retrocedent, its
liquidator, receiver, conservator, or statutory successor. The expense thus
incurred by the Retrocessionaires will be chargeable against the Retrocedent,
subject to court approval, as part of the expense of conservation or liquidation
to the extent that such proportionate share of the benefit will accrue to the
Retrocedent solely as a result of the defense undertaken by the
Retrocessionaires. Where two or more Retrocessionaires are involved in the same
claim and a majority in interest elect to interpose defense to such claim, the
expense will be apportioned in accordance
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with the terms of this Agreement as though such expense had been incurred by the
Retrocedent.
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ARTICLE XXI
ARBITRATION
In the event of any arbitration between the Retrocedent and its
original reinsureds under the terms of any original contract, the
Retrocessionaires agree unreservedly to abide by the result of such arbitration.
If any dispute will arise between the parties to this Agreement with
reference to the interpretation of this Agreement or their rights with respect
to any transaction involved, whether such dispute arises before or after
termination of this Agreement, such dispute, upon the written request of either
party, will be submitted to three arbitrators, one to be chosen by each party,
and the third by the two so chosen. If either party refuses or neglects to
appoint an arbitrator within thirty days after the receipt of written notice
from the other party requesting it to do so, the requesting party may appoint
two arbitrators. If the two arbitrators fail to agree in the selection of a
third arbitrator within thirty days of their appointment, the third arbitrator
will be selected from a panel of three names to be supplied by the Insurance
Arbitration Forums. If the two arbitrators cannot mutually agree on the
arbitrator to be chosen from this panel, each party to the arbitration will have
the right to reject one member of the panel. This rejection process will be
sequential, with the right of first rejection to be decided by a toss of a coin.
All arbitrators will be active or retired disinterested officers of insurance or
reinsurance companies not under the control of either party to this Agreement.
The arbitrators will interpret this Agreement as an honorable
engagement and not as merely a legal obligation. The arbitrators will adopt
their own rules and procedures.
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They will make their award with a view of effecting the general purpose of this
Agreement in a reasonable manner rather than in accordance with a literal
interpretation of the language. Each party will submit its case to its
arbitrator within thirty days of the appointment of the third arbitrator.
The decision in writing of any two arbitrators, when filed with the
parties hereto, will be final and binding on both parties. Judgment may be
entered upon the final decision of the arbitrators in any court having
jurisdiction. Each party will bear the expense of its own arbitrator and will
jointly and equally bear with the other party the expense of the third
arbitrator and of the arbitration. Said arbitration will take place in the City
in which the Retrocedent's Head Office is located unless some other place is
mutually agreed upon by the parties to this Agreement.
ARTICLE XXII
TAXES
The Retrocedent will pay all taxes (except Federal Excise Tax) on
premiums reported to the Retrocessionaires on this Agreement.
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ARTICLE XXIII
FEDERAL EXCISE TAX
(This Article applies to Retrocessionaires domiciled outside the United
States of America, excepting Lloyd's London Underwriters and other
Retrocessionaires exempt from Federal Excise Tax.)
The Retrocessionaires will allow for the purpose of paying Federal
Excise Tax the applicable percentage of the premium payable hereon (as imposed
under Section 4371 of the Internal Revenue Service Code) to the extent such
premium is subject to such tax. In the event of any return of premium, the
Retrocessionaires will deduct the aforesaid percentage from the return premium
payable hereon and the Retrocedent or its agent will recover such tax from the
United States Government.
ARTICLE XXIV
CURRENCY
The use of the sign "$" in this Agreement is in reference to United
States of America Dollars. Therefore, premiums due the Retrocessionaires and
loss payments due the Retrocedent hereunder will be in United States of America
Dollars.
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ARTICLE XXV
SERVICE OF SUIT
(This Article applies to those Retrocessionaires domiciled outside the
United States of America as well as those Retrocessionaires
unauthorized in the Retrocedent's state of domicile. This Article is
not intended to conflict with or override the parties' obligation to
arbitrate their disputes in accordance with the Arbitration Article.)
In the event of the failure of any Retrocessionaire hereon to pay any
amount claimed to be due hereunder, the Retrocessionaire, at the request of the
Retrocedent, 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 Retrocessionaire's right to
commence an action in any court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another court as permitted by the laws of the United States or of any
state in the United States. Service of process in such suit may be made upon
Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829, or another
party specifically designated in the applicable Interests and Liabilities
Agreement attached hereto. In any suit instituted against it upon this
Agreement, the Retrocessionaire 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 Retrocessionaire in any such suit and/or upon the
request of the Retrocedent to give a written undertaking to the Retrocedent that
they will enter a general appearance upon the Retrocessionaire's behalf in the
event such a suit is instituted.
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<PAGE> 27
Further, pursuant to any statute of any state, territory, or district
of the United States that makes provision therefor, the Retrocessionaire hereby
designates the Superintendent, Commissioner, or Director of Insurance or other
officer specified for that purpose in the statute (or his successor or
successors in office) as its true and lawful attorney upon whom may be served
any lawful process in any action, suit, or proceeding instituted by or on behalf
of the Retrocedent 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 XXVI
INTERMEDIARY
Aon Re Inc. is hereby recognized as the Intermediary negotiating this
Agreement for all business hereunder. Correspondence regarding Agreement terms,
including provisional notice of cancellation (if applicable), will be
transmitted through Aon Re Inc., Two World Trade Center, New York, New York
10048. All statements for premiums, return premiums, commissions, taxes, losses,
loss expense, salvages, and loss settlements will be transmitted through Aon Re
Inc., 123 North Wacker Drive, Chicago, Illinois 60606. Payments by the
Retrocedent to Aon Re Inc. will be deemed payment to the Retrocessionaires.
Payments by the Retrocessionaires to Aon Re Inc. will be deemed payment to the
Retrocedent only to the extent that such payments are actually received by the
Retrocedent.
27
<PAGE> 1
EXHIBIT 10.30
ALEXANDER REINSURANCE INTERMEDIARIES, INC
Trenwick America Reinsurance Corp.
TBAA-1997
Page 1 of 2
PLACEMENT SLIP
RETROCEDENT: TRENWICK AMERICA REINSURANCE CORPORATION
TYPE: CATASTROPHE EXCESS OF LOSS REINSURANCE
CLASS: Retrocedents participation in all business
underwritten by Duncanson & Holt Group.
PERIOD: Losses occurring during the period
January 1, 1997 through December 31, 1997,
both days inclusive.
TERRITORIAL
SCOPE: As Per Original Policies.
LIMITS: THIS REINSURANCE is to indemnify the
Reinsured for all losses in excess of an
Ultimate Net Loss of US$1,000,000 each and
every loss.
POLICY FOR up to a further US$4,000,000 each
and every loss.
REINSTATEMENTS: Two at 100% Additional Premium pro rata as
to time and amount.
EXCLUSIONS: As Per Original Policies.
Employers Liability.
MINIMUM AND DEPOSIT
PREMIUM: US$75,000.
Payable in four installments as follows:
25% at January 1, 1997
25% at April 1, 1997
25% at July 1, 1997
25% at October 1,1997
Adjustable at 1.25% of the Reinsured's
Applicable Net Earned Premium Income.
March 25, 1997
Alexander Reinsurance Intermediaries, Inc.
<PAGE> 2
ALEXANDER REINSURANCE INTERMEDIARIES, INC
Trenwick America Reinsurance Corp.
TBAA-1997
Page 2 of 2
GENERAL
CONDITIONS: Access to Records Clause
Alexander Reinsurance Intermediaries, Inc.
Intermediary Clause
Arbitration Clause
Currency Clause
Definition of Loss Occurrence
Errors and Omissions Clause
Federal Excise Tax Clause
Funding of Loss Reserves Clause
Insolvency Clause
Net Retained Lines Clause
Notice of Loss and Loss Settlements Clause
Salvage and Subrogation Clause
Service of Suit Claim Clause
Taxes Clause
Ultimate Net Loss Clause
120 Months Commutation Clause (as per
original policy basis)
120 Months Sunset Clause
LOSS RESERVES: Non-Admitted Reinsurers to provide Letters
of Credit for outstanding losses as required
by the Retrocedent.
WORDING: Subject to Full Wording to be agreed by
Leading Underwriter on behalf of all.
Signing Slips and any amendments and/or
alterations to be agreed by Two Leading
Underwriters on behalf of all.
PARTICIPANTS:
ManuLife Re Corp (ISA) 25
Reliance National 25
London Life 10
AIG 10
SYN 183 10
SYN 1101 10
SYN 957 10
--
100
===
March 25, 1997
Alexander Reinsurance Intermediaries, Inc.
<PAGE> 3
ALEXANDER REINSURANCE INTERMEDIARIES, INC
Trenwick America Reinsurance Corp.
TBAB-1997
Page 1 of 2
PLACEMENT SLIP
RETROCEDENT: TRENWICK AMERICA REINSURANCE CORPORATION
TYPE: CATASTROPHE EXCESS OF LOSS REINSURANCE
CLASS: Retrocedents participation in all business
underwritten by Duncanson & Holt Group.
PERIOD: Losses occurring during the period
January 1, 1997 through December 31, 1997,
both days inclusive.
TERRITORIAL
SCOPE: As Per Original Policies.
LIMITS: THIS REINSURANCE is to indemnify the
Reinsured for all losses in excess of an
Ultimate Net Loss of US$5,000,000 each and
every loss.
POLICY FOR up to a further US$20,000,000
each and every loss.
REINSTATEMENTS: Two at 100% Additional Premium pro rata as
to time and amount.
EXCLUSIONS: As Per Original Policies.
Employers Liability.
MINIMUM AND DEPOSIT
PREMIUM: US$30,000.
Payable in four installments as follows:
25% at January 1, 1997
25% at April 1, 1997
25% at July 1, 1997
25% at October 1, 1 997
Adjustable at 0.50% of the Reinsured's
Applicable Net Earned Premium Income.
March 25, 1997
Alexander Reinsurance Intermediaries, Inc.
<PAGE> 4
ALEXANDER REINSURANCE INTERMEDIARIES, INC
Trenwick America Reinsurance Corp.
TBAB-1997
Page 2 of 2
GENERAL
CONDITIONS: Access to Records Clause
Alexander Reinsurance Intermediaries, Inc.
Intermediary Clause
Arbitration Clause
Currency Clause
Definition of Loss Occurrence
Errors and Omissions Clause
Federal Excise Tax Clause
Funding of Loss Reserves Clause
Insolvency Clause
Net Retained Lines Clause
Notice of Loss and Loss Settlements Clause
Salvage and Subrogation Clause
Service of Suit Claim Clause
Taxes Clause
Ultimate Net Loss Clause
120 Months Commutation Clause (as per
original policy basis)
120 Months Sunset Clause
LOSS RESERVES: Non-Admitted Reinsurers to provide Letters
of Credit for outstanding losses as required
by the Retrocedent.
WORDING: Subject to Full Wording to be agreed by
Leading Underwriter on behalf of all.
Signing Slips and any amendments and/or
alterations to be agreed by Two Leading
Underwriters on behalf of all.
PARTICIPANTS:
ManuLife Re Corp (ISA) 35
CIGNA Re 25
London Life 10
AIG 10
SYN 183 5
SYN 1101 5
SYN 957 10
--
100
===
March 25, 1997
Alexander Reinsurance Intermediaries, Inc.
<PAGE> 5
ALEXANDER REINSURANCE INTERMEDIARIES, INC
Trenwick America Reinsurance Corp.
TBAC-1997
Page 1 of 2
PLACEMENT SLIP
RETROCEDENT: TRENWICK AMERICA REINSURANCE CORPORATION
TYPE: CATASTROPHE EXCESS OF LOSS REINSURANCE
CLASS: Retrocedents participation in all business
underwritten by Duncanson & Holt Group.
PERIOD: Losses occurring during the period January
1, 1997 through December 31, 1997, both days
inclusive.
TERRITORIAL
SCOPE: As Per Original Policies.
LIMITS: THIS REINSURANCE is to indemnify the
Reinsured for all losses in excess of an
Ultimate Net Loss of US$25,000,000 each and
every loss.
POLICY FOR up to a further US$25,000,000
each and every loss.
REINSTATEMENTS: Two at 100% Additional Premium pro rata as
to time and amount.
EXCLUSIONS: As Per Original Policies.
Employers Liability.
MINIMUM AND DEPOSIT
PREMIUM: US$20,000.
Payable in four installments as follows:
25% at January 1, 1997
25% at April 1, 1997
25% at July 1, 1997
25% at October 1, 1997
Adjustable at 0.33% of the Reinsured's
Applicable Net Earned Premium Income.
March 25, 1997
Alexander Reinsurance Intermediaries, Inc.
<PAGE> 6
ALEXANDER REINSURANCE INTERMEDIARIES, INC
Trenwick America Reinsurance Corp.
TBAD-1997
Page 2 of 2
GENERAL
CONDITIONS: Access to Records Clause
Alexander Reinsurance Intermediaries, Inc.
Intermediary Clause
Arbitration Clause
Currency Clause
Definition of Loss Occurrence
Errors and Omissions Clause
Federal Excise Tax Clause
Funding of Loss Reserves Clause
Insolvency Clause
Net Retained Lines Clause
Notice of Loss and Loss Settlements Clause
Salvage and Subrogation Clause
Service of Suit Claim Clause
Taxes Clause
Ultimate Net Loss Clause
120 Months Commutation Clause (as per
original policy basis)
120 Months Sunset Clause
LOSS RESERVES: Non-Admitted Reinsurers to provide Letters
of Credit for outstanding losses as required
by the Retrocedent.
WORDING: Subject to Full Wording to be agreed by
Leading Underwriter on behalf of all.
Signing Slips and any amendments and/or
alterations to be agreed by Two Leading
Underwriters on behalf of all.
PARTICIPANTS:
ManuLife Re Corp (ISA) 25
CIGNA Re 20
London Life 10
Continental Assurance Company (DSU) 30
AIG 4
SYN 183 1
SYN 1101 2.5
SYN 957 5.0
SYN 959 2.5
---
100
===
March 25, 1997
Alexander Reinsurance Intermediaries, Inc.
<PAGE> 7
ALEXANDER REINSURANCE INTERMEDIARIES, INC
Trenwick America Reinsurance Corp.
TBAD-1997
Page 1 of 2
PLACEMENT SLIP
RETROCEDENT: TRENWICK AMERICA REINSURANCE CORPORATION
TYPE: CATASTROPHE EXCESS OF LOSS REINSURANCE
CLASS: Retrocedents participation in all business
underwritten by Duncanson & Holt Group.
PERIOD: Losses occurring during the period January
1, 1997 through December 31, 1997, both days
inclusive.
TERRITORIAL
SCOPE: As Per Original Policies.
LIMITS: THIS REINSURANCE is to indemnify the
Reinsured for all losses in excess of an
Ultimate Net Loss of US$50,000,000 each and
every loss.
POLICY FOR up to a further US$50,000,000
each and every loss.
REINSTATEMENTS: Two at 100% Additional Premium pro rata as
to time and amount.
EXCLUSIONS: As Per Original Policies.
Employers Liability.
MINIMUM AND DEPOSIT
PREMIUM: US$20,000.
Payable in four installments as follows:
25% at January 1, 1997
25% at April 1, 1997
25% at July 1, 1997
25% at October 1, 1997
Adjustable at 0.33% of the Reinsured's
Applicable Net Earned Premium Income.
March 25, 1997
Alexander Reinsurance Intermediaries, Inc.
<PAGE> 8
ALEXANDER REINSURANCE INTERMEDIARIES, INC
Trenwick America Reinsurance Corp.
TBAC-1997
Page 2 of 2
GENERAL
CONDITIONS: Access to Records Clause
Alexander Reinsurance Intermediaries, Inc.
Intermediary Clause
Arbitration Clause
Currency Clause
Definition of Loss Occurrence
Errors and Omissions Clause
Federal Excise Tax Clause
Funding of Loss Reserves Clause
Insolvency Clause
Net Retained Lines Clause
Notice of Loss and Loss Settlements Clause
Salvage and Subrogation Clause
Service of Suit Claim Clause
Taxes Clause
Ultimate Net Loss Clause
120 Months Commutation Clause (as
per original policy basis)
120 Months Sunset Clause
LOSS RESERVES: Non-Admitted Reinsurers to provide Letters
of Credit for outstanding losses as
required by the Retrocedent.
WORDING: Subject to Full Wording to be agreed by
Leading Underwriter on behalf of all.
Signing Slips and any amendments and/or
alterations to be agreed by Two Leading
Underwriters on behalf of all.
PARTICIPANTS:
ManuLife Re Corp (ISA) 25
CIGNA Re 20
London Life 10
Continental Assurance Company (DSU) 21.5
AIG 5
SYN 183 1
SYN 1101 5
SYN 957 10
SYN 959 2.5
---
100
===
March 25, 1997
Alexander Reinsurance Intermediaries, Inc.
<PAGE> 1
1
EXHIBIT 10.31
FIRST COINSURED
AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "AGREEMENT")
In consideration of the mutual covenants hereinafter contained and upon the
terms and conditions hereinafter set forth
THE SUBSCRIBING REINSURERS EXECUTING THE INTERESTS &
LIABILITIES CONTRACTS ATTACHED TO AND FORMING A PART
OF THIS AGREEMENT
(hereinafter referred to as the "REINSURER")
does hereby indemnify, as herein provided and specified,
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "REINSURED")
<PAGE> 2
2
ARTICLE AND PAGE NUMBER
1. BUSINESS COVERED 3
2. TERM 3
3. TERRITORY 4
4. RETENTION, REINSURER'S SHARE, AND LIMIT 4
5. OTHER REINSURANCE 6
6. LOSS SETTLEMENTS 6
7. REINSURANCE PREMIUM 7
8. ADDITIONAL PREMIUM 7
9. EXPERIENCE ACCOUNT 7
10. REINSURER'S MARGIN 8
11. FUNDS WITHHELD 8
12. COMMUTATION 10
13. REPORTS AND REMITTANCES 11
14. TAXES 12
15. COVENANTS OF THE REINSURED 12
16. DEFINITIONS 13
17. ULTIMATE NET LOSS 14
18. NET RETAINED LINES 14
19. RIGHT OF OFFSET 15
20. ERRORS AND OMISSIONS 15
21. CURRENCY 16
22. EXTRA CONTRACTUAL OBLIGATIONS 16
23. EXCESS OF ORIGINAL POLICY LIMITS LOSS 16
24. ARBITRATION 17
25. ACCESS TO RECORDS 18
26. INSOLVENCY 18
27. GOVERNING LAW 19
28. SERVICE OF SUIT 19
29. AMENDMENTS AND ALTERATIONS 20
30. ASSIGNMENT 20
31. NO THIRD PARTY RIGHTS 20
32. NO IMPLIED WAIVER 20
33. SECURITY 20
34. MERGERS AND ACQUISITIONS 21
35. INTERMEDIARY 21
<PAGE> 3
3
ARTICLE 1 - BUSINESS COVERED
In consideration of the premium to be paid by the Reinsured and subject to the
terms, conditions, exclusions and limits hereafter set forth, the Reinsurer
agrees to indemnify the Reinsured on an aggregate excess of loss basis for the
Reinsurer's share of Ultimate Net Loss that the Reinsured has incurred in excess
of the retention as a result of losses occurring during the Term of this
Agreement as respects the Reinsured's contracts, agreements and other evidence
of reinsurance in respect of all casualty reinsurance assumed business entered
into by the Reinsured (the "POLICIES"), but specifically excluding the following
business:
- - finite risk reinsurance
- - pollution liability when written by the Reinsured as a named peril, but
excluding first party cleanup
- - policyholder dividends
- - nuclear incidents: in accordance with the attached Nuclear Incident
Exclusion Clauses:
a. Nuclear Incident Exclusion Clause - Liability - Reinsurance
- U.S.A. and Canada;
b. Nuclear Incident Exclusion Clause - Physical Damage-
Reinsurance - U.S.A. and Canada;
c. Nuclear Incident Exclusion Clause - Physical Damage and
Liability (Boiler and Machinery Policies) - Reinsurance -
U.S.A. and Canada;
d. Nuclear Energy Risks Exclusion Clause - Reinsurance -
Worldwide excluding U.S.A. and Canada.
- - war risks (in accordance with the attached War Risk Exclusion Clause)
- - insolvency and guarantee funds (in accordance with the attached
Insolvency And Guarantee Funds Exclusion Clause)
- - residual market assessments, second injury fund assessments,
rehabilitation assessments, and any other similar type assessments
- - financial guarantee business
- - loss portfolio transfers
ARTICLE 2 - TERM
The term (the "TERM") of this Agreement shall be the period commencing at 12:01
a.m., Eastern Standard Time, January 1, 1997 (the "EFFECTIVE DATE") through to
and including the earlier of 11:59 p.m., Eastern Standard Time, December 31,
1997 or the date on which this Agreement is otherwise canceled as provided for
below (the "EXPIRATION DATE").
This Agreement may not be canceled by the Reinsured. The Reinsurer shall have
the right to
<PAGE> 4
4
cancel this Agreement as provided for in the articles entitled "COVENANTS OF THE
REINSURED", "MERGERS AND ACQUISITIONS", or "RIGHT OF OFFSET" and as provided for
below.
In the event that the Reinsured fails to pay the Reinsurance Premium and/or the
Additional Premium, if any, within 15 days of the date such premium is due, the
Reinsurer shall notify the Reinsured in writing via registered mail of the
overdue amounts. In the event that the Reinsured does not remit the overdue
amounts to the Reinsurer within 15 days of receiving such notification from the
Reinsurer, the Reinsurer shall have the right to immediately cancel this
Agreement by mailing the Reinsured a written notice of cancellation and the
Total Aggregate Limit, notwithstanding any provision to the contrary contained
herein, shall be immediately reduced to an amount equal to the positive balance
in the Experience Account (or zero if the Experience Account Balance is
negative) as of the date of cancellation. The mailing of such notice shall be
sufficient notice and the effective date of cancellation shall be the date the
notice of cancellation was posted.
In the event that the Reinsured fails to pay a Reinsurance Premium and/or an
Additional Premium, if any, that is due after the Expiration Date of this
Agreement within 15 days of the date such premium is due, the Reinsurer shall
notify the Reinsured in writing via registered mail of the overdue amounts. In
the event that the Reinsured does not remit the overdue amounts to the Reinsurer
within 15 days of receiving such notification from the Reinsurer, the Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall immediately and without further notice be reduced to an amount equal to
the positive balance in the Experience Account (or zero if the Experience
Account Balance is negative).
ARTICLE 3 - TERRITORY
This Agreement shall apply only to losses occurring in the United States of
America, Canada and Europe.
ARTICLE 4 - RETENTION, REINSURER'S SHARE, AND LIMIT
1) LIMIT A:
The Reinsurer agrees to indemnify the Reinsured for the Reinsurer's Share of the
amount of the Reinsured's aggregate Ultimate Net Loss that is in excess of 53%
of Subject Earned Premium.
The "REINSURER'S SHARE" under Limit A shall be determined as follows:
If the Ultimate Net Loss is less than 53% of Subject Earned Premium,
the Reinsurer's Share under Limit A shall equal zero, otherwise, the
Reinsurer's Share under Limit A shall equal the lesser of (1) "A"
divided by "B" or (2) 100%,
Where:
<PAGE> 5
5
"A" is equal to 193.0% of the Reinsurance Premium
paid, plus the lesser of (1) the amount of Ultimate Net Loss
incurred from Clash losses, or (2) $7 million; and
"B" is equal to the amount of Ultimate Net Loss in
excess of 53% of Subject Earned Premium.
UNDER NO CIRCUMSTANCES SHALL THE REINSURER'S AGGREGATE LIMIT OF LIABILITY FOR
ULTIMATE NET LOSS UNDER THIS LIMIT A EXCEED 193.0% OF THE REINSURANCE PREMIUM
PAID, PLUS $7 MILLION.
2) LIMIT B:
The Reinsurer agrees to indemnify the Reinsured for the Reinsurer's Share of the
amount of the Reinsured's aggregate Ultimate Net Loss that is in excess of 90%
of Subject Earned Premium.
The "REINSURER'S SHARE" under Limit B shall be determined as follows:
If the Ultimate Net Loss is less than 90% of Subject Earned Premium,
the Reinsurer's Share under Limit B shall equal zero, otherwise, the
Reinsurer's Share under Limit B shall be equal to the lesser of (1) "C"
divided by "D" or (2) "E",
Where:
"C" is equal to 27.5% of the Reinsurance Premium
paid; and
"D" is equal to the amount of Ultimate Net Loss in
excess of 90% of Subject Earned Premium; and
"E" is equal to 100% less the Reinsurer's Share under
Limit A calculated above.
UNDER NO CIRCUMSTANCES SHALL THE REINSURER'S AGGREGATE LIMIT OF LIABILITY FOR
ULTIMATE NET LOSS UNDER THIS LIMIT B EXCEED 27.5% OF THE REINSURANCE PREMIUM
PAID.
