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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, 1999.
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 1-15389
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.)
One Canterbury Green, Stamford, Connecticut 06901
(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:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, par value $.10 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value on March 24, 2000 of the voting stock held by
non-affiliates of the registrant was $224,696,190.
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:
Class Outstanding at March 24, 2000
----- -----------------------------
Common Stock, $.10 par value 16,295,207
Certain portions of the registrant's definitive proxy statement relating to its
annual meeting of stockholders scheduled to be held on May 18, 2000 are
incorporated by reference into Part III of this report and certain portions of
the registrant's annual report to stockholders are incorporated by reference
into Parts II and IV of this report.
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<PAGE>
TRENWICK GROUP INC.
Table of Contents
<TABLE>
<CAPTION>
Page
Item Number
- - ---- ------
PART I
<S> <C>
1. Business ......................................................................................... 1
2. Properties ....................................................................................... 22
3. Legal Proceedings ................................................................................ 23
4. Submission of Matters to a Vote of Security Holders .............................................. 23
PART II
5. Market for the Corporation's Common Stock and Related Stockholder Matters ........................ 24
6. Selected Financial Data .......................................................................... 25
7. Management's Discussion and Analysis of Financial Condition and
Results of Operation ............................................................................. 27
7a. Quantitative and Qualitative Disclosures About Market Risk......................................... 27
8. Financial Statements and Supplementary Data ...................................................... 27
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................................................. 27
PART III
10. Directors and Executive Officers ................................................................. 27
11. Executive Compensation ........................................................................... 28
12. Security Ownership of Certain Beneficial Owners and Management ................................... 28
13. Certain Relationships and Related Transactions ................................................... 28
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .................................. 28
</TABLE>
<PAGE>
PART I
Item 1. Business
General Background and History
Trenwick Group Inc. ("Trenwick") is a specialty insurance underwriting
organization with multiple distribution platforms in insurance and reinsurance
operating through its subsidiaries located in the United States and the United
Kingdom. Trenwick's four principal operating units are Trenwick America
Reinsurance Corporation ("Trenwick America Re"), which provides treaty
reinsurance to insurers of property and casualty risks in the United States;
Trenwick International Limited ("Trenwick International"), which underwrites
treaty and facultative reinsurance as well as specialty insurance on a worldwide
basis; Chartwell Managing Agents Limited ("Chartwell Managing Agents"),
Trenwick's managing agency at Lloyd's; and Canterbury Financial Group Inc.
("Canterbury Financial"), which underwrites U.S. property and casualty insurance
through specialty program administrators.
Trenwick was incorporated in the State of Delaware in 1985. Trenwick America Re,
a Connecticut corporation, operated as a subsidiary of Trenwick America
Corporation from 1983 through 1985 and was acquired by Trenwick in 1985 as a
result of a corporate restructuring. Trenwick acquired Trenwick International in
February 1998 and Chartwell Re Corporation ("Chartwell") in October 1999. In
connection with the acquisition of Chartwell, Trenwick acquired Chartwell
Managing Agents, Chartwell Reinsurance Company ("Chartwell Reinsurance"), whose
reinsurance business was assumed by Trenwick America Re, and The Insurance
Corporation of New York ("INSCORP") and Dakota Specialty Insurance Company
("Dakota"), both of which are operating companies for Canterbury Financial. In
addition, Trenwick owns several inactive Bermuda subsidiaries.
On December 19, 1999, Trenwick announced that it had entered into a definitive
agreement to combine with LaSalle Re Holdings Limited, with shareholders of each
company to receive shares in a new Bermuda holding company to be named Trenwick
Group Ltd. This transaction is expected to be completed in the second quarter of
2000.
Each of Trenwick's operating insurance company subsidiaries is rated "A"
(Excellent) by A.M. Best Company and has been assigned an A+ financial strength
rating by Standard & Poor's. All of Chartwell Managing Agents' syndicates enjoy
the benefit of the ratings of Lloyd's, which is rated "A" (Excellent) by A.M.
Best Company and has an A+ claims paying ability rating from Standard & Poor's.
These ratings are based upon factors that may be of concern to policy or
contract holders, agents and intermediaries, but may not reflect the
considerations applicable to an equity investment in a reinsurance or insurance
company. A change in any such rating is at the discretion of the respective
rating agencies.
<PAGE>
Trenwick's gross and net premium writings for its operational units are as
follows:
1999 1998 1997
-------- -------- --------
Gross Premiums Written
Trenwick America Re $210,921(1) $218,249 $248,662
Trenwick International 171,698 105,114(2) --
Chartwell Managing Agents 84,834(3) -- --
Canterbury Financial 38,088(4) -- --
-------- -------- --------
Total $505,541 $323,363 $248,662
======== ======== ========
Net Premiums Written
Trenwick America Re $155,108(1) $169,112 $195,230
Trenwick International 129,399 81,107(2) --
Chartwell Managing Agents 64,462(3) -- --
Canterbury Financial 5,641(4) -- --
-------- -------- --------
Total $354,610 $250,219 $195,230
======== ======== ========
(1) Includes reinsurance business of Chartwell Reinsurance and its subsidiaries
since its acquisition on October 27, 1999.
(2) Includes Trenwick International business since its acquisition on February
27, 1998.
(3) Includes Chartwell Managing Agents business since its acquisition on
October 27, 1999.
(4) Includes Canterbury Financial business since its acquisition on October 27,
1999.
Trenwick America Reinsurance Corporation
Trenwick America Re, which comprised 44% of Trenwick's total net premiums
written in 1999, underwrites United States treaty reinsurance, which accounts
for the majority of its business, as well as a small amount of facultative
reinsurance. In this section, Trenwick America Re's 1999 results include the
reinsurance business of Chartwell Reinsurance and its subsidiaries since its
acquisition on October 27, 1999.
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. 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's commitment is currently limited to $2,500,000 per contract
on casualty treaty business and $1,500,000 on property business. Larger
commitments are subject to Trenwick's Underwriting Committee referral process.
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<PAGE>
Trenwick America Re's net premiums written by line of business are set forth in
the following table for the periods indicated.
Trenwick America Reinsurance Corporation
Net Premiums Written By Lines of Business
(in thousands)
1999(1) 1998 1997
--------- --------- ---------
Casualty
Automobile Liability $ 17,831 $ 51,299 $ 50,187
Errors and Omissions 45,557 36,655 40,063
General Liability 22,170 17,743 20,795
Accident and Health 17,922 11,014 6,326
Medical Malpractice 3,422 7,700 10,293
Workers' Compensation 8,297 3,025 18,328
Products Liability 1,834 2,312 1,743
Other Casualty 12,431 2,697 9,133
--------- --------- ---------
Total Casualty 129,464 132,445 156,868
--------- --------- ---------
Property 25,644 36,667 38,362
--------- --------- ---------
Total $ 155,108 $ 169,112 $ 195,230
========= ========= =========
(1) Includes reinsurance business of Chartwell Reinsurance and its subsidiaries
since its acquisition on October 27, 1999.
The major lines of reinsurance currently written by Trenwick America Re are
automobile liability, errors and omissions, general liability and accident and
health. Together these lines account for an aggregate of at least 67% of its net
premiums written in all years indicated. The overall decline in net premiums
written since 1997 is 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 America Re will accept. The 65% decline in automobile liability net
premium writings in 1999 resulted from the non-renewal of two significant
accounts, one of which was commuted in the fourth quarter of 1999. Accident and
health net premiums written increased by 63% compared to 1998 as a result of
Trenwick America Re's strategic alliance with Duncanson and Holt. This account
was non-renewed in 2000 following the sale of Duncanson and Holt. In 1999, the
amount of property business, including automobile physical damage, underwritten
by Trenwick America Re remained constant as a percentage of total net written
premiums.
Three ceding companies accounted for approximately 25%, 38%, and 32% of Trenwick
America Re's gross premiums written in 1999, 1998 and 1997, respectively. During
1999, Duncanson and Holt, American International Group and CNA Insurance
Companies accounted for 11%, 7% and 7%, respectively, of Trenwick America Re's
gross premiums written. While Trenwick America Re believes that the loss of
these accounts will not have a material adverse effect on the business and
operations of Trenwick, Trenwick does not believe that such a loss would have a
long-term adverse effect because of Trenwick's
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competitive position within the reinsurance market and the availability of
business from other brokers and ceding companies. Further, Trenwick believes
that it will continue to underwrite new business to replace the accounts.
Trenwick International Limited
Trenwick International's business, which accounted for 36% of Trenwick's total
net premiums written in 1999, consists principally of insurance and facultative
reinsurance of specialty classes. Trenwick International also underwrites
property and casualty treaty reinsurance. In the latter part of 1998, Trenwick
International opened a branch office in Paris which specializes in facultative
reinsurance of large, technically complex property risks. Premiums written by
the Paris branch in 1999 were not material.
Trenwick International also obtains all of its business through brokers.
Trenwick International's business consists of Specialist Risk Underwriting
("SRU") which includes direct insurance, facultative reinsurance and treaty
reinsurance. The following table reflects Trenwick International's net premiums
written by type of business for 1999 and 1998.
International Net Premiums Written By Type of Business
(dollars in thousands)
1999 1998
----------------- -----------------
SRU 98,926 76% 83,397 83%
Treaty 30,473 24% 17,385 17%
----------------- -----------------
Total $129,399 100% 100,782 100%
================= =================
Specialist Risk Underwriting
SRU underwrites business in both London and Paris. Trenwick's branch office in
Paris was opened in September of 1998. The principal lines of business
underwritten in 1999 and 1998 include property, engineering, accident and health
professional indemnity, financial institutions, liability, extended warranty and
yacht hull. In 1999, approximately 53% of Trenwick International's net premiums
were written directly as insurance.
Trenwick's Paris branch specializes in large, complex property risks that
require a high degree of underwriting expertise. Trenwick International
generally underwrites this business, which includes large manufacturing
facilities, construction projects as well as both onshore and offshore energy
risks, as facultative reinsurance, but can also function directly as an insurer.
The Paris branch benefits from a pool of underwriters trained as engineers and
has emerged as a center for this type of technical underwriting.
Treaty
Trenwick International's treaty business includes liability business, which
accounted for approximately 51% of treaty business in 1999, as well as property
and credit business. Treaty is written both on a proportional and
non-proportional basis.
4
<PAGE>
Chartwell Managing Agents
Trenwick participates in the Lloyd's market through Chartwell Managing Agents,
which is a managing agent at Lloyd's and through four Lloyd's corporate members.
Chartwell Managing Agents receives fees and profit commissions in respect of the
underwriting and administrative services it provides to the Lloyd's underwriting
syndicates that it manages. For the 2000 year of account, Chartwell Managing
Agents manages three syndicates with a total underwriting capacity of
approximately $377.1 million. In 1998 and 1999, Chartwell Managing Agents sold
to third parties the rights to manage syndicates 866 (motor), 947 (non-marine)
and 994 (non-marine) and combined into a single syndicate for the 2000 year of
account the remaining non-life syndicates. Trenwick retains the benefits and
obligations with respect to its Lloyd's corporate member participation interests
in those syndicates for the open years of account at the time of the sale.
Trenwick's Lloyd's corporate members participated on three Lloyd's syndicates
for the 2000 year of account, providing an aggregate of approximately $350.1
million of capacity to those syndicates. Approximately 93% of Chartwell Managing
Agents syndicates' 2000 year of account capacity was supplied by Trenwick.
Classes of business covered by Chartwell Managing Agents' syndicates include
marine, non-marine property, non-marine liability, motor, aviation and life. The
table set forth below shows the gross premiums written for Trenwick's Lloyd's
corporate members for the periods indicated. All amounts in the table below are
presented in accordance with U.S. generally accepted accounting principles
("GAAP").
Trenwick's Lloyd's Corporate Members
Gross Premiums Written by Lloyd's Market Segment
(dollars in thousands)(1)
Year Ended December 31,
---------------------------------------------------
1999 1998
------------------------ -----------------------
Amount % of Total Amount % of Total
-------- ---------- -------- ----------
Motor $ 37,370 17.7% $ 36,212 49.9%
Non-Marine 140,337 66.5 31,121 42.9
Aviation 19,802 9.4 3,194 4.4
Marine 12,350 5.9 1,757 2.4
Life 1,092 .5 289 0.4
-------- ----- -------- -----
Total $210,951 100.0% $ 72,573 100.0%
======== ===== ======== =====
(1)Business at Lloyd's is conducted in pounds sterling. The dollar amounts shown
here have been converted from pounds sterling at the average exchange rate for
each of the years presented. Data shown for 1998 and that portion of 1999 prior
to October 27, 1999 is not included in Trenwick's financial statements because
Trenwick acquired Chartwell Managing Agents and its related Lloyd's corporate
members on October 27, 1999.
Canterbury Financial Group
Canterbury Financial Group develops insurance programs through specialty
production sources with a focus on a specific line or lines of business, with a
limited geographic emphasis, and where the program administrator's compensation
is adjusted based on the underwriting results of the business. Canterbury
Financial Group evaluates each business relationship based upon the underwriting
experience and operational expertise of the production source. Canterbury
Financial Group periodically performs underwriting, claims and operational
audits of each of its production sources.
Canterbury Financial Group's gross written premiums grew 32.7%, 4.3% and 81.3%
for the years ended December 31, 1999, 1998 and 1997, respectively, over the
prior year. The increases in premium reflect the
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<PAGE>
geographic expansion of existing programs as well as the development of new
programs during the periods shown.
The table set forth below shows the gross premiums written for Canterbury
Financial Group for the periods indicated:
Canterbury Financial Group
Gross Premiums Written by Line of Business
(dollars in thousands)(1)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ----------------------
Amount Total Amount Total Amount Total
-------- ----- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Commercial Multiple Peril $ 41,909 28.4% $ 45,737 41.2% $ 48,404 45.4%
General Liability 36,743 25.0 31,575 28.4 30,418 28.6
Automobile 46,471 31.5 23,354 21.0 22,267 20.9
Workers Compensation 12,589 8.5 4,224 3.8 4,169 3.9
Homeowners and Other 9,786 6.6 6,241 5.6 1,285 1.2
-------- ----- -------- ----- -------- -----
Total $147,498 100.0% $111,131 100.0% $106,543 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
(1) Data shown for 1998 and that portion of 1999 prior to October 27, 1999 is
not included in Trenwick's financial statements because Trenwick acquired
Canterbury Financial on October 27, 1999.
During the year ended December 31, 1999, Canterbury Financial Group underwrote
approximately 64% of its gross premiums through three managing general agents,
of which Florida Intracoastal Underwriters accounted for approximately 31%, HDR
Insurance Services accounted for approximately 22% and Inter-Reco accounted for
approximately 11%. No other managing general agent accounted for more than 10%
of Canterbury Financial Group's gross insurance premiums written for such
period.
In order to reduce the potential adverse effect arising from the termination of
any specific business relationship, Canterbury Financial Group continues to seek
to establish and develop relationships with a large number of managing general
agents. While management believes that its relationships with its managing
general agents are satisfactory, the termination of all or a substantial number
of these relationships could have a material adverse effect on the business and
operations of Canterbury Financial Group.
Marketing
Trenwick generally obtains its business through insurance and reinsurance
brokers which represent the ceding company and clients in negotiations for the
purchase of insurance or reinsurance. The process of effecting a brokered
placement typically begins when a client or ceding company enlists the aid of a
broker in structuring an insurance or reinsurance program. Often the various
parties will consult with one or more lead underwriters as to the pricing and
contract terms of the protection being sought. Once the terms quoted by the lead
underwriter have been approved, the broker will offer participation to qualified
insurers or reinsurers until the program is fully subscribed at terms agreed to
by all parties.
Trenwick pays such intermediaries or brokers commissions representing negotiated
percentages of the premium it writes. These commissions constitute part of
Trenwick's total acquisition costs and are included
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<PAGE>
in its underwriting expenses. Brokers do not have the authority to bind Trenwick
America Re with respect to agreements. Under certain limited circumstances,
selected administrators have the authority to bind Trenwick International,
Chartwell Managing Agents and Canterbury Financial Group business. These
administrators are subject to periodic financial and operational reviews.
Trenwick does not commit in advance to accept any portion of the business that
brokers submit to it. Business from any company, whether new or renewal, is
subject to acceptance by Trenwick.
During 1999, three reinsurance brokers, AON Reinsurance Agency, Guy Carpenter
and E. W. Blanch generated 37%, 16% and 8%, respectively, of Trenwick America
Re's gross written premiums. These brokers are among the ten largest brokers in
the insurance and reinsurance industry. Loss of all or a substantial portion of
the business provided by Trenwick's 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 insurance and reinsurance
market and the availability of business from other brokers.
Underwriting
Trenwick's underwriting philosophy emphasizes a transactional approach to
underwriting in which any insurance or 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, when available, 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 terms and conditions. With respect to its domestic operations
which comprises fewer but significantly larger accounts, Trenwick frequently
conducts underwriting and claims audits of ceding companies to assist it in
evaluating the information submitted by the ceding companies, before agreeing to
participate in a reinsurance transaction.
Trenwick has established formal underwriting policy standards for both domestic
and international operations. This process involves pre-binding reviews of
individual material transactions by its senior underwriting staff. Underwriting
policies for insurance and reinsurance transactions are 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 insurance and
reinsurance companies. These competitors, many of which have substantially
greater financial and staff resources than Trenwick, include independent
insurance and reinsurance companies, subsidiaries or affiliates of established
insurance companies, reinsurance departments of certain commercial insurance
companies and underwriting syndicates.
Competition in the types of business which Trenwick underwrites is based on many
factors. These factors include the perceived overall financial strength of the
insurer or reinsurer, rates charged, other terms and conditions, agency ratings
(including A.M. Best Company and Standard & Poor's), service offered, speed of
service (including claims payment) and perceived technical ability and
experience of staff. The number of jurisdictions in which an insurer or
reinsurer is licensed or authorized to do business is also a factor.
7
<PAGE>
The financial security of insurers and reinsurers has emerged as a key issue
throughout the 1990's. To be accepted by clients, and by ceding companies and
their brokers, insurers and reinsurers 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 for Trenwick.
Trenwick's management believes that the insurance and reinsurance industry,
including the broker market, will continue to undergo further consolidation and
that size and financial strength will continue to be significant factors in
effective competition.
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 brokers and ceding companies. In
certain instances, a claims audit may be performed prior to assuming reinsurance
business as part of a comprehensive risk evaluation process. For insurance
business, Trenwick's claim staff uses their own judgement as well as advice from
lawyers and loss adjusters where appropriate.
In connection with the acquisition of Chartwell, Trenwick acquired an
environmental claims unit to evaluate the complex toxic tort and latent injury
claims resident in one of Chartwell's subsidiaries, The Insurance Corporation of
New York.
Unpaid Claims and Claims Expenses
General
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
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<PAGE>
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.
Actuarial Methods
Trenwick utilizes the two most common methods of actuarial evaluation used
within the insurance industry, the Bornhuetter-Ferguson method and the loss
development method. The Bornhuetter-Ferguson method involves the application of
selected loss ratios to Trenwick's earned premiums to determine estimates of
ultimate expected loss and loss adjustment expenses for each underwriting year.
Multiplying expected losses by underwriting year by a selected loss reporting
pattern gives an estimate of reported and unreported IBNR losses. When the IBNR
is added to the loss and loss adjustment expense amounts with respect to claims
that have been reported to date, an estimated ultimate expected loss results.
This method provides a more stable estimate of IBNR that is insulated from wide
variations in reported losses. In contrast, the loss development method
extrapolates the current value of reported losses to ultimate expected losses by
using selected reporting patterns of losses over time. The selected reporting
patterns are based on historical information (organized into loss development
triangles) and are adjusted to reflect the changing characteristics of the book
of business written by Trenwick.
Trenwick provides capital to its Lloyd's corporate members, which support the
underwriting capacity of the Lloyd's syndicates managed by Chartwell Managing
Agents. Loss reserves for this business are established using methods similar to
those used by Trenwick for its operating insurance company subsidiaries.
Chartwell Managing Agents has engaged Bacon & Woodrow London Market Services
Ltd. ("B&W"), an independent actuarial consulting firm, to review the loss
reserves and prepare an actuarial opinion for each of its syndicates, including
the actuarial opinion required by Lloyd's solvency regulations. The B&W
opinions, which are prepared solely for the use of Lloyd's regulators and are
only to be relied upon by Chartwell Managing Agents, assist its syndicates in
establishing appropriate reserve estimates for both the reinsurance to close and
the open years of account.
In the reserve setting process, Trenwick includes provisions for inflation and
"social inflation" if appropriate, as losses are generally not determined until
some time in the future. Trenwick continually monitors legislative activity and
evaluates the potential effect of any legislative changes on its reserve
liabilities.