3) TOTAL AGGREGATE LIMIT:
Notwithstanding the Reinsurer's obligations under Limit A and Limit B above, the
Reinsurer's maximum aggregate limit of liability for Ultimate Net Loss under
this Agreement shall be subject to a maximum aggregate limit (the "TOTAL
AGGREGATE LIMIT") equal to the lesser of:
<PAGE> 6
6
(1) 220.5% of Reinsurance Premium paid, plus the lesser of (1) the
amount of Ultimate Net Loss incurred from Clash losses, or (2) $7
million; or
(2) $36,250,000 plus the amount of Ultimate Net loss covered under
Limit A that exceeds 193.0% of the Reinsurance Premium paid.
Notwithstanding the foregoing, the Total Aggregate Limit of liability hereunder
is further subject to adjustment as provided for in the articles entitled
"TERM", "COVENANTS OF THE REINSURED", and "RIGHT OF OFFSET".
UNDER NO CIRCUMSTANCES SHALL THE TOTAL LIABILITY OF THE REINSURER UNDER OR
RELATED TO THIS AGREEMENT EXCEED THE TOTAL AGGREGATE LIMIT.
ARTICLE 5 - OTHER REINSURANCE
The Reinsured is hereby granted permission to carry Aggregate Excess of Loss
Reinsurance as specified in the SECOND COINSURED AGGREGATE EXCESS OF LOSS
REINSURANCE AGREEMENT between Continental Casualty Company, Centre Reinsurance
Company of New York, and the Reinsured as attached hereto and coverage further
described as follows:
14% of Subject Earned Premium in excess of 67% of Subject Earned
Premium in the annual aggregate; and
$3 million in excess of 92% of Subject Earned Premium in the annual
aggregate,
it being understood and agreed that, for all purposes of this Agreement,
including the calculation of the Reinsurance Premium, the Retention, the Limits,
and the Ultimate Net Loss hereunder, any amounts recoverable thereunder shall be
ignored.
ARTICLE 6 - LOSS SETTLEMENTS
The Reinsurer agrees to pay the Reinsured the amounts of Ultimate Net Loss due
hereunder and paid by the Reinsured (or payable by the Reinsured in case of
insolvency in accordance with the article entitled "INSOLVENCY") quarterly in
arrears and payment will be due within sixty (60) days following receipt and
verification of an account statement submitted by the Reinsured to the
Reinsurer. Ultimate Net Loss payments due by the Reinsurer in accordance with
the provisions herein shall first be paid by way of offset against the Funds
Withheld Balance until such balance is exhausted.
Notwithstanding any provision to the contrary contained herein, and except for
the articles entitled "EXTRA CONTRACTUAL OBLIGATIONS" and "EXCESS OF ORIGINAL
POLICY LIMITS LOSS", coverage under this Agreement is expressly limited to
claims or losses arising under the Reinsured's Policies; provided, however, that
such claims or losses are within the terms, conditions and limitations of the
original policies and within the terms, conditions and limitations of this
Agreement.
<PAGE> 7
7
ARTICLE 7 - REINSURANCE PREMIUM
Subject to the article entitled "FUNDS WITHHELD", the Reinsured shall pay to the
Reinsurer a premium (the "REINSURANCE PREMIUM") equal to 7.25% of the projected
Subject Earned Premium, payable in equal quarterly installments in advance,
subject to a maximum Reinsurance Premium equal to $18,125,000.
Within thirty (30) days following the end of each calendar quarter the Reinsured
shall make appropriate adjustments for the amount by which 7.25% of the Subject
Earned Premium for that calendar quarter exceeds or is less than the amounts
previously paid by the Reinsured for that calendar quarter.
ARTICLE 8 - ADDITIONAL PREMIUM
Subject to the article entitled "FUNDS WITHHELD", the Reinsured shall pay to the
Reinsurer an additional premium (the "ADDITIONAL PREMIUM") equal to 65% of the
Ultimate Net Loss covered under Limit A, in excess of 193% of the Reinsurance
Premium paid, subject to a maximum Additional Premium equal to $4.55 million,
and such Additional Premium shall be paid to the Reinsurer with the applicable
quarterly Ultimate Net Loss report as put forth in the article entitled "REPORTS
AND REMITTANCES".
Within thirty (30) days following the end of each calendar quarter the Reinsured
shall make appropriate adjustments for the amount by which 65% of the Ultimate
Net Loss covered under Limit A that is in excess of 193.0% of the Reinsurance
Premium paid to date, exceeds or is less than the amounts of Additional Premiums
previously paid by the Reinsured.
ARTICLE 9 - EXPERIENCE ACCOUNT
A notional account (the "EXPERIENCE ACCOUNT") shall be calculated by the
Reinsurer from the Effective Date of this Agreement and maintained until there
is a complete and final release of all of the Reinsurer's obligations to the
Reinsured under this Agreement.
The balance of the Experience Account (the "EXPERIENCE ACCOUNT BALANCE") as of
any December 31 shall be defined as:
(1) 100% of the Reinsurance Premium and Additional Premium, if any,
received by the Reinsurer (or Funds Withheld in accordance with the
article entitled "FUNDS WITHHELD"), less
(2) the Reinsurer's Margin paid to the Reinsurer, less
(3) 100% of Ultimate Net Loss paid (or offset) by the Reinsurer, plus
<PAGE> 8
8
(4) the Cumulative Experience Account Investment Credit.
The Reinsurance Premium, and Additional Premium, if any, shall be
credited to the Experience Account on the day said monies are received
by the Reinsurer's designated bank, or credited to the Funds Withheld
Balance in accordance with the article entitled "FUNDS WITHHELD", as
the case may be.
The Ultimate Net Loss due from the Reinsurer shall be charged against
the Experience Account on the day said monies are received by the
Reinsured's designated bank, or offset against the Funds Withheld
Balance in accordance with the article entitled "FUNDS WITHHELD", as
the case may be, and further subject to the article entitled "REPORTS
AND REMITTANCES".
For the purpose of calculating the balance of the Experience Account,
the Reinsurer's Margin shall be deemed to be deducted in proportion to
and at the same time as the crediting to the Experience Account of the
Reinsurance Premium.
The Experience Account investment credit (the "EXPERIENCE ACCOUNT
INVESTMENT CREDIT") for each calendar year shall equal the average
daily balance of the Experience Account for that calendar year (or
portion thereof), determined as if the Reinsurance Premium and
Additional Premium, if any, as finally computed were paid on January 1,
1997, multiplied by 7% (or the pro-rata portion thereof). The
cumulative Experience Account Investment Credit (the "CUMULATIVE
EXPERIENCE ACCOUNT INVESTMENT CREDIT") shall be equal to the sum of the
Experience Account Investment Credits for each calendar year, or
portion thereof, since the Effective Date of this Agreement.
ARTICLE 10 - REINSURER'S MARGIN
The Reinsurer's margin (the "REINSURER'S MARGIN") shall be equal to 7.0% of the
Reinsurance Premium payable under this Agreement, payable in equal quarterly
installments in advance on the first day of each calendar quarter.
ARTICLE 11 - FUNDS WITHHELD
Subject to the terms herein, the Reinsured shall retain the Reinsurance Premium
and Additional Premium, if any, due hereunder on a funds withheld basis,
provided however, that the Reinsurer's Margin shall be paid in cash to the
Reinsurer and shall not be affected by the terms of this "Funds Withheld"
article. The amount of such withheld Reinsurance Premium, net of Reinsurer's
Margin, and Additional Premium, if any, shall be called "FUNDS WITHHELD". In
consideration of the Reinsurer agreeing to the Funds Withheld, the Reinsured
agrees (i) to calculate a notional Funds Withheld account from the Effective
Date of this Agreement until there is a complete and final release of all of the
Reinsurer's obligations to the Reinsured under this Agreement and (ii) that the
Funds Withheld Balance may be set off by the Reinsurer against liability of any
nature whatsoever (whether then contingent, due and payable, or in the future
becoming due) that the Reinsurer may then have, or in the future may have under
this Agreement and (iii) that such
<PAGE> 9
9
setoff shall occur as a condition precedent to any payments by the Reinsurer
hereunder.
The balance of the Funds Withheld account (the "FUNDS WITHHELD BALANCE") as of
any December 31 shall be defined as:
(1) 100% of the Reinsurance Premium and Additional Premium, if any, due
hereunder, less
(2) the Reinsurer's Margin paid to the Reinsurer, less
(3) 100% of Ultimate Net Loss paid (or offset) by the Reinsurer, plus
(4) the Cumulative Funds Withheld Investment Credit.
The Reinsurance Premium, and Additional Premium, if any, shall be credited to
the Funds Withheld Balance on the date such monies are payable.
The Ultimate Net Loss due from the Reinsurer shall be charged against the Funds
Withheld Balance on the date such monies are due and further subject to article
entitled "REPORTS AND REMITTANCES".
For the purpose of calculating the balance of the Funds Withheld account, the
Reinsurer's Margin shall be deemed to be deducted in proportion to and at the
same time as the crediting to the Funds Withheld account of the Reinsurance
Premium.
The Funds Withheld investment credit (the "FUNDS WITHHELD INVESTMENT CREDIT")
for each calendar year shall equal the average daily balance of the Funds
Withheld account for that calendar year (or portion thereof), determined as if
the Reinsurance Premium and Additional Premium, if any, as finally computed was
paid on January 1, 1997, multiplied by 9% (or the pro-rata portion thereof). The
cumulative Funds Withheld Investment Credit (the "CUMULATIVE FUNDS WITHHELD
INVESTMENT CREDIT") shall be equal to sum of the Funds Withheld Investment
Credits for each calendar year, or portion thereof, since the Effective Date of
this Agreement.
At the Reinsurer's option, the Reinsured promises to pay to the Reinsurer the
Funds Withheld Balance immediately upon the sooner of: 1) commutation of this
Agreement, 2) an Event of Default, or 3) December 31, 2011. The Reinsured shall
not have the right to prepay all or a part of the Funds Withheld Balance without
the Reinsurer's express written consent.
The following shall be defined as "EVENTS OF DEFAULT" and shall cause the whole
of the Funds Withheld Balance to, upon demand of the Reinsurer, become
immediately due and payable, together with all accrued interest and other unpaid
sums owing in relation thereto.
<PAGE> 10
10
(1) Payment Defaults
The Reinsured fails to make any payment under this Agreement when due
and in the manner therein provided, except where the Reinsurer receives
the overdue payment within fifteen business days of the non-payment;
(2) Executions
Creditors attach or take possession of or distress, execution,
sequestration, seizure, attachment or other equivalent or analogous
process is levied or enforced upon or sued out against any material
amount of the Reinsured's assets; or
(3) Insolvency
The Reinsured commences a proceeding or proceedings are commenced
against it seeking dissolution, winding-up, liquidation,
administration, reorganization, suspension or compromise of payments or
other relief under any applicable bankruptcy, insolvency or other
similar law or seeking the appointment of an administrator or a
trustee, receiver, manager, receiver-manager, liquidator, custodian,
curator or other similar official of it or any substantial part of the
Reinsured's assets, or the Reinsured consents to any such relief
(including any bankruptcy petition) or appointment in involuntary
proceedings taken against it, or makes a bulk sale of its assets or a
general assignment or proposal for the benefit of creditors, or fails
or admits its inability to pay its debts as they become due, or
suspends or ceases or threatens to suspend or cease carrying on
business; or it takes any action in furtherance of any of the
foregoing.
ARTICLE 12 - COMMUTATION
(APPLICABLE TO CENTRE RE'S PARTICIPATION ONLY)
Subject to the terms of this article, the Reinsured may, at its sole option,
commute this Agreement at any December 31, beginning on December 31, 2001,
subject to ninety (90) days prior written notice by the Reinsured to the
Reinsurer by registered or certified mail, provided that as a condition
precedent to this right of commutation the Reinsured commutes all prior
reinsurance agreements in existence between the Reinsurer and the Reinsured at
such date. Such prior reinsurance agreements consist of Coinsured Aggregate
Excess of Loss Agreements incepting on January 1, 1994, January 1, 1995, and
January 1, 1996.
If the Reinsured elects to commute this Agreement, the Reinsured shall pay to
the Reinsurer as a condition precedent to the commutation the Funds Withheld
Balance as of the date of commutation of this Agreement and the Reinsurer shall
pay to the Reinsured the following amounts within sixty (60) business days of
the date of commutation:
<PAGE> 11
11
(1) Commuted Value of Ceded Unpaid Ultimate Net Loss
If, at the time of commutation, the Ceded Unpaid Ultimate Net Loss is less than
or equal to the balance in the Experience Account, the Reinsurer agrees to pay
all Ceded Unpaid Ultimate Net Loss at the amount valued by the Reinsured.
If, at the time of commutation, the Ceded Unpaid Ultimate Net Loss is greater
than the balance in the Experience Account, the Ceded Unpaid Ultimate Net Loss
shall be commuted at a present value amount to be mutually agreed. If the
present value amount of the Ceded Unpaid Ultimate Net Loss cannot be mutually
agreed by the Reinsured and the Reinsurer, then a mutually acceptable
independent third party actuary shall be called upon to make an independent
estimation of the present value amount of the Ceded Unpaid Ultimate Net Loss
(the cost of which shall be shared equally by the Reinsured and Reinsurer). If
the actuary's estimation is acceptable to both the Reinsurer and the Reinsured,
then this Agreement shall be commuted at the value as estimated by the actuary.
If the actuary's value is unacceptable to either the Reinsured or the Reinsurer,
or if the parties cannot agree on the selection of the actuary, then the
Agreement will not be commuted at that time.
(2) Premium Refund
Upon commutation under (1) above, the Reinsurer shall pay to the Reinsured a
"PREMIUM REFUND" equal to the positive balance, if any, of the Experience
Account after deducting the value of the commuted Ceded Unpaid Ultimate Net Loss
as per (1) above.
Payment of the Ceded Unpaid Ultimate Net Loss and Premium Refund, if any, by the
Reinsurer as described above shall constitute a complete and final release of
the Reinsurer in respect of any and all of the Reinsurer's obligations of any
nature whatsoever to the Reinsured under or related to this Agreement.
ARTICLE 13 - REPORTS AND REMITTANCES
1. The Reinsured shall furnish to the Reinsurer within fifteen (15) days prior
to the close of the calendar quarter an estimate of the amount of Ultimate
Net Loss ceded under this Agreement as of the close of that calendar
quarter, including a separate estimate of the amount of Ultimate Net Loss
incurred from Clash losses.
2. The Reinsured shall furnish to the Reinsurer within thirty (30) days after
the close of each calendar quarter:
(a) quarterly account of Subject Earned Premium segregated by line of
business (and for the total of all lines).
(b) quarterly accounts of paid and unpaid Ultimate Net Loss segregated by
line of business (and for the total of all lines of business).
(c) a reconciliation of the Funds Withheld Balance from inception to the
close of the most
<PAGE> 12
12
recent preceding calendar quarter.
3. The Reinsured shall furnish to the Reinsurer within thirty (30) days after
the end of each calendar quarter, quarterly accounts of paid Ultimate Net
Loss ceded under this Agreement which are due to be paid by the Reinsurer to
the Reinsured. As respects the Funds Withheld Balance, Ultimate Net Loss
amounts shall be deemed to be paid as of the date the Reinsurer agrees to
the amount to be paid and such agreement shall be made within sixty (60)
days after receipt of this account.
4. The Reinsured shall furnish to the Reinsurer within one hundred twenty (120)
days after the close of each calendar year annual paid projections of
Ultimate Net Loss, including Allocated Loss Adjustment Expense, segregated
by line of business.
5. The Reinsurer shall furnish to the Reinsured within thirty (30) days after
the close of each quarter a reconciliation of the Experience Account from
inception to the close of the most recent preceding calendar quarter.
6. All amounts due and payable under this Agreement shall be remitted directly
by wire transfer between the Reinsured and the Reinsurer with notice to the
Intermediary, unless such amounts are withheld by the Reinsured in
accordance with the Funds Withheld provision of this Agreement.
7. Any late payments by either party shall accrue interest at a rate equal to
the greater of 1% per month, compounded semi-annually, or the yield on the
one year United States Treasury Bill existent on the first business day
after the previous January 1, as published in the Wall Street Journal, plus
250 basis points.
ARTICLE 14 - TAXES
The Reinsured shall pay all taxes of any nature associated with this Agreement
and undertakes not to claim any deduction of the premium hereon when making
Canadian tax returns or when making tax returns, other than Income or Profits
tax returns, to any State or Territory of the United States of America or the
District of Columbia. Provided, however, that this Article shall not impose any
liability on the Reinsured for any income, capital gains, profits or other
similar taxes payable by the Reinsurer in respect of its operations or this
Agreement.
ARTICLE 15 - COVENANTS OF THE REINSURED
The Reinsured agrees not to change claims handling procedures, loss reserving
process, levels of ceding commissions in its underlying contracts, or the levels
of reinsurance protection in any manner from that in effect at the inception of
this Agreement which materially affects this Agreement or the obligations of the
parties hereunder, unless the Reinsured has received the prior written approval
of the Reinsurer to such changes, such approval not to be unreasonably withheld.
In the event that the Reinsured does not adhere to these Covenants, the
Reinsurer shall have the
<PAGE> 13
13
right to immediately cancel this Agreement by mailing the Reinsured a written
notice of cancellation and the remaining unpaid Total Aggregate Limit,
notwithstanding any provision to the contrary contained herein, shall be
immediately reduced to an amount equal to the positive balance in the Experience
Account (or zero if the Experience Account Balance is negative) as of the date
of cancellation. The mailing of such notice shall be sufficient notice and the
effective date of cancellation shall be the date the notice of cancellation was
posted.
In the event that the Reinsurer learns about a violation of these Covenants
after the Expiration Date of this Agreement, the remaining unpaid Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall be reduced to an amount equal to the positive balance in the Experience
Account (or zero if the Experience Account Balance is negative) upon written
notice by the Reinsurer to the Reinsured by registered or certified mail.
Notwithstanding the foregoing, the remedy to the Reinsurer in the event of a
breach by the Reinsured of any of the foregoing covenants may not be invoked
unless the Reinsurer is called upon to pay Ultimate Net Loss under this
Agreement which is in excess of the Funds Withheld Balance.
ARTICLE 16 - DEFINITIONS
All words and phrases that have a capitalized initial letter in this Agreement
have a special meaning which is either introduced in certain Articles or which
is defined below and which shall include the plural as well as the singular.
"AGREEMENT" means this agreement as the same may be amended from time to time in
accordance with the terms hereof and all instruments supplemental hereto or in
amendment or confirmation hereof; additionally, the expressions "hereunder",
"herein", "hereof", "hereto", "above", "below" and similar expressions used in
any paragraph, subparagraph, section or article of this Agreement shall refer to
this Agreement and not to that paragraph, subparagraph, section or article only,
unless otherwise expressly provided.
"CEDED UNPAID ULTIMATE NET LOSS" shall mean the cumulative Ultimate Net Loss
ceded under this Agreement by the Reinsured from the Effective Date less
cumulative Ultimate Net Loss paid (or offset) under this Agreement by the
Reinsurer to the Reinsured from the Effective Date.
"SUBJECT EARNED PREMIUM" shall mean gross premiums earned on all casualty
business in-force, written or renewed by the Reinsured during the Term of this
Agreement less return premiums less premiums ceded for all reinsurance which
would inure to the benefit of the Reinsurer under this Agreement. For purposes
of this Agreement, the projected Subject Earned Premium is equal to $200
million.
"CLASH" loss shall mean the Reinsured's Ultimate Net Loss, as defined herein,
that is triggered by clash losses as classified by the Reinsured in accordance
with the Reinsured's underwriting guidelines.
<PAGE> 14
14
ARTICLE 17 - ULTIMATE NET LOSS
"ULTIMATE NET LOSS" shall mean the actual loss incurred by the Reinsured and
Allocated Loss Adjustment Expense ("ALAE") on Business Covered on the
Reinsured's Net Retained Lines, and shall include 80% of the amounts of any
Extra Contractual Obligations and 80% of the amounts of any Excess of Original
Policy Limits Loss after making deductions for all recoveries, salvages,
subrogations and all claims on inuring reinsurance, whether collectible or not.
ALAE shall mean all legal expenses and other expenses (including interest
accruing before and/or after entry of judgment) incurred by the Reinsured in
connection with the investigation, adjustment, settlement or litigation of
claims or losses, including salaries and expenses of the Reinsured's field
employees while adjusting such claims or losses and expenses of the Reinsured's
officials incurred in connection with claims or losses. However, salaries of the
Reinsured's officials or normal overhead charges such as rent, postal, lighting,
cleaning, heating, etc. shall not be included.
All salvages, recoveries or payments recovered or received subsequent to a loss
settlement under this Agreement shall be applied as if recovered or received
prior to the aforesaid settlement and all necessary adjustments shall be made by
the parties hereto, provided always that nothing in this clause shall be
construed to mean that Ultimate Net Loss under this Agreement is not recoverable
until the Reinsured's Ultimate Net Loss has been ascertained.
The Ultimate Net Loss, as determined by the Reinsured, is subject to agreement
by the Reinsurer. If the Reinsurer disagrees with the Ultimate Net Loss
determined by the Reinsured and the Reinsurer is called upon to pay Ultimate Net
Loss under this Agreement, a mutually agreed upon independent national actuarial
firm shall be engaged to evaluate the Ultimate Net Loss covered under this
Agreement and such evaluation shall be subject to the confines of the Ultimate
Net Loss determined by the Reinsured and the Ultimate Net Loss determined by the
Reinsurer and shall be binding. Such cost to be shared equally by the Reinsured
and the Reinsurer. If the parties fail to agree on the selection of an
independent national actuarial firm each of them shall name two, of whom the
other shall decline one, and the decision shall be made by drawing lots.
For the purposes of this Agreement, the maximum amount that any one loss
occurrence from business underwritten by the Reinsured on behalf of Duncanson &
Holt (a subsidiary of UNUM Corp., Portland, Maine) may contribute to the
Ultimate Net Loss shall be equal to $10 million.
ARTICLE 18 - NET RETAINED LINES
This Agreement applies only to that portion of any policy which the Reinsured
retains net for its own account, and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in excess of the
Retentions, only loss or losses in respect of that portion of any policy which
the Reinsured retains net for its own account shall be included.
<PAGE> 15
15
The amount of the Reinsurer's liability hereunder in respect of any loss or
losses shall not be increased by reason of the inability of the Reinsured to
collect from any other reinsurer(s), whether specific or general, any amounts
which may have become due from such reinsurer(s), whether such inability arises
from the insolvency of such other reinsurer(s) or otherwise.
ARTICLE 19 - RIGHT OF OFFSET
The Reinsured and the Reinsurer may offset any balance or amount due from one
party to the other under this Agreement or any other contract heretofore or
hereafter entered into between the Reinsured and the Reinsurer, whether acting
as assuming reinsurer or ceding company or in any other capacity.
In extension and not in limitation to the above, the Reinsurer shall have an
absolute right to offset any amounts due to the Reinsured against the Funds
Withheld Balance. In the event that this right of offset between the Reinsured
and the Reinsurer is specifically disallowed or judged to be unenforceable by
any court of competent jurisdiction, arbitration panel or regulatory body then
all amounts in the Funds Withheld Balance shall immediately become due and
payable in full to the Reinsurer by the Reinsured. If the Funds Withheld Balance
is not remitted to the Reinsurer within fifteen (15) days, the Reinsurer shall
have the option to immediately cancel this Agreement by mailing the Reinsured a
written notice of cancellation and the remaining unpaid Total Aggregate Limit,
notwithstanding any provision to the contrary contained herein, shall be
immediately reduced to an amount equal to the positive balance in the Experience
Account (or zero if the Experience Account Balance is negative) as of the date
of cancellation. The mailing of such notice shall be sufficient notice and the
effective date of cancellation shall be the date the notice of cancellation was
posted.
In the event that the Reinsured fails to remit to the Reinsurer the Funds
Withheld Balance that is due and payable in accordance with the provisions in
this article after the Expiration Date of this Agreement within 15 days of the
date such payment is due, the Reinsurer shall notify the Reinsured in writing
via registered mail of the overdue amounts. In the event that the Reinsured does
not remit the overdue amounts to the Reinsurer within 15 days of receiving such
notification from the Reinsurer, the remaining unpaid Total Aggregate Limit,
notwithstanding any provision to the contrary contained herein, shall be
immediately reduced to an amount equal to the positive balance in the Experience
Account (or zero if the Experience Account Balance is negative) without further
notice.
ARTICLE 20 - ERRORS AND OMISSIONS
Any omission or error by either party to this Agreement will not relieve either
party of liability hereunder, provided such act, omission, or error is not
prejudicial to the other party and is rectified promptly upon discovery by the
responsible party.
<PAGE> 16
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ARTICLE 21 - CURRENCY
The provisions of this Agreement involving dollar designated amounts are
expressed in United States currency and all payments shall be made in this
currency.
ARTICLE 22 - EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall indemnify the Reinsured within the limits hereof, where the
Ultimate Net Loss includes 80% of any Extra Contractual Obligations.
"EXTRA CONTRACTUAL OBLIGATIONS" 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 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 in the preparation or prosecution of
an appeal consequent upon such action.
The date on which any 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.
However, this Article shall not apply and there shall be no recovery hereunder
where the loss has been incurred due to the fraud by a member of the Board of
Directors, a corporate officer, or a supervisory employee of the Reinsured
acting individually or collectively or in collusion with a member of the Board
of Directors, a corporate officer, supervisory employee or partner of any other
corporation, partnership, or organization involved in the defense or settlement
of a claim on behalf of the Reinsured.
ARTICLE 23 - EXCESS OF ORIGINAL POLICY LIMITS LOSS
This Agreement shall indemnify the Reinsured, within the limits hereof, where
the Ultimate Net Loss includes 80% of any Excess of Original Policy Limits Loss.
"EXCESS OF ORIGINAL POLICY LIMITS LOSS" shall mean any loss of the Reinsured 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 in the preparation or prosecution of an appeal
consequent upon such action.
<PAGE> 17
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However, this Article shall not apply and there shall be no recovery hereunder
where the loss has been incurred due to the fraud by a member of the Board of
Directors, a corporate officer, or a supervisory employee of the Reinsured
acting individually or collectively or in collusion with a member of the Board
of Directors, a corporate officer, supervisory employee or partner of any other
corporation, partnership, or organization involved in the defense or settlement
of a claim on behalf of the Reinsured.
For the purposes 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 24 - ARBITRATION
Any dispute arising out of the interpretation, performance or breach of this
Agreement, including the formation or validity thereof, shall be submitted for
decision to a panel of three arbitrators. Notice requesting arbitration must be
in writing and sent certified or registered mail, return receipt requested.
One arbitrator shall be chosen by each party and the two arbitrators shall,
before instituting the hearing, choose an impartial third arbitrator (the
"Umpire") who shall preside at the hearing. If either party fails to appoint its
arbitrator within thirty (30) days after being requested to do so by the other
party, the latter, after ten (10) days notice by certified or registered mail of
its intention to do so, may appoint the second arbitrator.
If the two arbitrators are unable to agree upon the Umpire within thirty (30)
days of their appointment, the two arbitrators shall request the American
Arbitration Association ("AAA") to provide a list of possible Umpires with the
qualifications set forth in this Article and the parties shall then mutually
agree upon an Umpire from this list. If the parties are unable to agree upon the
Umpire within thirty (30) days of the receipt of the AAA list or if the AAA
fails to provide such a list within thirty (30) days of the request, either
party may apply to the United States Federal Court for the Southern District of
New York to appoint an Umpire with those qualifications. The Umpire shall
promptly notify in writing all parties to the arbitration of his selection.
All arbitrators shall be disinterested active or former executive officers of
insurance or reinsurance companies or Underwriters at Lloyd's of London.
Within thirty (30) days after notice of appointment of all arbitrators, the
panel shall meet and determine timely periods for briefs, discovery procedures
and schedules for hearings.
The panel shall be relieved of all judicial formality and shall not be bound by
the strict rules of procedure and evidence. Unless the panel agrees otherwise,
arbitration shall take place in New York, New York, but the venue may be changed
when deemed by the panel to be in the best interest of the arbitration
proceeding. Insofar as the arbitration panel looks to substantive law, it shall
consider the law of the State of New York. The decision of any two arbitrators
when rendered in writing shall be final and binding. The panel is empowered to
grant interim relief as
<PAGE> 18
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it may deem appropriate.
To the extent, and only to the extent, that the provisions of this Agreement are
ambiguous or unclear, the panel shall make its decision considering the custom
and practice of the applicable insurance and reinsurance business. The panel
shall render its decision within sixty (60) days following the termination of
hearings, which decision shall be in writing, stating the reasons thereof.
Judgment upon the award may be entered in any court having jurisdiction thereof.
Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the third arbitrator. The
remaining costs of the arbitration shall be allocated by the panel. The panel
may, at its discretion, award such further costs and expenses as it considers
appropriate, including but not limited to attorneys fees, to the extent
permitted by law.
ARTICLE 25 - ACCESS TO RECORDS
The Reinsurer or its duly appointed representatives shall have free access to
the books, records and papers of the Reinsured or its agents at all reasonable
times during the continuance of this Agreement or any liability hereunder, for
the purpose of obtaining information concerning this Agreement or the subject
matter thereof.
ARTICLE 26 - INSOLVENCY
In the event of the insolvency of the Reinsured, reinsurance under this
Agreement shall be payable by the Reinsurer on the basis of the liability of the
Reinsured under Policy or Policies reinsured without diminution because of the
insolvency of the Reinsured, to the Reinsured or to its liquidator, receiver, or
statutory successor except as provided by Section 4118(a) of the New York
Insurance Law or except when the Agreement specifically provides another payee
of such reinsurance in the event of the insolvency of the Reinsured and when the
Reinsurer with the consent of the direct insured or insureds has assumed such
Policy obligations of the Reinsured as direct obligations of the Reinsurer to
the payees under such Policies and in substitution for the obligations of the
Reinsured to such payees.
It is agreed, however, that the liquidator or receiver or statutory successor of
the insolvent Reinsured shall give written notice to the Reinsurer of the
pendency of a claim against the insolvent Reinsured on the Policy or Policies
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding when
such claim is to be adjudicated, any defense or defenses which it may deem
available to the Reinsured or its liquidator or receiver or statutory successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to court
approval, against the insolvent Reinsured as part of the expense of liquidation
to the extent of a proportionate share of the benefit which may accrue to the
Reinsured solely as a result of the defense undertaken by the Reinsurer.
When two or more Reinsurers are involved in the same claim and a majority in
interest elect to
<PAGE> 19
19
interpose defense to such claim, the expense shall be apportioned in accordance
with the terms of this Agreement as though such expense had been incurred by the
insolvent Reinsured.
Should any party hereto be placed in rehabilitation or liquidation or should a
rehabilitator, liquidator, receiver, conservator or other person or entity of
similar capacity be appointed as respects such party, all amounts due any of the
parties hereto whether by reason of premiums, losses or otherwise under this
Agreement or any other contract(s) of reinsurance heretofore or hereafter
entered into between the parties (whether or not any such contract(s) be assumed
or ceded) shall at all times be subject to the right of offset at any time and
from time to time, and upon the exercise of same, only the net balance shall be
due and payable in accordance with Section 7427 of the Insurance Law of the
State of New York to the extent such statute or any other applicable law,
statute or regulation governing such offset shall apply.
ARTICLE 27 -GOVERNING LAW
This Agreement shall be interpreted and governed by the laws of the State of New
York without regard to its principles of choice of law.
ARTICLE 28 - SERVICE OF SUIT
(This Article only applies to reinsurers domiciled outside of the United States
and/or unauthorized in any state, territory, or district of the United States
having jurisdiction over the Reinsured).
It is agreed that in the event of the failure of the Reinsurer to pay any amount
claimed to be due hereunder or to perform any other obligation under the
Agreement, the Reinsurer, 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 Willkie
Farr and Gallagher, One Citicorp Center, 47th Floor, New York, New York, 10022,
and that in any suit instituted, 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.
<PAGE> 20
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Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Reinsured or any beneficiary hereunder arising out of this Agreement of
reinsurance, 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.
The foregoing is not intended to conflict with or override the obligation of the
parties hereto to arbitrate their disputes as provided in the Arbitration
clause.
ARTICLE 29 - AMENDMENTS AND ALTERATIONS
This Agreement may be changed, altered or amended as the parties may agree,
provided such change, alteration or amendment is evidenced in writing or by
endorsement executed by the Reinsured and the Reinsurer.
ARTICLE 30 - ASSIGNMENT
Except as expressly provided otherwise in the article entitled "INSOLVENCY",
neither party may assign or transfer any rights, interests or obligations under
this Agreement to any person or entity without the written consent of the other
party and any effort to so assign such rights, interests or obligations without
the consent of the other party shall be null and void.
ARTICLE 31 - NO THIRD PARTY RIGHTS
This Agreement is solely between the Reinsured and the Reinsurer, and in no
instance shall any other party have any rights under this Agreement except as
expressly provided otherwise in the Insolvency Article.
ARTICLE 32 - NO IMPLIED WAIVER
The failure of any party to enforce any of the provisions herein shall not be
construed to be a waiver of the right of such party to enforce any such
provision.
ARTICLE 33 - SECURITY
If the Reinsurer's surplus falls below $40 million, the Reinsured may require
the Reinsurer to post a "clean", unconditional, evergreen and irrevocable Letter
of Credit or to provide a reinsurance trust fund issued by a bank acceptable to
the Reinsured in favor of the Reinsured in an amount up to the excess of the
Ceded Unpaid Ultimate Net Loss over the Funds Withheld Balance.
<PAGE> 21
21
ARTICLE 34 - MERGERS AND ACQUISITIONS
It is understood and agreed that if at any time during the Term of this
Agreement the Reinsured acquires (by acquisition, reinsurance of, or renewal of)
any other insurance or reinsurance company or individual or groups of individual
book(s) of business of any other insurance or reinsurance company that comprises
not more than ten (10) percent (whether individually or in the aggregate with
respect to related transactions or parties) of Subject Earned Premium, such
company or book(s) of business will be covered hereunder, provided that written
notice is given to the Reinsurer of any such newly affiliated company or book(s)
of business as soon as practicable with full particulars as to how such
affiliation is likely to affect this Agreement. If such acquisition, as defined
above, comprises more than ten (10) percent (whether individually or in the
aggregate with respect to related transactions or parties) of Subject Earned
Premium, such company or book(s) of business will be covered hereunder provided
that prior written notice of such transaction is given to the Reinsurer with
full particulars as to how such transaction is likely to affect this Agreement,
and the Reinsurer agrees in its sole discretion in writing that this Agreement
applies to such acquired insurance or reinsurance company or book(s) of
business.
In the event that the Reinsured merges with another company at any time during
the Term of this Agreement, this Agreement shall survive such merger and the
surviving entity shall be covered hereunder provided that prior written notice
of such transaction is given to the Reinsurer with full particulars as to how
such transaction is likely to affect this Agreement, and the Reinsurer agrees in
its sole discretion in writing that this Agreement applies to such surviving
entity.
ARTICLE 35 - INTERMEDIARY
Balis & Co., Inc. is hereby recognized as the Intermediary negotiating this
Agreement for all business hereunder. All communications (including but not
limited to notices and statements) relating to this Agreement shall be
transmitted to the Reinsured through Balis & Co., Inc., Two Logan Square,
Philadelphia, PA 19103-2772. All amounts due under this Agreement (including but
not limited to Reinsurance Premium and Ultimate Net Loss) shall be remitted
directly by wire transfer between the Reinsured and the Reinsurer with notice to
the Intermediary.
<PAGE> 22
1
SECOND COINSURED AGGREGATE EXCESS OF LOSS REINSURANCE
AGREEMENT
(hereinafter referred to as the "AGREEMENT")
In consideration of the mutual covenants hereinafter contained and upon the
terms and conditions hereinafter set forth
THE SUBSCRIBING REINSURERS EXECUTING THE INTERESTS &
LIABILITIES CONTRACTS ATTACHED TO AND FORMING A PART
OF THIS AGREEMENT
(hereinafter referred to as the "REINSURER")
does hereby indemnify, as herein provided and specified,
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "REINSURED")
<PAGE> 23
2
ARTICLE AND PAGE NUMBER
1. BUSINESS COVERED 3
2. TERM 3
3. TERRITORY 4
4. RETENTION, REINSURER'S SHARE, AND LIMIT 4
5. OTHER REINSURANCE 6
6. LOSS SETTLEMENTS 6
7. REINSURANCE PREMIUM 7
8. REINSURER'S MARGIN 7
9. FUNDS WITHHELD 7
10. COMMUTATION 9
11. REPORTS AND REMITTANCES 10
12. TAXES 11
13. COVENANTS OF THE REINSURED 11
14. DEFINITIONS 12
15. ULTIMATE NET LOSS 12
16. NET RETAINED LINES 13
17. RIGHT OF OFFSET 13
18. ERRORS AND OMISSIONS 14
19. CURRENCY 14
20. EXTRA CONTRACTUAL OBLIGATIONS 14
21. EXCESS OF ORIGINAL POLICY LIMITS LOSS 15
22. ARBITRATION 16
23. ACCESS TO RECORDS 17
24. INSOLVENCY 17
25. GOVERNING LAW 18
26. SERVICE OF SUIT 18
27. AMENDMENTS AND ALTERATIONS 19
28. ASSIGNMENT 19
29. NO THIRD PARTY RIGHTS 19
30. NO IMPLIED WAIVER 19
31. SECURITY 19
32. MERGERS AND ACQUISITIONS 20
33. INTERMEDIARY 20
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3
ARTICLE 1 - BUSINESS COVERED
In consideration of the premium to be paid by the Reinsured and subject to the
terms, conditions, exclusions and limits hereafter set forth, the Reinsurer
agrees to indemnify the Reinsured on an aggregate excess of loss basis for the
Reinsurer's share of Ultimate Net Loss that the Reinsured has incurred in excess
of the retention as a result of losses occurring during the Term of this
Agreement as respects the Reinsured's contracts, agreements and other evidence
of reinsurance in respect of all casualty reinsurance assumed business entered
into by the Reinsured (the "POLICIES"), but specifically excluding the following
business:
- - finite risk reinsurance
- - pollution liability when written by the Reinsured as a named peril, but
excluding first party cleanup
- - policyholder dividends
- - nuclear incidents: in accordance with the attached Nuclear Incident
Exclusion Clauses:
a. Nuclear Incident Exclusion Clause - Liability - Reinsurance
- U.S.A. and Canada;
b. Nuclear Incident Exclusion Clause - Physical Damage-
Reinsurance - U.S.A. and Canada;
c. Nuclear Incident Exclusion Clause - Physical Damage and
Liability (Boiler and Machinery Policies) - Reinsurance -
U.S.A. and Canada;
d. Nuclear Energy Risks Exclusion Clause - Reinsurance -
Worldwide excluding U.S.A. and Canada.
- - war risks (in accordance with the attached War Risk Exclusion Clause)
- - insolvency and guarantee funds (in accordance with the attached
Insolvency And Guarantee Funds Exclusion Clause)
- - residual market assessments, second injury fund assessments,
rehabilitation assessments, and any other similar type assessments
- - financial guarantee business
- - loss portfolio transfers
ARTICLE 2 - TERM
The term (the "TERM") of this Agreement shall be the period commencing at 12:01
a.m., Eastern Standard Time, January 1, 1997 (the "EFFECTIVE DATE") through to
and including the earlier of 11:59 p.m., Eastern Standard Time, December 31,
1997 or the date on which this Agreement is otherwise canceled as provided for
below (the "EXPIRATION DATE").
This Agreement may not be canceled by the Reinsured. The Reinsurer shall have
the right to
<PAGE> 25
4
cancel this Agreement as provided for in the articles entitled "COVENANTS OF THE
REINSURED", "MERGERS AND ACQUISITIONS", or "RIGHT OF OFFSET" and as provided for
below.
In the event that the Reinsured fails to pay the Reinsurance Premium within 15
days of the date such premium is due, the Reinsurer shall notify the Reinsured
in writing via registered mail of the overdue amounts. In the event that the
Reinsured does not remit the overdue amounts to the Reinsurer within 15 days of
receiving such notification from the Reinsurer, the Reinsurer shall have the
right to immediately cancel this Agreement by mailing the Reinsured a written
notice of cancellation and the Total Aggregate Limit, notwithstanding any
provision to the contrary contained herein, shall be immediately reduced to an
amount equal to the positive balance in the Funds Withheld account (or zero if
the Funds Withheld Balance is negative) as of the date of cancellation. The
mailing of such notice shall be sufficient notice and the effective date of
cancellation shall be the date the notice of cancellation was posted.
In the event that the Reinsured fails to pay a Reinsurance Premium that is due
after the Expiration Date of this Agreement within 15 days of the date such
premium is due, the Reinsurer shall notify the Reinsured in writing via
registered mail of the overdue amounts. In the event that the Reinsured does not
remit the overdue amounts to the Reinsurer within 15 days of receiving such
notification from the Reinsurer, the Total Aggregate Limit, notwithstanding any
provision to the contrary contained herein, shall immediately and without
further notice be reduced to an amount equal to the positive balance in the
Funds Withheld account (or zero if the Funds Withheld Balance is negative).
ARTICLE 3 - TERRITORY
This Agreement shall apply only to losses occurring in the United States of
America, Canada and Europe.
ARTICLE 4 - RETENTION, REINSURER'S SHARE, AND LIMIT
1) LIMIT A:
The Reinsurer agrees to indemnify the Reinsured for the Reinsurer's Share of the
amount of the Reinsured's aggregate Ultimate Net Loss that is in excess of 67%
of Subject Earned Premium.
The "REINSURER'S SHARE" under Limit A shall be determined as follows:
If the Ultimate Net Loss is less than 67% of Subject Earned Premium,
the Reinsurer's Share under Limit A shall equal zero, otherwise, the
Reinsurer's Share under Limit A shall equal the lesser of (1) "A"
divided by "B" or (2) 100%,
Where:
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"A" is equal to 224.0% of the Reinsurance
Premium paid, and
"B" is equal to the amount of Ultimate Net
Loss in excess of 67% of Subject Earned Premium.
UNDER NO CIRCUMSTANCES SHALL THE REINSURER'S AGGREGATE LIMIT OF LIABILITY FOR
ULTIMATE NET LOSS UNDER THIS LIMIT A EXCEED 224.0% OF THE REINSURANCE PREMIUM
PAID.
2) LIMIT B:
The Reinsurer agrees to indemnify the Reinsured for the Reinsurer's Share of the
amount of the Reinsured's aggregate Ultimate Net Loss that is in excess of 92%
of Subject Earned Premium.
The "REINSURER'S SHARE" under Limit B shall be determined as follows:
If the Ultimate Net Loss is less than 92% of Subject
Earned Premium, the Reinsurer's Share under Limit B shall
equal zero, otherwise, the Reinsurer's Share under Limit B
shall be equal to the lesser of (1) "C" divided by "D" or (2)
"E",
Where:
"C" is equal to $3.0 million; and
"D" is equal to the amount of Ultimate Net
Loss in excess of 92% of Subject Earned Premium; and
"E" is equal to 100% less the Reinsurer's
Share under Limit A calculated above.
UNDER NO CIRCUMSTANCES SHALL THE REINSURER'S AGGREGATE LIMIT OF LIABILITY FOR
ULTIMATE NET LOSS UNDER THIS LIMIT B EXCEED $3.0 MILLION.
3) TOTAL AGGREGATE LIMIT:
Notwithstanding the Reinsurer's obligations under Limit A and Limit B above, the
Reinsurer's maximum aggregate limit of liability for Ultimate Net Loss under
this Agreement shall be subject to a maximum aggregate limit (the "TOTAL
AGGREGATE LIMIT") equal to the lesser of:
<PAGE> 27
6
(1) 224.0% of Reinsurance Premium paid, plus $3 million; or
(2) $38.0 million.
Notwithstanding the foregoing, the Total Aggregate Limit of liability hereunder
is further subject to adjustment as provided for in the articles entitled
"TERM", "COVENANTS OF THE REINSURED", and "RIGHT OF OFFSET".
UNDER NO CIRCUMSTANCES SHALL THE TOTAL LIABILITY OF THE REINSURER UNDER OR
RELATED TO THIS AGREEMENT EXCEED THE TOTAL AGGREGATE LIMIT.
ARTICLE 5 - OTHER REINSURANCE
The Reinsured is hereby granted permission to carry Aggregate Excess of Loss
Reinsurance as specified in the FIRST COINSURED AGGREGATE EXCESS OF LOSS
REINSURANCE AGREEMENT between Centre Reinsurance Company of New York,
Continental Casualty Company, and the Reinsured as attached hereto and coverage
further described as follows:
14% of Subject Earned Premium in excess of 53% of Subject Earned
Premium in the annual aggregate; and
2% of Subject Earned Premium in excess of 90% of Subject Earned Premium
in the annual aggregate,
it being understood and agreed that, for all purposes of this Agreement,
including the calculation of the Reinsurance Premium, the Retention, the Limits,
and the Ultimate Net Loss hereunder, any amounts recoverable thereunder shall be
ignored.
ARTICLE 6 - LOSS SETTLEMENTS
The Reinsurer agrees to pay the Reinsured the amounts of Ultimate Net Loss due
hereunder and paid by the Reinsured (or payable by the Reinsured in case of
insolvency in accordance with the article entitled "INSOLVENCY") quarterly in
arrears and payment will be due within sixty (60) days following receipt and
verification of an account statement submitted by the Reinsured to the
Reinsurer. Ultimate Net Loss payments due by the Reinsurer in accordance with
the provisions herein shall first be paid by way of offset against the Funds
Withheld Balance until such balance is exhausted.
Notwithstanding any provision to the contrary contained herein, and except for
the articles entitled "EXTRA CONTRACTUAL OBLIGATIONS" and "EXCESS OF ORIGINAL
POLICY LIMITS LOSS", coverage under this Agreement is expressly limited to
claims or losses arising under the Reinsured's Policies; provided, however, that
such claims or losses are within the terms, conditions and limitations of the
original policies and within the terms, conditions and limitations of this
Agreement.
<PAGE> 28
7
ARTICLE 7 - REINSURANCE PREMIUM
Subject to the article entitled "FUNDS WITHHELD", the Reinsured shall pay to the
Reinsurer a premium (the "REINSURANCE PREMIUM") equal to 6.25% of the projected
Subject Earned Premium, payable in equal quarterly installments in advance on
the first day of each calendar quarter, subject to a maximum Reinsurance Premium
equal to $15,625,000.
Within thirty (30) days following the end of each calendar quarter the Reinsured
shall make appropriate adjustments for the amount by which 6.25% of the Subject
Earned Premium for that calendar quarter exceeds or is less than the amounts
previously paid by the Reinsured for that calendar quarter.
ARTICLE 8 - REINSURER'S MARGIN
The Reinsurer's margin (the "REINSURER'S MARGIN") shall be equal to 9.0% of the
Reinsurance Premium payable under this Agreement, payable in equal quarterly
installments in advance on the first day of each calendar quarter.
ARTICLE 9 - FUNDS WITHHELD
Subject to the terms herein, the Reinsured shall retain the Reinsurance Premium
due hereunder on a funds withheld basis, provided however that the Reinsurer's
Margin shall be paid in cash to the Reinsurer and shall not be affected by the
terms of this "Funds Withheld" article. The amount of such withheld Reinsurance
Premium, net of Reinsurer's Margin, shall be called "FUNDS WITHHELD". In
consideration of the Reinsurer agreeing to the Funds Withheld, the Reinsured
agrees (i) to calculate a notional Funds Withheld account from the Effective
Date of this Agreement until there is a complete and final release of all of the
Reinsurer's obligations to the Reinsured under this Agreement and (ii) that the
Funds Withheld Balance may be set off by the Reinsurer against liability of any
nature whatsoever (whether then contingent, due and payable, or in the future
becoming due) that the Reinsurer may then have, or in the future may have under
this Agreement and (iii) that such setoff shall occur as a condition precedent
to any payments by the Reinsurer hereunder.
The balance of the Funds Withheld account (the "FUNDS WITHHELD BALANCE") as of
any December 31 shall be defined as:
(1) 100% of the Reinsurance Premium due hereunder, less
(2) the Reinsurer's Margin paid to the Reinsurer, less
(3) 100% of Ultimate Net Loss paid (or offset) by the Reinsurer, plus
(4) the Cumulative Funds Withheld Investment Credit.
The Reinsurance Premium shall be credited to the Funds Withheld Balance on the
date such
<PAGE> 29
8
monies are payable.
The Ultimate Net Loss due from the Reinsurer shall be charged against the Funds
Withheld Balance on the date such monies are due and further subject to the
article entitled "REPORTS AND REMITTANCES".
For the purpose of calculating the balance of the Funds Withheld account, the
Reinsurer's Margin shall be deemed to be deducted in proportion to and at the
same time as the crediting to the Funds Withheld account of the Reinsurance
Premium.
The Funds Withheld investment credit (the "FUNDS WITHHELD INVESTMENT CREDIT")
for each calendar year shall equal the average daily balance of the Funds
Withheld account for that calendar year (or portion thereof), determined as if
the Reinsurance Premium as finally computed was paid on January 1, 1997,
multiplied by 8.5% (or the pro-rata portion thereof). The cumulative Funds
Withheld Investment Credit (the "CUMULATIVE FUNDS WITHHELD INVESTMENT CREDIT")
shall be equal to sum of the Funds Withheld Investment Credits for each calendar
year, or portion thereof, since the Effective Date of this Agreement.