Trenwick's reserves are carried at the full amount estimated for ultimate
expected losses and loss adjustment expense without any discount to reflect the
time value of money in accordance with both statutory accounting practices and
GAAP. Trenwick's actuarial department regularly performs loss reserve analyses
for its operating insurance company subsidiaries.
9
<PAGE>
Reserve Analysis
The following table presents the development of Trenwick's net unpaid claims and
claims expenses for 1989 through 1999. 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 1999.
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 1999
represents the aggregate change in the initial gross estimates over all
subsequent calendar years.
10
<PAGE>
DEVELOPMENT OF UNPAID CLAIMS AND CLAIMS EXPENSES
(in thousands)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net unpaid claims and claims
expenses, end of year $1,207,436 $449,264 $ 379,351 $386,887 $327,001 $294,008 $268,091 $266,685
Cumulative amount of net
liability paid as of:
One year later 172,674 104,718 94,197 46,860 61,804 52,300 52,260
Two years later 194,188 162,565 110,289 81,417 90,382 93,312
Three years later -- 215,803 149,810 121,133 89,445 118,345
Four years later -- -- 178,919 142,485 112,119 111,174
Five years later -- -- -- 156,204 124,096 125,847
Six years later -- -- -- -- 134,535 133,502
Seven years later -- -- -- -- -- 139,779
Eight years later -- -- -- -- -- --
Nine years later -- -- -- -- -- --
Ten years later -- -- -- -- -- --
Net liability re-estimated as of:
One year later 463,892 372,176 381,521 322,562 291,943 267,644 255,379
Two years later 383,584 374,336 317,199 279,561 263,473 255,379
Three years later 381,463 308,700 274,283 246,367 252,458
Four years later -- -- 309,282 265,041 241,478 236,009
Five years later -- -- -- 266,583 229,742 230,488
Six years later -- -- -- -- 230,824 222,094
Seven years later -- -- -- -- -- 223,473
Eight years later -- -- -- -- -- --
Nine years later -- -- -- -- -- --
Ten years later -- -- -- -- -- --
Net cumulative redundancy (deficiency) (14,628) (4,233) 5,424 17,719 27,425 37,267 43,212
Percentage (1)% 1% 5% 9% 14% 16%
Gross Liability, end of year 682,428 518,387 467,177 411,874 389,298 354,582 351,897
Reinsurance recoverable 233,164 139,036 80,290 84,873 95,290 86,491 85,212
Net liability, end of year 449,264 379,351 386,887 327,001 294,008 268,091 266,685
Gross re-estimated liability-latest 719,143 521,011 462,384 393,765 339,514 293,613 288,355
Re-estimated recoverable-latest 255,251 137,427 80,921 84,483 72,931 62,789 64,882
Net re-estimated liability-latest 463,892 383,584 381,463 309,282 266,583 230,824 223,473
Gross cumulative redundancy (deficiency) (36,715) (2,624) 4,793 18,109 49,784 60,969 63,542
<CAPTION>
- - --------------------------------------------------------------------------
1991 1990 1989
- - --------------------------------------------------------------------------
<S> <C> <C> <C>
Net unpaid claims and claims
expenses, end of year $258,774 $245,105 $214,391
Cumulative amount of net
liability paid as of:
One year later 44,930 42,234 29,407
Two years later 80,725 77,183 60,888
Three years later 111,225 102,590 84,283
Four years later 127,431 124,129 101,597
Five years later 116,224 134,657 116,047
Six years later 127,130 122,089 124,465
Seven years later 132,194 129,100 110,656
Eight years later 137,401 132,888 115,017
Nine years later -- 136,959 117,364
Ten years later -- -- 120,895
Net liability re-estimated as of:
One year later 253,781 238,324 206,724
Two years later 243,488 233,565 199,864
Three years later 243,586 223,417 196,232
Four years later 241,600 224,171 188,052
Five years later 225,592 223,172 189,148
Six years later 217,852 213,327 188,884
Seven years later 208,701 205,179 180,619
Eight years later 211,487 199,948 176,778
Nine years later -- 202,578 172,846
Ten years later -- -- 175,362
Net cumulative redundancy (deficiency) 47,287 42,527 39,029
Percentage 18% 17% 18%
Gross Liability, end of year 332,503
Reinsurance recoverable 73,729
Net liability, end of year 258,774
Gross re-estimated liability-latest 268,217
Re-estimated recoverable-latest 56,730
Net re-estimated liability-latest 211,487
Gross cumulative redundancy (deficiency) 64,286
</TABLE>
11
<PAGE>
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, 1998 and 1997 have developed unfavorably due
to Trenwick America Re's unfavorable development for claims occurring in
accident years 1996 through 1998. For further discussion of unpaid claims and
claims expenses, see Note 4 of Notes to the Consolidated Financial Statements of
Trenwick.
Management believes that Trenwick's reserves are adequate. However, the process
of estimating reserves is inherently imprecise and involves an evaluation of
many variables, including potentially unpredictable social and economic
conditions. Accordingly, there can be no assurance that Trenwick's ultimate
liability will not vary significantly from amounts reserved. The inherent
uncertainties of estimating such reserves are greater for reinsurers than for
primary insurers, primarily due to the longer-term reporting nature of the
reinsurance business, the diversity of development patterns among different
types of reinsurance, the necessary reliance on ceding companies for information
regarding reported claims and differing reserving practices among ceding
companies. Reserves also include provisions for latent injury or toxic tort
claims that cannot be estimated with traditional reserving techniques. Due to
inconsistent court decisions in federal and state jurisdictions and the wide
variation among insureds with respect to underlying facts and coverage,
uncertainty exists with respect to these claims as to liabilities of ceding
companies and, consequently, reinsurance coverage. Management believes that
Trenwick's exposure to such latent losses is lessened because of its relatively
recent entry into the reinsurance business (other than INSCORP), its low
historical levels of premium volume prior to the application of exclusions for
asbestos and environmental liabilities, its retrocessional programs and the
protection afforded by Trenwick's Contingent Interest Notes due June 30, 2006
(the "Contingent Interest Notes") the payment of which is subject to reduction
in the event of such adverse reserve development related to INSCORP's business.
Reserves for Trenwick's participation in Lloyd's syndicates through its Lloyd's
corporate members are included in the 1999 year end reserves. Part of the
reserve represents reinsurance to close balances brought forward to the open
years of account (for example, 1996 reinsured into the 1997 open year).
Favorable or unfavorable development of the prior year's reserves can influence
the results of the open years of 1997, 1998 and 1999. Consequently, there can be
no assurance as to the adequacy of reserves and the risk of future developments,
both favorable and unfavorable, exists.
12
<PAGE>
Trenwick's reserves include an estimate of Trenwick's ultimate liability for
asbestos and environmental claims. The gross and net unpaid claims and claims
expenses for asbestos and environmental claims are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- - ------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Unpaid claims and claims expenses gross of
reinsurance recoverable, end of year $ 100,131 $ 8,476 $ 8,924
Unpaid claims and claims expenses, net of
reinsurance recoverable, end of year 72,092 8,428 8,814
Reinsurance recoverable on unpaid claims and
claims expenses, end of year 28,039 48 110
</TABLE>
The increase of the gross and net unpaid claims and claims expenses reflect the
inclusion of the reserves related to the Chartwell acquisition. 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.
Contingent Interest Notes
Upon consummation of the acquisition of Chartwell, Trenwick assumed all of
Chartwell's obligations under the Contingent Interest Notes, which were
originally issued by Piedmont Management Company Inc. to its stockholders just
prior to its acquisition by Chartwell in 1995. The Contingent Interest Notes,
which mature on June 30, 2006, are designed to provide Trenwick with protection
against adverse development of INSCORP's reserves for losses and loss adjustment
expenses. In the event there is no adverse development, Trenwick will be
required to pay the holders of the CI Notes approximately $55 million in
contingent interest. This contingent interest payment is in addition to the $1
million principal amount of the Contingent Interest Notes and interest on such
principal amount at 8% per annum (collectively, the "Fixed Amount") which
Trenwick in any event must pay at maturity or earlier redemption of the
Contingent Interest Notes.
In general, assuming the Contingent Interest Notes are settled at maturity, the
contingent interest will be equal to $55 million (a) less an amount equal to (i)
the amount of any adverse development of the loss and loss adjustment expense
reserves and related accounts (including certain reinsurance recoverable,
commissions and unearned premiums) of INSCORP recorded as of March 31, 1995,
minus (ii) $25 million, (b) plus the amount of certain tax benefits received or
recorded by Trenwick as a result of the amount determined pursuant to clause (a)
above. The amount so calculated may not be greater than $55 million nor less
than a minimum amount equal to the lesser of (a) $10 million less the Fixed
Amount and (b) the tax benefits referred to above. In the event that the
Contingent Interest Notes are settled prior to maturity, the foregoing formula
will in general apply, except that the $55 million maximum amount of the
Contingent Interest Notes will be reduced to an amount equal to $55 million
discounted back from June 30, 2006 at a discount rate of 8% per annum,
compounded annually, and the tax benefits will be calculated in a prescribed
manner.
The carrying value of the Contingent Interest Notes on Trenwick's consolidated
financial statements at December 31, 1999 was $34.7 million, representing the
sum of the aggregate principal amount of the Contingent Interest Notes and the
present value as of such date of the maximum amount of contingent interest
payable on the Contingent Interest Notes at their stated maturity in 2006.
During the term of the Contingent Interest Notes, the discounted carrying value
of the Contingent Interest Notes will be increased to reflect accretion of (i)
interest on the principal amount and (ii) the discounted contingent interest. To
the
13
<PAGE>
extent that adverse development of INSCORP's reserves (including IBNR reserves)
occurs prior to the maturity or redemption of the Contingent Interest Notes, the
contingent interest payable on the Contingent Interest Notes (and, therefore,
the then-current carrying value of such Contingent Interest Notes) will be
reduced. Such reductions in the carrying value of the Contingent Interest Notes
would offset in part, in the period in which such adverse development occurs,
any reduction in Trenwick's GAAP net income and stockholders' equity resulting
from such adverse reserve development (that would, however, still be reflected
in Trenwick's statutory underwriting results and in the policyholders' surplus
of INSCORP and any parent insurer of INSCORP).
At its option, Trenwick may settle the Contingent Interest Notes with shares of
common stock of Trenwick instead of payment of cash. For purposes of settlement
of the Contingent Interest Notes, such common stock would be valued at 85% of
its average closing market price over a specified period prior to the settlement
date. However, Trenwick may not settle the Contingent Interest Notes in its
common stock unless (i) such stock is registered under the Securities Act of
1933 (or is otherwise freely tradeable other than by certain affiliates of
Trenwick), (ii) such stock is listed on a national securities exchange or the
NASDAQ National Market and (iii) all Contingent Interest Notes are settled in
such common stock. Moreover, Trenwick may not settle the Contingent Interest
Notes in its common stock if the Contingent Interest Notes are being settled
following acceleration thereof due to an event of default under the Contingent
Interest Notes.
Reinsurance and Retrocessional Agreements
Trenwick enters into reinsurance and retrocessional agreements to reduce its net
liability on individual risks, protect against catastrophic losses and maintain
acceptable ratios.
Trenwick America Re has various retrocessional facilities, all of which are on a
treaty basis. These retrocessional facilities include one treaty for Trenwick
America Re'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 America Re's maximum retention generally does not
exceed $500,000 per occurrence on facultative business and $2,300,000 per
occurrence on property catastrophe business. From 1989 to 1999, Trenwick America
Re has purchased aggregated excess of loss ratio treaties from several
reinsurers. These facilities provided Trenwick with a layer of protection
against adverse results from its domestic casualty business in excess of
specified loss ratios. Trenwick did not purchase an aggregate excess of loss
ratio treaty for 2000.
Trenwick International, as customary with companies operating in the London
market, buys large amounts of reinsurance. Reinsurance and retrocessional
coverage is customized for each class of business. During 1998, following an
increase in its share capital, Trenwick International increased its retention of
business by reducing the amount of reinsurance it buys, principally proportional
reinsurance treaties with its former parent.
Chartwell Managing Agency, as part of its business strategy, has historically
purchased a significant amount of reinsurance for the Lloyd's syndicates it
manages. Reinsurance is generally purchased to protect the syndicates against
extraordinary loss or loss involving one or more underwriting classes. The
amount purchased is determined with reference to the syndicates' aggregate
exposure and potential loss scenarios.
Canterbury Financial Group purchases reinsurance specifically tailored to each
of the specialty programs underwritten by its insurance subsidiaries.
14
<PAGE>
In connection with the acquisition of Chartwell by Trenwick, Chartwell's
insurance company subsidiaries purchased an aggregate excess of loss reinsurance
agreement providing up to $100 million in coverage against unanticipated
increases in Chartwell's reserves for business written on or before October 27,
1999, the date of completion of the acquisition of Chartwell. Within the $100
million maximum, the protection is limited to $100 million for increased
reserves attributable to Chartwell's Lloyd's operations, $25 million for
increased reserves attributable to catastrophe and year 2000 losses and $50
million for increased reserves attributable to asbestos and environmental
coverage losses. The aggregate excess of loss reinsurance agreement is not
cancelable by the reinsurers, London Life and Scandanavian Re and their
obligations have been secured by a trust account. The premium payable for this
aggregate excess of loss reinsurance agreement was approximately $56 million.
Trenwick remains liable with respect to insurance and reinsurance ceded in the
event that the insurer or retrocessionaire is unable to meet its obligations.
All reinsurers and retrocessionaires must be formally approved by the operating
company's Security Committee. The Security Committees re-evaluate the financial
condition of Trenwick reinsurers and 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 Committees.
Trenwick America Re's principal retrocessionaires are Zurich Reinsurance,
Continental Casualty Company, Unum Life Insurance Company of America and
National Union Fire Insurance Company. Chartwell Re's principal
retrocessionaires are Centre Reinsurance (Bermuda) Limited and London Life and
Casualty Reinsurance Corp. and Scandinavian Reinsurance Company Limited.
INSCORP's largest reinsurers in 1999 were American Reinsurance company,
Navigators Insurance Company and European International Reinsurance Company
Limited. Trenwick International has two principal retrocessionaires, Lloyds of
London and Transatlantic Re. All these retrocessionaires are rated A (Excellent)
or better by A.M. Best Company. At December 31, 1999, Trenwick had no material
uncollectible amounts due from its retrocessionaires.
Investments
The Investment Committee of Trenwick's Board of Directors oversees investments
and sets procedures and guidelines for investment strategy. Trenwick's internal
staff manage these investments and utilize the services of investment advisers.
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, Trenwick emphasizes investment
grade debt investments. At December 31, 1999, 79% of Trenwick's investments in
debt securities were rated Aa or better. In October 1998, certain securities had
their ratings withdrawn by various nationally recognized statistical rating
organizations. The servicer of these securities, Commercial Financial Services,
Inc., filed for protection under Chapter 11 of the Federal Bankruptcy Code in
December 1998. During 1999, Trenwick wrote down the value of these securities by
$5.2 million.
Trenwick's investment strategy permits an allocation for equity securities. At
December 31, 1999, 6% of Trenwick's total investments and cash were invested in
common and preferred equities, which consist primarily of securities issued by
U.S. and United Kingdom corporations. The primary risk associated with these
securities is the exposure to daily market fluctuations.
15
<PAGE>
The investments of each of Trenwick's insurance company subsidiaries must comply
with the respective insurance laws of the jurisdiction of domicile of that
insurance company, and of the other jurisdictions in which it 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. These laws
generally penalize high concentrations of riskier types of assets and high
exposures to certain types of issuers.
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 5%, 5% and 2%, respectively, of Trenwick's portfolio at December
31, 1999.
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. 93% of the non-agency MBS issues Trenwick has purchased have a
rating of A or better from various Nationally Recognized Statistical Rating
Organizations.
The asset-backed securities owned by Trenwick have primarily credit card 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. 94% of the asset-backed securities owned by
Trenwick are rated A or better by various Nationally Recognized Statistical
Rating Organizations. The remaining 6% include the asset-backed securities
serviced by Commercial Financial Services, Inc. for which ratings have been
withdrawn.
Trenwick also invests in agency pass-through securities which account for 7% of
Trenwick's portfolio at December 31, 1999. As with CMOs, these securities are
subject to prepayment risk.
Trenwick holds debt securities and cash in a number of currencies. At December
31, 1999, approximately 16% of Trenwick's debt securities and cash were held in
U.K. sterling, and the remainder in six other currencies.
16
<PAGE>
The table below sets forth the distribution of Trenwick's investments available
for sale at December 31, 1999 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 (debt securities)
U.S. Government bonds 4.3 $ 114,537 $ 114,839
Obligations of states and political subdivisions(1) 6.3 454,993 460,176
Mortgage-backed and asset-backed securities 8.1 288,535 290,801
Debt securities issued by British government 3.7 115,023 117,165
Debt securities issued by other foreign governments 4.9 54,996 55,436
Public utilities 14.7 20,891 21,229
Corporate securities 8.3 259,446 262,855
Certificates of deposit .2 2,940 2,937
---------- ----------
Total debt securities 6.8 $1,311,361 $1,325,438
========== ==========
Maturity (debt securities)
Due in one year or less .5 94,546 93,913
Due in one year through five years 2.9 544,077 545,161
Due after five years through ten years 7.3 482,652 490,465
Due after ten years 19.1 190,086 195,899
---------- ----------
Total debt securities 6.8 $1,311,361 $1,325,438
========== ==========
Quality (debt securities)
Aaa(2)-U.S. government bonds $ 114,537 $ 114,839
Obligations of states and political subdivisions 349,474 352,936
Mortgage-backed and asset-backed securities 211,980 211,775
Debt securities issued by British government 115,023 117,165
Debt securities issued by other foreign governments 31,402 31,783
Corporate securities 14,585 14,959
Certificates of deposit 1,991 1,988
---------- ----------
838,992 845,445
---------- ----------
Aa(2)-Obligations of states and political subdivisions 77,762 78,661
Mortgage-backed and asset-backed securities 44,554 45,923
Corporate securities 58,250 58,558
Debt securities issued by other foreign governments 16,707 16,715
Public utilities 2,438 2,483
---------- ----------
199,711 202,340
---------- ----------
A(2)-Obligations of states and political subdivisions 16,006 16,232
Mortgage-backed and asset-backed securities 24,522 25,465
Debt securities issued by other foreign governments 6,887 6,938
Public utilities 13,065 13,152
Corporate securities 105,932 106,928
Certificates of deposit 809 809
---------- ----------
167,221 169,524
---------- ----------
Baa(2)-Obligations of states and political subdivisions 11,751 12,347
Mortgage-backed and asset-backed securities 5,983 6,142
Public utilities 4,335 4,469
Corporate securities 56,631 57,476
---------- ----------
78,700 80,434
---------- ----------
Ba(2)-Public utilities 1,053 1,125
Corporate securities 12,543 13,032
---------- ----------
13,596 14,157
---------- ----------
B(2)-Corporate securities 11,143 11,495
---------- ----------
Caa(2)-Corporate securities 138 183
---------- ----------
P1(2)-Certificates of deposits 140 140
---------- ----------
Non-rated Corporate security 224 224
---------- ----------
Withdrawn - Asset-backed securities 1,496 1,496
========== ==========
Total debt securities $1,311,361 $1,325,438
---------- ----------
</TABLE>
17
<PAGE>
(1) Obligations of states and political subdivisions include $38,240,000
escrowed in U.S. Government Securities, $242,320,000 insured by Municipal
Bond Investors Assurance Corporation, Financial Guaranty Insurance
Company, AMBAC Indemnity Corporation, or Financial Security Assurance
Corporation and $29,940,000 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.
18
<PAGE>
Regulation
Trenwick and its insurance company subsidiaries are subject to regulatory
oversight under the insurance statutes and regulations of the jurisdictions in
which they conduct business, including all states of the United States and the
United Kingdom. These regulations vary from jurisdiction to jurisdiction and are
generally designed to protect ceding insurance companies and policyholders by
regulating Trenwick's financial integrity and solvency in its business
transactions and operations. Many of the insurance statutes and regulations
applicable to Trenwick's subsidiaries relate to reporting and enable regulators
to closely monitor Trenwick's performance. Typical required reports include
information concerning Trenwick's capital structure, ownership, financial
condition, and general business operations.
Trenwick International is subject to the regulatory authority of the United
Kingdom Financial Services Authority. Both Chartwell Managing Agents and
Trenwick's dedicated Lloyd's underwriting entities, as a Lloyd's managing
general agent and Lloyd's corporate members, respectively, are subject to
regulation and supervision by the Council of Lloyd's. Lloyd's operates under a
self-regulatory regime under the Lloyd's Act 1982 and has the power to set,
interpret and change the rules which govern the operation of the Lloyd's market,
subject to regulation for solvency purposes by the Financial Services Authority.