At the Reinsurer's option, the Reinsured promises to pay to the Reinsurer the
Funds Withheld Balance immediately upon the sooner of: 1) commutation of this
Agreement, 2) an Event of Default, or 3) December 31, 2011. The Reinsured shall
not have the right to prepay all or a part of the Funds Withheld Balance without
the Reinsurer's express written consent.
The following shall be defined as "EVENTS OF DEFAULT" and shall cause the whole
of the Funds Withheld Balance to, upon demand of the Reinsurer, become
immediately due and payable, together with all accrued interest and other unpaid
sums owing in relation thereto.
(1) Payment Defaults
The Reinsured fails to make any payment under this Agreement when due
and in the manner therein provided, except where the Reinsurer receives
the overdue payment within fifteen business days of the non-payment;
(2) Executions
Creditors attach or take possession of or distress, execution,
sequestration, seizure, attachment or other equivalent or analogous
process is levied or enforced upon or sued out against any material
amount of the Reinsured's assets; or
<PAGE> 30
9
(3) Insolvency
The Reinsured commences a proceeding or proceedings are commenced
against it seeking dissolution, winding-up, liquidation,
administration, reorganization, suspension or compromise of payments or
other relief under any applicable bankruptcy, insolvency or other
similar law or seeking the appointment of an administrator or a
trustee, receiver, manager, receiver-manager, liquidator, custodian,
curator or other similar official of it or any substantial part of the
Reinsured's assets, or the Reinsured consents to any such relief
(including any bankruptcy petition) or appointment in involuntary
proceedings taken against it, or makes a bulk sale of its assets or a
general assignment or proposal for the benefit of creditors, or fails
or admits its inability to pay its debts as they become due, or
suspends or ceases or threatens to suspend or cease carrying on
business; or it takes any action in furtherance of any of the
foregoing.
ARTICLE 10 - COMMUTATION
Subject to the terms of this article, the Reinsured may, at its sole option,
commute this Agreement at any December 31, beginning on December 31, 2001,
subject to ninety (90) days prior written notice by the Reinsured to the
Reinsurer by registered or certified mail.
If the Reinsured elects to commute this Agreement, the Reinsured shall pay to
the Reinsurer as a condition precedent to the commutation the Funds Withheld
Balance as of the date of commutation of this Agreement and the Reinsurer shall
pay to the Reinsured the following amounts within sixty (60) business days of
the date of commutation:
(1) Commuted Value of Ceded Unpaid Ultimate Net Loss
If, at the time of commutation, the Ceded Unpaid Ultimate Net Loss is less than
or equal to the balance in the Funds Withheld account, the Reinsurer agrees to
pay all Ceded Unpaid Ultimate Net Loss at the amount valued by the Reinsured.
If, at the time of commutation, the Ceded Unpaid Ultimate Net Loss is greater
than the balance in the Funds Withheld account, the Ceded Unpaid Ultimate Net
Loss shall be commuted at a present value amount to be mutually agreed. If the
present value amount of the Ceded Unpaid Ultimate Net Loss cannot be mutually
agreed by the Reinsured and the Reinsurer, then a mutually acceptable
independent third party actuary shall be called upon to make an independent
estimation of the present value amount of the Ceded Unpaid Ultimate Net Loss
(the cost of which shall be shared equally by the Reinsured and Reinsurer). If
the actuary's estimation is acceptable to both the Reinsurer and the Reinsured,
then this Agreement shall be commuted at the value as estimated by the actuary.
If the actuary's value is unacceptable to either the Reinsured or the Reinsurer,
or if the parties cannot agree on the selection of the actuary, then the
Agreement will not be commuted at that time.
<PAGE> 31
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(2) Premium Refund
Upon commutation under (1) above, the Reinsurer shall pay to the Reinsured a
"PREMIUM REFUND" equal to the positive balance, if any, of the Funds Withheld
account after deducting the value of the commuted Ceded Unpaid Ultimate Net Loss
as per (1) above.
Payment of the Ceded Unpaid Ultimate Net Loss by the Reinsurer as described
above shall constitute a complete and final release of the Reinsurer in respect
of any and all of the Reinsurer's obligations of any nature whatsoever to the
Reinsured under or related to this Agreement.
Non-Commute Charge
If the Reinsured does not commute this Agreement on or before December 31, 2002,
the Reinsured shall pay to the Reinsurer each January 1 thereafter, beginning
January 1, 2003, an annual fee (the "Non-Commute Fee") of $100,000 until such
time as this Agreement is commuted.
The Non-Commute Fees shall not be included in the calculation of the Funds
Withheld Balance and shall be retained 100% by the Reinsurer.
ARTICLE 11 - REPORTS AND REMITTANCES
1. The Reinsured shall furnish to the Reinsurer within fifteen (15) days prior
to the close of the calendar quarter an estimate of the amount of Ultimate
Net Loss ceded under this Agreement as of the close of that calendar
quarter.
2. The Reinsured shall furnish to the Reinsurer within thirty (30) days after
the close of each calendar quarter:
(a) quarterly account of Subject Earned Premium segregated by line of
business (and for the total of all lines).
(b) quarterly accounts of paid and unpaid Ultimate Net Loss segregated by
line of business (and for the total of all lines of business).
(c) a reconciliation of the Funds Withheld Balance from inception to the
close of the most recent preceding calendar quarter.
3. The Reinsured shall furnish to the Reinsurer within thirty (30) days after
the end of each calendar quarter, quarterly accounts of paid Ultimate Net
Loss ceded under this Agreement which are due to be paid by the Reinsurer to
the Reinsured. As respects the Funds Withheld Balance, Ultimate Net Loss
amounts shall be deemed to be paid as of the date the Reinsurer agrees to
the amount to be paid and such agreement shall be made within sixty (60)
days after receipt of this account.
<PAGE> 32
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4. The Reinsured shall furnish to the Reinsurer within one hundred twenty (120)
days after the close of each calendar year annual paid projections of
Ultimate Net Loss, including Allocated Loss Adjustment Expense, segregated
by line of business.
5. All amounts due and payable under this Agreement shall be remitted directly
by wire transfer between the Reinsured and the Reinsurer with notice to the
Intermediary, unless such amounts are withheld by the Reinsured in
accordance with the Funds Withheld provision of this Agreement.
6. Any late payments by either party shall accrue interest at a rate equal to
the greater of 1% per month, compounded semi-annually, or the yield on the
one year United States Treasury Bill existent on the first business day
after the previous January 1, as published in the Wall Street Journal, plus
250 basis points.
ARTICLE 12 - TAXES
The Reinsured shall pay all taxes of any nature associated with this Agreement
and undertakes not to claim any deduction of the premium hereon when making
Canadian tax returns or when making tax returns, other than Income or Profits
tax returns, to any State or Territory of the United States of America or the
District of Columbia. Provided, however, that this Article shall not impose any
liability on the Reinsured for any income, capital gains, profits or other
similar taxes payable by the Reinsurer in respect of its operations or this
Agreement.
ARTICLE 13 - COVENANTS OF THE REINSURED
The Reinsured agrees not to change claims handling procedures, loss reserving
process, levels of ceding commissions in its underlying contracts, or the levels
of reinsurance protection in any manner from that in effect at the inception of
this Agreement which materially affects this Agreement or the obligations of the
parties hereunder, unless the Reinsured has received the prior written approval
of the Reinsurer to such changes, such approval not to be unreasonably withheld.
In the event that the Reinsured does not adhere to these Covenants, the
Reinsurer shall have the right to immediately cancel this Agreement by mailing
the Reinsured a written notice of cancellation and the remaining unpaid Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall be immediately reduced to an amount equal to the positive balance in the
Funds Withheld account (or zero if the Funds Withheld Balance is negative) as of
the date of cancellation. The mailing of such notice shall be sufficient notice
and the effective date of cancellation shall be the date the notice of
cancellation was posted.
In the event that the Reinsurer learns about a violation of these Covenants
after the Expiration Date of this Agreement, the remaining unpaid Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall be reduced to an amount equal to the positive balance in the Funds
Withheld account (or zero if the Funds Withheld Balance is negative) upon
<PAGE> 33
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written notice by the Reinsurer to the Reinsured by registered or certified
mail. Notwithstanding the foregoing, the remedy to the Reinsurer in the event of
a breach by the Reinsured of any of the foregoing covenants may not be invoked
unless the Reinsurer is called upon to pay Ultimate Net Loss under this
Agreement which is in excess of the Funds Withheld Balance.
ARTICLE 14 - DEFINITIONS
All words and phrases that have a capitalized initial letter in this Agreement
have a special meaning which is either introduced in certain Articles or which
is defined below and which shall include the plural as well as the singular.
"AGREEMENT" means this agreement as the same may be amended from time to time in
accordance with the terms hereof and all instruments supplemental hereto or in
amendment or confirmation hereof; additionally, the expressions "hereunder",
"herein", "hereof", "hereto", "above", "below" and similar expressions used in
any paragraph, subparagraph, section or article of this Agreement shall refer to
this Agreement and not to that paragraph, subparagraph, section or article only,
unless otherwise expressly provided.
"CEDED UNPAID ULTIMATE NET LOSS" shall mean the cumulative Ultimate Net Loss
ceded under this Agreement by the Reinsured from the Effective Date less
cumulative Ultimate Net Loss paid (or offset) under this Agreement by the
Reinsurer to the Reinsured from the Effective Date.
"SUBJECT EARNED PREMIUM" shall mean gross premiums earned on all casualty
business in-force, written or renewed by the Reinsured during the Term of this
Agreement less return premiums less premiums ceded for all reinsurance which
would inure to the benefit of the Reinsurer under this Agreement. For purposes
of this Agreement, the projected Subject Earned Premium is equal to $200
million.
ARTICLE 15 - ULTIMATE NET LOSS
"ULTIMATE NET LOSS" shall mean the actual loss incurred by the Reinsured and
Allocated Loss Adjustment Expense ("ALAE") on Business Covered on the
Reinsured's Net Retained Lines, and shall include 80% of the amounts of any
Extra Contractual Obligations and 80% of the amounts of any Excess of Original
Policy Limits Loss after making deductions for all recoveries, salvages,
subrogations and all claims on inuring reinsurance, whether collectible or not.
ALAE shall mean all legal expenses and other expenses (including interest
accruing before and/or after entry of judgment) incurred by the Reinsured in
connection with the investigation, adjustment, settlement or litigation of
claims or losses, including salaries and expenses of the Reinsured's field
employees while adjusting such claims or losses and expenses of the Reinsured's
officials incurred in connection with claims or losses. However, salaries of the
Reinsured's officials or normal overhead charges such as rent, postal, lighting,
cleaning, heating, etc. shall not be included.
<PAGE> 34
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All salvages, recoveries or payments recovered or received subsequent to a loss
settlement under this Agreement shall be applied as if recovered or received
prior to the aforesaid settlement and all necessary adjustments shall be made by
the parties hereto, provided always that nothing in this clause shall be
construed to mean that Ultimate Net Loss under this Agreement is not recoverable
until the Reinsured's Ultimate Net Loss has been ascertained.
The Ultimate Net Loss, as determined by the Reinsured, is subject to agreement
by the Reinsurer. If the Reinsurer disagrees with the Ultimate Net Loss
determined by the Reinsured and the Reinsurer is called upon to pay Ultimate Net
Loss under this Agreement, a mutually agreed upon independent national actuarial
firm shall be engaged to evaluate the Ultimate Net Loss covered under this
Agreement and such evaluation shall be subject to the confines of the Ultimate
Net Loss determined by the Reinsured and the Ultimate Net Loss determined by the
Reinsurer and shall be binding. Such cost to be shared equally by the Reinsured
and the Reinsurer. If the parties fail to agree on the selection of an
independent national actuarial firm each of them shall name two, of whom the
other shall decline one, and the decision shall be made by drawing lots.
For the purposes of this Agreement, the maximum amount that any one loss
occurrence from business underwritten by the Reinsured on behalf of Duncanson &
Holt (a subsidiary of UNUM Corp., Portland, Maine) may contribute to the
Ultimate Net Loss shall be equal to $10 million.
ARTICLE 16 - NET RETAINED LINES
This Agreement applies only to that portion of any policy which the Reinsured
retains net for its own account, and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in excess of the
Retentions, only loss or losses in respect of that portion of any policy which
the Reinsured retains net for its own account shall be included.
The amount of the Reinsurer's liability hereunder in respect of any loss or
losses shall not be increased by reason of the inability of the Reinsured to
collect from any other reinsurer(s), whether specific or general, any amounts
which may have become due from such reinsurer(s), whether such inability arises
from the insolvency of such other reinsurer(s) or otherwise.
ARTICLE 17 - RIGHT OF OFFSET
The Reinsured and the Reinsurer may offset any balance or amount due from one
party to the other under this Agreement or any other contract heretofore or
hereafter entered into between the Reinsured and the Reinsurer, whether acting
as assuming reinsurer or ceding company or in any other capacity.
In extension and not in limitation to the above, the Reinsurer shall have an
absolute right to
<PAGE> 35
14
offset any amounts due to the Reinsured against the Funds Withheld Balance. In
the event that this right of offset between the Reinsured and the Reinsurer is
specifically disallowed or judged to be unenforceable by any court of competent
jurisdiction, arbitration panel or regulatory body then all amounts in the Funds
Withheld Balance shall immediately become due and payable in full to the
Reinsurer by the Reinsured. If the Funds Withheld Balance is not remitted to the
Reinsurer within fifteen (15) days, the Reinsurer shall have the option to
immediately cancel this Agreement by mailing the Reinsured a written notice of
cancellation and the remaining unpaid Total Aggregate Limit, notwithstanding any
provision to the contrary contained herein, shall be immediately reduced to an
amount equal to the positive balance in the Funds Withheld account (or zero if
the Funds Withheld Balance is negative) as of the date of cancellation. The
mailing of such notice shall be sufficient notice and the effective date of
cancellation shall be the date the notice of cancellation was posted.
In the event that the Reinsured fails to remit to the Reinsurer the Funds
Withheld Balance that is due and payable in accordance with the provisions in
this article after the Expiration Date of this Agreement within 15 days of the
date such payment is due, the Reinsurer shall notify the Reinsured in writing
via registered mail of the overdue amounts. In the event that the Reinsured does
not remit the overdue amounts to the Reinsurer within 15 days of receiving such
notification from the Reinsurer, the remaining unpaid Total Aggregate Limit,
notwithstanding any provision to the contrary contained herein, shall be
immediately reduced to an amount equal to the positive balance in the Funds
Withheld account (or zero if the Funds Withheld Balance is negative) without
further notice.
ARTICLE 18 - ERRORS AND OMISSIONS
Any omission or error by either party to this Agreement will not relieve either
party of liability hereunder, provided such act, omission, or error is not
prejudicial to the other party and is rectified promptly upon discovery by the
responsible party.
ARTICLE 19 - CURRENCY
The provisions of this Agreement involving dollar designated amounts are
expressed in United States currency and all payments shall be made in this
currency.
ARTICLE 20 - EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall indemnify the Reinsured within the limits hereof, where the
Ultimate Net Loss includes 80% of any Extra Contractual Obligations.
"EXTRA CONTRACTUAL OBLIGATIONS" 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
<PAGE> 36
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Covered hereunder, such liabilities arising because of, but not limited to the
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 in the preparation or prosecution of an appeal consequent
upon such action.
The date on which any 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.
However, this Article shall not apply and there shall be no recovery hereunder
where the loss has been incurred due to the fraud by a member of the Board of
Directors, a corporate officer, or a supervisory employee of the Reinsured
acting individually or collectively or in collusion with a member of the Board
of Directors, a corporate officer, supervisory employee or partner of any other
corporation, partnership, or organization involved in the defense or settlement
of a claim on behalf of the Reinsured.
ARTICLE 21 - EXCESS OF ORIGINAL POLICY LIMITS LOSS
This Agreement shall indemnify the Reinsured, within the limits hereof, where
the Ultimate Net Loss includes 80% of any Excess of Original Policy Limits Loss.
"EXCESS OF ORIGINAL POLICY LIMITS LOSS" shall mean any loss of the Reinsured 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 in the preparation or prosecution of an appeal
consequent upon such action.
However, this Article shall not apply and there shall be no recovery hereunder
where the loss has been incurred due to the fraud by a member of the Board of
Directors, a corporate officer, or a supervisory employee of the Reinsured
acting individually or collectively or in collusion with a member of the Board
of Directors, a corporate officer, supervisory employee or partner of any other
corporation, partnership, or organization involved in the defense or settlement
of a claim on behalf of the Reinsured.
For the purposes 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 22 - ARBITRATION
<PAGE> 37
16
Any dispute arising out of the interpretation, performance or breach of this
Agreement, including the formation or validity thereof, shall be submitted for
decision to a panel of three arbitrators. Notice requesting arbitration must be
in writing and sent certified or registered mail, return receipt requested.
One arbitrator shall be chosen by each party and the two arbitrators shall,
before instituting the hearing, choose an impartial third arbitrator (the
"Umpire") who shall preside at the hearing. If either party fails to appoint its
arbitrator within thirty (30) days after being requested to do so by the other
party, the latter, after ten (10) days notice by certified or registered mail of
its intention to do so, may appoint the second arbitrator.
If the two arbitrators are unable to agree upon the Umpire within thirty (30)
days of their appointment, the two arbitrators shall request the American
Arbitration Association ("AAA") to provide a list of possible Umpires with the
qualifications set forth in this Article and the parties shall then mutually
agree upon an Umpire from this list. If the parties are unable to agree upon the
Umpire within thirty (30) days of the receipt of the AAA list or if the AAA
fails to provide such a list within thirty (30) days of the request, either
party may apply to the United States Federal Court for the Southern District of
New York to appoint an Umpire with those qualifications. The Umpire shall
promptly notify in writing all parties to the arbitration of his selection.
All arbitrators shall be disinterested active or former executive officers of
insurance or reinsurance companies or Underwriters at Lloyd's of London.
Within thirty (30) days after notice of appointment of all arbitrators, the
panel shall meet and determine timely periods for briefs, discovery procedures
and schedules for hearings.
The panel shall be relieved of all judicial formality and shall not be bound by
the strict rules of procedure and evidence. Unless the panel agrees otherwise,
arbitration shall take place in New York, New York, but the venue may be changed
when deemed by the panel to be in the best interest of the arbitration
proceeding. Insofar as the arbitration panel looks to substantive law, it shall
consider the law of the State of New York. The decision of any two arbitrators
when rendered in writing shall be final and binding. The panel is empowered to
grant interim relief as it may deem appropriate.
To the extent, and only to the extent, that the provisions of this Agreement are
ambiguous or unclear, the panel shall make its decision considering the custom
and practice of the applicable insurance and reinsurance business. The panel
shall render its decision within sixty (60) days
<PAGE> 38
17
following the termination of hearings, which decision shall be in writing,
stating the reasons thereof. Judgment upon the award may be entered in any court
having jurisdiction thereof.
Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the third arbitrator. The
remaining costs of the arbitration shall be allocated by the panel. The panel
may, at its discretion, award such further costs and expenses as it considers
appropriate, including but not limited to attorneys fees, to the extent
permitted by law.
ARTICLE 23 - ACCESS TO RECORDS
The Reinsurer or its duly appointed representatives shall have free access to
the books, records and papers of the Reinsured or its agents at all reasonable
times during the continuance of this Agreement or any liability hereunder, for
the purpose of obtaining information concerning this Agreement or the subject
matter thereof.
ARTICLE 24 - INSOLVENCY
In the event of the insolvency of the Reinsured, reinsurance under this
Agreement shall be payable by the Reinsurer on the basis of the liability of the
Reinsured under Policy or Policies reinsured without diminution because of the
insolvency of the Reinsured, to the Reinsured or to its liquidator, receiver, or
statutory successor except as provided by Section 4118(a) of the New York
Insurance Law or except when the Agreement specifically provides another payee
of such reinsurance in the event of the insolvency of the Reinsured and when the
Reinsurer with the consent of the direct insured or insureds has assumed such
Policy obligations of the Reinsured as direct obligations of the Reinsurer to
the payees under such Policies and in substitution for the obligations of the
Reinsured to such payees.
It is agreed, however, that the liquidator or receiver or statutory successor of
the insolvent Reinsured shall give written notice to the Reinsurer of the
pendency of a claim against the insolvent Reinsured on the Policy or Policies
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding when
such claim is to be adjudicated, any defense or defenses which it may deem
available to the Reinsured or its liquidator or receiver or statutory successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to court
approval, against the insolvent Reinsured as part of the expense of liquidation
to the extent of a proportionate share of the benefit which may accrue to the
Reinsured solely as a result of the defense undertaken by the Reinsurer.
When two or more Reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the insolvent Reinsured.
Should any party hereto be placed in rehabilitation or liquidation or should a
rehabilitator, liquidator, receiver, conservator or other person or entity of
similar capacity be appointed as
<PAGE> 39
18
respects such party, all amounts due any of the parties hereto whether by reason
of premiums, losses or otherwise under this Agreement or any other contract(s)
of reinsurance heretofore or hereafter entered into between the parties (whether
or not any such contract(s) be assumed or ceded) shall at all times be subject
to the right of offset at any time and from time to time, and upon the exercise
of same, only the net balance shall be due and payable in accordance with
Section 7427 of the Insurance Law of the State of New York to the extent such
statute or any other applicable law, statute or regulation governing such offset
shall apply.
ARTICLE 25 -GOVERNING LAW
This Agreement shall be interpreted and governed by the laws of the State of New
York without regard to its principles of choice of law.
ARTICLE 26 - SERVICE OF SUIT
(This Article only applies to reinsurers domiciled outside of the United States
and/or unauthorized in any state, territory, or district of the United States
having jurisdiction over the Reinsured).
It is agreed that in the event of the failure of the Reinsurer to pay any amount
claimed to be due hereunder or to perform any other obligation under the
Agreement, the Reinsurer, 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 Willkie
Farr and Gallagher, One Citicorp Center, 47th Floor, New York, New York, 10022,
and that in any suit instituted, 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, or his successor or
<PAGE> 40
19
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Reinsured or any beneficiary hereunder arising out of this Agreement of
reinsurance, 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.
The foregoing is not intended to conflict with or override the obligation of the
parties hereto to arbitrate their disputes as provided in the Arbitration
clause.
ARTICLE 27 - AMENDMENTS AND ALTERATIONS
This Agreement may be changed, altered or amended as the parties may agree,
provided such change, alteration or amendment is evidenced in writing or by
endorsement executed by the Reinsured and the Reinsurer.
ARTICLE 28 - ASSIGNMENT
Except as expressly provided otherwise in the article entitled "INSOLVENCY",
neither party may assign or transfer any rights, interests or obligations under
this Agreement to any person or entity without the written consent of the other
party and any effort to so assign such rights, interests or obligations without
the consent of the other party shall be null and void.
ARTICLE 29 - NO THIRD PARTY RIGHTS
This Agreement is solely between the Reinsured and the Reinsurer, and in no
instance shall any other party have any rights under this Agreement except as
expressly provided otherwise in the Insolvency Article.
ARTICLE 30 - NO IMPLIED WAIVER
The failure of any party to enforce any of the provisions herein shall not be
construed to be a waiver of the right of such party to enforce any such
provision.
ARTICLE 31 - SECURITY
If the Reinsurer's surplus falls below $40 million, the Reinsured may require
the Reinsurer to post a "clean", unconditional, evergreen and irrevocable Letter
of Credit or to provide a reinsurance trust fund issued by a bank acceptable to
the Reinsured in favor of the Reinsured in an amount up to the excess of the
Ceded Unpaid Ultimate Net Loss over the Funds Withheld Balance.
<PAGE> 41
20
ARTICLE 32 - MERGERS AND ACQUISITIONS
It is understood and agreed that if at any time during the Term of this
Agreement the Reinsured acquires (by acquisition, reinsurance of, or renewal of)
any other insurance or reinsurance company or individual or groups of individual
book(s) of business of any other insurance or reinsurance company that comprises
not more than ten (10) percent (whether individually or in the aggregate with
respect to related transactions or parties) of Subject Earned Premium, such
company or book(s) of business will be covered hereunder, provided that written
notice is given to the Reinsurer of any such newly affiliated company or book(s)
of business as soon as practicable with full particulars as to how such
affiliation is likely to affect this Agreement. If such acquisition, as defined
above, comprises more than ten (10) percent (whether individually or in the
aggregate with respect to related transactions or parties) of Subject Earned
Premium, such company or book(s) of business will be covered hereunder provided
that prior written notice of such transaction is given to the Reinsurer with
full particulars as to how such transaction is likely to affect this Agreement,
and the Reinsurer agrees in its sole discretion in writing that this Agreement
applies to such acquired insurance or reinsurance company or book(s) of
business.
In the event that the Reinsured merges with another company at any time during
the Term of this Agreement, this Agreement shall survive such merger and the
surviving entity shall be covered hereunder provided that prior written notice
of such transaction is given to the Reinsurer with full particulars as to how
such transaction is likely to affect this Agreement, and the Reinsurer agrees in
its sole discretion in writing that this Agreement applies to such surviving
entity.
ARTICLE 33 - INTERMEDIARY
Balis & Co., Inc. is hereby recognized as the Intermediary negotiating this
Agreement for all business hereunder. All communications (including but not
limited to notices and statements) relating to this Agreement shall be
transmitted to the Reinsured through Balis & Co., Inc., Two Logan Square,
Philadelphia, PA 19103-2772. All amounts due under this Agreement (including but
not limited to Reinsurance Premium and Ultimate Net Loss) shall be remitted
directly by wire transfer between the Reinsured and the Reinsurer with notice to
the Intermediary.
<PAGE> 42
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE
(Wherever the word "Reassured" appears in this Clause, it shall be deemed to
read "Reassured", "Reinsured", "Company", or whatever other word is employed
throughout the text of the reinsurance agreement to which this Clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks
or as a direct or indirect reinsurer of any such member, subscriber or
association.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that for all purposes of this
reinsurance all the original policies of the Reassured (new, renewal
and replacement) of the classes specified in clause II of this
paragraph (2) from the time specified in clause III in this paragraph
(2) shall be deemed to include the following provision (specified as
the Limited Exclusion Provision):
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply, under any
liability coverage, to
injury, sickness, disease, death or destruction
bodily injury or property damage
with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by
Nuclear Energy Liability Insurance Association, Mutual Atomic
Energy Liability Underwriters or Nuclear Insurance Association
of Canada, or would be an insured under any such policy but
for its termination upon exhaustion of its limit of liability.
II. Family Automobile Policies (liability only), Special
Automobile Policies (private passenger automobiles, liability
only), Farmers Comprehensive Personal Liability Policies
(liability only), Comprehensive Personal Liability Policies
(liability only) or policies of a similar nature; and the
liability portion of combination forms related to the four
classes of policies stated above, such as the Comprehensive
Dwelling Policy and the applicable types of Homeowners
Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement,
being policies which either
(a) become effective on or after 1st May, 1960, or
(b) become effective before that date and contain the
Limited Exclusion Provision set out above;
provided this paragraph (2) shall not be applicable to Family
Automobile Policies, Special Automobile Policies, or policies
or combination policies of a similar nature, issued by the
Reassured on New York risks, until 90 days following approval
of the Limited Exclusion Provision by the Governmental
Authority having jurisdiction thereof.
<PAGE> 43
2
(3) Except for those classes of policies specified in clause II of
paragraph (2) and without in any way restricting the operation of
paragraph (1) of this Clause, it is understood and agreed that for all
purposes of this reinsurance the original liability policies of the
Reassured (new, renewal and replacement) affording the following
coverages:
Owners, Landlords and Tenants Liability, Contractual
Liability, Elevator Liability, Owners or Contractors
(including railroad) Protective Liability, Manufacturers and
Contractors Liability, Products Liability, Professional and
Malpractice Liability, Storekeepers Liability, Garage
Liability, Automobile Liability (including Massachusetts Motor
Vehicle or Garage Liability)
shall be deemed to include, with respect to such coverages, from the
time specified in clause V of this paragraph (3), the following
provision (specified as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
I. Under any Liability Coverage, to
injury, sickness, disease, death or destruction
bodily injury or property damage
(a) with respect to which an insured under the policy is
also an insured under a nuclear energy liability
policy issued by Nuclear Energy Liability Insurance
Association, Mutual Atomic Energy Liability
Underwriters or Nuclear Insurance Association of
Canada, or would be an insured under any such policy
but for its termination upon exhaustion of its limit
of liability; or
(b) resulting from the hazardous properties of nuclear
material and with respect to which (1) any person or
organization is required to maintain financial
protection pursuant to the Atomic Energy Act of 1954,
or any law amendatory thereof, or (2) the insured is,
or had this policy not been issued would be, entitled
to indemnity from the United States of America, or
any agency thereof, under any agreement entered into
by the United States of America, or any agency
thereof, with any person or organization.
II. Under any Medical Payments Coverage, or under any
Supplementary Payments Provision relating to
immediate medical or surgical relief
first aid,
to expenses incurred with respect to
bodily injury, sickness, disease or death
bodily injury
resulting from the hazardous properties of nuclear material
and arising out of the operation of a nuclear facility by any
person or organization.
<PAGE> 44
3
III. Under any Liability Coverage, to
injury, sickness, disease, death or destruction
bodily injury or property damage
resulting from the hazardous properties of nuclear material,if
(a) the nuclear material (1) is at any nuclear facility
owned by, or operated by or on behalf of, an insured
or (2) has been discharged or dispersed therefrom;
(b) the nuclear material is contained in spent fuel or
waste at any time possessed, handled, used,
processed, stored, transported or disposed of by or
on behalf of an insured; or
(c) the
injury, sickness, disease, death or
destruction
bodily injury or property damage
arises out of the furnishing by an insured of
services, materials, parts or equipment in connection
with the planning, construction, maintenance,
operation or use of any nuclear facility, but if such
facility is located within the United States of
America, its territories or possessions or Canada,
this exclusion (c) applies only
to
injury to or destruction of property at such
nuclear facility.
property damage to such nuclear facility and
any property thereat.
IV. As used in this endorsement:
"HAZARDOUS PROPERTIES" include radioactive, toxic or explosive
properties; "NUCLEAR MATERIAL" means source material, special
nuclear material or byproduct material; "SOURCE MATERIAL",
"SPECIAL NUCLEAR MATERIAL", and "BYPRODUCT MATERIAL" have the
meanings given them in the Atomic Energy Act of 1954 or in any
law amendatory thereof; "SPENT FUEL" means any fuel element or
fuel component, solid or liquid, which has been used or
exposed to radiation in a nuclear reactor; "WASTE" means any
waste material (1) containing byproduct material and (2)
resulting from the operation by any person or organization of
any nuclear facility included within the definition of nuclear
facility under paragraph (a) or (b) thereof; "NUCLEAR
FACILITY" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1)
separating the isotopes of uranium or plutonium, (2)
processing or utilizing spent fuel, or (3) handling,
processing or packaging waste,
<PAGE> 45
4
(c) any equipment or device used for the processing,
fabricating or alloying of special nuclear material
if at any time the total amount of such material in
the custody of the insured at the premises where such
equipment or device is located consists of or
contains more than 25 grams of plutonium or uranium
233 or any combination thereof, or more than 250
grams of uranium 235,
(d) any structure, basin, excavation, premises or place
prepared or used for the storage or disposal of
waste,
and includes the site on which any of the foregoing is
located, all operations conducted on such site and all
premises used for such operations; "NUCLEAR REACTOR" means any
apparatus designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass
of fissionable material;
With respect to injury to or destruction of property, the word
"injury" or "destruction" includes all forms of radioactive
contamination of property; "property damage" includes all
forms of radioactive contamination of property.
V. The inception dates and thereafter of all original policies
affording coverages specified in this paragraph (3), whether
new, renewal or replacement, being policies which become
effective on or after 1st May, 1960, provided this paragraph
(3) shall not be applicable to
(i) Garage and Automobile Policies issued by the
Reassured on New York risks, or
(ii) statutory liability insurance required under Chapter
90, General Laws of Massachusetts,
until 90 days following approval of the Broad Exclusion
Provision by the Governmental Authority having jurisdiction
thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above
are not applicable to original liability policies of the Reassured in
Canada and that with respect to such policies this Clause shall be
deemed to include the Nuclear Energy Liability Exclusion Provisions
adopted by the Insurance Bureau of Canada or the Insurers' Advisory
Organization.
*NOTE: THE WORDS PRINTED IN ITALICS IN THE LIMITED EXCLUSION PROVISION AND IN
THE BROAD EXCLUSION PROVISION SHALL APPLY ONLY IN RELATION TO ORIGINAL
LIABILITY POLICIES WHICH INCLUDE A LIMITED EXCLUSION PROVISION OR A
BROAD EXCLUSION PROVISION CONTAINING THOSE WORDS.
<PAGE> 46
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - CANADA
(Wherever the word "Reassured" appears in this Clause, it shall be deemed to
read "Reassured", "Reinsured", "Company", or whatever other word is employed
throughout the text of the reinsurance agreement to which this Clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly, and whether as Insurer or Reinsurer,
from any Pool of Insurers or Reinsurers formed for the purpose of
covering Atomic or Nuclear Energy risks.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause, this reinsurance does not cover any loss or liability accruing
to the Reassured, directly or indirectly, and whether as Insurer or
Reinsurer, from any insurance against Physical Damage (including
business interruption or consequential loss arising out of such
Physical Damage) to:
(a) Nuclear reactor power plants including all auxiliary
property on the site, or
(b) Any other nuclear reactor installation, including
laboratories handling radioactive materials in connection with
reactor installations, and "critical facilities" as such, or
(c) Installations for fabricating complete fuel elements or
for processing substantial quantities of prescribed
substances, and for reprocessing, salvaging, chemically
separating, storing or disposing of "spent" nuclear fuel or
waste materials, or
(d) Installations other than those listed in (c) above using
substantial quantities of radioactive isotopes or other
products of nuclear fission.
(3) Without in any way restricting the operation of paragraphs (1) and (2)
of this Clause, this reinsurance does not cover any loss or liability
by radioactive contamination accruing to the Reassured, directly or
indirectly, and whether as Insurer or Reinsurer, from any insurance on
property which is on the same site as a nuclear reactor power plant or
other nuclear installation and which normally would be insured
therewith, except that this paragraph (3) shall not operate:
(a) where the Reassured does not have knowledge of such
nuclear reactor power plant or nuclear installation, or
(b) where the said insurance contains a provision excluding
coverage for damage to property caused by or resulting from
radioactive contamination, however caused.
(4) Without in any way restricting the operation of paragraphs (1), (2) and
(3) of this Clause, this reinsurance does not cover any loss or
liability by radioactive contamination accruing to the Reassured,
directly or indirectly, and whether as Insurer or Reinsurer, when such
radioactive contamination is a named hazard specifically insured
against.
(5) This Clause shall not extend to risks using radioactive isotopes in any
form where the nuclear
<PAGE> 47
2
exposure is not considered by the Reassured to be the primary hazard.
(6) The term "prescribed substances" shall have the meaning given it by the
Atomic Energy Control Act or by any law amendatory thereof.
(7) The Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
(8) Without in any way restricting the operation of paragraphs (1), (2),
(3) and (4) of this Clause, this reinsurance does not cover any loss or
liability accruing to the Reassured, directly or indirectly, and
whether as Insurer or Reinsurer, caused:
(a) by any nuclear incident as defined in the Nuclear Liability
Act or any other nuclear liability act, law or statute, or any
law amendatory thereof, or nuclear explosion, except for
ensuing loss or damage which results directly from fire,
lightning or explosion of natural, coal or manufactured gas;
or
(b) by contamination by radioactive material.
NOTE: Without in any way restricting the operation of paragraphs (1), (2),
(3) and (4) of this Clause, paragraph (8) of this Clause shall only
apply to all original contracts of the Reassured, whether new, renewal
or replacement, which become effective on or after December 31, 1992.
<PAGE> 48
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE -
CANADA
(Wherever the word "Reassured" appears in this Clause, it shall be deemed to
read "Reassured", "Reinsured", "Company", or whatever other word is employed
throughout the text of the reinsurance agreement to which this Clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks
or as a direct or indirect reinsurer of any such member, subscriber or
association.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause, it is agreed that for all purposes of this reinsurance all the
original liability contracts of the Reassured, whether new, renewal or
replacement, of the following classes, namely,
Personal Liability,
Farmers Liability,
Storekeepers Liability,
which become effective on or after 31st December, 1984, shall be deemed
to include, from their inception dates and thereafter, the following
provision:
LIMITED EXCLUSION PROVISION.
This Policy does not apply to bodily injury or property damage with
respect to which an Insured is also insured under a contract of nuclear
energy liability insurance (whether the Insured is unnamed in such
contract and whether or not it is legally enforceable by the Insured)
issued by the Nuclear Insurance Association of Canada or any other
group or pool of insurers or would be an Insured under any such policy
but for its termination upon exhaustion of its limit of liability.
With respect to property, loss of use of such property shall be deemed
to be property damage.
(3) Without in any way restricting the operation of paragraph (1) of this
Clause, it is agreed that for all purposes of this reinsurance all the
original liability contracts of the Reassured, whether new, renewal or
replacement, of any class whatsoever (other than Personal Liability,
Farmers Liability, Storekeepers Liability or Automobile Liability
contracts), which become effective on or after 31st December, 1984,
shall be deemed to include, from their inception dates and thereafter,
the following provision:
BROAD EXCLUSION PROVISION.
It is agreed that this Policy does not apply:
(a) to liability imposed by or arising under the Nuclear
Liability Act; nor
(b) to bodily injury or property damage with respect to which
an Insured under this
<PAGE> 49
2
policy is also insured under a contract of nuclear energy
liability insurance (whether the Insured is unnamed in such
contract and whether or not it is legally enforceable by the
Insured) issued by the Nuclear Insurance Association of Canada
or any other insurer or group or pool of insurers or would be
an Insured under any such policy but for its termination upon
exhaustion of its limit of liability; nor
(c) to bodily injury or property damage resulting directly or
indirectly from the nuclear energy hazard arising from:
(i) the ownership, maintenance, operation or
use of a nuclear facility by or on behalf of an
Insured;
(ii) the furnishing by an Insured of
services, materials, parts or equipment in connection
with the planning, construction, maintenance,
operation or use of any nuclear facility; and
(iii) the possession, consumption, use,
handling, disposal or transportation of fissionable
substances, or of other radioactive material (except
radioactive isotopes, away from a nuclear facility,
which have reached the final stage of fabrication so
as to be useable for any scientific, medical,
agricultural, commercial or industrial purpose) used,
distributed, handled or sold by an Insured.
AS USED IN THIS POLICY:
1. The term "NUCLEAR ENERGY HAZARD" means the radioactive, toxic,
explosive or other hazardous properties of radioactive material;
2. The term "RADIOACTIVE MATERIAL" means uranium, thorium, plutonium,
neptunium, their respective derivatives and compounds, radioactive
isotopes of other elements and any other substances that the Atomic
Energy Control Board may, by regulation, designate as being prescribed
substances capable of releasing atomic energy, or as being requisite
for the production, use or application of atomic energy;
3. The term "NUCLEAR FACILITY" means:
(a) any apparatus designed or used to sustain nuclear fission
in a self-supporting chain reaction or to contain a critical
mass of plutonium, thorium and uranium or any one or more of
them;
(b) any equipment or device designed or used for (i)
separating the isotopes of plutonium, thorium and uranium or
any one or more of them, (ii) processing or utilizing spent
fuel, or (iii) handling, processing or packaging waste;
(c) any equipment or device used for the processing,
fabricating or alloying of plutonium, thorium or uranium
enriched in the isotope uranium 233 or in the isotope uranium
235, or any one or more of them if at any time the total
amount of such material in the custody of the Insured at the
premises where such equipment or device is located
<PAGE> 50
3
consists of or contains more than 25 grams of plutonium or
uranium 233 or any combination thereof, or more than 250 grams
of uranium 235;
(d) any structure, basin, excavation, premises or place
prepared or used for the storage or disposal of waste
radioactive material;
and includes the site on which any of the foregoing is located,
together with all operations conducted thereon and all premises used
for such operations.
4. The term "FISSIONABLE SUBSTANCE" means any prescribed substance that
is, or from which can be obtained, a substance capable of releasing
atomic energy by nuclear fission.
5. With respect to property, loss of use of such property shall be deemed
to be property damage.
<PAGE> 51
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE AND LIABILITY -
(BOILER AND MACHINERY POLICIES) - REINSURANCE
(Wherever the word "Reassured" appears in this Clause, it shall be deemed to
read "Reassured", "Reinsured", "Company", or whatever other word is employed
throughout the text of the reinsurance agreement to which this Clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks
or as a direct or indirect reinsurer of any such member, subscriber or
association.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that for all purposes of this
reinsurance all original Boiler and Machinery Insurance or Reinsurance
contracts of the Reassured shall be deemed to include the following
provisions of this paragraph:
This policy does not apply to "loss", whether it be direct or
indirect, proximate or remote
(a) from an Accident caused directly or indirectly by
nuclear reaction, nuclear radiation or radioactive
contamination, all whether controlled or uncontrolled; or
(b) from nuclear reaction, nuclear radiation or
radioactive contamination, all whether controlled or
uncontrolled, caused directly or indirectly by, contributed to
or aggravated by an Accident.
(3) However, it is agreed that loss arising out of the use of Radioactive
Isotopes in any form is not hereby excluded from reinsurance
protection.
(4) Without in any way restricting the operation of paragraph (1) hereof,
it is understood and agreed that
(a) all policies issued by the Reassured effective on
or before 30th April, 1958, shall be free from the application
of the other provisions of this Clause until expiry date or
30th April, 1961, whichever first occurs, whereupon all the
provisions of this Clause shall apply.
(b) with respect to any risk located in Canada,
policies issued by the Reassured effective on or before 30th
June, 1958, shall be free from the application of the other
provisions of this Clause until expiry date or 30th June,
1961, whichever first occurs, whereupon all the provisions of
this Clause shall apply.
<PAGE> 52
NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE) (1994)
(WORLDWIDE EXCLUDING U.S.A. AND CANADA)
(Wherever the word "Agreement" appears in this Clause, it shall be deemed to
read "Agreement", "Contract", "Policy" or whatever other word is employed
throughout the text of the reinsurance agreement to which this Clause is
attached to designate the attached reinsurance document.)
This Agreement shall exclude Nuclear Energy Risks whether such risks are written
directly and/or by way of reinsurance and/or via Pools and/or Associations.
For all purposes of this Agreement, Nuclear Energy Risks shall mean all first
party and/or third party insurances or reinsurances (other than Workers'
Compensation and Employers' Liability) in respect of:
(I) All Property on the site of a nuclear power station.
Nuclear Reactors, reactor buildings and plant and
equipment therein on any site other than a nuclear power
station.
(II) All Property, on any site (including but not limited to
the sites referred to in (I) above) used or having been used
for:
(a) the generation of nuclear energy; or
(b) the Production, Use or Storage of Nuclear
Material.
(III) Any other Property eligible for insurance by the
relevant local Nuclear Insurance Pool and/or Association but
only to the extent of the requirements of that local Pool
and/or Association.
(IV) The supply of goods and services to any of the sites,
described in (I) to (III) above, unless such insurances or
reinsurances shall exclude the perils of irradiation and
contamination by Nuclear Material.
Except as undernoted, Nuclear Energy Risks shall not include:
(i) Any insurance or reinsurance in respect of the
construction or erection or installation or replacement or
repair or maintenance or decommissioning of Property as
described in (I) to (III) above (including contractors' plant
and equipment);
(ii) Any Machinery Breakdown or other Engineering insurance or
reinsurance not coming within the scope of (i) above;
provided always that such insurance or reinsurance shall exclude the perils of
irradiation and contamination by Nuclear Material.
<PAGE> 53
2
However, the above exemption shall not extend to:
(1) The provision of any insurance or reinsurance whatsoever in
respect of:
(a) Nuclear Material;
(b) Any Property in the High Radioactivity Zone or Area
of any Nuclear Installation as from the introduction of Nuclear Material or -
for reactor installations - as from fuel loading or first criticality where so
agreed with the relevant local Nuclear Insurance Pool and/or Association.
(2) The provision of any insurance or reinsurance for the
undernoted perils:
- fire, lightning, explosion;
- earthquake;
- aircraft and other aerial devices or
articles dropped therefrom;
- irradiation and radioactive contamination;
- any other peril insured by the relevant
local Nuclear Insurance Pool and/or
Association;
in respect of any other Property not specified in (1)
above which directly involves the Production, Use or Storage
of Nuclear Material as from the introduction of Nuclear
Material into such Property.
Definitions
"Nuclear Material" means:
(i) Nuclear fuel, other than natural uranium and
depleted uranium, capable of producing energy by a
self-sustaining chain process of nuclear fission outside a
Nuclear Reactor, either alone or in combination with some
other material; and
(ii) Radioactive Products or Waste.
"Radioactive Products or Waste" means any radioactive material produced
in, or any material made radioactive by exposure to the radiation
incidental to the production or utilization of nuclear fuel, but does
not include radioisotopes which have reached the final stage of
fabrication so as to be usable for any scientific, medical,
agricultural, commercial or industrial purpose.
"Nuclear Installation" means:
(i) Any Nuclear Reactor;
(ii) Any factory using nuclear fuel for the
production of Nuclear Material, or any factory for the
processing of Nuclear Material, including any factory for the
reprocessing of irradiated nuclear fuel; and
(iii) Any facility where Nuclear Material is stored,
other than storage incidental to the carriage of such
material.
<PAGE> 54
3
"Nuclear Reactor" means any structure containing nuclear fuel in such an
arrangement that a self-sustaining chain process of nuclear fission can occur
therein without an additional source of neutrons.
"Production, Use or Storage of Nuclear Material" means the production,
manufacture, enrichment, conditioning, processing, reprocessing, use, storage,
handling and disposal of Nuclear Material.
"Property" shall mean all land, buildings, structures, plant, equipment,
vehicles, contents (including but not limited to liquids and gases) and all
materials of whatever description whether fixed or not.
"High Radioactivity Zone or Area" means:
(i) For nuclear power stations and Nuclear Reactors, the
vessel or structure which immediately contains the core (including its
supports and shrouding) and all the contents thereof, the fuel
elements, the control rods and the irradiated fuel store; and
(ii) For non-reactor Nuclear Installations, any area where the
level of radioactivity requires the provision of a biological shield.
N.M.A. 1975(a)
April 1, 1994
<PAGE> 55
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE AND
LIABILITY (BOILER AND MACHINERY POLICIES) - REINSURANCE - CANADA
1. This Reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks
or as a direct or indirect reinsurer of any such member, subscriber or
association.
2. Without in any way restricting the operation of paragraph (1) of this
Clause it is understood and agreed that for all purposes of this
Reinsurance all original Boiler and Machinery Insurance or Reinsurance
contracts of the Reassured shall be deemed to include the following
provisions of this paragraph;
This Policy does not apply to loss, whether it be direct or indirect,
proximate or remote
(a) from an Accident caused directly or indirectly by
nuclear reaction, nuclear radiation or radioactive
contamination, all whether controlled or
uncontrolled; or
(b) from nuclear reaction, nuclear radiation or
radioactive contamination, all whether controlled or
uncontrolled, caused directly or indirectly by,
contributed to or aggravated by an Accident.
3. However, it is agreed that loss arising out of the use of Radioactive
Isotopes in any form is not hereby excluded from reinsurance
protection.
4. Without in any way restricting the operation of paragraph (1) hereof,
it is understood and agreed that policies issued by the Reassured
effective on or before 31st December, 1958, shall be free from the
application of the other provisions of this Clause until expiry date or
31st December, 1961, whichever first occurs, whereupon all the
provisions of this Clause shall apply.
NOTES: Wherever used herein the terms:
"Reassured" shall be understood to mean "Company", "Reinsured",
"Reassured" or whatever other term is used in the
attached reinsurance document to designate the
reinsured company or companies.
"Agreement" shall be understood to mean "Agreement", "Contract",
"Policy" or whatever other term is used to designate
the attached reinsurance document.
"Reinsurers" shall be understood to mean "Reinsurers",
"Underwriters" or whatever other term is used in the
attached reinsurance document to designate the
reinsurer or reinsurers.
<PAGE> 56
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE
(Wherever the word "Reassured" appears in this Clause, it shall be deemed to
read "Reassured", "Reinsured", "Company", or whatever other word is employed
throughout the text of the reinsurance agreement to which this Clause is
attached to designate the company or companies reinsured.)
(1) This reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly, and whether as Insurer or Reinsurer,
from any Pool of Insurers or Reinsurers formed for the purpose of
covering Atomic or Nuclear Energy risks.
(2) Without in any way restricting the operation of paragraph (1) of this
Clause, this reinsurance does not cover any loss or liability accruing
to the Reassured, directly or indirectly, and whether as Insurer or
Reinsurer, from any insurance against Physical Damage (including
business interruption or consequential loss arising out of such
Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary
property on the site, or
II. Any other nuclear reactor installation, including
laboratories handling radioactive materials in connection with reactor
installations, and "critical facilities" as such, or
III. Installations for fabricating complete fuel elements or
for processing substantial quantities of "special nuclear material",
and for reprocessing, salvaging, chemically separating, storing or
disposing of "spent" nuclear fuel or waste materials, or
IV. Installations other than those listed in paragraph (2) III
above using substantial quantities of radioactive isotopes or other
products of nuclear fission.