Lloyd's prescribes, in respect of its managing agents and corporate members,
certain minimum standards relating to their management and control, solvency and
various other requirements. In addition, Lloyd's imposes restrictions against
persons becoming controllers and major shareholders of managing agents and
corporate members without the consent of Lloyd's first having been obtained. The
United Kingdom government has established the Financial Services Authority as a
single regulator to supervise securities, banking and insurance business,
including Lloyd's. When the Financial Services and Market Bill becomes law,
probably in late 2000, the Financial Services Authority will have wide
authorization and intervention powers in relation to Lloyd's. A consultation
process has commenced in relation to Lloyd's regulatory framework.
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.
Risk Based Capital
The 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
19
<PAGE>
requires specific corrective action. The ratios of Total Adjusted Capital to
Authorized Control Level RBC for each of Trenwick's United States insurance
company subsidiaries exceeded all the RBC trigger points at December 31, 1999,
1998 and 1997.
State Insurance Regulation
The premium rates and policy terms of Trenwick's reinsurance agreements
generally are not subject to regulation by any government authority. This
contrasts with Trenwick's property and casualty insurance operations 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's insurance subsidiaries are
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 insureds or reinsureds, 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 insureds and reinsureds, rather than
Trenwick's security holders. Trenwick believes that it is in compliance with all
such material regulations.
Trenwick is subject to regulation under the insurance statutes and insurance
holding company statutes of various states, including Connecticut, New York and
North Dakota, the domicile states of its U.S. insurance companies. 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, New York and North Dakota Insurance
Commissioners prior to acquiring such shares. Such investor would also be
required to file certain notices and reports with the Insurance Commissioners
prior to such acquisition.
Codification of Statutory Accounting Principles
In March 1998, the NAIC adopted the Codification of Statutory Accounting
Principles ("Codification"). The Codification, which is intended to standardize
regulatory accounting and reporting for the insurance industry, is proposed to
be January 1, 2001. The Codification provides guidance for areas where statutory
accounting has been silent and changes current statutory accounting in some
areas. However, statutory accounting principles will continue to be established
by individual state laws and permitted practices. Effective January 1, 2001, the
states of Connecticut (domicile of Trenwick America Re), Minnesota (domicile of
Chartwell Reinsurance), New York (domicile of INSCORP and ReCor) and North
Dakota (domicile of Dakota) will adopt the Codification. It is uncertain what
effect adoption of the Codification for the preparation of statutory financial
statements would have on those statutory financial statements.
20
<PAGE>
Dividends
Because Trenwick's operations are conducted through its operating subsidiaries,
Trenwick is dependent upon the ability of its operating subsidiaries, to
transfer funds, principally in the form of cash dividends, tax reimbursements
and other statutorily permissible payments. In addition to general legal
restrictions on payments of dividends and other distributions to shareholders
applicable to all corporations, Trenwick's insurance subsidiaries are subject to
further regulations that, among other things, restrict the amount of dividends
and other distributions that may be paid to their parent corporations.
Under the applicable provisions of the insurance holding company laws of the
states of domicile of Trenwick America Re, Chartwell Reinsurance and Dakota,
such companies may only pay dividends without the approval of the applicable
state insurance regulator, if such dividends, together with other dividends paid
within the preceding twelve months, are less than the greater of (i) 10% of the
insurer's policyholders' surplus as of the end of the prior calendar year or
(ii) the insurer's statutory net income, excluding realized capital gains, for
the prior calendar year. As a further restriction, the maximum amount of
dividends most U.S. insurers may pay is limited to its earned surplus, also
known as its unassigned funds. Any dividend in excess of the amount determined
pursuant to the foregoing formula would be characterized as an "extraordinary
dividend" requiring the prior approval of the state insurance regulator.
Under New York law, which is applicable to INSCORP and ReCor Insurance Company
Inc. ("ReCor") the maximum ordinary dividend payable in any twelve month period
without the approval of the New York Insurance Department is the lesser of (i)
10% of policyholders surplus as shown on the company's last annual statement or
any more recent quarterly statement or (ii) the company's adjusted net
investment income. Adjusted net investment income is defined as net investment
income for the twelve months preceding the declaration of the dividend plus the
excess, if any, of net investment income over dividends declared or distributed
during the period commencing thirty-six months prior to the declaration or
distribution of the current dividend and ending twelve months prior thereto. In
any case, New York law permits the payment of an ordinary dividend by an insurer
or reinsurer only out of earned surplus.
In addition to the foregoing limitations, the New York Insurance Department, as
is its practice in any change of control situation, required Trenwick to commit
to preclude the acquired New York-domiciled insurers, INSCORP and ReCor, from
paying any dividends for two years after the merger with Chartwell without prior
regulatory approval. The foregoing restriction will expire on October 27, 2001.
Neither INSCORP nor ReCor paid any dividends in 1997, 1998 or 1999.
Moreover, insurance holding company laws generally provide that, notwithstanding
the receipt of any dividend from a subsidiary insurer, an insurer may make
dividend payments to its parent only to the extent it is permitted to do so
under its applicable dividend restrictions. In other words, the ability of a
subsidiary insurer to pay dividends without restriction may be impaired if its
parent insurer cannot pay dividends without restriction.
The maximum dividend permitted by law may not be indicative of an insurer's
actual ability to pay dividends, which may be constrained by business and other
regulatory considerations, such as the impact of dividends on surplus, which
could affect an insurer's ratings or competitive position, the amount of
premiums that can be written and the ability to pay future dividends.
Furthermore, beyond the limits described in the preceding paragraph, insurance
regulatory authorities often have the discretion to limit the payment of
dividends by insurance companies domiciled in their jurisdictions.
In 2000, of Trenwick's U.S. insurance subsidiaries, only Dakota could pay a
dividend or other distribution without prior approval of the applicable
insurance regulatory authority. In 2000, Dakota Specialty could pay a dividend
of $2.8 milion without prior approval. During 1999, 1998 and 1997, Trenwick
America Re paid dividends of $53.4 million, $30.1
21
<PAGE>
million and $8.3 million,respectively. Chartwell Reinsurance paid dividends of
$30.3 million in 1999 and $3.0 million in 1997. Chartwell Reinsurance did not
pay any dividends in 1998. None of Trenwick's other U.S. insurance subsidiaries
paid any dividends in 1999, 1998 or 1997.
Under the applicable laws of the United Kingdom, Trenwick's U.K. subsidiaries
may make shareholder distributions only from accumulated realized profits, net
of accumulated realized losses. In addition, under the UK Insurance Companies
Act, Trenwick International is not permitted to make any distribution that would
reduce its net assets below the required minimum margin of solvency which, as
determined under the U.K. Financial Service Authority's rules, is approximately
$16.7 million as of December 31, 1999. Trenwick International must also notify
the United Kingdom Financial Services Authority of any proposal to declare or
pay a dividend on any of its share capital. Under Lloyd's regulations, Chartwell
Managing Agents is not permitted to make any distribution that would cause its
assets to fall below any of Chartwell Managing Agents' share capital, minimum
net current asset margin or minimum net asset margin. As of December 31, 1999,
the highest of the three tests required Chartwell Managing Agents to maintain
approximately $1.1 million of capital.
Investment Limitations
Connecticut, New York and North Dakota laws and regulations govern the types and
amounts of investments which are permissible for Trenwick's insurance company
subsidiaries. These rules are designated to ensure the safety and liquidity of
the insurers' investment portfolio. In general, these rules permit insurers to
purchase only investments which are interest bearing, interest accruing,
entitled to dividends or otherwise income earning and not then in default in any
respect, and insurers 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. The
U.K. Financial Services Authority governs the types and amounts of investments
which are permissible for insurers in the United Kingdom, including Trenwick
International. Likewise, Lloyd's regulations govern the types and amounts of
investments that are permissible for Chartwell Managing Agents to make with the
assets of the Lloyd's syndicates that it manages. These laws penalize high
concentrations of riskier types of assets and high exposures to certain types of
issuers. Trenwick believes that it is in compliance with all material applicable
investment laws.
Employees
At December 31, 1999, Trenwick employed a total of 124 and 284 persons in its
domestic and international operations, respectively. Trenwick has no employees
represented by a labor union and believes that its employee relations are good.
Item 2. Properties
Trenwick's corporate headquarters and Trenwick America Re's offices are located
in approximately 46,000 total square feet of leased office space at One
Canterbury Green, Stamford, Connecticut. In connection with the acquisition of
Chartwell, Trenwick assumed a lease of approximately 53,000 square feet of space
at Four Stamford Plaza in Stamford, Connecticut. Chartwell Managing Agents
leases approximately 39,000 square feet of space in London, England and Trenwick
International leases office space in London, England and Paris, France.
Management believes Trenwick's current office space is adequate for its needs.
See Note 8 of Notes to the Consolidated Financial Statements of Trenwick.
22
<PAGE>
Item 3. Legal Proceedings
Trenwick is party to various legal proceedings generally arising in the normal
course of its 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 business. Pursuant to
Trenwick's insurance and reinsurance arrangements, disputes are generally
required to be finally settled by arbitration.
Item 4. Submission of Matters to a Vote of Security Holders
A special meeting of stockholders of Trenwick was held in Old Greenwich,
Connecticut on October 7, 1999. Shareholders holding 8,680,216 shares of
Trenwick's common stock, 82.8% of the then outstanding shares, were represented
in person or by proxy.
The proposal to adopt the merger agreement between Trenwick and Chartwell and
approve the merger of Chartwell with and into Trenwick and the issuance of
Trenwick common stock to Chartwell stockholders upon completion of the merger
was approved: 7,881,754 shares voted in favor; 7,884 shares voted against; and
1,155 shares abstained (including broker non-votes).
The proposal to amend Trenwick 1993 Stock Option Plan to increase the aggregate
number of shares of Common Stock subject to awards under such plan by 125,000
shares was approved: 7,584,123 shares voted in favor; 294,381 shares voted
against; and 801,712 shares abstained (including broker non-votes).
23
<PAGE>
PART II
Item 5. Market for Corporation's Common Stock and Related Stockholder Matters
As of October 28, 1999, Trenwick Common Stock commenced trading on the New York
Stock Exchange under the ticker symbol TWK. Prior to such date, Trenwick Common
Stock traded on the NASDAQ National Market System under the ticker symbol TREN.
The following table sets forth for the periods presented below, the high and low
sales price of the Trenwick Common Stock as reported by the NASDAQ through
October 27, 1999 and as reported by the NYSE from October 28, 1999 through
December 31, 1999. On March 27, 2000, the last reported sales price of Trenwick
Common Stock on the NYSE was $13.81 per share.
Year ended December 31, 1998 High Low
---- ---
First Quarter $38.00 $33.75
Second Quarter 41.75 35.50
Third Quarter 39.50 28.00
Fourth Quarter 34.50 27.31
Year ended December 31, 1999
First Quarter 35.00 25.50
Second Quarter 31.94 24.66
Third Quarter 25.06 16.56
Fourth Quarter 21.25 14.75
There were 327 holders of record and in excess of 2,700 beneficial owners of
Trenwick Common Stock as of March 24, 2000.
Trenwick paid a quarterly cash dividend of $.25 per share in each quarter of
1998 and a quarterly cash dividend of $.26 per share in each quarter of 1999.
The declaration and payment of future dividends will be at the discretion of
Trenwick's Board of Directors and is subject to certain legal, regulatory and
other restrictions. 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 12 of Notes to the Consolidated Financial Statements
of Trenwick.
24
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Net premiums written $ 354,610 $ 250,219 $ 195,230 $ 226,364 $ 197,162
=========== =========== =========== =========== ===========
Net premiums earned $ 325,114 $ 245,561 $ 190,156 $ 211,069 $ 177,394
Net investment income 66,394 56,316 48,402 41,226 36,828
Net realized investment gains 1,916 9,016 2,304 299 368
Other income 861 421 10 -- --
----------- ----------- ----------- ----------- -----------
Total revenues $ 394,285 $ 311,314 $ 240,872 $ 252,594 $ 214,590
=========== =========== =========== =========== ===========
Net income (loss) $ (11,048) $ 34,792 $ 35,252 $ 33,848 $ 29,841
=========== =========== =========== =========== ===========
Per Share Data
Basic Earnings
Income (loss) before extraordinary item $ (.94) $ 2.99 $ 3.12 $ 3.40 $ 3.09
=========== =========== =========== =========== ===========
Net income (loss) $ (.94) $ 2.99 $ 3.03 $ 3.40 $ 3.09
=========== =========== =========== =========== ===========
Weighted average shares outstanding 11,762 11,657 11,645 9,959 9,674
=========== =========== =========== ===========
Diluted earnings
Income (loss) before extraordinary item $ (.94) $ 2.95 $ 3.01 $ 2.85 $ 2.59
=========== =========== =========== =========== ===========
Net income (loss) $ (.94) $ 2.95 $ 3.01 $ 2.85 $ 2.59
=========== =========== =========== =========== ===========
Weighted average shares outstanding 11,762 11,779 12,265 13,352 13,149
=========== =========== =========== =========== ===========
Dividends $ 1.04 $ 1.00 $ .97 $ .83 $ .75
=========== =========== =========== =========== ===========
Balance Sheet Data
Investments and cash $ 1,749,859 $ 1,005,211 $ 864,324 $ 754,210 $ 653,704
Total assets 3,240,599 1,392,261 1,085,956 920,804 820,930
Unpaid claims and claims expenses 1,964,139 682,428 518,387 467,177 411,874
Long term debt 248,905 75,000 -- 103,500 103,500
Company obligated mandatorily
redeemable preferred capital
securities of subsidiary trust
holding solely junior subordinated
debentures of Trenwick 110,000 110,000 110,000 -- --
Common stockholders' equity 462,249 348,029 357,649 265,753 240,776
Shares of common stock outstanding 16,889 11,051 11,951 10,088 9,886
Book value per share $ 27.37 $ 31.49 $ 29.93 $ 26.34 $ 24.36
</TABLE>
25
<PAGE>
Amounts for 1999 reflect the results of Chartwell and its subsidiaries,
accounted for as a purchase, from October 27, 1999, the date of acquisition.
Amounts for 1998 reflect the results of Trenwick International, accounted for as
a purchase, from February 27, 1998, the date of acquisition.
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 accounting
standard, "Earnings per Share"
26
<PAGE>
CERTAIN FINANCIAL RATIOS
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
GAAP Combined ratio 119.4% 102.3% 96.5% 95.8% 95.6%
Net premiums written to statutory surplus
ratio 0.62:1 0.77:1 0.55:1 0.85:1 0.82:1
Unpaid claims and claims expenses to
statutory surplus ratio 1.75:1 1.96:1 1.45:1 1.76:1 1.71:1
</TABLE>
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
Operations and Item 8, Financial Statements and Supplementary Data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information called for by this item can be found in Trenwick's 1999 Annual
Report to Stockholders under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and is incorporated herein by
reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
This information called for by this item can be found in Trenwick's 1999 Annual
Report to Stockholders under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
The information called for by this item can be found in Trenwick's 1999 Annual
Report to Stockholders immediately following the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and to
the items included in Item 14(a) of this report, and is incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers
The information called for by Item 10 is incorporated herein by reference to the
sections captioned "Board of Directors", "Management", and "Executive
Compensation" of Trenwick's proxy statement for its 2000 Annual Meeting of
Stockholders (the "Proxy Statement").
27
<PAGE>
Item 11. Executive Compensation
The information called for by Item 11 is incorporated herein by reference to the
section captioned "Executive Compensation" of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by Item 12 is incorporated herein by reference to the
section captioned "Principal Stockholders" of the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information called for by Item 13 is incorporated herein by reference to the
section captioned "Election of Directors" of the Proxy Statement.
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 34, are filed as part of this Report.
(3) Exhibits
3.1 Restated Certificate of Incorporation of Trenwick 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. 1-15389).
(b) Certificate of Designation amending the Restated
Certificate of Incorporation of Trenwick 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. 1-15389).
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. 1-15389).
28
<PAGE>
4.2 Amendment No. 1 to Rights Agreement, dated as of December 19,
1999, between Trenwick and First Chicago Trust Company of New
York. Incorporated by reference to Exhibit 1 to Trenwick's Form
8-A filed January 13, 2000 (File No. 1-15389).
4.3 (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).
4.4 Indenture dated as of March 27, 1998 between Trenwick and The
First National Bank of Chicago, as Trustee, with respect to
Trenwick's $75 million principal amount of 6.7% Senior Notes due
April 1, 2003, incorporated by reference to Exhibit 4.2 to
Trenwick's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 (File No. 1-15389).
4.5 Indenture, dated as of March 17, 1994, between Chartwell Re
Corporation and Bankers Trust Company, as Trustee, for the 10
1/4% Senior Notes due 2004. Incorporated by reference to Exhibit
4.1 to Chartwell Re Corporation's Registration Statement on Form
S-1 (File No. 33-75386).
4.6 First Supplemental Indenture, dated as of December 12, 1995,
among Chartwell Re Corporation, Chartwell Re Holdings
Corporation and Bankers Trust Company, as Trustee, for the 10
1/4Senior Notes due 2004. Incorporated by reference to Exhibit
4.3 to Chartwell Re Corporation's Registration Statement on Form
S-1 (File No. 333-678).
4.7 Second Supplemental Indenture, dated as of December 12, 1995,
between Chartwell Re Holdings Corporation and Bankers Trust
Company, as Trustee, for the 10 1/4 Senior Notes due 2004.
Incorporated by reference to Exhibit 4.4 to Chartwell Re
Corporation's Registration Statement on Form S-1 (File No.
333-678).
4.8 Indenture, dated as of December 1, 1995, between Chartwell Re
Corporation, as the successor to Piedmont Management Company
Inc., and Fleet Bank, as Trustee, for the Contingent Interest
Notes due June 30, 2006. Incorporated by reference to Exhibit
4.5 to Chartwell Re Corporation's Registration Statement on Form
S-1 (File No. 333-678).
4.9 First Supplemental Indenture, dated as of December 13, 1995,
among Piedmont Management Company, Chartwell Re Corporation and
Fleet Bank, as Trustee under the Contingent Interest Notes due
June 30, 2006. Incorporated by reference to Exhibit 4.6 to
Chartwell Re Corporation's Registration Statement on Form S-1
(File No. 333-678).
29
<PAGE>
10.1 Credit Agreement, dated as of November 24, 1999, among Trenwick,
various lending institutions, First Union National Bank, as
Syndication Agent, Fleet National Bank, as Documentation Agent,
and Chase Manhattan Bank, as Administrative Agent.
10.2 Amendment No. 1 to Credit Agreement, dated as of December 31,
1999 among Trenwick, various lending institutions, First Union
National Bank, as Syndication Agent, Fleet National Bank, as
Documentation Agent, and Chase Manhattan Bank, as Administrative
Agent.
10.3 Stockholders Agreement, dated as of December 13, 1995, between
Chartwell Re Corporation and the security holders named in the
schedule of holders attached thereto. Incorporated by reference
to Exhibit 10.3 to Chartwell Re Corporation's Registration
Statement on Form S-1 (File No. 333-678).
10.4 Registration Rights Agreement, dated as of December 13, 1995,
between Chartwell Re Corporation and the security holders named
in the schedule of holders attached thereto. Incorporated by
reference to Exhibit 10.4 to Chartwell Re Corporation's
Registration Statement on Form S-1 (File No. 333-678).
10.5 Common Stock Purchase Warrant, dated March 6, 1992, issued by
Chartwell Re Corporation to Wand Partners (Chartwell) L.P.
Incorporated by reference to Exhibit 10.34 to Chartwell Re
Corporation's Registration Statement on Form S-1 (File No.
33-75386).
10.6 Common Stock Purchase Warrant, dated December 31, 1992, issued
by Chartwell to Wand Partners (Chartwell) L.P. Incorporated by
reference as Exhibit 10.35 to Chartwell Re Corporation's
Registration Statement on Form S-1 (File No. 33-75386).
10.7 Common Stock Purchase Warrant, dated December 31, 1992, issued
by Chartwell to John Sagan. Incorporated by reference to Exhibit
10.36 to Chartwell Re Corporation's Registration Statement on
Form S-1 (File No. 33-75386).
10.8 Form of Common Stock Purchase Warrants, dated March 17, 1994,
issued by Chartwell Re Corporation to Wand/Chartwell Investments
L.P. and to the holders of the Series A Stock, the Series B
Stock and the Series C Stock of Chartwell Re Corporation.
Incorporated by reference to Exhibit 4.2 to Chartwell Re
Corporation's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994 (File No. 1-12502).