(3) Without in any way restricting the operation of paragraphs (1) and (2)
hereof, this reinsurance does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or
indirectly, and whether as Insurer or Reinsurer, from any insurance on
property which is on the same site as a nuclear reactor power plant or
other nuclear installation and which normally would be insured
therewith, except that this paragraph (3) shall not operate:
(a) where the Reassured does not have knowledge of such
nuclear reactor power plant or nuclear installation, or
(b) where the said insurance contains a provision excluding
coverage for damage to property caused by or resulting from radioactive
contamination, however caused. However, on and after 1st January, 1960,
this sub-paragraph (b) shall only apply provided the said radioactive
contamination exclusion provision has been approved by the Governmental
Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraphs (1), (2) and
(3) hereof, this
<PAGE> 57
2
reinsurance does not cover any loss or liability by radioactive
contamination accruing to the Reassured, directly or indirectly, and
whether as Insurer or Reinsurer, when such radioactive contamination is
a named hazard specifically insured against.
(5) It is understood and agreed that this Clause shall not extend to risks
using radioactive isotopes in any form where the nuclear exposure is
not considered by the Reassured to be the primary hazard.
(6) The term "special nuclear material" shall have the meaning given it in
the Atomic Energy Act of 1954 or by any law amendatory thereof.
(7) The Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation, plant or site.
<PAGE> 58
WAR RISKS EXCLUSION CLAUSE
As regards interest which at time of loss or damage are on shore, no Liability
shall attach hereto in respect of any loss or damage which is occasioned by war,
invasion hostilities, acts of foreign enemies, civil war, rebellion,
insurrection, military or usurped power, or martial law or confiscation by order
of any government or public authority.
This War Exclusion Clause shall not, however, apply to interests which at time
of loss or damage are within the territorial limits of the United States of
America (comprising fifty States of the Union and the District of Columbia, its
territories and possessions, including the Panama Canal Zone and the
Commonwealth of Puerto Rico and including Bridges between the United States of
America and Mexico provided they are under United States ownership), Canada, St.
Pierre and Miquelon, provided such interests are insured under original
policies, endorsements or binders containing a standard war or hostilities or
warlike operations exclusion clause.
Nevertheless, this clause shall not be construed to apply to loss or damage
occasioned by Riots, Strikes, Civil Commotion, Vandalism, Malicious Damage,
including acts committed by agents of any government, party or faction engaged
in war, hostilities or other warlike operation, provided such agents are acting
secretly and not in connection with any operations of military or naval armed
forces in the country where the interest insured is situated.
<PAGE> 59
INSOLVENCY FUNDS EXCLUSION CLAUSE
This Contract excludes all liability of the Company arising by contract,
operation of law, or otherwise, from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency fund" includes any
guaranty fund, insolvency find, plan, pool, association, fund or other
arrangement, howsoever denominated, established or governed; which provides for
any assessment of or payment or assumption by the Company of part or all of any
claim, debt, charge, fee, or other obligation of an insurer, or its successors
or assigns, which has been declared by an competent authority to be insolvent,
or which is otherwise deemed unable to meet any claim, debt, charge, fee or
other obligation in whole or in part.
NOTE: Wherever used herein the terms:
"Company" Shall be understood to mean "Company", "Reinsured", "Reassured" or
whatever other term is used in the attached reinsurance document to designate
the reinsured company or companies.
"Contract" Shall be understood to mean "Agreement", "Contract", "Policy" or
whatever other term is used to designate the attached reinsurance document.
"Reinsurers" Shall be understood to mean "Reinsurers", "Underwriters" or
whatever other term is used in the attached reinsurance document to designate
the reinsurer or reinsurers.
<PAGE> 1
Exhibit 10.32
Agreement No.973676001
INTERESTS AND LIABILITIES AGREEMENT
IT IS HEREBY MUTUALLY AGREED BY
TRENWICK AMERICA REINSURANCE CORPORATION
of Stamford, Connecticut
(hereinafter referred to as the "Company")
and
CERTAIN INSURANCE AND/OR REINSURANCE COMPANIES
(hereinafter referred to as the "Retrocessionaire")
That the Retrocessionaire shall have a 30.00% participation in the interests and
liabilities of the Company as set forth in the instrument attached hereto
entitled FIRST CASUALTY RETROCESSIONAL EXCESS OF LOSS REINSURANCE AGREEMENT.
Such participation shall be several and not joint with the participation of
other retrocessionaires and the retrocessionaires shall under no circumstances
participate in the interests and liabilities, (if any) of the other
retrocessionaires in the said instrument.
This interest and liabilities agreement shall attach January 1, 1997 and is
subject to the term and cancellation provisions, if any, contained in Article VI
of the attached instrument (FIRST CASUALTY RETROCESSIONAL EXCESS OF LOSS
REINSURANCE AGREEMENT) which are hereby incorporated by reference into this
agreement and which shall apply as though they had been specifically provided
for herein.
The instrument to which this agreement is attached, and therefore the interests
and liabilities of the retrocessionaires, may be changed, altered and amended as
the parties may agree, provided such change, alteration and amendment is
evidenced by endorsement to this agreement executed by the Company and the
retrocessionaire.
In witness whereof, the parties hereto have executed this agreement in duplicate
by their duly authorised representatives as of the undermentioned dates.
At this day of 19
For and on behalf of :
TRENWICK AMERICA REINSURANCE CORPORATION
By _________________________________________________
<PAGE> 2
and in London, England, this day of 1997
For and on behalf of :
CERTAIN INSURANCE AND/OR REINSURANCE COMPANIES
(as per the schedule attached)
Hereon: 30.00%
<PAGE> 3
INDEX
to the
FIRST CASUALTY RETROCESSIONAL EXCESS OF LOSS
REINSURANCE AGREEMENT
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C> <C>
ARTICLE I - BUSINESS COVERED 1
ARTICLE II - EXCLUSIONS 1, 2
ARTICLE III - AMOUNT OF COVER 3
ARTICLE IV - ULTIMATE NET LOSS 3, 4
ARTICLE V - COSTS 4
ARTICLE VI - TERM AND CANCELLATION 4, 5
ARTICLE VII - LIABILITY OF RETROCESSIONAIRE 5
ARTICLE VIII - ERRORS & OMISSIONS 5
ARTICLE IX - NET RETAINED LINES 5
ARTICLE X - TERRITORY 6
ARTICLE XI - PREMIUM 6
ARTICLE XII - OFFSET 6
ARTICLE XIII - LETTER OF CREDIT 7
ARTICLE XIV - NOTICE OF LOSS AND
- LOSS SETTLEMENTS 8
ARTICLE XV - AUTOMATIC REINSTATEMENT 8
ARTICLE XVI - EXCESS OF ORIGINAL POLICY
LIMITS 8, 9
ARTICLE XVII - EXTRA CONTRACTUAL OBLIGATIONS 9
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ARTICLE XVIII - ACCESS TO RECORDS 9
ARTICLE XIX - CURRENCY 9, 10
ARTICLE XX - ARBITRATION 10
ARTICLE XXI - SERVICE OF SUIT 10, 11
ARTICLE XXII - INSOLVENCY 11, 12
ARTICLE XXIII - INTERMEDIARY 12
</TABLE>
<PAGE> 5
Agreement No.973676001
FIRST CASUALTY RETROCESSIONAL EXCESS OF LOSS REINSURANCE
AGREEMENT
between
TRENWICK AMERICA REINSURANCE CORPORATION
of Stamford, Connecticut
(hereinafter referred to as the "Company")
and
the Retrocessionaires
Subscribing to the Interests and Liabilities Agreements
to which this Agreement is attached
(hereinafter referred to as the "Retrocessionaire")
ARTICLE I
BUSINESS COVERED
This Agreement is to indemnify the Company as set forth in the AMOUNT OF COVER
ARTICLE, in respect of the excess liability which may accrue to the Company
under all reinsurance binders, acceptances, cover notes, certificates or
policies (hereinafter referred to as "Policies") underwritten by the Company and
classified by the Company as Casualty facultative business.
ARTICLE II
EXCLUSIONS
This Agreement does not apply to and specifically excludes:
1. Business classified by the Company as Surety.
2. Insolvency and Financial Guaranty.
3. Business classified by the Company as Aviation.
4. Business classified by the Company as Credit Insurance.
5. War risks.
Page 1
<PAGE> 6
6. Nuclear Energy Risks for those territories as appropriate in accordance
with the clauses set out below and as are attached hereto:-
(a) NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE -
U.S.A. - NMA 1590.
(b) NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE -
CANADA - NMA 1979.
(c) NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE) (1994) -
WORLDWIDE EXCLUDING U.S.A. AND CANADA - NMA 1975A.
7. Business classified by the Company as Directors and Officers Liability.
8. Business classified by the Company as Securities Exchange Act Liability.
9. Class I Railroads.
10. Surplus relief.
11. Funding plans.
12. Business classified by the Company as ocean marine. This exclusion,
however, shall not apply with respect to legal liability arising out of
the ownership, operation use of or navigation of ships or vessels:
A. Classified as yachts, small pleasure crafts or sports fishing
vessels; or
B. Operating exclusively in inland and/or coastal waters.
13. Insolvency Funds as per the Insolvency Funds Exclusion Clause, attached
hereto.
14. Aggregate Stop Loss business
Nevertheless, in the event the Company becomes liable for a risk excluded above
without its knowledge, either by an existing insured extending its operations,
automatic provisions of policy or as imposed by law, or by inadvertent
acceptance, this Agreement shall apply in respect of such risk (except as
regards exclusions 2, 5, 6 and 13) but only until discovery by the Company and,
pending cancellation of such risk, for a period of 10 days in addition to the
time permitted for cancellation in the Company's reinsurance policy, such total
period not to exceed 120 days in all.
As respects casualty reinsurance accepted under this Agreement, if the insured's
main operations are not excluded hereunder, exclusions listed above (except nos.
2, 5, 6 and 13) shall not apply provided such operations or perils are
incidental to the insured's main operation. The Company shall be the sole judge
of the meaning of the word "Incidental".
Page 2
<PAGE> 7
ARTICLE III
AMOUNT OF COVER
No claim shall be made under this Agreement unless and until the Company shall
have first sustained, as a result of any one risk, and/or in the aggregate where
applicable, an ultimate net loss in excess of $500,000 and the Retrocessionaires
shall be liable for the amount in excess of $500,000 ultimate net loss, any one
risk, and/or in the aggregate where applicable; but the sum recoverable shall
not exceed $1,500,000 ultimate net loss any one risk and/or in the aggregate
where applicable.
It is agreed that the Retrocessionaire shall follow the definitions contained in
the policies issued by the Company concerning any references made herein to the
term "loss".
Notwithstanding the foregoing, it is further understood and agreed that within
any contract year the Company shall retain, as a deductible, aggregate loss that
would otherwise be recoverable hereunder, equal to 3% of the Company's Gross Net
Written Premium Income, withheld for each contract year.
However, the sum recoverable by the Company shall not exceed 275.0% of the
premium hereunder or $10,000,000, whichever is greater.
The Company shall bear a further retention in respect of Section B of the TERM
AND CANCELLATION ARTICLE of up to 5% of the Estimated Premium under the 1987 and
1988 Reinsurance Agreement separately but only after paid losses under this
Agreement exceed 17% of the Subject Matter Gross Net Written Premium Income.
The Company is permitted to purchase facultative, share, or surplus reinsurance
in respect of any loss provided that such reinsurance shall inure to the benefit
of the Company and/or the Retrocessionaire.
It is further understood and agreed that the Company is permitted to have share
reinsurance on a ground up basis for special accounts which will be underwritten
outside the scope of this Agreement.
ARTICLE IV
ULTIMATE NET LOSS
The term "ultimate net loss" shall mean the sum actually paid by the Company
(including 80% of any Extra Contractual Obligations as defined in the EXTRA
CONTRACTUAL OBLIGATIONS ARTICLE hereof and 80% of any Loss in Excess of Original
Policy Limits as defined in the EXCESS OF ORIGINAL POLICY LIMITS ARTICLE hereof)
in settlement of losses or liability under its original policies after making
deductions for all recoveries, all salvages and all claims
Page 3
<PAGE> 8
upon other reinsurance whether collected or not and shall not include adjustment
expenses arising from the settlement of losses except for settlement of claims
where the original policy or reinsurance agreement include such expense within
the limit of indemnity.
All salvages, recoveries, or payments recovered or received subsequent to a loss
settlement under this Agreement shall be applied as if recovered or received
prior to the aforesaid settlement and all necessary adjustments shall be made by
the parties hereto. These amounts shall be applied in the inverse order to which
liability applies. Nothing in this Article shall be construed to mean that
losses under this Agreement are not recoverable until the Company's ultimate net
loss has been ascertained.
ARTICLE V
COSTS
In the event of a loss arising to which the Retrocessionaires hereon may be
liable to contribute, they shall contribute to the adjustment costs incurred by
the Company in the ratio that their proportion of the loss as finally settled
bears to that total of the whole amount of such Ultimate Net Loss.
Adjustment costs shall exclude all office expense of the Company, all expenses
for salaried employees and general retainer fees for counsel normally paid by
the Company.
ARTICLE VI
TERM AND CANCELLATION
Section A
This Agreement shall cover losses on new and renewal policies of the Company
becoming effective during the period commencing 1st January, 1997 and ending
31st December, 1997 Local Standard Time.
Upon expiry the liability of the Retrocessionaires, with respect to policies in
force on the expiry date, shall continue until the expiration, cancellation or
next anniversary date of each such policy, whichever occurs first, but in no
event shall the period of run-off exceed twelve months plus odd time. Odd time
is defined as an additional twelve months.
Alternatively, the Company shall have the option to take back the in force
business at the expiry date hereof with return of unearned Reinsurance Premium
hereunder. Furthermore, contrary to the AMOUNT OF COVER ARTICLE the Company
shall retain an amount of 3% of the earned Gross Net Written Premium Income
rather than 3% of the Gross Net Written Premium Income and the dollar maximum
recoverable will be reduced pro rata by the percentage that unearned Gross Net
Written Premium Income bears to the Gross Net Written Premium Income.
Page 4
<PAGE> 9
With respect to General liability business written on an occurrence basis, all
losses and claims shall be reported with full particulars by the Company to the
Retrocessionaire within five years of the first loss report to the Company. No
liability shall attach hereunder for any such loss or claim not reported within
this period.
Section B
This Agreement shall also cover losses occurring on risks attaching during the
period commencing 1st January, 1987 and ending 31st December, 1988, but only in
respect of General Liability written on an occurrence basis where the loss is
first reported to the Retrocessionaires during the period commencing 1st
January, 1997 and ending 31st December, 1997.
ARTICLE VII
LIABILITY OF THE RETROCESSIONAIRE
The Liability of the Retrocessionaire shall, subject always to the terms and
conditions of this Agreement, begin and end simultaneously with that of the
Company and shall be subject otherwise to the same general and special
stipulations, clauses, waivers and modifications of the Company's policies and
any endorsements thereon.
ARTICLE VIII
ERRORS AND OMISSIONS
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, provided such delay, omission or
error is rectified within a reasonable time after discovery. Nevertheless, the
Article shall not apply with respect to loss reports rendered to the Reinsurer
beyond the period required to afford coverage in accordance with the TERM AND
CANCELLATION ARTICLE.
ARTICLE IX
NET RETAINED LINES
This Agreement applies only to that portion of any reinsurance which the Company
retains net for its own account, and 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
reinsurances which the Company retains net for its own account shall be
included.
Page 5
<PAGE> 10
The amount of the Retrocessionaire's liability hereunder in respect of any loss
or losses shall not be increased by reason of the inability of the Company to
collect from any other Reinsurer, whether specific or general, any amount which
may have become due from them, whether such inability arises from the insolvency
of such other Reinsurer or otherwise.
ARTICLE X
TERRITORY
This Agreement shall apply wherever the Company's policies apply.
ARTICLE XI
PREMIUM
The Company shall pay to the Retrocessionaire a Deposit Premium of $918,000
payable $183,600 on 31st March, 1997, $183,600 on 30th June, 1997, $275,400 on
30th September, 1997 and $275,400 on 31st December, 1997.
At the end of each calendar quarter the Company shall report to the
Retrocessionaire the accumulated Gross Net Written Premium Income.
The Reinsurance Premium hereunder shall be calculated by applying a gross
cession rate of 20%, less the 3% rate withheld as an aggregate loss deductible,
as outlined in the AMOUNT OF COVER ARTICLE, for a net cession rate of 17% to be
applied to the Gross Net Written Premium Income for each quarter.
Should the Reinsurance Premium so calculated exceed the accumulated Deposit
Premium already paid, then the Company shall remit the balance due to the
Retrocessionaire within sixty days from expiry. Should the final Reinsurance
Premium so calculated be less than the premium already paid, but only after the
Gross Net Written Premium Income has fully developed, then the Retrocessionaire
shall remit the balance due to the Company immediately upon receipt of the
report.
The term "Gross Net Written Premium Income" shall mean the written premiums on
business covered under this Agreement, less cancellations and returns and less
any premiums paid for reinsurance, recoveries under which would inure to the
Retrocessionaire's benefit.
ARTICLE XII
OFFSET
The Company and any Retrocessionaires may offset any balances, whether on
account of premium, claims, losses, adjustment expense, salvage or any other
amount due from one party to the other under this Agreement.
Page 6
<PAGE> 11
ARTICLE XIII
LETTER OF CREDIT
(This Clause is only applicable to those Retrocessionaires who cannot qualify
for credit by the State having jurisdiction over the Company's loss reserves and
unearned premium reserves).
As regards policies or bonds issued by the Company coming within the scope of
this Agreement, the Company agrees that when they shall file with the Insurance
Department or set up on its books reserves for losses covered hereunder or
unearned premium reserves on policies subject to this Agreement, which it shall
be required to set up by law it will forward to the Retrocessionaires a
statement showing the proportion of such loss reserves and unearned premium
reserves which is applicable to them.
The Retrocessionaires hereby agree that they will apply for and secure delivery
to the Company a clean irrevocable and unconditional Letter of Credit issued by
a bank chosen by the Retrocessionaire and acceptable to the appropriate
insurance authorities, in an amount equal to the Retrocessionaires' proportion
of the loss reserves calculated in accordance with a formula agreed with
Retrocessionaires, and allocated loss expenses relating thereto or unearned
premium reserves as shown in the statement prepared by the Company.
The Letter of Credit shall be "Evergreen" and shall be issued for a period of
not less than one year, and shall be automatically extended for one year from
its date of expiration or any future expiration date unless thirty (30) days
prior to any expiration date, the bank shall notify the Company by certified or
registered mail that it elects not to consider the Letter of Credit extended for
any additional period.
The bank chosen for the issuance of the Letter of Credit shall have no
responsibility whatsoever in connection with the proprietary of withdrawals made
by the Company or the disposition of funds withdrawn, except to ensure that
withdrawals are made only upon the order of properly authorised representatives
of the Company.
At annual intervals, or more frequently as agreed but never more frequently than
semiannually, the Company shall prepare a specific statement, for the sole
purpose of amending the Letter of Credit, of the Retrocessionaire's share of
outstanding losses and allocated expenses relating thereto or unearned premium
reserves on policies subject to this Agreement. If the statement shows that the
Retrocessionaire's share of such losses and allocated loss expenses and/or the
unearned premium reserves, exceeds the balance of credit as of the statement
date, the Retrocessionaire shall, within thirty (30) days after receipt of
notice of such excess, secure delivery to the Company of an amendment of the
Letter of Credit increasing the amount of credit
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<PAGE> 12
by the amount of such difference. If, however, the statement shows that the
Retrocessionaire's share of outstanding losses plus allocated loss expenses or
unearned premium reserves, relating thereto is less than the balance of credit
as of the statement date, the Company shall, within thirty (30) days after
receipt of written request from the Retrocessionaire, 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.
ARTICLE XIV
NOTICE OF LOSS AND LOSS SETTLEMENTS
In the event of a loss which in the Company's opinion is likely to give rise to
a claim hereunder, and which exceeds 50% of the deductible of $500,000 prompt
notice thereof shall be given to the Retrocessionaire through Ballantyne, McKean
& Sullivan Limited, Latham House, 16 Minories, London EC3N 1AN.
All loss settlements made by the Company, provided same are within the terms of
this Agreement, shall be unconditionally binding upon the Retrocessionaire and
amounts falling to the share of the Retrocessionaire shall be immediately
payable by it upon reasonable evidence of the amount paid or to be paid being
given by the Company.
ARTICLE XV
AUTOMATIC REINSTATEMENT
In the event of any claim arising or payments made under this Agreement, the
indemnity provided hereby shall be automatically reinstated to the original
amount without the payment of any additional premium.
ARTICLE XVI
EXCESS OF ORIGINAL POLICY LIMITS
This Agreement shall protect the Company, within the limits hereof, in
connection with any 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 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.
The date on which an Excess of Policy Limit amount is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original accident,
casualty, disaster or loss occurrence and furthermore, for the purposes hereof
be deemed to follow the Loss Reporting
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<PAGE> 13
provisions of this Agreement. With regard to policies issued on a claims made
basis such date shall be the date the claim was first made.
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
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
For the purposes of this Article, the word 'loss' shall mean any amounts for
which the Company would have been contractually liable to pay had it not been
for the limit of the original Policy.
ARTICLE XVII
EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall protect the Company within the limits hereof, where the
ultimate net loss includes any Extra Contractual Obligations. "Extra Contractual
Obligations" 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 Company to settle within the policy limit, or
by reason of alleged or actual negligence, fraud or bad faith in rejecting an
offer of settlement or in the preparation of the defense or in the trial of any
action against its Insured or in the preparation or prosecution of an appeal
consequent upon such action.
The date on which an Extra Contractual Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original accident,
casualty, disaster or loss occurrence and furthermore, for the purposes hereof
be deemed to follow the Loss Reporting provisions of this Agreement. With regard
to policies issued on a claims made basis such date shall be the date the claim
was first made.
However, this Article shall not apply where the loss has been incurred due to
fraud of a member of the Board of Directors or a corporate officer of the
Company acting individually or collectively or in collusion with any individual
or corporation or any other organisation or party involved in the presentation,
defense or settlement of any claim covered hereunder.
ARTICLE XVIII
ACCESS TO RECORDS
The Retrocessionaire or its duly accredited representatives shall have the right
after providing reasonable notice to inspect the books and records of the
Company at all reasonable times for the purpose of obtaining information
concerning this Agreement or the subject matter thereof.
ARTICLE XIX
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<PAGE> 14
CURRENCY
All accounts shall be rendered and payments made in United States dollars. For
the purpose of converting foreign currency into United States dollars, the rates
of exchange shall be the rates stipulated from time to time by the Treasurer of
the Company in accordance with the mean rates of exchange ruling in New York,
New York and used within the Company as the basis of all currency transactions.
Notwithstanding the above, the Company shall be obligated:
1. In the event of blocked currencies, to notify the Retrocessionaire of
their existence and to adjust subsequent accounts to reflect exchange
rates realized when currencies become unblocked.
2. In the event of significant changes in exchange rates between recording
dates of premium and collection thereof to notify the Retrocessionaire
and adjust subsequent accounts accordingly.
3. In the administration of the two preceding paragraphs to deal
impartially with any such adjustment.
ARTICLE XX
ARBITRATION
Any difference of opinion between the Company and the Retrocessionaires with
respect to the interpretation of this Agreement or the performance of the
obligations under this Agreement shall be submitted to arbitration. Each party
shall select an arbitrator within thirty days after written request for
arbitration has been received from the party requesting arbitration. If either
party refuses or neglects to appoint an arbitrator within thirty days after
receipt of written notice from the other party requesting it to do so, the
requesting party may appoint two arbitrators. The two arbitrators shall select a
third arbitrator within ten days after both have been appointed. Should the
arbitrators fail to agree on a third arbitrator, then the third arbitrator shall
be selected pursuant to the commercial arbitration rules of the American
Arbitration Association. The arbitrators shall be officials or former officials
of other insurance or reinsurance companies, or disinterested Underwriters at
Lloyd's, London.
The decision in writing of any two arbitrators, when filed with the parties
hereto, shall be final and binding on both parties. Judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. The arbitration proceedings are to be governed by the rules of the
American Arbitration Association and the New York State arbitration law. The
arbitration is to take place in New York, New York unless another location is
mutually agreed upon between the Company and the Retrocessionaires.
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<PAGE> 15
ARTICLE XXI
SERVICE OF SUIT (U.S.A.)
(Applicable only to those Retrocessionaires who are domiciled outside the United
States of America).
In the event of the failure of Retrocessionaires hereon to pay any amount
claimed to be due hereunder, Retrocessionaires hereon, at the request of the
Company, will submit to the jurisdiction of any court of competent jurisdiction
within the United States of America. Nothing in this
Article constitutes or should be understood to constitute a waiver of
Retrocessionaires 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 Messrs
Mendes and Mount, 750 Seventh Avenue, New York, N.Y. 10019-6829, and that in any
suit instituted against any one of them upon this Agreement, Retrocessionaires
will abide by the final decision of such Court or of any Appellate Court in the
event of an appeal.
The above-named are authorised and directed to accept service of process on
behalf of Retrocessionaires in any such suit and/or upon the request of the
Company to give a written undertaking to the Company that they will enter a
general appearance on behalf of Retrocessionaires in the event such a suit shall
be instituted.
Further pursuant to any statute of any state, territory or district of the
United States of America which makes provision therefor Retrocessionaires hereby
designate the Superintendent, Commissioner or Director of Insurance or other
officer, specified for that purpose in the statute, or his successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in action, suit or proceeding instituted by or on behalf of
the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designate the above-named as the firm to whom the said officer is
authorized to mail such process or a true copy thereof.
ARTICLE XXII
INSOLVENCY
In the event of the insolvency of the Company, this reinsurance shall be payable
directly to the Company, or to its liquidator, receiver, conservator or
statutory successor on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the liquidator,
receiver, conservator
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<PAGE> 16
or statutory successor of the Company has failed to pay all or a portion of any
claim. It is agreed, however, that the liquidator, receiver, conservator, or
statutory successor of the Company shall give written notice to the
Retrocessionaire of the pendency of a claim against the Company indicating the
policy or bond reinsured which claim would involve a possible liability on the
part of the Retrocessionaires 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 Retrocessionaire 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
Company or its liquidator, receiver, conservator or statutory successor. The
expense thus incurred by the Retrocessionaires shall be chargeable, subject to
the approval of the Court, against the Company as part of the expense of
conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Company solely as a result of the defense undertaken by
the Retrocessionaires.
Where two or more Retrocessionaires on this Agreement are involved in the same
claim and a majority in interest elect to interpose defense to such claim, the
expense shall be apportioned in accordance with the terms of the reinsurance
Agreement as though such expense has been incurred by the Company.
ARTICLE XXIII
INTERMEDIARY
Ballantyne, McKean & Sullivan Ltd., Latham House, 16, Minories, London, EC3N
1AN, is hereby recognised as the Intermediary negotiating this Agreement for all
business hereunder. All communications (including but not limited to notices,
statements, premiums, return premiums, commissions, taxes, losses, loss
adjustment expense, salvages and loss settlements) relating thereto shall be
transmitted to the Company or the Retrocessionaires through Ballantyne, McKean &
Sullivan Ltd. Payments by the Company to the Intermediary shall be deemed to
constitute payment to the Retrocessionaires. Payments by the Retrocessionaires
to the Intermediary shall be deemed only to constitute payment to the Company to
the extent that such payments are actually received by the Company.
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<PAGE> 17
INSOLVENCY FUNDS EXCLUSION CLAUSE
This Contract excludes all liability of the Reinsured arising, by contract,
operation of law, or otherwise from its participation or membership, whether
voluntary or involuntary, in any insolvency fund. "Insolvency fund" includes any
guaranty fund, insolvency fund, plan, pool, association, fund or other
arrangement, howsoever denominated, established or governed, which provides for
any assessment of or payment or assumption by the Reinsured of part or all of
any claim, debt, charge, fee or other obligation of an insurer, or its
successors or assigns, which has been declared by any competent authority to be
insolvent, or which is otherwise deemed unable to meet any claim, debt, charge,
fee or other obligation in whole or in part.
<PAGE> 18
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - U.S.A.
(1) This Contract does not cover any loss or liability accruing to the Reassured
as a member of, or subscriber to, any association of insurers or reinsurers
formed for the purpose of covering nuclear energy risks or as a direct or
indirect reinsurer of any such member, subscriber or association.
(2) Without in any way restricting the operation of paragraph (1) of this Clause
it is understood and agreed that for all purposes of this contract all the
original policies of the Reassured (new, renewal and replacement) of the classes
specified in Clause II of this paragraph (2) from the time specified in Clause
III in this paragraph (2) shall be deemed to include the following provision
(specified as the Limited Exclusion Provision):
LIMITED EXCLUSION PROVISION.*
I. It is agreed that the policy does not apply under any liability
coverage, to injury, sickness, disease, death or destruction bodily
injury or property damage with respect to which an insured under the
policy is also an insured under a nuclear energy liability policy
issued by Nuclear Energy Liability Insurance Association, Mutual Atomic
Energy Liability Underwriters or Nuclear Insurance Association of
Canada, or would be an insured under any such policy but for its
termination upon exhaustion of its limit of liability.
II. Family Automobile Policies (liability only), Special Automobile
Policies (private passenger automobiles, liability only), Farmers
Comprehensive Personal Liability Policies (liability only),
Comprehensive Personal Liability Policies (liability only) or policies
of a similar nature; and the liability portion of combination forms
related to the four classes of policies stated above, such as the
Comprehensive Dwelling Policy and the applicable types of Homeowners
Policies.
III. The inception dates and thereafter of all original policies as
described in II above, whether new, renewal or replacement, being
policies which either
(a) become effective on or after 1st May, 1960, or
<PAGE> 19
(b) become effective before that date and contain the Limited
Exclusion Provision set out above;
provided this paragraph (2) shall not be applicable to Family
Automobile Policies, Special Automobile Policies, or policies or
combination policies of a similar nature, issued by the Reassured on
New York risks, until 90 days following approval of the Limited
Exclusion Provision by the Governmental Authority having jurisdiction
thereof.
(3) Except for those classes of policies specified in Clause II of
paragraph (2) and without in any way restricting the operation of
paragraph (1) of this Clause, it is understood and agreed that for all
purposes of this Contract the original liability policies of the
Reassured (new, renewal and replacement) affording the following
coverages:
Owners, Landlords and Tenants Liability, Contractual Liability,
Elevator Liability, Owners or Contractors (including railroad)
Protective Liability, Manufacturers and Contractors Liability, Product
Liability, Professional and Malpractice Liability, Storekeepers
Liability, Garage Liability, Automobile Liability (including
Massachusetts Motor Vehicle or Garage Liability)
shall be deemed to include, with respect to such coverages, from the
time specified in Clause V of this paragraph (3), the following
provision (specified as the Broad Exclusion Provision):
BROAD EXCLUSION PROVISION.*
It is agreed that the policy does not apply:
I. Under any Liability Coverage, to injury, sickness, disease, death or
destruction bodily injury or property damage
(a) with respect to which an insured under the policy is also an
insured under a nuclear energy liability policy issued by
Nuclear Energy Liability Insurance Association, Mutual Atomic
Energy Liability Underwriters or Nuclear Insurance Association
of Canada, or would be an insured under any such policy but for
its termination upon exhaustion of its limit of liability; or
<PAGE> 20
(b) resulting from the hazardous properties of nuclear material and
with respect to which (1) any person or organization is
required to maintain financial protection pursuant to the
Atomic Energy Act of 1954, or any law amendatory thereof, or
(2) the insured is, or had this policy not been issued would
be, entitled to indemnity from the United States of America, or
any agency thereof, under any agreement entered into by the
United States of America, or any agency thereof, with any
person or organization.
II. Under any Medical Payments Coverage, or under any Supplementary
Payments Provision relating to immediate medical or surgical relief,
first aid, to expenses incurred with respect to bodily injury,
sickness, disease or death bodily injury resulting from the hazardous
properties of nuclear material and arising out of the operation of a
nuclear facility by any person or organisation.
III. Under any Liability Coverage, to injury, sickness, disease, death or
destruction bodily injury or property damage resulting from the
hazardous properties of nuclear material, if
(a) the nuclear material (1) is at any nuclear facility owned by,
or operated by or on behalf of, an insured or (2) has been
discharged or dispersed therefrom;
(b) the nuclear material is contained in spent fuel or waste at any
time possessed, handled, used, processed, stored, transported
or disposed of by or on behalf of an insured; or
(c) the injury, sickness, disease, death or destruction bodily
injury or property damage arises out of the furnishing by an
insured of services, materials, parts or equipment in
connection with the planning, construction, maintenance,
operation or use of any nuclear facility, but if such facility
is located within the United States of America, its
territories, or
<PAGE> 21
possessions or Canada, this exclusion (c) applies only to
injury to or destruction of property at such nuclear facility.
property damage to such nuclear facility and any property
thereat.
IV. As used in this endorsement:
"HAZARDOUS PROPERTIES" include radioactive, toxic or explosive
properties; "NUCLEAR MATERIAL" means source material, special nuclear
material or byproduct material; "SOURCE MATERIAL", "SPECIAL NUCLEAR
MATERIAL", and "BYPRODUCT MATERIAL" have the meanings given them in the
Atomic Energy Act of 1954 or in any law amendatory thereof; "SPENT
FUEL" means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor; "WASTE"
means any waste material (1) containing byproduct material and (2)
resulting from the operation by any person or organization of any
nuclear facility included within the definition of nuclear facility
under paragraph (a) or (b) thereof; "NUCLEAR FACILITY" means.
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the
isotopes of uranium or plutonium, (2) processing or utilizing
spent fuel, or (3) handling, processing or packaging waste,
(c) any equipment or device used for the processing, fabricating or
alloying of special nuclear material if at any time the total
amount of such material in the custody of the insured at the
premises where such equipment or device is located consists of
or contains more than 25 grams of plutonium or uranium 233 or
any combination thereof, or more than 250 grams of uranium 235,
(d) any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste, and includes the
site on which any of the foregoing is located, all operations
conducted on such site and all premises used for such
operations; "NUCLEAR REACTOR" means any apparatus designed or
used to sustain nuclear fission in a self-supporting chain
reaction or to contain a critical mass of fissionable material;
With respect to injury to or destruction of property, the
word"injury" or "destruction" includes all forms of radioactive
contamination of property
<PAGE> 22
"property damage" includes all forms of contamination of
property
V. The inception dates and thereafter of all original policies affording
coverages specified in this paragraph (3), whether new, renewal or
replacement, being policies which become effective on or after 1st May,
1960, provided this paragraph (3) shall not be applicable to
(i) Garage and Automobile Policies issued by the Reassured on New York
risks, or
(ii) statutory liability insurance required under Chapter 90, General
Laws of Massachusetts,
until 90 days following approval of the Broad Exclusion Provision by
the Governmental Authority having jurisdiction thereof.
(4) Without in any way restricting the operation of paragraph (1) of this
Clause, it is understood and agreed that paragraphs (2) and (3) above
are not applicable to original liability policies of the Reassured in
Canada and that with respect to such policies this Clause shall be
deemed to include the Nuclear Energy Liability Exclusion Provisions
adopted by the Canadian Underwriters' Association or the Independent
Insurance Conference of Canada.
*NOTE. The words contained between asterisks in the Limited Exclusion Provision
and in the Broad Exclusion Provision shall apply only in relation to original
liability policies which include a Limited Exclusion Provision or a Broad
Exclusion Provision containing those words.
AMENDMENT TO DEFINITION OF WASTE
It is agreed that the definition of "Waste" contained in this Clause is amended
to read as follows:
"WASTE" MEANS ANY MATERIAL
(a) containing by-product material other than the tailings or wastes
produced by the extraction or concentration of uranium or thorium from
any ore processed primarily for its source material content, and
(b) resulting from the operation by any person or organisation of any
nuclear facility
<PAGE> 23
included under the first two paragraphs of the definition of nuclear
facilitiy.
In accordance with NMA 1590 (21/9/67)
<PAGE> 24
NUCLEAR INCIDENT EXCLUSION CLAUSE - LIABILITY - REINSURANCE - CANADA
1. This Contract does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks
or as a direct or indirect reinsurer of any such member, subscriber or
association.
2. Without in any way restricting the operation of paragraph 1 of this
clause it is agreed that for all purposes of this Contract all the
original liability contracts of the Reassured whether new, renewal or
replacement, of the following classes, namely,
Personal Liability
Farmers' Liability
Storekeepers' Liability
which become effective on or after 31st December 1984, shall be deemed
to include, from their inception dates and thereafter, the following
provision:-
Limited Exclusion Provision.
This Policy does not apply to bodily injury or property damage with
respect to which the Insured is also insured under a contract of
nuclear energy liability insurance (whether the Insured is unnamed in
such contract and whether or not it is legally enforcible by the
Insured) issued by the Nuclear Insurance Association of Canada or any
other group or pool of insurers or would be an Insured under any such
policy but for its termination upon exhaustion of its limits of
liability.
With respect to property, loss of use of such property shall be deemed
to be property damage.
3. Without in any way restricting the operation of paragraph 1 of this
clause it is agreed that for all purposes of this Contract all the
original liability contracts of the Reassured, whether new, renewal or
replacement, of any class whatsoever (other than Personal Liability,
Farmers' Liability, Storekeepers' Liability or Automobile Liability
contracts), which become effective on or after 31st December 1984,
shall be deemed to include from their
<PAGE> 25
inception dates and thereafter, the following provision:-
Broad Exclusion Provision
It is agreed that this Policy does not apply:
(a) To liability imposed by or arising under the Nuclear Liability
Act; nor
(b) to bodily injury or property damage with respect to which an
Insured under this policy is also insured under a contract of
nuclear energy liability insurance (whether the Insured is
unnamed in such contract and whether or not it is legally
enforcible by the Insured) issued by the Nuclear Insurance
Association of Canada or any other insurer or group or pool of
insurers or would be an Insured under any such policy but for
its termination upon exhaustion of its limit of liability; nor
(c) to bodily injury or property damage resulting directly or
indirectly from the nuclear energy hazard arising from:
(i) the ownership, maintenance, operation or use of a nuclear
facility by or on behalf of an Insured;
(ii) the furnishing by an Insured of services, materials, parts
or equipment in connection with the planning, construction,
maintenance, operation or use of any nuclear facility; and
(iii) the possession, consumption, use, handling, disposal or
transportation of fissionable substances, or of other
radioactive material (except radioactive isotopes, away from a
nuclear facility, which have reached the final stage of
fabrication so as to be useable for any scientific, medical,
agricultural, commercial or industrial purpose) used,
distributed, handled or sold by an Insured.
As used in this Policy:
1. The term "nuclear energy hazard" means the radioactive, toxic,
explosive, or other hazardous properties of radioactive material;
<PAGE> 26
2. The term "radioactive material" means uranium, thorium, plutonium,
neptunium, their respective derivatives and compounds, radioactive
isotopes of other elements and any other substances that the Atomic
Energy Control Board may, by regulation, designate as being prescribed
substances capable of releasing atomic energy, or as being requisite
for the production, use or application of atomic energy;
3. The term "nuclear facility" means:
(a) any apparatus designed or used to sustain nuclear fission in a
self-supporting chain reaction or to contain a critical mass of
plutonium, thorium and uranium or any one or more of them;
(b) any equipment or device designed or used for (i) separating the
isotopes of plutonium, thorium and uranium or any one or more
of them, (ii) processing or utilizing spent fuel, or (iii)
handling, processing or packaging waste;
(c) any equipment or device used for the processing, fabricating or
alloying of plutonium, thorium or uranium enriched in the
isotope uranium 233 or in the isotope uranium 235, or any one
or more of them if at any time the total amount of such
material in the custody of the Insured at the premises where
such equipment or device is located consists of or contains
more than 25 grams of plutonium or uranium 233 or any
combination thereof, or more than 250 grams of uranium 235;
(d) any structure, basin, excavation, premises or place prepared or
used for the storage or disposal of waste radioactive material;
and includes the site on which any of the foregoing is located,
together with all operations conducted thereon and all premises used
for such operations.
4. The term "fissionable substance" means any prescribed substance that
is, or from which can be obtained, a substance capable of releasing
atomic energy by nuclear fission.
5. With respect to property, loss of use of such property shall be deemed
to be property damage.
<PAGE> 27
In accordance with NMA 1979 (11/10/84)
<PAGE> 28
NUCLEAR ENERGY RISKS EXCLUSION CLAUSE (REINSURANCE) (1994)
(WORLDWIDE EXCLUDING U.S.A. & CANADA)
This Contract shall exclude Nuclear Energy Risks whether such risks are written
directly and/or by way of reinsurance and/or via Pools and/or Associations.
For all purposes of this Contract Nuclear Energy Risks shall mean all first
party and/or third party insurances or reinsurances (other than Workers'
Compensation and Employers' Liability) in respect of:-
(I) All Property on the site of a nuclear power station.
Nuclear Reactors, reactor buildings and plant and equipment therein
on any site other than a nuclear power station.
(II) All Property, on any site (including but not limited to the
sites referred to in (I) above) used or having been used for :-
(a) The generation of nuclear energy; or
(b) The production Use or Storage of Nuclear Material.
(III) Any other Property eligible for insurance by the relevant local
Nuclear Insurance Pool and/or Association but only to the extent of
the requirements of that local Pool and/or Association.
(IV) The supply of goods and services to any of the sites, described
in (I) to (III), above unless such insurances or reinsurances shall
exclude the perils of irradiation and contamination by Nuclear
Material.
Except as undernoted, Nuclear Energy Risks shall not include
(I) Any insurance or reinsurance in respect of the construction or
erection or installation or replacement or repair or maintenance or
decommissioning of Property as described in (I) to (III) above
(including contractors' plant and equipment).
(II) Any Machinery Breakdown or other Engineering insurance or
reinsurance not coming within the scope of (I) above.
Provided always that such insurance or reinsurance shall exclude the
perils of irradiation and contamination by Nuclear Material.
<PAGE> 29
However, the above exemption shall not extend to :-
(1) The provision of any insurance or reinsurance whatsoever in
respect of :
(a) Nuclear Material;
(b) any Property in the High Radioactivity Zone or Area of any
Nuclear Installation as from the introduction of Nuclear
Material or for reactor installations - as from fuel loading
or first criticality where so agreed with the relevant local
Nuclear Insurance Pool and/or Association.
(2) The provision of any insurance or reinsurance for the undernoted
perils:
-fire, lightning, explosion;
-earthquake;
-aircraft and other aerial devices or articles dropped
therefrom;
-irradiation and radioactive contamination; -any other peril
insured by the relevant local Nuclear Insurance Pool and/or
Association.
in respect of any other Property not specified in (1) above
which directly involves the production, use or storage of
Nuclear Material as from the introduction of Nuclear Material
into such Property.
Definitions
"Nuclear Material" means:
(I) nuclear fuel, other than natural uranium and depleted
uranium, capable of producing energy by a self-sustaining
chain process of nuclear fission outside a Nuclear Reactor,
either alone or in combination with some other material; and
(ii) Radioactive Products or Waste.
"Radioactive Products or Waste" means any radioactive material
produced in, or any material made radioactive by exposure to
the radiation incidental to the production or utilisation of
nuclear fuel, but does not include radioisotopes which have
reached the final stage of fabrication so as to be usable for
any scientific, medical, agricultural, commercial or
industrial purpose.
"Nuclear Installation" means
(i) any Nuclear Reactor;
<PAGE> 30
(ii) any factory using nuclear fuel for the production of
Nuclear Material, or any factory for the processing of Nuclear
Material, including any factory for the reprocessing of
irradiated nuclear fuel: and
(iii) any facility where Nuclear Material is stored, other
than storage incidental to the carriage of such material.
"Nuclear Reactor" means any structure containing nuclear fuel
in such arrangement that a self sustaining chain process of
nuclear fission can occur therein without an additional source
of neutrons.
"Production, Use or Storage of Nuclear Material" means the
production, manufacture, enrichment, conditioning, processing,
reprocessing, use, storage, handling and disposal of Nuclear
Material.
"Property" shall mean all land, buildings, structures, plant,
equipment, vehicles, contents (including but not limited to
liquids and gases) and all materials of whatever description
whether fixed or not.
"High Radioactivity Zone or Area" means:
(i) for nuclear power stations and Nuclear Reactors, the
vessel or structure which immediately contains the core
(including its supports and shrouding) and all the contents
thereof, the fuel elements, the control rods and the
irradiated fuel store; and
(ii) for non reactor Nuclear Installations, any area where the
level of radioactivity requires the provision of a biological
shield.
In accordance with NMA 1975A (1/4/94)
<PAGE> 1
Exhibit 10.33
REVERSE FRANCHISE CATASTROPHE
EXCESS OF LOSS REINSURANCE
(hereinafter referred to as the "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as "the Company")
and
SUBSCRIBING REINSURERS
AS PER THE ATTACHED INTERESTS & LIABILITIES AGREEMENT
(hereinafter referred to as "the Reinsurers")
<PAGE> 2
ARTICLE I - BUSINESS COVERED
The Reinsurers will indemnify the Company, subject to the limits set forth in
the Retention and Limit Article for any loss or losses occurring during the term
of this Agreement. This Agreement shall cover all Original Contracts
underwritten by the Company and classified by the Company as Property
Reinsurance Business Assumed, including the Property portions of Multi-Line
Business and Workers Compensation and/or Employers Liability losses arising from
one or more of the following perils: Fire, Lightening, Explosion, Structural
Collapse, Windstorm, Hail, Flood, Seismic Activity, Volcanic Eruption,
Collision, Riots and Strikes, Civil Commotion, or Malicious Mischief, and any
Physical Damage and/or Consequential Loss Coverage contingent thereon effected
by an insured on behalf of another party.
All reinsurance for which the Reinsurers will be obligated by virtue of this
Agreement will be subject to the same terms, conditions, interpretations,
waivers, modifications, and alterations as the respective original contracts of
the Company to which this Agreements applies. Nothing herein will in any manner
create any obligations or establish any rights against the Reinsurers in favor
of any third parties or any persons not parties to this Agreement except as
provided in the Insolvency Article.
ARTICLE II - TERM
This Agreement will apply to all losses occurring during the 12-month term
incepting at 12:01 a.m. Eastern Standard Time on April 1, 1997.
Notwithstanding the expiration of this Agreement as hereinabove provided, its
provisions will continue to apply to all unfinished business hereunder to the
end that all obligations and liabilities incurred by each party hereunder will
be fully performed and discharged.
ARTICLE III - EXTENDED TERMINATION
Should this Agreement expire while a loss occurrence covered hereunder is in
progress, subject to the other conditions of this Agreement, the Reinsurers will
indemnify the Company as if the entire loss occurrence had arisen during the
term of this Agreement, and provided that no part of said loss occurrence is
claimed against any renewal of this Agreement.
ARTICLE IV - TERRITORY
The territorial limits of this Agreement shall only cover losses occurring in
the United States of America, the District of Columbia and Canada.
ARTICLE V - EXCLUSIONS
No reinsurance indemnity will be afforded under this Agreement for:
<PAGE> 3
A Loss or damage directly caused by war and/or civil war, but this
exclusion will not apply to business written in accordance with the
Market War and/or Civil War Exclusion Agreement.
B Any loss or liability accruing to the Company directly or indirectly
and whether as insurer or reinsurer from any pool of insurers or
reinsurers formed for the purposes of covering Atomic or Nuclear Energy
Risks.
C Nuclear risks as defined in the following:
1 Nuclear Incident Exclusion Clause - Physical Damage -
Reinsurance (U.S.A.) attached to this Agreement, or as may be
revised hereafter by the Lloyd's Underwriters Non-Marine
Association.
2 Nuclear Incident Exclusion Clause - Physical Damage -
Reinsurance (Canada) attached to this Agreement, or as may be
revised hereafter by the Lloyd's Underwriters Non-Marine
Association.
3 Nuclear Energy Risks Exclusion Clause (Reinsurance) (1994)
(Worldwide Excluding U.S.A. & Canada) attached to this
Agreement, or as may be revised hereafter by the Lloyd's
Underwriters Non-Marine Association.
4 Nuclear Incident Exclusion Clauses - Physical Damage and
Liability (Boiler and Machinery Policies) - Reinsurance
(U.S.A. and Canada) attached to this Agreement, or as may be
revised hereafter by the Lloyd's Underwriters Non-Marine
Association.
D Financial Guarantee, Insolvency, or Credit Business.
E Fidelity and Surety.
F Reinsurance of Coastal Pools when written as such.
G Life business, other than Accidental Death and Dismemberment.
H Aviation, Aerospace, and Satellite business.
I Casualty business, except as set forth in the Coverage Article.
J Hail damage to growing or standing crops.
K Banking or Funding Plans.
L Loss or liability excluded by the Insolvency Funds Exclusion Clause
attached to this Agreement.
<PAGE> 4
M Reinsurance assumed on an excess of loss and/or pro rata reinsurance
basis issued in the name of and for the account of a Lloyd's Syndicate
or of an insurance or reinsurance company, whether such liability is
accepted either directly or under any form of reinsurance from other
insurers and/or reinsurers, and all such liability is excluded from the
protection of this Reinsurance and cannot be taken into account in
arriving at the amount in the excess of which this Reinsurance attaches
or the ultimate net loss sustained by the Company.
N All losses sustained by the Company howsoever and wheresoever arising
including all Business Interruption, Consequential Loss and/or other
contingent losses proximately caused by a peril insured in respect of
the Company's exposures from:
1 All marine business when written as such; however, not to
exclude such exposures if they emanate from a multi-line
insurance contract and/or policy.
2 All Offshore exposures arising from business of any
description connected with the oil and/or gas and/or sulphur
and/or uranium exploration and production industries in all
their phases and including all associated support and/or
service industries.
"Offshore" will be defined as:
(a) That area encompassing locations covered by oceans or
seas in which water ebbs and flows
and/or
(b) Other navigable waters or waterways which will mean
any water which is in fact navigable by ships or
vessels, whether or not the tide ebbs and flows
there, and whether or not there is a public right of
navigation on that water.