10.9 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).*
10.10 Trenwick 1993 Stock Option Plan, as amended through May 21,
1998. Incorporated by reference to Appendix A to Trenwick's
Proxy Statement for the 1998 Annual Meeting of Stockholders
(File No. 1-15389).*
10.11 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).*
10.12 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).*
30
<PAGE>
10.13 Leased Automobile Policy for executive officers. Incorporated by
reference to Exhibit 10.5 to Trenwick's Annual Report on Form
10-K for the year ended December 31, 1998. (File No. 1-15389).*
10.14 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).*
10.15 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).*
10.16 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).*
10.17 Declaration of Trust dated December 10, 1996, as amended through
September 9, 1997, establishing a retirement plan for certain
employees of Trenwick Management Services Limited. Incorporated
by reference to Exhibit 10.9 to Trenwick's Annual Report on Form
10-K for the year ended December 31, 1998. (File No. 1-15389).*
10.18 1993 Stock Option Plan of Chartwell Re Corporation. Incorporated
by reference to Exhibit 10.14 to Chartwell Re Corporation's
Registration Statement on Form S-4 (File No. 33-97010).*
10.19 Chartwell Re Corporation 1996 Non-Employee Director Stock Option
Plan. Incorporated by reference to Exhibit 4(c) to Chartwell Re
Corporation's Registration Statement on Form S-8 (File No.
333-12203).*
10.20 Chartwell Re Corporation 1997 Omnibus Stock Incentive Plan.
Incorporated by reference to Exhibit A to Chartwell Re
Corporation's Definitive Proxy Statement on Schedule 14A filed
with the Securities and Exchange Commission on April 11, 1997.
(File No. 1-12502).*
10.21 Employment Agreement, dated as of March 31, 1993, between
Chartwell Re Corporation and Steven J. Bensinger . Incorporated
by reference to Exhibit 10.20 to Chartwell Re Corporation's
Registration Statement on Form S-1 (File No. 33-75386).*
10.22 Fourth Amendment to the Employment Agreement, dated as of
December 31, 1997, between Chartwell Re Corporation and Steven
J. Bensinger. Incorporated by reference to Exhibit 10.34 to
Chartwell Re Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997 (File No. 1-12502).*
10.23 Fifth Amendment to the Employment Agreement, dated as of August
4, 1998, between Chartwell Re Corporation and Steven J.
Bensinger. Incorporated by reference to Exhibit 10.23 to
Chartwell Re Corporation's Annual Report on Form 10-K for the
year ended December 31, 1998 (File No. 1-12502).*
10.24 Sixth Amendment to the Employment Agreement, dated as of
December 30, 1998, between Chartwell Re Corporation and Steven
J. Bensinger. Incorporated by reference to Exhibit 10.26 to
Chartwell Re Corporation's Annual Report on Form 10-K for the
year ended December 31, 1998 (File No. 1-12502).*
31
<PAGE>
10.25 Employment Assumption and Amendment Agreement, dated as of
October 25, 1999, between Trenwick and Steven J. Bensinger.*
10.26 Service Agreement, dated October 26, 1995, between Sorema
Underwriting Management Limited, Sorema (UK) Reinsurance Limited
and Russell John English, as amended by the Deed of Waiver,
dated February 27, 1998.*
10.27 Change of Control Agreement, dated November 3, 1999, between
Trenwick and James F. Billett, Jr.*
10.28 Form of Change of Control Agreement, dated November 3, 1999,
between Trenwick and senior officers of Trenwick.*
10.29 Office lease between Trenwick and EOP-Canterbury Green, L.L.C.
dated as of January 29, 1998, with respect to office space in
Stamford, Connecticut. Incorporated by reference to Exhibit
10.16 to Trenwick's Annual Report on Form 10-K for the year
ended December 31, 1997 (File No. 1-15389).
10.30 First Amendment dated as of March 31, 1998, to office lease
between Trenwick and EOP-Canterbury Green L.L.C. dated January
29, 1998. Incorporated by reference to Exhibit 10.11 to
Trenwick's annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 1-15389).
10.31 Office Lease Agreement between AML-Four Stamford Plaza Limited
Partnership and Chartwell Re Corporation, dated March 29, 1996,
of the premises located at Four Stamford Plaza, Stamford,
Connecticut.
10.32 Lease of the premises located at 2 Minster Court, London,
England, by and between Chartwell UK Management Services Limited
(as Tenant) and The Prudential Assurance Company Limited (as
Landlord).
10.33 Underlease between Wereldhave Property Corporation PLC and
predecessors of Trenwick Management Services Limited dated May
22, 1991, with respect to office space located at 16 Eastcheap,
London, England. Incorporated by reference to Exhibit 10.12 to
Trenwick's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 1-15389).
10.34 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).
10.35 Aggregate Excess of Loss Ratio Cover between Trenwick and
Continental Casualty Company. Incorporated by reference to
Exhibit 10.22 to Trenwick's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 0-14737).
10.36 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 10.33 to Trenwick's
Annual Report on Form 10-K for the year ended December 31, 1996
(File No. 0-14737).
32
<PAGE>
10.37 First and Second Coinsured Aggregate Excess of Loss Reinsurance
Agreement between Trenwick and Centre Reinsurance Company of New
York and CNA Re. Incorporated by reference to Exhibit 10.31 to
Trenwick's Annual Report on Form 10-K for the year ended
December 31, 1997 (File No. 1-15389).
10.38 1998 Coinsured Aggregate Excess of Loss Reinsurance Agreement
between Trenwick and Centre Reinsurance Company of New York and
National Union. Incorporated by reference to Exhibit 10.27 to
Trenwick's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 1-15389).
10.39 1999 Coinsured Aggregate Excess of Loss Reinsurance Agreement
between Trenwick and Centre Insurance Company and National
Union.
10.40 Aggregate Excess of Loss Reinsurance Agreement, dated as of
October 27, 1999, by and between Chartwell Reinsurance Company,
Dakota Specialty Insurance Company, The Insurance Corporation of
New York and Drayton Company Limited, inclusive of corporate
capital support of London underwriting operations, and London
Life and Casualty Reinsurance Corporation and Scandinavian
Reinsurance Company, Ltd.
12.1 Computation of Ratios.
13.1 Excerpts from Trenwick's 1999 Annual Report to Stockholders
expressly incorporated by reference in this Form 10-K.
21.1 List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
*Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
A Report on Form 8-K was filed on December 22, 1999, which stated that
Trenwick and the LaSalle Re Holdings Limited had entered into an
Agreement, Scheme of Arrangement, Plan of Merger and Plan of
Reorganization, dated as of December 19, 1999, and that in connection
with this Agreement, Trenwick and LaSalle Re Holdings Limited had
entered into Stock Option Agreement with each other, each dated December
19, 1999 and Trenwick and certain shareholders of LaSalle Re Holdings
Limited and LaSalle Re Limited had entered into a Shareholders
Agreement. The Report on Form 8-K also stated that Trenwick and LaSalle
Re Holdings Limited had issued a joint press release announcing the
signing of the agreements.
33
<PAGE>
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 /s/ James F. Billett, Jr.
---------------------------------
James F. Billett, Jr.
Chairman, President and
Chief Executive Officer
Dated: March 30, 2000
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.
<TABLE>
<CAPTION>
Signature Title Date
- - --------- ----- ----
<S> <C> <C>
/s/James F. Billett, Jr. Chairman of the Board, March 30, 2000
- - ------------------------------- President and Chief
James F. Billett, Jr. Executive Officer and
Director (Principal
Executive Officer)
/s/Alan L. Hunte Vice President and March 30, 2000
- - ------------------------------- Treasurer (Principal
Alan L. Hunte Financial Officer and
Accounting Officer)
/s/W. Marston Becker Director March 30, 2000
- - -------------------------------
W. Marston Becker
/s/Anthony S. Brown Director March 30, 2000
- - -------------------------------
Anthony S. Brown
/s/Richard E. Cole Director March 30, 2000
- - -------------------------------
Richard E. Cole
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
/s/Robert M. DeMichele Director March 30, 2000
- - -------------------------------
Robert M. De Michele
/s/Neil Dunn Director March 30, 2000
- - -------------------------------
Neil Dunn
/s/Frank E. Grzelecki Director March 30, 2000
- - -------------------------------
Frank E. Grzelecki
/s/P. Anthony Jacobs Director March 30, 2000
- - -------------------------------
P. Anthony Jacobs
/s/Joseph D. Sargent Director March 30, 2000
- - -------------------------------
Joseph D. Sargent
/s/Frederick D. Watkins Director March 30, 2000
- - -------------------------------
Frederick D. Watkins
/s/Stephen R. Wilcox Director March 30, 2000
- - -------------------------------
Stephen R. Wilcox
</TABLE>
35
<PAGE>
TRENWICK GROUP INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Financial Statements:
Report of Independent Accountants
on Consolidated Financial Statements........................................................... *
Consolidated Balance Sheet at December 31, 1999 and 1998 ...................................... *
Consolidated Statement of Income and Comprehensive Income
for the years ended December 31, 1999, 1998 and 1997...................................... *
Consolidated Statement of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997...................................... *
Consolidated Statement of Cash Flows
for the years ended December 31, 1999, 1998 and 1997...................................... *
Notes to Consolidated Financial Statements..................................................... *
Financial Statement Schedules:
II - Condensed Financial Information of Registrant ..................................... S-1-S-3
III - Supplementary Insurance Information ............................................... S-4
IV - Valuation and Qualifying Accounts.................................................. S-5
Report of Independent Accountants on Financial Statement
Schedules .................................................................................. S-6
</TABLE>
* Incorporated by reference to Trenwick's 1999 Annual Report to Stockholders.
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.
<PAGE>
TRENWICK GROUP INC. AND SUBSIDIARIES
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRENWICK GROUP INC.
BALANCE SHEET
(Parent Company Only)
December 31,
1999 1998
-------- --------
(in thousands)
Assets:
Investments in consolidated subsidiaries $607,343 $532,069
Cash and cash equivalents 2,331 523
Due from consolidated subsidiaries 177 4,287
Deferred debt issuance costs 6,388 2,463
Accrued investment income 128 125
Net deferred income taxes 15,000 4,198
Goodwill 153,824 1,605
Other assets 17,578 9
-------- --------
Total assets $802,769 $545,279
======== ========
Liabilities:
6.70% Senior notes due 2003 $ 75,000 $ 75,000
Junior subordinated debentures 113,403 113,403
Contingent interest notes 34,699 --
Due to consolidated subsidiaries 10,965 2,700
Accrued interest expense 5,497 5,424
Chase syndicated senior credit facilities 94,501 --
Other liabilities 6,455 723
-------- --------
Total liabilities 340,520 197,250
Stockholders' equity 462,249 348,029
-------- --------
Total liabilities and stockholders' equity $802,769 $545,279
======== ========
S-1
<PAGE>
TRENWICK GROUP INC. AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT-(continued)
TRENWICK GROUP INC.
STATEMENT OF INCOME
(Parent Company Only)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Revenues:
Consolidated subsidiary dividends $ 46,100 $ 26,600 $ 8,250
Net investment income 358 1,500 4,974
Net realized investment gains -- 778 --
Other income 1 12 --
-------- -------- --------
Total revenues 46,459 28,890 13,224
Interest and operating expenses 16,938 13,950 10,090
Amortization expense 1,423 33 --
Income before income taxes, equity in undistributed
income of unconsolidated subsidiaries and
extraordinary item 28,098 14,907 3,134
Income tax benefit (5,077) (3,942) (1,239)
-------- -------- --------
Income before equity in undistributed income of
consolidated subsidiaries 33,175 18,849 4,373
Equity in undistributed income (loss) of consolidated
subsidiaries (44,223) 15,943 31,916
-------- -------- --------
Income (loss) before extraordinary loss on
debt redemption (11,048) 34,792 36,289
Extraordinary loss on debt redemption, net of $558
income tax benefit -- -- 1,037
-------- -------- --------
Net income (loss) $(11,048) $ 34,792 $ 35,252
========= ======== ========
</TABLE>
S-2
<PAGE>
TRENWICK GROUP INC. AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT-(continued)
TRENWICK GROUP INC.
STATEMENT OF CASH FLOWS
(Parent Company Only)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Dividends and net investment income received $ 46,466 $ 28,548 $ 12,642
Interest and operating expenses paid (14,979) (11,786) (4,983)
Income taxes received 3,669 5,035 794
--------- --------- ---------
Cash provided by operating activities 35,156 21,797 8,453
--------- --------- ---------
Cash flows from investing activities:
Purchases of debt securities -- (16,637) (72,932)
Sales of debt securities -- 88,190 --
Maturities of debt securities -- 911 16,050
Investment in subsidiaries (57,474) (130,582) (3,403)
--------- --------- ---------
Cash used for investing activities (57,474) (58,118) (60,285)
--------- --------- ---------
Cash flows from financing activities:
Issuance of senior notes -- 75,000 --
Issuance of junior subordinated debentures -- -- 113,403
Issuance costs of senior notes and capital securities (4,055) (922) (1,669)
Long term debt proceeds 94,473 -- --
Redemption of convertible debentures -- -- (46,997)
Issuance of common stock -- 1,536 956
Repurchase of common stock (44,604) (34,880) (171)
Dividends paid (12,787) (11,698) (11,546)
Intercompany loans (8,901) 2,700 --
--------- --------- ---------
Cash provided by financing activities 24,126 31,736 53,976
--------- --------- ---------
Change in cash and cash equivalents 1,808 (4,585) 2,144
Cash and cash equivalents, beginning of year 523 5,108 2,964
--------- --------- ---------
Cash and cash equivalents, end of year $ 2,331 $ 523 $ 5,108
========= ========= =========
</TABLE>
S-3
<PAGE>
TRENWICK GROUP INC. AND SUBSIDIARIES
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------- -------
<S> <C> <C> <C>
Deferred policy acquisition costs Trenwick America Re $34,757 $21,023 $22,524
Canterbury Financial Group 3,215 -- --
Trenwick International 19,982 14,238 --
Chartwell Managing Agents 20,942 -- --
--------- ------- -------
78,896 35,261 22,524
Unpaid claims and claim expenses Trenwick America Re 1,201,954 546,292 518,387
Canterbury Financial Group 142,215 -- --
Trenwick International 164,264 136,136 --
Chartwell Managing Agents 455,706 -- --
--------- ------- -------
1,964,139 682,428 518,387
Unearned premium income Trenwick America Re 110,909 75,206 87,020
Canterbury Financial Group 63,133
Trenwick International 100,336 76,845 --
Chartwell Managing Agents 105,306
--------- ------- -------
379,684 152,051 87,020
Net premiums earned Trenwick America Re 166,906 174,443 190,156
Canterbury Financial Group 10,343
Trenwick International 107,911 71,118 --
Chartwell Managing Agents 39,954
--------- ------- -------
325,114 245,561 190,156
Net Investment Income Trenwick America Re 49,315 44,490 43,692
Canterbury Financial Group 1,722
Trenwick International 11,253 10,614 --
Chartwell Managing Agents 3,845
Unallocated 259 1,212 4,710
--------- ------- -------
66,394 56,316 48,402
Claims and claims expenses incurred Trenwick America Re 130,603 105,478 109,554
Canterbury Financial Group 5,766
Trenwick International 80,866 47,657 --
Chartwell Managing Agents 37,303
--------- ------- -------
254,538 153,135 109,554
Policy acquisition costs Trenwick America Re 61,633 58,310 58,549
Canterbury Financial Group 916
Trenwick International 22,627 15,887 --
Chartwell Managing Agents 10,919
--------- ------- -------
96,095 74,197 58,549
Underwriting expenses Trenwick America Re 13,790 13,789 15,425
Canterbury Financial Group 2,687
Trenwick International 15,364 10,006 --
Chartwell Managing Agents 5,548
--------- ------- -------
37,389 23,795 15,425
Net premiums written Trenwick America Re 155,108 169,112 195,230
Canterbury Financial Group 5,641
Trenwick International 129,399 81,107 --
Chartwell Managing Agents 64,462
--------- ------- -------
354,610 250,219 195,230
</TABLE>
S-4
<PAGE>
TRENWICK GROUP INC. AND SUBSIDIARIES
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in thousands)
Balance at Charged to Balance at
Beginning of Costs and End of
Period Expenses Period
------------ ---------- ----------
Year Ended December 31, 1999
Reinsurance recoverable:
Allowance for Uncollectible
Reinsurance (1) .............. $6,402 $ 167 $6,569
Year Ended December 31, 1998
Reinsurance recoverable:
Allowance for Uncollectible
Reinsurance (1) .............. $6,394 $ 8 $6,402
Year Ended December 31, 1997
Reinsurance recoverable:
Allowance for Uncollectible
Reinsurance (1) .............. $5,731 $ 663 $6,394
(1) Trenwick has a reinsurance agreement which protects Trenwick from certain
uncollectible reinsurance balances. Uncollectible amounts have been ceded
to said contract and are reflected as reinsurance recoverable in the
balance sheet. Deductions to reserve represent subsequent collections of
amounts deemed uncollectible.
S-5
<PAGE>
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 February 29, 2000, appearing in the 1999 Annual Report to Stockholders of
Trenwick Group Inc. (which report and consolidated financial statements are
incorporated by reference in the Annual Report on Form 10-K) also included an
audit of the financial statement schedules listed in 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.
PricewaterhouseCoopers LLP
New York, New York
February 29, 2000
S-6
EXHIBIT 10.1
CREDIT AGREEMENT
among
TRENWICK GROUP INC.,
VARIOUS LENDING INSTITUTIONS,
THE CHASE MANHATTAN BANK,
AS ADMINISTRATIVE AGENT,
FIRST UNION NATIONAL BANK,
AS SYNDICATION AGENT
and
FLEET NATIONAL BANK,
AS DOCUMENTATION AGENT
-----------------------------
Dated as of November 24, 1999
-----------------------------
$400,000,000
CHASE SECURITIES INC.,
AS LEAD ARRANGER AND BOOK MANAGER
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. Revolving Credit Facility....................................... 1
1.01 Commitments........................................................... 1
1.02 Minimum Amount of Each Borrowing; Maximum Number of Borrowings........ 2
1.03 Notice of Borrowing of Revolving Loans................................ 2
1.04 Disbursement of Funds................................................. 2
1.05 Register.............................................................. 3
1.06 Conversions........................................................... 3
1.07 Pro Rata Borrowings................................................... 4
1.08 Interest.............................................................. 4
1.09 Interest Periods...................................................... 5
1.10 Increased Costs, Illegality, etc...................................... 6
1.11 Compensation.......................................................... 8
1.12 Change of Lending Office.............................................. 8
1.13 Replacement of Banks.................................................. 9
SECTION 2. Letter of Credit Facility....................................... 9
2.01 Letters of Credit..................................................... 9
2.02 Letter of Credit Request; Notices of Issuance......................... 11
2.03 Agreement to Repay Letter of Credit Payments.......................... 11
2.04 Increased Costs....................................................... 12
2.05 Letter of Credit Expiration Extensions................................ 12
2.06 Changes to Stated Amount.............................................. 13
2.07 Representations and Warranties of L/C Banks........................... 13
SECTION 3. Fees; Commitments............................................... 13
3.01 Fees.................................................................. 13
3.02 Voluntary Reduction of Commitments.................................... 14
3.03 Mandatory Reductions of Commitments................................... 14
SECTION 4. Payments........................................................ 15
4.01 Voluntary Prepayments................................................. 15
4.02 Mandatory Repayments and Prepayments.................................. 15
4.03 Method and Place of Payment........................................... 18
4.04 Net Payments.......................................................... 19
SECTION 5. Conditions Precedent............................................ 20
5.01 Execution of Agreement................................................ 20
5.02 No Default; Representations and Warranties............................ 20
5.03 Officer's Certificate................................................. 21
5.04 Opinions of Counsel................................................... 21
5.05 Corporate Proceedings................................................. 21
5.06 Adverse Change, etc................................................... 21
5.07 Litigation............................................................ 22
5.08 Subsidiary Guaranty................................................... 22
5.09 Consummation of the Refinancing....................................... 22
5.10 Chartwell Senior Notes................................................ 22
5.11 Financial Statements; Projections..................................... 22
5.12 Approvals, etc........................................................ 23
5.13 Indebtedness.......................................................... 24
5.14 Payment of Fees....................................................... 24
5.15 Letter of Credit Request; Notice of Borrowing......................... 24
5.16 Capital Structure..................................................... 24
5.17 Solvency Certificate.................................................. 24
5.18 A.M. Best Rating...................................................... 24
SECTION 6. Representations, Warranties and Agreements...................... 24
6.01 Corporate Status...................................................... 25
6.02 Corporate Power and Authority; Enforceability......................... 25
6.03 No Contravention of Laws, Agreements or Organizational Documents...... 25
6.04 Litigation and Contingent Liabilities................................. 25
6.05 Use of Proceeds; Margin Regulations................................... 26
6.06 Approvals............................................................. 26
6.07 Investment Company Act................................................ 26
6.08 Public Utility Holding Company Act.................................... 27
6.09 True and Complete Disclosure; Projections and Assumptions............. 27
6.10 Consummation of Transaction........................................... 27
6.11 Financial Condition; Financial Statements............................. 27
6.12 Tax Returns and Payments.............................................. 28
6.13 Compliance with ERISA................................................. 28
6.14 Subsidiaries.......................................................... 30
6.15 Intellectual Property, etc............................................ 30
6.16 Pollution and Other Regulations....................................... 30
6.17 Labor Relations; Collective Bargaining Agreements..................... 30
6.18 Capitalization........................................................ 31
6.19 Indebtedness.......................................................... 31
6.20 Compliance with Statutes, etc......................................... 31
6.21 Insurance Licenses.................................................... 31
6.22 Year 2000 Compliance.................................................. 31
<PAGE>
SECTION 7. Affirmative Covenants........................................... 32
7.01 Information Covenants................................................. 32
7.02 Books, Records and Inspections........................................ 35
7.03 Insurance............................................................. 35
7.04 Payment of Taxes...................................................... 36
7.05 Corporate Franchises.................................................. 36
7.06 Compliance with Statutes, etc......................................... 36
7.07 ERISA................................................................. 36
7.08 Performance of Obligations............................................ 37
7.09 Good Repair........................................................... 38
7.10 End of Fiscal Years; Fiscal Quarters.................................. 38
7.11 Maintenance of Licenses and Permits................................... 38
7.12 Chartwell Senior Notes................................................ 38
7.13 Subsidiary Guaranties................................................. 38
SECTION 8. Negative Covenants.............................................. 38
8.01 Changes in Business................................................... 38
8.02 Fundamental Changes; Acquisitions..................................... 38
8.03 Liens................................................................. 39
8.04 Indebtedness.......................................................... 41
8.05 Advances, Investments and Loans....................................... 42
8.06 Dividends, etc........................................................ 44
8.07 Transactions with Affiliates.......................................... 45
8.08 Issuance of Stock..................................................... 45
8.09 Creation of Subsidiaries.............................................. 45
8.10 Partnership Agreements................................................ 45
8.11 Prepayments of Indebtedness, Modifications of Agreements, etc......... 45
8.12 Leverage Ratio........................................................ 46
8.13 Interest Coverage Ratio............................................... 46
8.14 Minimum Risk Based Capital............................................ 46
8.15 Minimum Combined Statutory Surplus.................................... 46
8.16 Minimum Consolidated Tangible Net Worth............................... 46
SECTION 9. Events of Default............................................... 46
9.01 Payments.............................................................. 46
9.02 Representations, etc.................................................. 47
9.03 Covenants............................................................. 47
9.04 Default Under Other Agreements........................................ 47
9.05 Bankruptcy, etc....................................................... 47
9.06 ERISA................................................................. 48
9.07 Subsidiary Guaranty................................................... 48
9.08 Judgments............................................................. 49
9.09 Change of Control..................................................... 49
9.10 Senior Unsecured Debt Ratings......................................... 49
9.11 A.M. Best Ratings..................................................... 49
SECTION 10. Definitions.................................................... 50
SECTION 11. The Administrative Agent....................................... 72
11.01 Appointment.......................................................... 72
11.02 Delegation of Duties................................................. 72
11.03 Exculpatory Provisions............................................... 72
11.04 Reliance by Administrative Agent..................................... 73
11.05 Notice of Default.................................................... 73
11.06 Non-Reliance......................................................... 73
11.07 Indemnification...................................................... 74
11.08 The Administrative Agent in its Individual Capacity.................. 74
11.09 Successor Administrative Agent....................................... 75
11.10 Other Agents......................................................... 75
SECTION 12. Miscellaneous.................................................. 76
12.01 Payment of Expenses, etc............................................. 76
12.02 Right of Setoff...................................................... 76
12.03 Notices.............................................................. 77
12.04 Benefit of Agreement................................................. 77
12.05 No Waiver; Remedies Cumulative....................................... 79
12.06 Payments Pro Rata.................................................... 79
12.07 Calculations; Computations........................................... 80
12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE..................... 81
12.09 Counterparts......................................................... 82
12.10 Effectiveness........................................................ 82
12.11 Headings Descriptive................................................. 82
12.12 Amendment or Waiver.................................................. 82
12.13 Survival............................................................. 82
12.14 Domicile of Loans.................................................... 82
12.15 Confidentiality...................................................... 83
12.16 WAIVER OF JURY TRIAL................................................. 83
12.17 Judgment Currency.................................................... 83
12.18 Euro................................................................. 84
<PAGE>
ANNEX I -- List of Banks and Commitments
ANNEX II -- Bank Addresses
ANNEX III -- Existing Indebtedness
ANNEX IV -- Pension Plans
ANNEX V -- Subsidiaries
ANNEX VI -- Collective Bargaining Agreements
ANNEX VII -- Existing Liens
ANNEX VIII -- Existing Investments
ANNEX IX -- Capitalization
EXHIBIT A-1 -- Form of Notice of Borrowing
EXHIBIT A-2 -- Form of Letter of Credit Request
EXHIBIT B -- Form of Letter of Credit
EXHIBIT C-1 -- Form of Opinion of Baker & McKenzie
EXHIBIT C-2 -- Form of Opinion of the General Counsel of Trenwick Group Inc.
EXHIBIT C-3 -- Form of Opinion of White & Case LLP
EXHIBIT D -- Form of Officer's Certificate
EXHIBIT E -- Form of Section 4.04(b)(ii) Certificate
EXHIBIT F -- Form of Subsidiary Guaranty
EXHIBIT G -- Form of Solvency Certificate
EXHIBIT H -- Form of Assignment and Assumption Agreement
<PAGE>
CREDIT AGREEMENT, dated as of November 24, 1999, among TRENWICK GROUP INC., a
Delaware corporation (the "Borrower"), the lending institutions listed from
time to time on Annex I hereto (each a "Bank" and, collectively, the "Banks"),
FIRST UNION NATIONAL BANK, as Syndication Agent (the "Syndication Agent"), FLEET
NATIONAL BANK, as Documentation Agent (the "Documentation Agent") and THE CHASE
MANHATTAN BANK, as Administrative Agent (the "Administrative Agent"). Unless
otherwise defined herein, all capitalized terms used herein and defined in
Section 10 are used herein as so defined.
W I T N E S S E T H:
WHEREAS, subject to and upon the terms and conditions set forth herein,
the Banks are willing to make available to the Borrower the credit facilities
provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Revolving Credit Facility.
1.01 Commitments. (a) Subject to and upon the terms and conditions herein
set forth, each Bank severally agrees at any time and from time to time on and
after the Effective Date and prior to the Conversion Date, to make a revolving
loan or revolving loans (each a "Revolving Loan" and, collectively, the
"Revolving Loans") to the Borrower, which Revolving Loans (i) may be made and
maintained in such Approved Currency as is requested by the Borrower (except
that Base Rate Loans may only be denominated in Dollars) and (ii) shall, at the
option of the Borrower, be Base Rate Loans or Eurodollar Loans, provided that
all Revolving Loans made as part of the same Borrowing shall, unless otherwise
specifically provided herein, consist of Revolving Loans of the same Type, (iii)
may be repaid and reborrowed in accordance with the provisions hereof, (iv)
shall not exceed for any Bank at any time outstanding that aggregate Principal
Amount which equals the Revolving Loan Commitment of such Bank at such time and
(v) shall not exceed for all Banks at any time outstanding that aggregate
Principal Amount which equals the Available Total Revolving Loan Commitment at
such time.
(b) Subject to and upon the terms and conditions set forth herein, the
Borrower and each Bank which has Revolving Loans outstanding at such time agree
that at 9:00 A.M. (New York time) on the Conversion Date, the aggregate
principal amount of Revolving Loans owing to such Bank and outstanding at such
time shall (unless such Revolving Loans have been declared (or have become) due
and payable pursuant to this Agreement), without any notice or action by any
party, automatically convert to and thereafter constitute Term Loans owing to
such Bank hereunder. The Term Loans of each Bank (i) shall be made and
thereafter maintained in the same currencies in which the related Revolving
Loans were denominated as of the Conversion Date, (ii) shall, at the option of
the Borrower, be Base Rate Loans or Eurodollar Loans, provided that (A) Base
Rate Loans may only be denominated in Dollars and (B) all Term Loans comprising
the same Borrowing shall, unless otherwise specifically provided herein, consist
of Term Loans of the same Type and (iii) shall not exceed in initial Principal
Amount for such Bank an amount which equals the total Principal Amount of
Revolving Loans owed to such Bank and outstanding immediately prior to the
Conversion Date. Once repaid, Term Loans may not be reborrowed.
1
<PAGE>
1.02 Minimum Amount of Each Borrowing; Maximum Number of Borrowings.
The aggregate Principal Amount of each Borrowing hereunder shall not be less
than the Minimum Borrowing Amount. More than one Borrowing may be incurred on
any day; provided that at no time shall there be outstanding more than five
Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing of Revolving Loans. (a) Whenever the Borrower
desires to incur Revolving Loans, it shall give the Administrative Agent at its
Notice Office, (x) prior to 11:00 A.M. (New York time), at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
of each Borrowing of Eurodollar Loans in Dollars, (y) prior to 1:00 P.M. (New
York time) at least four Business Days' prior written of notice (or telephonic
notice promptly confirmed in writing) of each Borrowing of Eurodollar Loans
constituting Alternate Currency Loans and (z) prior to 11:00 A.M. (New York
time) at least one Business Day's prior written notice (or telephone notice
promptly confirmed in writing) each Borrowing of Base Rate Loans. Each such
notice (each, a "Notice of Borrowing") shall be in the form of Exhibit A-1 and
shall be irrevocable and shall specify (i) in the case of Alternate Currency
Loans, the Approved Currency for such Loans, (ii) the aggregate principal amount
of the Revolving Loans to be made pursuant to such Borrowing (stated in the
applicable Approved Currency), (iii) the date of Borrowing (which shall be a
Business Day) and (iv) whether the respective Borrowing shall consist of Base
Rate Loans or Eurodollar Loans. The Administrative Agent shall promptly give
each Bank written notice (or telephonic notice promptly confirmed in writing) of
each proposed Borrowing, of the portion thereof to be funded by such Bank and of
the other matters covered by the Notice of Borrowing.
(b) Without in any way limiting the obligation of the Borrower to confirm
in writing any telephonic notice permitted to be given hereunder, the
Administrative Agent may prior to receipt of written confirmation act without
liability upon the basis of such telephonic notice, believed by it in good faith
to be from an Authorized Officer of the Borrower. In each such case, the
Borrower hereby waives the right to dispute the Administrative Agent's record of
the terms of such telephonic notice absent manifest error.
1.04 Disbursement of Funds. (a) No later than 11:00 A.M. (New York time)
on the date specified in each Notice of Borrowing, each Bank will make available
its pro rata share, if any, of such Borrowing requested to be made on such date.
All such amounts shall be made available to the Administrative Agent in the
relevant Approved Currency and immediately available funds at the Payment Office
and the Administrative Agent will make available to the Borrower by depositing
to the account designated by the Borrower, which account shall be at an
institution in the same city as the respective Payment Office, the aggregate of
the amounts so made available in the type of funds received. Unless the
Administrative Agent shall have been notified by any Bank participating in a
Borrowing prior to the date of such Borrowing that such Bank does not intend to
make available to the Administrative Agent its portion of the Borrowing or
Borrowings to be made on such date, the Administrative Agent may assume that
such Bank has made such amount available to the Administrative Agent on such
date of Borrowing, and the Administrative Agent, in reliance upon such
assumption, may (in its sole discretion and without any obligation to do so)
make available to the Borrower a corresponding amount. If such corresponding
amount is not in fact made available to the Administrative Agent by such Bank
and the Administrative Agent has made available same to the Borrower, the
Administrative Agent shall be entitled to recover such corresponding amount from
such Bank. If such Bank does not pay such corresponding amount forthwith upon
the Administrative Agent's demand therefor, the Administrative Agent shall
promptly notify the Borrower in writing or by telephone (promptly confirmed in
writing), and the Borrower shall immediately pay such corresponding amount to
the Administrative Agent. The Administrative Agent shall also be entitled to
recover on demand from such Bank or the Borrower, as the case may be, interest
on such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Administrative Agent to the
Borrower to the date such corresponding amount is recovered by the
Administrative Agent, at a rate per annum equal to (x) if paid by such Bank, the
overnight Federal Funds Effective Rate or (y) if paid by the Borrower, the then
applicable rate of interest, calculated in accordance with Section 1.08, for the
type of respective Loans which were required to be repaid.
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(b) Nothing herein shall be deemed to relieve any Bank from its obligation
to fulfill its commitments hereunder or to prejudice rights which the Borrower
may have against any Bank as a result of any default by such Bank hereunder.
1.05 Register. (a) The Administrative Agent shall maintain a register for
the recordation of the Revolving Loan Commitments and the L/C Commitments of the
Banks from time to time and, after the Conversion Date has occurred, the
principal amount of the Term Loans owing to each Bank (the "Register"). The
entries in the Register shall be conclusive and binding for all purposes, absent
manifest error. The Register shall be available for inspection by the Borrower
or any Bank at any reasonable time and from time to time upon reasonable prior
notice.
(b) The Borrower hereby agrees to provide a Note, promptly upon the request
of any Bank, to the extent such Bank has requested such Note in connection with
any pledge or assignment by such Bank of any or all of its Loans hereunder to a
Federal Reserve Bank.
1.06 Conversions. The Borrower shall have the option to convert on any
Business Day all or a portion at least equal to the applicable Minimum Borrowing
Amount of its outstanding Loans denominated in a single Approved Currency and
constituting Base Rate Loans or Eurodollar Loans into a Borrowing or Borrowings
of Loans denominated in such Approved Currency and constituting Eurodollar Loans
or Base Rate Loans, respectively, provided that (i) Eurodollar Loans denominated
in a currency other than Dollars may not be converted into Base Rate Loans, (ii)
no partial conversion shall reduce the outstanding principal amount of the
Eurodollar Loans made pursuant to a Borrowing to less than the Minimum Borrowing
Amount applicable thereto, (iii) Base Rate Loans may not be converted into
Eurodollar Loans when a Default or Event of Default is then in existence if the
Administrative Agent or the Required Banks shall have determined in its or their
sole discretion not to permit such conversion and (iv) Borrowings of Eurodollar
Loans resulting from this Section 1.06 shall be limited in number as provided in
Section 1.02. Each such conversion shall be effected by the Borrower giving the
Administrative Agent at the Notice Office, prior to 11:00 A.M. (New York time),
at least three Business Days' (or one Business Day in the case of a conversion
into Base Rate Loans) prior written notice (or telephonic notice promptly
confirmed in writing) (each, a "Notice of Conversion") specifying the Loans to
be so converted, the Type of Loans (as to interest option) to be converted into
and, if to be converted into a Borrowing of Eurodollar Loans, the Interest
Period to be initially applicable thereto. The Administrative Agent shall give
each Bank prompt notice of any such proposed conversion affecting any of its
Loans.
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1.07 Pro Rata Borrowings. All Revolving Loans under this Agreement shall be
made by the Banks pro rata on the basis of their Revolving Loan Commitments. It
is understood that no Bank shall be responsible for any default by any other
Bank in its obligation to make Loans hereunder and that each Bank shall be
obligated to make the Loans provided to be made by it hereunder, regardless of
the failure of any other Bank to fulfill its commitments hereunder.
1.08 Interest. (a) The unpaid principal amount of each Base Rate Loan shall
bear interest from the date of the Borrowing thereof until the earlier of (i)
the maturity (whether by acceleration or otherwise) of such Base Rate Loan and
(ii) the conversion of such Base Rate Loan to a Eurodollar Loan pursuant to
Section 1.06, at a rate per annum which shall at all times be equal to the
Applicable Margin then in effect for Base Rate Loans plus the Base Rate in
effect from time to time.
(b) The unpaid principal amount of each Eurodollar Loan shall bear interest
from the date of the Borrowing thereof until the earlier of (i) the maturity
(whether by acceleration or otherwise) of such Eurodollar Loan or (ii) the
conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06,
at a rate per annum which shall at all times be equal to the Applicable Margin
then in effect for Eurodollar Loans plus the relevant LIBOR for the Interest
Period applicable to such Eurodollar Loan.
(c) Overdue principal and, to the extent permitted by law, overdue interest
in respect of each Loan and any other overdue amount payable hereunder shall
bear interest at a rate per annum equal to the Base Rate in effect from time to
time plus the sum of (i) 2% and (ii) the Applicable Margin then in effect for
Base Rate Loans; provided that Eurodollar Loans shall bear interest after
maturity (whether by acceleration or otherwise) until the end of the applicable
Interest Period at a rate per annum equal to 2% in excess of the rate of
interest then applicable thereto.
(d) Interest shall accrue from and including the date of any Borrowing
to but excluding the date of any repayment thereof and shall be payable (i) in
respect of each Base Rate Loan, quarterly in arrears on the last Business Day of
each calendar quarter, (ii) in respect of each Eurodollar Loan, on the last day
of each Interest Period applicable thereto and, in the case of an Interest
Period of six months, on the date occurring three months after the first day of
such Interest Period and (iii) in respect of each Loan, on any conversion or
prepayment (on the amount so converted or prepaid), at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in accordance
with Section 12.07(b) and (c).
(f) The Administrative Agent, upon determining the interest rate for
any Borrowing of Eurodollar Loans for any Interest Period, shall promptly notify
the Borrower and the Banks thereof.
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1.09 Interest Periods. At the time the Borrower gives a Notice of Borrowing
or Notice of Conversion in respect of the making of, or conversion into, a
Borrowing of Eurodollar Loans (in the case of the initial Interest Period
applicable thereto) or prior to 11:00 A.M. (New York time) on the third Business
Day prior to the expiration of an Interest Period applicable to a Borrowing of
Eurodollar Loans, it shall have the right to elect by giving the Administrative
Agent written notice (or telephonic notice promptly confirmed in writing) of the
Interest Period to be applicable to such Borrowing, which Interest Period shall,
at the option of the Borrower, be a one, two, three or six month period.
Notwithstanding anything to the contrary contained above:
(i) the initial Interest Period for any Borrowing of Eurodollar Loans
shall commence on the date of such Borrowing (including the date of any
conversion from a Borrowing of Base Rate Loans) and each Interest Period
occurring thereafter in respect of such Borrowing shall commence on the day on
which the next preceding Interest Period expires;
(ii) if any Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period, such Interest Period shall end on the last Business Day of such calendar
month;
(iii) if any Interest Period would otherwise expire on a day which is not a
Business Day, such Interest Period shall expire on the next succeeding Business
Day, provided that if any Interest Period would otherwise expire on a day which
is not a Business Day but is a day of the month after which no further Business
Day occurs in such month, such Interest Period shall expire on the next
preceding Business Day;
(iv) no Interest Period may be elected at any time when a Default or Event
of Default is then in existence if the Administrative Agent or the Required
Banks shall have determined in its or their sole discretion not to permit such
Interest Period;
(v) no Interest Period shall extend beyond the Term Loan Maturity Date;
and
(vi) no Interest Period with respect to any Borrowing of Term Loans may be
elected that would extend beyond any date upon which a mandatory repayment of
Term Loans is required to be made under Section 4.02(i)(a) if, after giving
effect to the selection of such Interest Period, the aggregate principal amount
of Term Loans maintained as Eurodollar Loans with Interest Periods ending after
such date would exceed the aggregate principal amount of Term Loans permitted to
be outstanding after such mandatory repayment.
If upon the expiration of any Interest Period, the Borrower has failed, or is
not permitted, to elect a new Interest Period to be applicable to the
respective Borrowing of Eurodollar Loans as provided above, the Borrower shall
be deemed to have elected to convert such Borrowing into a Borrowing of Base
Rate Loans effective as of the expiration date of such current Interest Period;
provided that if such Eurodollar Loans are denominated in a currency other than
Dollars, then such Eurodollar Loans shall not convert to Base Rate Loans but
shall instead be prepaid by the Borrower on the last day of such Interest
Period.