O Losses in respect of overhead transmission and distribution lines and
their supporting structures other than those on or within 500 feet of
the insured premises; however, public utilities extension and/or
contingent business interruption coverages are not subject to this
exclusion, provided that these are not part of a transmitter's or
distributor's policy.
P Auto Collision.
The exclusions set forth above will not apply where the Company is obliged to
provide coverage by reason of membership in any state plan, pool, facility,
joint underwriting association or similar involuntary participation.
<PAGE> 5
The Company may submit to the Reinsurers for special acceptance hereunder,
business not covered by this Agreement. If said business is accepted by the
Reinsurers, it will be subject to the terms of this Agreement, except as such
terms are modified by such acceptance.
ARTICLE VI - DEFINITIONS
The following words and phrases used in this Agreement will have the indicated
meanings:
A "Original Contracts" as used in this Agreement will mean any and all
policies, binders, certificates, acceptances, contracts, or agreements
of reinsurance, whether written or oral.
B "Loss occurrence" as used in this Agreement will mean all losses
arising out of or following one event. As regards aggregate and/or stop
loss original contracts assumed by the Company, the proportion of such
loss or losses that forms part of the Company's ultimate net loss under
this Agreement will be the proportion of the whole aggregate recovery
that the original reinsured's individual catastrophe loss bears to its
total losses used in arriving at aggregate excess recoveries.
C "Ultimate Net Loss" as used in this Agreement will mean the actual loss
or losses sustained by the Company both as regards the original
contracts and this Agreement, including 80% of any extra contractual
obligations incurred by the Company, on its net retained liability
after making deductions for all recoveries, salvages, and all
reinsurance (other than underlying reinsurance) whether collectible or
not. Ultimate net loss will cover loss expense incurred by the Company
(both as regards the original contracts and this Agreement) and arising
from the settlement of claims, including interest and court costs
incurred in investigation, adjustment, and litigation and a pro rata
share of salaries and expenses of the field adjusters of the original
reinsured and the Company while adjusting such claims, and expenses of
other employees of the original reinsured and the Company who have been
temporarily diverted from their normal and customary duties as a result
of such claims. However, both salaries of other employees and office
expenses of the original reinsured and Company will be excluded.
All salvage, recoveries, or reinsurance payments received subsequent to
any loss settlement hereunder will be applied as if received prior to
the settlement, and all necessary adjustments will be made by the
parties hereto. Nothing in this definition, however, should be
construed to mean that losses under this Agreement are not recoverable
until the Company's ultimate net loss has been ascertained.
ARTICLE VII - RETENTION AND LIMIT
No claim will be made hereunder unless the Company has first sustained an
ultimate net loss in excess of $1,000,000 each and every loss occurrence. The
Reinsurers will then be liable for the amount of ultimate net loss in excess of
$1,000,000 each and every loss occurrence,
<PAGE> 6
but the limit of liability of the Reinsurers will not exceed $2,000,000 with
respect to each and every loss occurrence in all.
ARTICLE VIII - NET RETAINED LIABILITY
In computing the amount or amounts in excess of which this Agreement attaches,
only a loss or losses in respect to that portion of any reinsurance that the
Company retains net for its own account will be included. The amount of the
Reinsurers' liability hereunder with respect to any loss or losses will not be
increased by the inability of the Company to collect from any other Reinsurers
any amounts that may have become due from them, whether such inability arises
from the insolvency of such Reinsurers or otherwise.
ARTICLE IX - RATE AND PREMIUM
For the term of this Agreement, there will be a premium hereon of $150,000
payable on April 1, plus an additional premium equal to 7.5% of all paid losses
hereunder, subject to a maximum additional premium of $150,000.
The adjustment of the original premium to take into account any such paid losses
hereunder shall be made at the anniversary date of this contract and each year
thereafter until the losses are finally settled.
ARTICLE X - EXTRA CONTRACTUAL OBLIGATIONS
This Agreement will extend to cover losses arising from claims related extra
contractual obligations whether incurred by the original reinsured or the
Company in accordance with the percent factors as set forth in the ultimate net
loss definition.
"Extra contractual obligations" as used in this Agreement will mean those
liabilities not covered under any other provision of this Agreement, which arise
from the handling of any claim on business covered hereunder, such liabilities
arising because of, but not limited to, the following: failure to settle within
the policy limit, by reason of alleged or actual negligence, fraud, or bad faith
in rejecting an offer of settlement, in the preparation of the defense, in the
trial of any action against the insured or reinsured, or in the preparation or
prosecution of an appeal consequent upon such action.
There will be no recovery hereunder for an extra contractual obligation loss
that has been incurred due to fraud committed by a member of the board of
directors or a corporate officer of an original reinsured or the Company, acting
individually, collectively, or in collusion with a member of the board of
directors, a corporate officer, or a partner of any other corporation,
partnership, or organization involved in the defense or settlement of a claim on
behalf of an original reinsured or the Company.
<PAGE> 7
The date on which any extra contractual obligation is incurred by an original
reinsured or the Company will be deemed, in all circumstances to be the date of
the related occurrence under the original policy. Nothing in this Article will
be construed to create a separate or distinct loss occurrence apart from the
original covered loss occurrence that gave rise to the extra contractual
obligations discussed in the preceding paragraphs. In no event will the total
limit of liability of the Reinsurers exceed their applicable limit of liability
as set forth in the Retention and Limit Article.
ARTICLE XI - RESERVES
(This Article is only applicable to those Reinsurers who cannot qualify
for credit by each state or governmental authority having jurisdiction
over the Company's loss reserves)
As regards original contracts issued by the Company coming within the scope of
this Agreement, the Company agrees that, when it files with the Insurance
Department or sets up on its books reserves for known losses that have been
reported to the Reinsurers (including loss and loss expense paid by the Company
but not recovered from the Reinsurers and loss and loss expense reported and
outstanding), which it is required by law to set up, it will forward to the
Reinsurers a statement showing the proportion of such loss reserves applicable
to them. The Reinsurers hereby agree that they will apply for and secure
delivery to the Company of a clean, irrevocable, and unconditional Letter of
Credit issued by Citibank, N.A. (or another member of the Federal Reserve
System) or any bank approved for use by the NAIC Securities Valuation Office,
and containing provisions acceptable to the insurance regulatory authorities
having jurisdiction over the Company's reserves in an amount equal to the
Reinsurers proportion of such reserves as shown in the statement prepared by the
Company. Under no circumstances will any amount relating to reserve in respect
of Incurred But Not Reported losses be included in the amount of the Letter of
Credit.
The Letter of Credit will be issued for a period of not less than one year, and
will be automatically extended for one year from its date of expiration or any
future expiration date unless 30 days prior to any expiration date the issuing
bank notifies the Company by registered mail that it elects not to consider the
Letter of Credit extended for any additional period. An issuing bank, not a
member of the Federal Reserve System or not chartered in the state of domicile
of the Company, will provide 60 days notice to the Company by registered mail
prior to any expiration in the event of nonextension.
Notwithstanding any other provisions of this Agreement, the Company or its
court-appointed successor in interest may draw upon such credit at any time
without diminution because of the insolvency of the Company or of any Reinsurer
for one or more of the following purposes only:
A To pay the Reinsurers' share or to reimburse the Company for the
Reinsurers' share of any loss reinsured by this Agreement, which has
not otherwise been paid.
<PAGE> 8
B To make refund of any sum in excess of the actual amount required to
pay the Reinsurers' share of any liability reinsured by this Agreement.
C In the event of nonextension of the Letter of Credit as provided for
above, to establish deposit of the Reinsurers' share of reserves for
losses under this Agreement. Such cash deposit will be held in an
interest bearing account separate from the Company's other assets, and
interest thereon will accrue to the benefit of the Reinsurers.
The issuing bank will have no responsibility whatsoever in connection with the
propriety of withdrawals made by the Company or the disposition of funds
withdrawn, except to ensure that withdrawals are made only upon the order of
properly authorized representatives of the Company.
At annual interval, or more frequently as agreed but never more frequently than
semi-annually, the Company will prepare a specific statement, for the sole
purpose of amending the Letter of Credit, of the Reinsurers' share of reserves
for losses. If the statement shows that the Reinsurers' share of such reserves
exceeds the balance of credit as of the statement date, the Reinsurers will,
within 30 days after receipt of notice of such excess, secure delivery to the
Company of an amendment of the Letter of Credit, increasing the amount of credit
by the amount of such difference. If, however, the statement shows that the
Reinsurers' share of such reserves is less than the balance of credit as of the
statement date, the Company will, within 30 days after receipt of written
request from the Reinsurers, 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.
ARTICLE XII - LOSS NOTICES AND SETTLEMENTS
The Company will advise the Reinsurers promptly of all losses that, in the
opinion of the Company, appear to involve the Reinsurers under this Agreement
and of all subsequent developments pertaining thereto that, in the opinion of
the Company, may materially affect them as well. Inadvertent omission in
dispatching the aforementioned notices will in no way affect the obligation of
the Reinsurers under this Agreement, providing the Company informs the
Reinsurers of such omission promptly upon discovery.
The Company will have the right to settle all claims under this Agreement. The
loss settlements of the original reinsured, provided they are within the terms
of the original contracts, and the loss settlements of the Company, provided
they are within the terms of this Agreement, will be unconditionally binding on
the Reinsurers in proportion to their participation in this Agreement. Amounts
due the Company hereunder in the settlement of loss and loss expense will be
payable by the Reinsurers immediately upon being furnished by the Company with
reasonable evidence of the amount paid or to be paid in excess of the Company's
ultimate net loss retention as set forth in the Retention and Limit Article, by
reason of any one loss occurrence.
<PAGE> 9
ARTICLE XIII - OFFSET
The Company and each Reinsurer hereunder will be entitled to deduct from amounts
due the other party under this Agreement any amounts due itself from the other
party under this Agreement.
ARTICLE XIV - SALVAGE AND SUBROGATION
The Reinsurers will be credited with their share of salvage and/or subrogation
(i.e., reimbursement obtained or recovery made by the Company less expense
incurred in obtaining such reimbursement or making such recovery) pertaining to
the claims and settlements involving reinsurance hereunder.
Salvage and/or subrogation will always be used to reimburse the excess
Reinsurers (and the Company if it carries a portion of the excess coverage net)
in the reverse order of their participation in said loss before being used in
any way to reimburse the Company for the loss within its primary retention. If
salvage and/or subrogation is insufficient to cover the expense incurred in its
recovery, the net expense (after deduction of the amount recovered, if any) will
be added to ultimate net loss as will loss expense incurred by the Company prior
to any reimbursement for salvage and/or subrogation.
ARTICLE XV - WARRANTIES
Claims will only be eligible for recovery hereunder if there is an original
insured market loss from one event (for first party physical damage only) equal
to or less than $2,000,000,000 in the U.S.A., the District of Columbia and
Canada.
This loss will be determined by the stated values reported in the Property
Claims Services Division or the "Insurance Facts" Handbook for U.S. losses. In
the event of a market loss involving the U.S.A., the District of Columbia and
Canada and countries outside the U.S.A., the District of Columbia and Canada the
amount of the market loss shall be understood to mean only that part of the loss
pertaining to the U.S.A., the District of Columbia and Canada.
In the event that the Property Claims Service is discontinued, or they
materially change their methodology in a way that makes them unsuitable for the
purposes intended, an alternative source will be used subject to the agreement
of the Leading Underwriter and the Company. The final determination of the
insured Market Loss shall be established 24 months after the occurrence.
However, the Company shall be entitled to make provisional recovery for actual
paid losses recoverable under this Agreement based on prior statements of loss
by the source mentioned above.
Notwithstanding the above, the Company specifically agrees to return all claims
monies received from Reinsurers hereon as soon as practicable, in respect of any
loss (or losses), if
<PAGE> 10
(a) finally determined at above $2,000,000,000 or equivalent in any other
currency or
(b) when the reserve for such loss, as defined herein is increased to above
$2,000,000,000 or equivalent in any other currency, whichever the sooner.
No loss shall attach hereunder unless the Company sustain loss from two or more
original risks involved in the same loss event. For the purpose of the above,
any one risk is defined as all values at one location including all business
interruption and/or time element exposures whether by way of Contingent Business
Interruption, Suppliers or Customers extensions.
ARTICLE XVI - DELAYS, ERRORS AND OMISSIONS
Inadvertent delays, errors, or omissions made in connection with this Agreement
or any transaction hereunder will not relieve either party from any liability
that would have attached had such delay, error, or omission not occurred,
provided always that such error or omission is rectified immediately upon
discovery. The liability of the Reinsurers under this Agreement will in no event
exceed the limits specified in the Retention and Limit Article, nor will the
Reinsurers' liability be extended to cover any risks, perils, or classes of
insurance excluded herein except as set forth in the Exclusions Article.
ARTICLE XVII - AMENDMENTS
This Agreement may be altered or amended in any of its terms and conditions by
mutual consent of the Company and the Reinsurers by addenda hereto, which will
then constitute a part of this Agreement.
ARTICLE XVIII - ACCESS TO RECORDS
Provided that the Company has been given reasonable notice, the Reinsurers will
have the right to inspect at any reasonable time, through their designated
representatives, all records of the Company that pertain in any way to this
Agreement.
ARTICLE XIX-INSOLVENCY
In the event of the Company's insolvency, the reinsurance under this Agreement
will be payable by the Reinsurers directly to the Company, its liquidator,
receiver, conservator or statutory successor on the basis of the Company's
liability under the original contracts without diminution because of the
Company's insolvency or because the liquidator; receiver, conservator or
statutory successor of the Company has failed to pay all or a portion of any
claims, subject however, to the right of the Reinsurers to offset from such
funds due hereunder, any sums that may be payable to it by said insolvent
Company in accordance with the Offset Article
<PAGE> 11
As a condition precedent to the Reinsurers foregoing obligation, however, the
liquidator, receiver, conservator or statutory successor of the Company will
give written notice of the pendency of a claim against the insolvent Company on
the original contract or contracts reinsured within a reasonable time after such
claim is filed in the insolvency proceeding. During the pendency of such claim,
the Reinsurers may investigate such claim and interpose, at their own expense,
in the proceeding where such claim is to be adjudicated, any defense they may
deem available to the Company, its liquidator, receiver, conservator or
statutory successor. The expense thus incurred by the Reinsurers shall be
chargeable against the Company, subject to court approval, as part of the
expense of conservation or liquidation to the extent that such proportionate
share of the benefit will accrue to the Company solely as a result of the
defense undertaken by the Reinsurers. .
Where two or more Reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the Company.
ARTICLE XX-ARBITRATION
As a condition precedent to any right of action hereunder, any dispute arising
out of this Agreement shall be submitted to the decision of a board of
arbitration composed of two arbitrators and an umpire, meeting in the City in
which the Company's Head Office is located unless otherwise agreed.
The members of the board of arbitration shall be active or retired disinterested
officials of insurance or reinsurance companies, or Lloyd's Underwriters. Each
party shall appoint its arbitrator and the two arbitrators shall choose an
umpire before instituting the hearing. In the event that either party should
fail to choose an arbitrator within thirty (30) days following a written request
by the other party to enter upon arbitration, the requesting party may choose
two arbitrators who shall in turn choose an umpire before entering upon
arbitration. In the event the two arbitrators fail to agree on an umpire either
party shall have the right to submit the matter to the American Arbitration
Association in effect at that time.
Each party shall present its case to the arbitrators within sixty (60) days
following the date of their appointment. The board shall make its decision with
regard to the custom and usage of the insurance and reinsurance business. The
board shall issue its decision in writing based upon a hearing in which evidence
may be introduced without following strict rules of evidence but in which
cross-examination and rebuttal shall be allowed. The board shall make its
decision within sixty (60) days following the termination of the hearings unless
the parties consent to an extension. The majority decision of the board shall be
final and binding upon all parties to the proceeding. Judgment may be entered
upon the award of the board in any court having jurisdiction thereof. If more
than one reinsurer is involved in the same dispute, all such reinsurers shall
constitute and act as one party for purposes of this clause and communications
shall be made by the Company to each of the reinsurers constituting the one
party, provided, however, that nothing shall impair the rights of such
reinsurers to assert several, rather than joint, defenses or claims, nor
<PAGE> 12
be construed as changing the liability of the Reinsurer under the terms of this
Agreement from several to joint. Each party shall bear the expense of its own
arbitrator and shall jointly and equally bear with the other party the expense
of the umpire. The remaining costs of the arbitration proceedings shall be
allocated by the board.
ARTICLE XXI - TAXES
The Company will pay all taxes (except Federal Excise Tax) on premiums reported
to the Reinsurers on this Agreement.
ARTICLE XXII - FEDERAL EXCISE TAX
(This Article applies to Reinsurers domiciled outside the United States of
America, excepting Lloyd's of London Underwriters and other Reinsurers exempt
from Federal Excise Tax.)
The Reinsurers will allow for the purpose of paying Federal Excise Tax the
applicable percentage of the premium payable hereon (as imposed under Section
4371 of the Internal Revenue Service Code) to the extent such premium is subject
to such tax. In the event of any return of premium, the Reinsurers will deduct
the aforesaid percentage from the return premium payable hereon and the Company
or its agent will recover such tax from the United States Government.
ARTICLE XXIII - CURRENCY
The use of the sign "$" in this Agreement is in reference to United States of
America Dollars. Therefore, premiums due the Reinsurers and loss payments due
the Company hereunder will be in United States of America Dollars.
ARTICLE XXIV - SERVICE OF SUIT
(This Article applies to those Reinsurers domiciled outside the United States of
America as well as those Reinsurers unauthorized in the Company's state of
domicile. This Article is not intended to conflict with or override the parties'
obligation to arbitrate their disputes in accordance with the Arbitration
Article.)
In the event of the failure of any Reinsurer hereon to pay any amount claimed to
be due hereunder, the Reinsurer, at the request of the Company, 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 Reinsurers' right to commence an action in any Court of competent
jurisdiction in the United States, to remove an action to a United States
District Court, or to seek a transfer of a case to another Court as permitted by
the laws of the United States or of any state in the United States. Service of
process in such suit may be made upon Mendes and Mount, 750 Seventh Avenue, New
York, New York 10019-6829, or another party specifically designated in the
applicable Interests and
<PAGE> 13
Liabilities Agreement attached hereto. In any suit instituted against it 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 Company
to give a written undertaking to the Company that they will enter a general
appearance upon the Reinsurers' behalf in the event such a suit is instituted.
Further, pursuant to any statute of any state, territory, or district of the
United States that makes provision therefore, the Reinsurer hereby designates
the Superintendent, Commissioner, or Director of Insurance or other officer
specified for that purpose in the statute (or his successor or successors in
office( as its true and lawful attorney upon whom may be served any lawful
process in any action, suit, or proceeding instituted by or on behalf of the
Company or any beneficiary hereunder arising out of this Agreement, and hereby
designates the above named as the person to whom the said officer is authorized
to mail such process or a true copy thereof.
ARTICLE XXV - INTERMEDIARY
Ballantyne, McKean and Sullivan Limited., are hereby recognized as the
Intermediary negotiating this Agreement for all business hereunder. All
communication (including, but not limited to, notices, statements, premiums,
return premiums, losses, loss adjustment expenses, salvages and loss
settlements) relating thereto shall be transmitted to the Reinsurers or the
Company through Ballantyne, McKean and Sullivan Limited., Latham House, 16
Minories, London EC3N 1AX. Payments by the Company to the Intermediary shall be
deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the
Intermediary shall be deemed only to constitute payment to the Company to the
extent that such payments are actually received by the Company.
<PAGE> 14
Our Ref : 973676005
INTERESTS AND LIABILITIES AGREEMENT
to the
REVERSE FRANCHISE CATASTROPHE
EXCESS OF LOSS REINSURANCE
(hereinafter referred to as the "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
STAMFORD, CONNECTICUT
(hereinafter referred to as the "Company")
and
CERTAIN INSURANCE/REINSURANCE COMPANIES
(hereinafter referred to as "the Reinsurers")
This Agreement shall be effective at 12.01 a.m. Eastern Standard Time, 1st
April, 1997, and shall remain in force until terminated in accordance with the
provisions of the attached Agreement.
The share of the Reinsurers in the Interests and Liabilities of the Reinsurers'
in respect of the said Agreement shall be separate and apart from the shares of
the other Reinsurers' to the said Agreement, and the Interests and Liabilities
of the Reinsurers shall not be joint with those of the other Reinsurers' and in
no event shall the Reinsurers participate in the Interests and Liabilities of
the other Reinsurers'.
The Reinsurers shall have a 66.67 % share of this Agreement.
IN WITNESS WHEREOF, the Reinsurers hereon, by their respective duly authorized
officer, has executed this Agreement as of the date undermentioned.
Signed in this day of ,1997
For and on behalf of: TRENWICK AMERICA
REINSURANCE CORPORATION
<PAGE> 15
--------------------------
and in this day of ,1997
For and on behalf of: CERTAIN INSURANCE/REINSURANCE
COMPANIES (as per schedule attached)
-----------------------------------
<PAGE> 1
EXHIBIT 12.0
TRENWICK GROUP INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Earnings:
Net Income $35,252 $33,848 $29,841 $20,282 $23,739
Extraordinary loss on debt redemption,
net of tax $558 income tax benefit 1,037 -- -- -- --
Income taxes 11,241 9,980 8,572 2,753 4,220
-------- ------- ------- ------- -------
Income before income taxes and
extraordinary item 47,530 43,828 38,413 $23,035 $27,959
Fixed charges (as below) 10,140 6,826 6,805 6,785 6,737
Earnings (for ratio calculation) $ 57,670 $50,654 $45,218 $29,820 $34,696
======== ======= ======= ======= =======
Fixed charges:
Interest expense $ 894 $ 6,503 $ 6,496 $ 6,469 $ 6,486
Minority interest 8,920 -- -- -- --
Portion of rental expense which
approximates the interest factor 326 323 309 316 251
Total fixed charges $ 10,140 $ 6,826 $ 6,805 $ 6,785 $ 6,737
======== ======= ======= ======= =======
Ratio of earnings to fixed charges 5.7 7.4 6.6 4.4 5.2
======== ======= ======= ======= =======
</TABLE>
For purposes of computing the consolidated ratio of earnings to fixed charges,
"earnings" represent income before income taxes and extraordinary item and
fixed charges. "Fixed charges" include gross interest expense (other than on
deposits), minority interest and the proportion deemed representative of the
interest factor of rent expense.
<PAGE> 1
EXHIBIT 21
Trenwick Group Inc.
ID No. 06-1152790
<TABLE>
<CAPTION>
<S> <C>
100% 100%
Trenwick Services, Ltd. Trenwick America Corporation
ID No. 06-1087672
100% 100%
Trenwick Guaranty Insurance Company, Ltd. Trenwick America Reinsurance Corporation
ID No. 06-1117063
Domicile-Connecticut
NAIC Code 34894
</TABLE>
<PAGE> 1
EXHIBIT 23.0
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-09245, No. 33-09248, No. 33-19833, No. 33-31115,
No. 33-68112, No. 33-83092 and No. 33-83094) of Trenwick Group Inc. of our
report dated January 27, 1998, appearing on page 28 of this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report on
the financial statement schedules, which appears on page S-4 of this Form 10-K.
PRICE WATERHOUSE LLP
New York, New York
March 19, 1998
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
Financial Statements contained in Form 10-K for the year ended December 31, 1997
for Trenwick Group Inc.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 812,314
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 39,163
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 851,477
<CASH> 12,847
<RECOVER-REINSURE> 66,361<F1>
<DEFERRED-ACQUISITION> 22,524
<TOTAL-ASSETS> 1,087,923
<POLICY-LOSSES> 518,387
<UNEARNED-PREMIUMS> 87,020
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
110,000
0
<COMMON> 1,195
<OTHER-SE> 356,454
<TOTAL-LIABILITY-AND-EQUITY> 1,087,923
190,156
<INVESTMENT-INCOME> 48,402
<INVESTMENT-GAINS> 2,304
<OTHER-INCOME> 10
<BENEFITS> 109,554
<UNDERWRITING-AMORTIZATION> 58,549
<UNDERWRITING-OTHER> 25,239
<INCOME-PRETAX> 47,530
<INCOME-TAX> 11,241
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (1,037)
<CHANGES> 0
<NET-INCOME> 35,252
<EPS-PRIMARY> 3.03
<EPS-DILUTED> 3.01
<RESERVE-OPEN> 386,887<F2>
<PROVISION-CURRENT> 114,920
<PROVISION-PRIOR> (5,366)
<PAYMENTS-CURRENT> (22,893)
<PAYMENTS-PRIOR> (94,197)
<RESERVE-CLOSE> 379,351<F3>
<CUMULATIVE-DEFICIENCY> 4,098<F4>
<FN>
<F1>Represents net reinsurance recoverable balances after offset of funds held and
reinsurance balances payable.
<F2>Reflects net reserve at beginning of year for unpaid claims.
<F3>Reflects net reserve at end of year for unpaid claims.
<F4>Reflect gross redundancy in restated reserves.
</FN>
</TABLE>