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1.10 Increased Costs, Illegality, etc. (a) In the event that (x) in the
case of clause (i) or (iv) below, the Administrative Agent or (y) in the case of
clauses (ii) and (iii) below, any Bank shall have determined (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto, provided that such determination has been made in good
faith):
(i) on any date for determining any LIBOR for any Interest Period, that,
by reason of any changes arising after the Effective Date affecting the
interbank Eurodollar market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in the
definition of the respective LIBOR; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to any
Eurodollar Loans (other than any increased cost or reduction in the amount
received or receivable resulting from the imposition of or a change in the rate
of taxes or similar charges) because of (x) any change since the Effective Date
in any applicable law, governmental rule, regulation, guideline, order or
request (whether or not having the force of law), or in the interpretation or
administration thereof and including the introduction of any new law or
governmental rule, regulation, guideline, order or request (such as, for
example, but not limited to, a change in official reserve requirements, but, in
all events, excluding reserves required under Regulation D to the extent
included in the computation of the respective LIBOR) and/or (y) other
circumstances materially affecting the interbank Eurodollar market generally;
(iii) at any time, that the making or continuance of any Eurodollar Loan
has become unlawful due to the compliance by such Bank in good faith with any
change since the Effective Date in any law, governmental rule, regulation,
guideline or order, or the interpretation or application thereof, or would
conflict with any thereof not having the force of law but with which such Bank
customarily complies, or has become impracticable as a result of a contingency
occurring after the Effective Date which materially adversely affects the
interbank Eurodollar market; or
(iv) at any time that any Alternate Currency is not available in
sufficient amounts, as determined in good faith by the Administrative Agent, to
fund any Borrowing of Loans denominated in such Alternate Currency;
then, and in any such event, such Bank (or the Administrative Agent in the case
of clause (i) or (iv) above) shall (x) on such date and (y) within 10 Business
Days of the date on which such event no longer exists give notice (by telephone
confirmed in writing) to the Borrower and, except in the case of clauses (i) and
(iv) above, to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other Banks).
Thereafter (w) in the case of clause (i) above, Eurodollar Loans, priced in
respect of the affected LIBOR, shall no longer be available until such time as
the Administrative Agent notifies the Borrower and the Banks that the
circumstances giving rise to such notice by the Administrative Agent no longer
exist, and any Notice of Borrowing or Notice of Conversion given by the Borrower
with respect to Eurodollar Loans which have not yet been incurred shall be
deemed rescinded by the Borrower or, in the case of a Notice of Borrowing,
shall, at the option of the Borrower, be deemed converted into a Notice of
Borrowing for Base Rate Loans to be made on the date of Borrowing contained in
such Notice of Borrowing, (x) in the case of clause (ii) above, the Borrower
shall pay to such Bank, within 10 days of its receipt of written demand
therefor, such additional amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Bank shall
determine) as shall be required to compensate such Bank for such increased
costs or reductions in amounts receivable hereunder (a written notice as to the
additional amounts owed to such Bank, showing the basis for the calculation
thereof, which basis shall be reasonable and consistently applied, submitted to
the Borrower by such Bank shall, absent manifest error, be final and conclusive
and binding upon all parties hereto), (y) in the case of clause (iii) above, the
Borrower shall take one of the actions specified in Section 1.10(b) as promptly
as possible and, in any event, within the time period required by applicable law
and (z) in the case of clause (iv) above, Loans in the affected Alternate
Currency shall no longer be available until such time as the Administrative
Agent notifies the Borrower and the Banks that the circumstances giving rise to
such notice by the Administrative Agent no longer exist in accordance with
clause (y) of the preceding sentence, and any Notice of Borrowing or Notice of
Conversion given by a Borrower with respect to such Alternate Currency Loans
which have not yet been incurred shall be deemed rescinded by the Borrower.
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(b) At any time that any Eurodollar Loan is affected by the circumstances
described in Section 1.10(a)(ii) or (iii), the Borrower may (and in the case of
a Eurodollar Loan affected pursuant to Section 1.10(a)(iii) the Borrower shall)
either (i) if the affected Eurodollar Loan is then being made pursuant to a
Borrowing, by giving the Administrative Agent telephonic notice (confirmed
promptly in writing) thereof on the same date that the Borrower was notified in
writing by a Bank pursuant to Section 1.10(a)(ii) or (iii), cancel said
Borrowing, convert the related Notice of Borrowing into one requesting a
Borrowing of Base Rate Loans or require the affected Bank to make its requested
Loan as a Base Rate Loan, or (ii) if the affected Eurodollar Loan is then
outstanding, upon at least three Business Days' notice to the Administrative
Agent, (A) in the case of a Eurodollar Loan denominated in Dollars, require the
affected Bank to convert each such Eurodollar Loan into a Base Rate Loan, and
(B) in the case of a Eurodollar Loan denominated in an Alternate Currency, repay
all such Eurodollar Loans in full, provided that if more than one Bank is
affected at any time, then all affected Banks must be treated in the same manner
pursuant to this Section 1.10(b).
(c) If any Bank shall have determined that after the Effective Date the
adoption or effectiveness of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged by law with the interpretation or administration thereof, or
compliance by such Bank or its parent corporation with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
Governmental Authority, central bank or comparable agency, in each case made
subsequent to the Effective Date, has or would have the effect of reducing the
rate of return on such Bank's or its parent corporation's capital or assets as a
consequence of such Bank's commitments or obligations hereunder to a level below
that which such Bank or its parent corporation could have achieved but for such
adoption, effectiveness, change or compliance (taking into consideration such
Bank's or its parent corporation's policies with respect to capital adequacy),
then from time to time, the Borrower shall within 10 days of its receipt of
written demand by such Bank (with a copy to the Administrative Agent), pay to
such Bank such additional amount or amounts as will compensate such Bank or its
parent corporation for such reduction. Each Bank, upon determining in good
faith that any additional amounts will be payable pursuant to this Section
1.10(c), will give prompt written notice thereof to the Borrower, which notice
shall set forth in reasonable detail the basis of the calculation of such
additional amounts, which basis must be reasonable and consistently applied,
although the failure to give any such notice shall not release or diminish any
of the Borrower's obligations to pay additional amounts pursuant to this Section
1.10(c) upon the subsequent receipt of such notice.
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1.11 Compensation. The Borrower shall compensate each Bank, upon its
written request (which request shall set forth the basis for requesting such
compensation), for all reasonable losses, expenses and liabilities (including,
without limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required by such Bank to
fund its Eurodollar Loans but excluding any loss of anticipated profit with
respect to such Loans) which such Bank may sustain: (i) if for any reason
(other than a default by such Bank or the Administrative Agent) a Borrowing of
Eurodollar Loans does not occur on a date specified therefor in a Notice of
Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or
deemed withdrawn pursuant to Section 1.10(a)); (ii) if any repayment, prepayment
or conversion of any of its Eurodollar Loans occurs on a date which is not the
last day of an Interest Period applicable thereto; (iii) if any prepayment of
any of its Eurodollar Loans is not made on any date specified in a notice of
prepayment given by the Borrower; or (iv) as a consequence of (x) any other
failure by the Borrower to repay its Loans when required by the terms of this
Agreement or (y) an election made pursuant to Section 1.10(b). Calculation of
all amounts payable to a Bank under this Section 1.11 shall be made as though
that Bank had actually funded its relevant Eurodollar Loan through the purchase
of a Eurodollar deposit bearing interest at the relevant LIBOR in an amount
equal to the amount of that Loan, having a maturity comparable to the relevant
Interest Period and through the transfer of such Eurodollar deposit from an
offshore office of that Bank or other bank to a domestic office of that Bank in
the United States of America; provided, however, that each Bank may fund each of
its Eurodollar Loans in any manner it sees fit and the foregoing assumption
shall be utilized only for the calculation of amounts payable under this
Section 1.11.
1.12 Change of Lending Office. Each Bank agrees that, upon the occurrence
of any event giving rise to the operation of Section 1.10(a)(ii) or (iii) or
Section 4.04 with respect to such Bank, it will, if requested by the Borrower,
use reasonable efforts (subject to overall policy considerations of such Bank)
to designate another lending office for any Loans affected by such event;
provided that such designation is made on such terms that, in the opinion of
such Bank, such Bank and its lending office suffer no economic, legal or
regulatory disadvantage, with the object of avoiding the consequence of the
event giving rise to the operation of any such Section. Nothing in this Section
1.12 shall affect or postpone any of the obligations of the Borrower or the
right of any Bank provided in Section 1.10 or 4.04.
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1.13 Replacement of Banks. (x) If any Bank becomes a Defaulting Bank or (y)
upon the occurrence of any event giving rise to the operation of Section
1.10(a)(ii) or (iii), Section 1.10(c) or Section 4.04 with respect to any Bank
which results in such Bank charging to the Borrower increased costs in excess of
those being generally charged by the other Banks, the Borrower shall have the
right, if no Default or Event of Default then exists, to replace such Bank (the
"Replaced Bank") with one or more other banks or financial institutions, none of
whom shall constitute a Defaulting Bank at the time of such replacement
(collectively, the "Replacement Bank") reasonably acceptable to the
Administrative Agent, provided that (i) at the time of any replacement pursuant
to this Section 1.13, the Replacement Bank shall enter into one or more
Assignment and Assumption Agreements pursuant to Section 12.04(b) (and with all
fees payable pursuant to said Section 12.04(b) to be paid by the Replacement
Bank) pursuant to which the Replacement Bank shall acquire all of the Revolving
Loan Commitments (if prior to the Conversion Date) and all of the L/C
Commitments and all of the outstanding Loans of the Replaced Bank and, in
connection therewith, shall pay to the Replaced Bank in respect thereof an
amount equal to (A) the principal of, and all accrued interest on, all
outstanding Loans of the Replaced Bank plus (B) all accrued, but theretofore
unpaid, Fees owing to the Replaced Bank pursuant to Section 3.01, and (ii) all
obligations (including, without limitation, all such amounts, if any, due and
owing under Section 1.11) of the Borrower due and owing to the Replaced Bank
(other than those specifically described in clause (i) above in respect of which
the assignment purchase price has been, or is concurrently being, paid) shall
be paid in full to such Replaced Bank concurrently with such replacement. Upon
the execution of the respective Assignment and Assumption Agreement, the payment
of amounts referred to in clauses (i) and (ii) above, the Replacement Bank shall
become a Bank hereunder and the Replaced Bank shall cease to constitute a Bank
hereunder, except with respect to indemnification provisions under this
Agreement (including, without limitation, Sections 1.10, 1.11, 4.04, 11.07 and
12.01), which shall survive as to such Replaced Bank.
SECTION 2. Letter of Credit Facility.
2.01 Letters of Credit. (a) Subject to and upon the terms and conditions
herein set forth, the Borrower may request the Issuing Agent at any time and
from time to time on or after the Effective Date and on or prior to the L/C
Issuance Expiration Date to issue, for the benefit of Lloyds and in support of,
on a standby basis, L/C Supportable Obligations, and subject to and upon the
terms and conditions herein set forth the Issuing Agent agrees to issue at any
time and from time to time on or after the Effective Date and on or prior to the
L/C Issuance Expiration Date, one or more irrevocable standby letters of credit
in the form of Exhibit B (each such letter of credit, a "Letter of Credit" and,
collectively, the "Letters of Credit"). Notwithstanding the foregoing, the
Issuing Agent shall be under no obligation to issue any Letter of Credit if at
the time of such issuance:
(i) any order, judgment or decree of any governmental authority or
arbitrator shall purport by its terms to enjoin or restrain the Issuing Agent or
any L/C Bank from issuing such Letter of Credit or any requirement of law
applicable to the Issuing Agent or any L/C Bank or any request or directive
(whether or not having the force of law) from any governmental authority with
jurisdiction over the Issuing Agent or any L/C Bank shall prohibit, or request
that the Issuing Agent or any L/C Bank refrain from, the issuance of letters of
credit generally or such Letter of Credit in particular or shall impose upon the
Issuing Agent or any L/C Bank with respect to such Letter of Credit any
restriction or reserve or capital requirement (for which the Issuing Agent or
any L/C Bank is not otherwise compensated) not in effect on the date hereof, or
any unreimbursed loss, cost or expense which was not applicable, in effect or
known to the Issuing Agent or any L/C Bank as of the date hereof and which the
Issuing Agent or any L/C Bank in good faith deems material to it; or
(ii) the conditions precedent set forth in Section 5 are not satisfied at
that time.
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(b) Each Letter of Credit will be issued by the Issuing Agent on behalf
of the L/C Banks, and each L/C Bank will participate in each Letter of Credit
pro rata in accordance with its L/C Percentage. The obligations of each L/C Bank
under and in respect of each Letter of Credit are several, and the failure by
any L/C Bank to perform its obligations hereunder or under any Letter of Credit
shall not affect the obligations of the Borrower toward any other party hereto
nor shall any other such party be liable for the failure by such L/C Bank to
perform its obligations hereunder or under any Letter of Credit.
(c) Notwithstanding the foregoing, (i) the aggregate Stated Amount of
each Letter of Credit shall not exceed an amount which, when added to the Letter
of Credit Outstandings at the time of issuance thereof, equals the Total L/C
Commitment at the time of issuance thereof; (ii) no L/C Bank's L/C Exposure
shall exceed such L/C Bank's L/C Commitment at the time of issuance of any
Letter of Credit (and after giving effect to such issuance); (iii) each Letter
of Credit (x) issued after the Effective Date and prior to the Lloyds Coming in
Line Date occurring in November, 2000 shall have an initial expiration date of
December 31, 2004 and (y) issued thereafter but prior to the Lloyds Coming in
Line Date occurring in November, 2001 (to the extent permitted to be issued
hereunder) shall have an initial expiration date of December 31, 2005; (iv) each
Letter of Credit may be denominated in any Approved Currency as determined by
the Borrower at the time of issuance, and payable on a sight basis; and (v) the
Issuing Agent will not issue any Letter of Credit after it has received notice
from the Borrower or the Required Banks stating that any condition precedent set
forth in Section 5 is not satisfied at that time until the Issuing Agent shall
have received a written notice of (x) rescission of such notice from the party
or parties originally delivering the same or (y) a waiver of such condition
precedent by the Required Banks.
(d) Subject to and on the terms and conditions set forth herein, the
Issuing Agent is hereby authorized by the Borrower and the L/C Banks to arrange
for the issuance of any Letter of Credit pursuant to Section 2.01(a) and the
amendment of any Letter of Credit pursuant to Section 2.06 and/or 12.04(b) by:
(i) completing the commencement date and the expiry date of such Letter
of Credit;
(ii) (in the case of an amendment increasing or reducing the amount
thereof) amending such Letter of Credit in such manner as Lloyd's may agree;
(iii) completing Schedule 1 to such Letter of Credit with the
participation of each L/C Bank as allocated pursuant to the terms hereof; and
(iv) executing such Letter of Credit on behalf of each L/C Bank and
following such execution delivering such Letter of Credit to Lloyd's.
(e) Each L/C Bank hereby makes, constitute and appoints the Issuing Agent
its true and lawful attorney-in-fact, in its name, place and stead, giving the
Issuing Agent full power to issue, amend and take other action with respect to
each Letter of Credit as contemplated by this Agreement.
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2.02 Letter of Credit Request; Notices of Issuance. (a) Whenever it desires
a Letter of Credit to be issued, the Borrower shall give the Issuing Agent
written notice that it desires such Letter of Credit to be issued, which written
notice shall be in the form of Exhibit A-2 (the "Letter of Credit Request"). The
Letter of Credit Request shall include any other documents as the Administrative
Agent customarily requires in connection therewith.
(b) Upon its issuance of or amendment to any Letter of Credit, the Issuing
Agent shall promptly notify the Borrower and the L/C Banks of such issuance or
amendment, which notice shall include a summary description of the Letter of
Credit actually issued and any amendments thereto.
2.03 Agreement to Repay Letter of Credit Payments. (a) The Borrower hereby
agrees to reimburse each L/C Bank, by making payment directly to each L/C Bank
in immediately available funds, for any payment or disbursement made by such L/C
Bank under any Letter of Credit (each such amount so paid or disbursed until
reimbursed, an "Unpaid Drawing") no later than one Business Day following the
date that the Borrower receives notice in writing or by telephone (promptly
confirmed in writing) from the Issuing Agent of such payment or disbursement,
with interest on the amount so paid or disbursed by such L/C Bank to the extent
not reimbursed prior to 1:00 P.M. (New York time) on the date of such payment or
disbursement, from and including the date paid or disbursed to but not
including the date that such L/C Bank is reimbursed therefor at a rate per annum
which shall be the Applicable Margin plus the Base Rate as in effect from time
to time (plus an additional 2% per annum if not reimbursed by the third Business
Day after the date the Borrower receives notice from such L/C Bank of such
payment or disbursement), such interest also to be payable on demand, provided
that if a Default or an Event of Default under Section 9.05 shall have occurred
and be continuing, such Unpaid Drawings shall be due and payable immediately
without presentment, demand, protest or notice of any kind (all of which are
hereby waived by the Borrower) and shall bear interest at a rate per annum which
shall be the Base Rate plus the Applicable Margin (plus an additional 2% on and
after the third Business Day following the respective drawing).
(b) The Borrower's obligation under this Section 2.03 to reimburse each L/C
Bank with respect to Unpaid Drawings (including, in each case, interest thereon)
shall be absolute and unconditional under any and all circumstances and
irrespective of any setoff, counterclaim or defense to payment which the
Borrower may have or have had against such L/C Bank or the Issuing Agent,
including, without limitation, any defense based upon the failure of any drawing
under any Letter of Credit to substantially conform to the terms of such Letter
of Credit or any non-application or misapplication by the beneficiary of the
proceeds of such drawing; provided, however, that the Borrower shall not be
obligated to reimburse any L/C Bank for any wrongful payment made by such L/C
Bank under a Letter of Credit issued by it as a result of acts or omissions
constituting willful misconduct or gross negligence on the part of such L/C
Bank.
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2.04 Increased Costs. If after the Effective Date, the adoption or
effectiveness of any applicable law, rule or regulation, or any change therein,
or any change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any L/C Bank with any
request or directive (whether or not having the force of law) by any such
Governmental Authority, central bank or comparable agency shall either (i)
impose, modify or make applicable any reserve, deposit, capital adequacy or
similar requirement against letters of credit issued by or participated in by
such L/C Bank, or (ii) impose on such L/C Bank any other conditions affecting
this Agreement or any Letter of Credit and the result of any of the foregoing is
to increase the cost to such L/C Bank, or to reduce the amount of any sum
received or receivable by such L/C Bank, then from time to time, the Borrower
shall within 10 days of its receipt of written demand by such L/C Bank (with a
copy to the Administrative Agent) pay to such L/C Bank such additional amounts
as will compensate such L/C Bank for such cost or reduction. Each L/C Bank, upon
determining in good faith that any additional amounts will be payable pursuant
to this Section 2.04, will give prompt written notice thereof to the Borrower,
which notice shall set forth in reasonable detail the basis of the calculation
of such additional amounts, which basis must be reasonable and consistently
applied, although the failure to deliver any such notice shall not release or
diminish the Borrower's obligations to pay additional amounts pursuant to this
Section 2.04 upon subsequent receipt of such notice.
2.05 Letter of Credit Expiration Extensions. (a) Each L/C Bank acknowledges
that in accordance with the terms of each Letter of Credit the expiration date
of such Letter of Credit will be automatically extended for an additional year,
without written amendment, unless, at least 30 days prior to December 31 of each
year (commencing with December 31, 2000), notice is given by the Issuing Agent
in accordance with the terms of the respective Letter of Credit (a "Notice of
Non-Extension") that the Letter of Credit will not be extended beyond its
current expiration date.
(b) In connection with the first possible extension of Letters of
Credit (occurring in the year 2000), the Issuing Agent shall not give a Notice
of Non-Extension in respect of any Letter of Credit unless a Default or Event of
Default exists at such time, in which case the Issuing Agent may, and if
requested by the Required Banks will, give a Notice of Non-Extension to Lloyd's
in respect of each Letter of Credit no later than December 1, 2000. In
connection with any subsequent possible extension of the Letters of Credit, the
Issuing Agent may, and if requested by any L/C Bank (which request any L/C Bank
may make in its sole discretion) the Issuing Agent will, give a Notice of
Non-Extension to Lloyd's in respect of each Letter of Credit no later than
December 1st of such year.
(c) Each L/C Bank agrees that on or prior to the date occurring 90 days
prior to the Lloyds Coming in Line Date occurring in November, 2001, such L/C
Bank will notify the Borrower as to whether such L/C Bank intends to request the
Issuing Agent to deliver Notices of Non-Extension in respect of then outstanding
Letters of Credit in accordance with the last sentence of Section 2.05(b) above,
provided that the failure of any L/C Bank to give such notice to the Borrower
shall not preclude such L/C Bank from subsequently delivering such request to
the Issuing Agent or the Issuing Agent from giving any such Notices of
Non-Extension to Lloyds.
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2.06 Changes to Stated Amount. At any time when any Letter of Credit
is outstanding, at the request of the Borrower, the Issuing Agent will enter
into an amendment increasing or reducing the Stated Amount of such Letter of
Credit, provided that (i) in no event shall the Stated Amount of such Letter of
Credit be increased to an amount which, when added to the Letter of Credit
Outstandings at such time, exceeds the Total L/C Commitment at such time, (ii)
the Stated Amount of a Letter of Credit may not be increased at any time if the
conditions precedent set forth in Section 5.02 are not satisfied at such time,
and (iii) the Stated Amount of a Letter of Credit may not be increased at any
time after the L/C Issuance Expiration Date.
2.07 Representations and Warranties of L/C Banks. Each L/C Bank represents
and warrants that each Letter of Credit constitutes a legal, valid and binding
obligation of such L/C Bank enforceable in accordance with its terms.
SECTION 3. Fees; Commitments.
3.01 Fees. (a) The Borrower shall pay a commitment fee (the "RL Commitment
Fee") to the Administrative Agent for distribution to each Non-Defaulting Bank
for the period from the Effective Date to but not including the earlier of (A)
the date the Total Revolving Loan Commitment has been terminated and (B) the
Conversion Date, computed at a rate per annum for each day equal to the
Applicable Commitment Fee Percentage then in effect on the daily Unutilized
Revolving Loan Commitment of such Bank. Accrued RL Commitment Fees shall be due
and payable quarterly in arrears on the last Business Day of each calendar
quarter and the earlier of the date the Total Revolving Loan Commitment has been
terminated and the Conversion Date.
(b) The Borrower shall pay a commitment fee (the "L/C Commitment Fee")
to the Administrative Agent for distribution to each Non-Defaulting Bank for the
period from the Effective Date to but not including the date that such Bank's
L/C Commitment has been terminated, computed at a rate per annum for each day
equal to the Applicable Commitment Fee Percentage then in effect on the daily
Unutilized L/C Commitment of such Bank. Accrued L/C Commitment Fees shall be due
and payable quarterly in arrears on the last Business Day of each calendar
quarter and the date the Total L/C Commitment has been terminated.
(c) The Borrower shall pay a letter of credit fee (the "Letter of Credit
Fee") to the Administrative Agent for distribution to each Non-Defaulting Bank
with an L/C Commitment for the period from the date of issuance of the initial
Letter of Credit to but not including the date that such Bank's L/C Commitment
has been terminated, computed at a rate for each day equal to the Applicable
Margin then in effect for Eurodollar Loans on the daily L/C Exposure of such
Bank (provided that for purposes of this Section 3.01(c) only, each L/C Bank's
L/C Exposure shall be no less than such L/C Bank's L/C Percentage of
$150,000,000). Accrued Letter of Credit Fees shall be due and payable quarterly
in arrears on the last Business Day of each calendar quarter and the date the
Total L/C Commitment has been terminated.
(d) The Borrower hereby agrees to pay to the Issuing Agent upon each
issuance of, payment under, and/or amendment of, any Letter of Credit such
amount as shall at the time of such issuance, payment or amendment be the
administrative charge which the Issuing Agent is customarily charging for
issuances of, payments under or amendments of, letters of credit issued by it.
(e) The Borrower shall pay to the Administrative Agent, for its own
account, such fees as may be agreed to from time to time in writing between the
Borrower and the Administrative Agent, when and as due.
(f) All computations of Fees shall be made in accordance with Section 12.07
(b).
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3.02 Voluntary Reduction of Commitments. (a) At any time prior to the
Conversion Date, upon at least three Business Days' prior written notice to the
Administrative Agent at the Notice Office (which notice the Administrative Agent
shall promptly transmit to each of the Banks), the Borrower shall have the
right, at any time or from time to time, without premium or penalty, to
terminate or reduce the Total Unutilized Revolving Loan Commitment, in whole or
in part, pursuant to this Section 3.02(a), in an integral multiple of
$5,000,000, in the case of partial reductions to the Total Unutilized Revolving
Loan Commitment, provided that each such reduction shall apply proportionately
to permanently reduce the Revolving Loan Commitment of each Bank.
(b) At any time, upon at least three Business Days' prior written notice to
the Administrative Agent at the Notice Office (which notice the Administrative
Agent shall promptly transmit to each of the Banks), the Borrower shall have the
right, at any time or from time to time, without premium or penalty, to
terminate or reduce the Total Unutilized L/C Commitment, in whole or in part,
pursuant to this Section 3.02(b), in an integral multiple of $5,000,000, in the
case of partial reductions to the Total Unutilized L/C Commitment, provided that
each such reduction shall apply proportionately to permanently reduce the L/C
Commitment of each Bank.
3.03 Mandatory Reductions of Commitments. (a) The Total Revolving
Loan Commitment (and the Revolving Loan Commitment of each Bank) shall terminate
in its entirety at 9:00 a.m. (New York time) on the Conversion Date (after
giving effect to the conversion of outstanding Revolving Loans into Term Loans
at such time).
(b) The Total L/C Commitment (and the L/C Commitment of each Bank)
shall terminate on the later of (i) the L/C Maturity Date and (ii) the date on
which no Letters of Credit are outstanding and no Unpaid Drawings exist.
(c) On each date upon which a mandatory repayment of Revolving Loans
pursuant to Section 4.02(i)(c) or (d) is required or would be required if (x) an
unlimited amount of Revolving Loans were then outstanding and (y) the conditions
precedent to borrowing set forth in Section 5.02 are not satisfied at such time,
the Total Revolving Loan Commitment shall be permanently reduced by the amount
required to be applied pursuant to said Section (determined as if an unlimited
amount of Revolving Loans were actually outstanding); provided, that except to
the extent resulting from a mandatory prepayment of Revolving Loans pursuant to
Section 4.02(i)(d) with the portion of net cash proceeds of Indebtedness
incurred under Section 8.04(h) exceeding $150,000,000 (i) no mandatory reduction
of the Total Revolving Loan Commitment shall be required pursuant to this
Section 3.03(c) at any time if the Borrower's senior unsecured debt rating from
S&P is BBB+ or greater at such time, and (ii) in no event shall the Total
Revolving Loan Commitment be reduced below $100,000,000 as a result of the
operation of this Section 3.03(c).
(d) Each reduction or adjustmen of the Total Revolving Loan Commitment
pursuant to this Section 3.03 shall apply proportionately to the Revolving Loan
Commitment of each Bank with such a Commitment.
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SECTION 4. Payments.
4.01 Voluntary Prepayments. The Borrower shall have the right to pre-pay
Loans, without premium or penalty (except for amounts payable pursuant to
Section 1.11), in whole or in part, from time to time on the following terms and
conditions: (i) the Borrower shall give the Administrative Agent at its Notice
Office written notice (or telephonic notice promptly confirmed in writing) of
its intent to prepay the Loans, whether such Loans are Term Loans or Revolving
Loans, the amount of such prepayment and (in the case of Eurodollar Loans) the
specific Borrowing(s) pursuant to which such prepayment is made, which notice
shall be received by the Administrative Agent (x) in the case of Base Rate
Loans, no later than 11:00 A.M. (New York time) one Business Day prior to the
date of such prepayment, or (y) in the case of Eurodollar Loans, three Business
Days prior to the date of such prepayment, which notice shall promptly be
transmitted by the Administrative Agent to each of the Banks; (ii) each partial
pre-payment of any Borrowing shall be in an aggregate Principal Amount of at
least $1,000,000, provided that no partial prepayment of Eurodollar Loans made
pursuant to a Borrowing shall reduce the aggregate principal amount of the Loans
outstanding pursuant to such Borrowing to an amount less than the Minimum
Borrowing Amount; (iii) each prepayment in respect of any Loans made pursuant to
a Borrowing shall be applied pro rata among such Loans; and (iv) each prepayment
of Term Loans pursuant to this Section 4.01 shall reduce the then remaining
Scheduled Repayments on a pro rata basis (based upon the then remaining
principal amount of each such Scheduled Repayment).
4.02 Mandatory Repayments and Prepayments.
(i) Requirements:
(a) In addition to any other mandatory repayments pursuant this Section
4.02, on each date set forth below, the Borrower shall be required to repay the
principal amount of Term Loans in an amount equal to the product of (x) the
aggregate Principal Amount of Revolving Loans converted to Term Loans on the
Conversion Date pursuant to Section 1.01(b) hereof multiplied by (y) the
percentage set forth below opposite such date (each such repayment, as the same
may be reduced pursuant to Sections 4.01 and/or 4.02(ii)(a), a "Scheduled
Repayment"):
Scheduled Repayment Date Percentage
November 30, 2001 10.0%
May 31, 2002 12.5%
November 30, 2002 12.5%
May 31, 2003 15.0%
November 30, 2003 15.0%
May 31, 2004 17.5%
Term Loan Maturity Date 17.5%
(b) In addition to any other mandatory repayments pursuant to this Section
4.02, not later than the third Business Day following the date of the receipt
thereof by the Borrower and/or any of its Subsidiaries, an amount equal to 100%
of the cash proceeds (net of underwriting discounts and commissions and other
reasonable fees and costs associated therewith) of the sale or issuance of
equity by, or cash capital contributions to, the Borrower or any Subsidiary of
the Borrower (other than (i) any issuance of common stock or options to purchase
common stock by the Borrower to the extent issued to the employees or agents of
the Borrower or its Subsidiaries, (ii) issuances of common stock pursuant to
warrants outstanding on the Effective Date and (iii) issuances of stock by
Subsidiaries of the Borrower to the Borrower or to Wholly-Owned Subsidiaries of
the Borrower, and capital contributions by the Borrower to its Subsidiaries)
shall be applied (i) if prior to the Conversion Date, to repay the aggregate
Principal Amount of Revolving Loans, and (ii) if the Conversion Date has
occurred, to repay the aggregate Principal Amount of the Term Loans.
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(c) In addition to any other mandatory repayments pursuant to this Section
4.02, not later than the fifth Business Day following the date of receipt
thereof by the Borrower and/or any of its Subsidiaries of the proceeds of any
Asset Sale, an amount equal to 100% of the Net Available Proceeds of such Asset
Sale shall be applied (i) if prior to the Conversion Date (but only to the
extent that the conditions precedent to borrowing set forth in Section 5.02 are
not satisfied at such time), to repay the Principal Amount of Revolving Loans
and (ii) if the Conversion Date has occurred, to repay the aggregate Principal
Amount of the Term Loans; provided that (A) if the Net Available Proceeds of any
such Asset Sale are less than $5,000,000, such Net Available Proceeds shall not
be required to be so applied until such time as such Net Available Proceeds,
when combined with the Net Available Proceeds from additional subsequent Asset
Sales, exceed $5,000,000, at which time all such Net Available Proceeds shall be
required to be applied pursuant to this Section 4.02(i)(c), and (B) the Net
Available Proceeds from Asset Sales shall not be required to be so applied on
such date (i) to the extent that no Default or Event of Default then exists and
the Borrower delivers a certificate to the Administrative Agent on or prior to
such date stating that such Net Available Proceeds shall within 180 days
following the date of such Asset Sale be used to purchase assets used, or to be
used, in the business described in Section 8.01 (including, without limitation,
the equity interest of a Person engaged in any such business), which certificate
shall set forth the estimate of the proceeds to be so expended, it being
understood that (1) if all or any portion of such Net Available Proceeds not so
applied are not so used (or contractually committed to be used) within such 180
day period, such remaining portion shall be applied on the last day of such
period as provided above in this Section 4.02(i)(c) (without regard to the
proviso herein) and (2) if all or any portion of such Net Available Proceeds are
not required to be applied on the 180th day referred to in clause (1) above
because such amount is contractually committed to be used and subsequent to such
date such contract is terminated or expires without such portion being so used,
then such remaining portion shall be applied on the date of such termination or
expiration as provided in this Section 4.02(i)(c) (without regard to the proviso
herein).
(d) In addition to any other mandatory repayments pursuant to this Section
4.02, not later than the third Business Day following the date of the receipt
thereof by the Borrower and/or any of its Subsidiaries, an amount equal to 100%
of the cash proceeds (net of underwriting discounts and commissions and other
reasonable fees and costs associated therewith) of the incurrence of
Indebtedness for borrowed money or evidenced by bonds, notes, debentures or
similar instruments by the Borrower and/or any of its Subsidiaries (other than
Indebtedness permitted by Section 8.04 as such Section 8.04 is in effect on the
Effective Date, provided that notwithstanding the foregoing the net cash
proceeds of Indebtedness incurred under Section 8.04(h) shall be required to be
applied pursuant to this Section 4.02(i)(d)) shall be applied (i) if prior to
the Conversion Date (but only to the extent that the conditions precedent to
borrowing set forth in Section 5.02 are not satisfied at such time), to repay
the aggregate Principal Amount of Revolving Loans and (ii) if the Conversion
Date has occurred, to repay the aggregate Principal Amount of the Term Loans.
(e) If on any date the aggregate outstanding Principal Amount of Revolving
Loans (after giving effect to all other repayments thereof on such date) exceeds
the Available Total Revolving Loan Commitment as then in effect (including,
without limitation, as a result of the determination of Dollar Equivalents
pursuant to Section 12.07(d)), the Borrower shall repay on such date the
principal of the Revolving Loans in an amount equal to such excess.
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(f) If on any date the Letter of Credit Outstandings exceed the Total L/C
Commitment (including, without limitation, as a result of the determination of
Dollar Equivalents pursuant to Section 12.07(d)), the Borrower agrees to pay to
the Administrative Agent an amount in cash and/or Cash Equivalents equal to such
excess and the Administrative Agent shall hold such payment as security for the
obligations of the Borrower hereunder pursuant to a cash collateral agreement to
be entered into in form and substance reasonably satisfactory to the
Administrative Agent (which shall permit certain investments in Cash Equivalents
satisfactory to the Administrative Agent until the proceeds are applied to the
secured obligations).
(g) Notwithstanding anything to the contrary contained in this Agreement
or in any other Credit Document, all then outstanding Term Loans shall be repaid
in full on the Term Loan Maturity Date.
(ii) Application:
(a) Each mandatory prepayment of Term Loans pursuant to Section 4.02(i)(b),
(c) or (d) shall be applied to reduce the then remaining Scheduled Repayments on
a pro rata basis (based upon the then remaining principal amount of each such
Scheduled Repayment).
(b) With respect to each prepayment of Loans required by this Section
4.02, the Borrower may designate the Types of Loans which are to be prepaid and
the specific Borrowing(s) pursuant to which made; provided that (i) the Borrower
shall first so designate all Base Rate Loans and Eurodollar Loans with Interest
Periods ending on the date of repayment prior to designating any other
Eurodollar Loans; (ii) if any prepayment of Eurodollar Loans made pursuant to a
single Borrowing shall reduce the outstanding Loans made pursuant to such
Borrowing to an amount less than the Minimum Borrowing Amount, such Borrowing
shall be immediately converted into Base Rate Loans; and (iii) each prepayment
of any Loans made pursuant to a Borrowing shall be applied pro rata among such
Loans. In the absence of a designation by the Borrower as described in the
preceding sentence, the Administrative Agent shall, subject to the above, make
such designation in its sole discretion with a view, but no obligation, to
minimize breakage costs owing under Section 1.11. Notwithstanding the foregoing
provisions of this Section 4.02, if at any time the mandatory prepayment of
Loans pursuant to Section 4.02(i)(b), (c) or (d) would result, after giving
effect to the first sentence of this clause (b), in the Borrower incurring
breakage costs under Section 1.11 as a result of Eurodollar Loans being repaid
other than on the last day of an Interest Period applicable thereto (the
"Affected Eurodollar Loans"), then the Borrower may, if it so elects by notice
to the Administrative Agent, deposit a portion (up to 100%) of the amounts that
otherwise would have been paid in respect of the Affected Eurodollar Loans with
the Administrative Agent to be held pursuant to an escrow agreement to be
entered into in form and substance satisfactory to the Administrative Agent,
with such escrowed amounts to be released from such escrow (and applied to repay
the principal amount of such Loans) upon each occurrence thereafter of the last
day of an Interest Period applicable to the relevant Eurodollar Loans (or such
earlier date or dates as shall be requested by the Borrower), with the amount to
be so released and applied on the last day of each Interest Period to be the
amount of the Loans to which such Interest Period applies (or, if less, the
amount remaining in such escrow account).
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4.03 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement shall be made to the
Administrative Agent for the ratable account of the Banks entitled thereto, not
later than 12:00 Noon (New York time) on the date when due and shall be made in
immediately available funds at the Payment Office in (x) Dollars, if such
payment is made in respect of any obligation of the Borrower under this
Agreement except as provided in the immediately succeeding clause (y), and (y)
the appropriate Alternate Currency, if such payment is made in respect of
principal of or interest on Alternate Currency Loans or if such payment is made
in respect of any Unpaid Drawing (or interest thereon) with respect to an
Alternate Currency Letter of Credit, it being understood that written or
facsimile notice by the Borrower to the Administrative Agent to make a payment
from the funds in the Borrower's account at the Payment Office shall constitute
the making of such payment to the extent of such funds held in such account. Any
payments under this Agreement which are made later than 12:00 Noon (New York
time) shall be deemed to have been made on the next succeeding Business Day.
Whenever any payment to be made hereunder shall be stated to be due on a day
which is not a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
shall be payable during such extension period at the applicable rate in effect
immediately prior to such extension.
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4.04 Net Payments. (a) All payments made by the Borrower hereunder or under
any Note will be made without setoff, counterclaim or other defense. Except as
provided in Section 4.04(b), all such payments will be made free and clear of,
and without deduction or withholding for, any present or future taxes, levies,
imposts, duties, fees, assessments or other charges of whatever nature now or
hereafter imposed by any jurisdiction or by any political subdivision or taxing
authority thereof or therein with respect to such payments (but excluding,
except as provided in the second succeeding sentence, any tax imposed on or
measured by the net income or net profits of a Bank pursuant to the laws of the
jurisdiction in which it is organized or the jurisdiction in which the principal
office or applicable lending office of such Bank is located or any subdivision
thereof or therein) and all interest, penalties or similar liabilities with
respect to such non-excluded taxes, levies, imposts, duties, fees, assessments
or other charges (all such non-excluded taxes, levies, imposts, duties, fees,
assessments or other charges being referred to collectively as "Taxes"). If any
Taxes are so levied or imposed, the Borrower agrees to pay the full amount of
such Taxes, and such additional amounts as may be necessary so that every
payment of all amounts due under this Agreement or under any Note, after
withholding or deduction for or on account of any Taxes, will not be less than
the amount provided for herein or in such Note. If any amounts are payable in
respect of Taxes pursuant to the preceding sentence, the Borrower agrees to
reimburse each Bank, upon the written request of such Bank, for taxes imposed on
or measured by the net income or net profits of such Bank pursuant to the laws
of the jurisdiction in which such Bank is organized or in which the principal
office or applicable lending office of such Bank is located or under the laws of
any political subdivision or taxing authority of any such jurisdiction in which
such Bank is organized or in which the principal office or applicable lending
office of such Bank is located and for any withholding of taxes as such Bank
shall determine are payable by, or withheld from, such Bank, in respect of such
amounts so paid to or on behalf of such Bank pursuant to the preceding sentence
and in respect of any amounts paid to or on behalf of such Bank pursuant to this
sentence. The Borrower will furnish to the Administrative Agent within 45 days
after the date the payment of any Taxes is due pursuant to applicable law
certified copies of tax receipts, evidencing such payment by the Borrower. The
Borrower agrees to indemnify and hold harmless each Bank, and reimburse such
Bank upon its written request, for the amount of any Taxes so levied or imposed
and paid by such Bank.
(b) Each Bank that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes
agrees to deliver to the Borrower and the Administrative Agent on or prior to
the Effective Date, or in the case of a Bank that is an assignee or transferee
of an interest under this Agreement pursuant to Section 12.04(b) (unless the
respective Bank was already a Bank hereunder immediately prior to such
assignment or transfer), on the date of such assignment or transfer to such
Bank, (i) two accurate and complete original signed copies of Internal Revenue
Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption under
an income tax treaty) (or successor forms) certifying to such Bank's entitlement
as of such date to a complete exemption from United States withholding tax with
respect to payments to be made under this Agreement and under any Note, or (ii)
if the Bank is not a "bank" within the meaning of Section 881(c)(3)(A) of the
Code and cannot deliver either Internal Revenue Service Form W-8ECI or Form
W-8BEN (with respect to a complete exemption under an income tax treaty)
pursuant to clause (i) above, (x) a certificate substantially in the form of
Exhibit E (any such certificate, a "Section 4.04(b)(ii) Certificate") and (y)
two accurate and complete original signed copies of Internal Revenue Service
Form W-8BEN (with respect to the portfolio interest exemption) (or successor
form) certifying to such Bank's entitlement as of such date to a complete
exemption from United States withholding tax with respect to payments of
interest to be made under this Agreement and under any Note. In addition, each
Bank agrees that from time to time after the Effective Date, when a lapse in
time or change in circumstances renders the previous certification obsolete or
inaccurate in any material respect, it will deliver to the Borrower and the
Administrative Agent two new accurate and complete original signed copies of
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Internal Revenue Service Form W-8ECI or Form W-8BEN (with respect to a complete
exemption under an income tax treaty), or Form W-8BEN (with respect to the
portfolio interest exemption) and a Section 4.04(b)(ii) Certificate, as the case
may be, and such other forms as may be required in order to confirm or establish
the entitlement of such Bank to a continued exemption from or reduction in
United States withholding tax with respect to payments under this Agreement and
any Note, or it shall immediately notify the Borrower and the Administrative
Agent of its inability to deliver any such Form or Certificate, in which case
such Bank shall not be required to deliver any such Form or Certificate pursuant
to this Section 4.04(b). Notwithstanding anything to the contrary contained in
Section 4.04(a), but subject to Section 12.04(b) and the immediately succeeding
sentence, (x) the Borrower shall be entitled, to the extent it is required to do
so by law, to deduct or withhold income or similar taxes imposed by the United
States (or any political sub-division or taxing authority thereof or therein)
from interest, Fees or other amounts payable hereunder for the account of any
Bank which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that
such Bank has not provided to the Borrower U.S. Internal Revenue Service Forms
that establish a complete exemption from such deduction or withholding and (y)
the Borrower shall not be obligated pursuant to Section 4.04(a) hereof to
gross-up payments to be made to a Bank in respect of income or similar taxes
imposed by the United States if (I) such Bank has not provided to the Borrower
the Internal Revenue Service Forms required to be provided to the Borrower
pursuant to this Section 4.04(b) or (II) in the case of a payment, other than
interest, to a Bank described in clause (ii) above, to the extent that such
Forms do not establish a complete exemption from withholding of such taxes.
SECTION 5. Conditions Precedent. The obligation of each Bank to make
Revolving Loans to the Borrower hereunder and the obligation of the Issuing
Agent to issue or increase the Stated Amount of any Letter of Credit hereunder,
is subject, at the time of each such Credit Event (except as otherwise
hereinafter indicated), to the satisfaction of each of the following conditions:
5.01 Execution of Agreement. The Effective Date shall have occurred as
provided in Section 12.10.
5.02 No Default; Representations and Warranties. At the time of each
Credit Event and also after giving effect thereto, (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties of each
Credit Party contained herein or in the other Credit Documents shall be true and
correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such
Credit Event, unless stated to relate to a specific earlier date, in which case
such representations and warranties shall be true and correct in all material
respects as of such earlier date.
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5.03 Officer's Certificate. On the Initial Credit Event Date, the
Administrative Agent shall have received an officer's certificate dated such
date, signed by an Authorized Officer of the Borrower, stating that all of the
applicable conditions set forth in Sections 5.02, 5.06, 5.07, 5.09 and 5.13
exist as of such date.
5.04 Opinions of Counsel. On the Initial Credit Event Date, the
Administrative Agent shall have received an opinion, in form and substance
reasonably satisfactory to the Administrative Agent, addressed to each of the
Banks and dated the Initial Credit Event Date, from (i) Baker & McKenzie,
counsel to the Borrower, which opinion shall cover the matters contained in
Exhibit C-1, (ii) John V. Del Col, General Counsel of the Borrower, which
opinion shall cover the matters contained in Exhibit C-2 and (iii) White & Case
LLP, counsel to the Administrative Agent, which opinion shall cover the matters
contained in Exhibit C-3.
5.05 Corporate Proceedings. (a) On the Initial Credit Event Date, the
Banks shall have received from each Credit Party an officer's certificate, dated
the Initial Credit Event Date, signed by the President or any Vice President of
such Credit Party, and attested to by the Secretary or any Assistant Secretary
of such Credit Party, in the form of Exhibit D hereto with appropriate
insertions, together with (x) copies of the Certificate of Incorporation and
By-Laws of such Credit Party and (y) the resolutions of such Credit Party and
the other documents referred to in such certificate, and the foregoing shall be
reasonably satisfactory to the Administrative Agent.
(b) All corporate, tax and legal proceedings and all instruments and
agreements in connection with the transactions contemplated by this Agreement,
the other Credit Documents and the Transaction Documents shall be reasonably
satisfactory in form and substance to the Administrative Agent, and the
Administrative Agent shall have received all information and copies of all
certificates, documents and papers, including good standing certificates and any
other records of corporate proceedings and governmental approvals, if any, which
the Administrative Agent reasonably may have requested in connection therewith,
such documents and papers where appropriate to be certified by proper corporate
or governmental authorities.
5.06 Adverse Change, etc. On the Initial Credit Event Date, the
Administrative Agent shall not have become aware of any facts or conditions not
previously known or disclosed, whether occurring prior to or after the Initial
Credit Event Date, and since December 31, 1998 nothing shall have occurred, in
either case which, when taken as a whole, the Administrative Agent shall
reasonably determine (i) has, or is reasonably likely to have, a material
adverse effect on the rights or remedies of the Banks or the Administrative
Agent under this Agreement or any other Credit Document, or on the ability of
any Credit Party to perform its obligations hereunder or thereunder, or (ii) has
or is reasonably likely to have a Material Adverse Effect.
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5.07 Litigation. On the Initial Credit Event Date, no actions, suits
or proceedings shall be pending or, to the knowledge of the Borrower, threatened
(i) with respect to this Agreement or any other Credit Document, the Transaction
Documents or the transactions contemplated hereby or thereby (including the
Acquisition) or (ii) which either the Administrative Agent or the Required Banks
shall reasonably determine has, or is reasonably likely to have, (x) a Material
Adverse Effect or (y) a material adverse effect on the rights or remedies of the
Banks or the Administrative Agent hereunder or under any other Credit Document
or on the ability of any Credit Party to perform its obligations hereunder or
thereunder.
5.08 Subsidiary Guaranty. On the Initial Credit Event Date, each
Subsidiary Guarantor shall have duly authorized, executed and delivered a
Subsidiary Guaranty in the form of Exhibit F (as modified, amended or
supplemented from time to time in accordance with the terms hereof and thereof,
the "Subsidiary Guaranty"), and the Subsidiary Guaranty shall be in full force
and effect.
5.09 Consummation of the Refinancing. On or before the Initial Credit
Event Date, the Refinancing shall have been consummated in accordance with the
Refinancing Documents, which Refinancing Documents shall be in form and
substance reasonably satisfactory to the Administrative Agent, and all Legal
Requirements, each of the conditions precedent to the consummation of the
Refinancing shall have been satisfied in all material respects and not waived,
except with the reasonable consent of the Administrative Agent, to the
reasonable satisfaction of the Administrative Agent, all commitments in
connection with the existing Indebtedness for borrowed money of the Borrower and
Chartwell and their respective Subsidiaries shall have been terminated and all
Liens securing the Indebtedness refinanced pursuant to the Refinancing shall
have been terminated and released to the reasonable satisfaction of the
Administrative Agent.
5.10 Chartwell Senior Notes. On or before the Initial Credit Event Date,
Chartwell Re Holdings shall have given an irrevocable call notice for the
redemption of the Chartwell Senior Notes on or before March 1, 2000, it being
understood that the Chartwell Senior Notes are not required to be prepaid as of
the Initial Credit Event Date.
5.11 Financial Statements; Projections. Prior to the Initial Credit Event
Date, the Borrower shall have delivered or caused to be delivered to the
Administrative Agent with copies for each Bank:
(a) the audited Annual Statement of each Regulated Insurance Company which
is a Material Subsidiary for the fiscal year ended December 31, 1998, prepared
in accordance with SAP and as filed with the respective Applicable Insurance
Regulatory Authority, which Annual Statements shall be satisfactory in form and
substance to the Administrative Agent;
(b) the unaudited Quarterly Statement of each Regulated Insurance Company
which is a Material Subsidiary for the fiscal quarter ended June 30, 1999,
prepared in accordance with SAP and as filed with the respective Applicable
Insurance Regulatory Authority, which Quarterly Statements shall be satisfactory
in form and substance to the Administrative Agent;
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(c) the audited balance sheet of (i) the Borrower and its Subsidiaries
(on a consolidated basis) and (ii) Chartwell and its Subsidiaries (on a
consolidated basis), in each case for the fiscal year ended December 31, 1998,
and the related statements of income, of stockholders' equity and of cash flows,
in each case prepared in accordance with GAAP;
(d) the unaudited balance sheet of (i) the Borrower and its Subsidiaries
(on a consolidated basis) and (ii) Chartwell and its Subsidiaries (on a
consolidated basis), in each case for the fiscal quarter ended June 30, 1999,
and the related unaudited statements of income, of stockholders' equity and of
cash flows, in each case prepared in accordance with GAAP;
(e) projected financial statements for the Borrower and its Subsidiaries
reflecting the projected financial condition, income and expenses of the
Borrower and its Subsidiaries after giving effect to the Transaction and the
other transactions contemplated hereby, which projected financial statements
shall be reasonably satisfactory in form and substance to the Administrative
Agent; and
(f) a pro forma balance sheet of Borrower, as of September 30, 1999, after
giving effect to the Transaction (as if the Transaction had occurred prior to
such date) and the other transactions contemplated hereby.
5.12 Approvals, etc. On the Initial Credit Event Date the following
approvals shall have been obtained to the satisfaction of the Administrative
Agent:
(i) all necessary and material governmental and third party approvals,
permits and licenses (including without limitation the approval of the
respective Insurance Departments of the States of Minnesota, New York and North
Dakota) in connection with the Transaction and this Agreement and the
transactions contemplated by the Transaction Documents and otherwise referred
to herein or therein (including without limitation the Acquisition), to the
extent such approvals, consents, permits and licenses are required to be
obtained or made prior to the Initial Credit Event Date, shall have been
obtained and remain in full force and effect, and all applicable waiting
periods shall have expired, in each case without any action being taken by any
competent authority (including any court having jurisdiction) which restrains,
prevents or imposes, in the reasonable judgment of the Required Banks or the
Administrative Agent, materially adverse conditions upon the consummation of
the Transaction or any such agreement or transaction;
(ii) the Form A filed by the Borrower with the respective Insurance
Departments of the States of Minnesota, New York and North Dakota, together with
the approval of such Insurance Department, or other Applicable Insurance
Regulatory Authority, of such Form A or equivalent form (and all stipulations or
conditions relating to such approval), which approvals (and stipulations and
conditions, if any) shall be reasonably satisfactory to the Administrative
Agent; and
(iii) all necessary shareholder approvals in connection with the
Transaction shall have been obtained and remain in full force and effect.
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5.13 Indebtedness. On the Initial Credit Event Date and after giving
effect to the consummation of the Transaction, the only Indebtedness for
borrowed money of the Borrower and its Subsidiaries, other than Indebtedness
permitted under Sections 8.04(b) - (i), shall consist of the Indebtedness
incurred pursuant to the Credit Documents.
5.14 Payment of Fees. On the Initial Credit Event Date, all costs, fees
and expenses (including, without limitation, legal fees and expenses), and all
other compensation contemplated by this Agreement or the other Credit Documents,
due to the Administrative Agent or any Banks shall have been paid to the extent
due.
5.15 Letter of Credit Request; Notice of Borrowing. Prior to the issuance
of the Letter of Credit, the Administrative Agent shall have received a Letter
of Credit Request satisfying the requirements of Section 2.02; and prior to the
incurrence of any Revolving Loans, the Administrative Agent shall have received
a Notice of Borrowing satisfying the requirements of Section 1.03.
5.16 Capital Structure. On or prior to the Initial Credit Event Date,
the corporate and capital structure (and all agreements related thereto) of the
Borrower and its Subsidiaries and all organizational documents of the Borrower
and its Subsidiaries shall be reasonably satisfactory to the Administrative
Agent.
5.17 Solvency Certificate. On the Initial Credit Event Date, the Borrower
shall have delivered to the Administrative Agent a solvency certificate from the
Chief Financial Officer of the Borrower in the form of Exhibit G.
5.18 A.M. Best Rating. On the Initial Credit Event Date, each Rated
Ongoing Regulated Subsidiary of the Borrower shall have an A.M. Best claims
paying rating of at least A-.
The acceptance of the benefits of each Credit Event occurring on the
Initial Credit Event Date shall constitute a representation and warranty by the
Borrower to each of the Banks that all of the applicable conditions specified in
this Section 5 exist or have been satisfied as of such date. The acceptance of
the benefits of each Credit Event occurring after the Initial Credit Event Date
shall constitute a representation and warranty by the Borrower to each of the
Banks that all of the applicable conditions specified in Sections 5.02 and 5.15
exist or have been satisfied as of such date. All of the certificates, legal
opinions and other documents and papers referred to in this Section 5, unless
otherwise specified, shall be delivered to the Administrative Agent at its
Notice Office for the account of each of the Banks.
SECTION 6. Representations, Warranties and Agreements. In order to induce
the Administrative Agent and the Banks to enter into this Agreement and to make
the Loans and issue the Letters of Credit as provided herein, the Borrower makes
the following representations and warranties to, and agreements with, the Banks,
all of which shall survive the execution and delivery of this Agreement and the
making of the Loans and the issuance of the Letters of Credit (with the
occurrence of the Effective Date and the occurrence of each Credit Event being
deemed to constitute a representation and warranty that the matters specified in
this Section 6 are true and correct in all material respects on and as of the
Effective Date and on the date of each such Credit Event (after giving effect to
the consummation of the Transaction) unless such representation and warranty
expressly indicates that it is being made as of any other specific date in which
case such representation and warranty shall be true and correct in all material
respects as of such other specified date):
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6.01 Corporate Status. The Borrower and each of its Subsidiaries (i) is a
duly organized and validly existing corporation in good standing (where
applicable) under the laws of the jurisdiction of its organization and has the
corporate or other organizational power and authority to own its property and
assets and to transact the business in which it is engaged and presently
proposes to engage and (ii) has been duly qualified and is authorized to do
business and is in good standing (where applicable) in all jurisdictions where
it is required to be so qualified, except where the failure to be so qualified
is not reasonably likely to have a Material Adverse Effect.
6.02 Corporate Power and Authority; Enforceability. Each Credit Party has
the corporate power and authority to execute, deliver and carry out the terms
and provisions of the Transaction Documents to which it is a party and has taken
all necessary corporate action to authorize the execution, delivery and
performance of the Transaction Documents to which it is a party. Each Credit
Party and each of its Subsidiaries has duly executed and delivered each
Transaction Document to which it is a party and each such Transaction Document
constitutes the legal, valid and binding obligation of such Credit Party
enforceable against such Credit Party in accordance with its terms, except to
the extent that enforceability thereof may be limited by applicable bankruptcy,
insolvency, moratorium or similar laws affecting creditors' rights generally and
general principles of equity regardless of whether enforcement is sought in a
proceeding in equity or at law.
6.03 No Contravention of Laws, Agreements or Organizational Documents.
Neither the execution, delivery and performance by any Credit Party of the
Transaction Documents to which it is a party nor compliance with the terms and
provisions thereof, nor the consummation of the transactions contemplated
therein (i) will contravene any applicable provision of any law, statute, rule,
regulation, order, writ, injunction or decree of any Governmental Authority,
(ii) will conflict or be inconsistent with or result in any breach of any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any Lien upon any of the property or assets of the Borrower or any of its
Subsidiaries pursuant to the terms of, any indenture, mortgage, deed of trust,
loan agreement, credit agreement or any other material instrument to which the
Borrower or any of its Subsidiaries is a party or by which it or any of its
property or assets are bound or to which it may be subject or (iii) will violate
any provision of the Certificate of Incorporation or By-Laws of the Borrower or
any of its Subsidiaries; except in the case of clauses (i) and (ii) above (other
than with respect to the Credit Documents), such contraventions, conflicts,
inconsistencies, breaches, defaults or Liens which are not reasonably likely to
have a Material Adverse Effect.
6.04 Litigation and Contingent Liabilities. (a) There are no actions,
suits or proceedings pending or, to the knowledge of the Borrower, threatened in
writing involving the Borrower or any of its Subsidiaries (including, without
limitation, with respect to the Transaction, this Agreement or any documentation
executed in connection therewith or herewith) (i) which has or is reasonably
likely to have a Material Adverse Effect or (ii) that is reasonably likely to
have a material adverse effect on the rights or remedies of the Banks or on the
ability of any Credit Party to perform its respective obligations to the Banks
hereunder and under the other Credit Documents to which it is, or will be, a
party. Additionally, there does not exist any judgment, order or injunction
prohibiting or imposing material adverse conditions upon the making of any Loan
or the issuance of the Letter of Credit hereunder.
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(b) Except as fully reflected in the financial statements described in
Section 6.11(b) (including the footnotes thereto), the Indebtedness incurred
under this Agreement and in connection with the Transaction and all obligations
incurred in the ordinary course of business since the date of the financial
statements described in Section 6.11(b), there were as of the Effective Date
(and after giving effect to the Loans made on such date), no liabilities or
obligations with respect to the Borrower or any of its Subsidiaries of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether or not due), and the Borrower does not know of any basis for the
assertion against the Borrower or any of its Subsidiaries of any such liability
or obligation, which, in the case of any of the foregoing referred to in this
clause (b), either individually or in the aggregate, are or are reasonably
likely to have a Material Adverse Effect.
6.05 Use of Proceeds; Margin Regulations. (a) The proceeds of all Loans
shall be utilized for general corporate and working capital purposes of the
Borrower and its Subsidiaries (including, without limitation, for mergers and
acquisitions permitted hereunder).
(b) The Letters of Credit shall only be issued for the benefit of Lloyds
and in support of L/C Supportable Obligations.
(c) Neither the making of any Loan hereunder, the issuance of the Letter
of Credit, nor the use of the proceeds thereof, will violate or be inconsistent
with the provisions of Regulation T, U or X of the Board of Governors of the
Federal Reserve System and no part of the proceeds of any Loan will be used to
purchase or carry any Margin Stock or to extend credit for the purpose of
purchasing or carrying any Margin Stock.
6.06 Approvals. Except for filings and approvals made or obtained on or
prior to the Effective Date and for which the failure to make or be obtained is
not reasonably likely to result in a Material Adverse Effect (other than with
respect to the Credit Documents), no order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any foreign or domestic Governmental Authority is required to
authorize or is required in connection with (i) the execution, delivery and
performance of any Transaction Document or (ii) the legality, validity, binding
effect or enforceability of any Transaction Document.
6.07 Investment Company Act. Neither the Borrower nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
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6.08 Public Utility Holding Company Act. Neither the Borrower nor any
of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
6.09 True and Complete Disclosure; Projections and Assumptions. All
factual information (taken as a whole) heretofore or contemporaneously furnished
in writing by or on behalf of the Borrower or any of its Subsidiaries to the
Administrative Agent or any Bank (including, without limitation, all information
contained in the Transaction Documents and in the Confidential Bank Memorandum,
but excluding the Projections and any other projections) for purposes of or in
connection with this Agreement or any transaction contemplated herein is, and
all other factual information (taken as a whole) hereafter furnished by or on
behalf of any such Persons in writing to the Administrative Agent will be, true
and accurate in all material respects on the date as of which such information
is dated and not incomplete by omitting to state any material fact necessary to
make such information (taken as a whole) not misleading at such time in light of
the circumstances under which such information was provided. The Projections are
based on good faith estimates and assumptions believed by the Borrower to be
reasonable and attainable at the time made, it being recognized by the Banks
that such Projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such Projections may
differ from the projected results.
6.10 Consummation of Transaction. On or before the Initial Credit Event
Date, the Transaction has been consummated in accordance with the terms and
conditions of the Transaction Documents and all Legal Requirements. All consents
and approvals of, and filings and registrations with, and all other actions in
respect of, all governmental agencies, authorities or instrumentalities required
in order to consummate the Transaction in accordance with the terms and
conditions of the Transaction Documents and all Legal Requirements have been, or
prior to the time required, will have been, obtained, given, filed or taken,
except in the case of any Acquisition Documents and Refinancing Documents where
the failure to consummate the Acquisition and Refinancing in accordance with the
terms and conditions thereof and to obtain such consents, approvals, filings and
registrations is not reasonably likely to have a Material Adverse Effect.
6.11 Financial Condition; Financial Statements. (a) On and as of the
Initial Credit Event Date, on a pro forma basis after giving effect to the
Transaction and all Indebtedness incurred, and to be incurred, on or prior to
the Initial Credit Event Date, and Liens created, and to be created, on or prior
to the Initial Credit Event Date, in connection with this Agreement, with
respect to each of the Borrower (on a stand-alone basis) and the Borrower and
its Subsidiaries (on a consolidated basis) (x) the sum of the assets, at a fair
valuation, of each of the Borrower (on a stand-alone basis) and the Borrower and
its Subsidiaries (on a consolidated basis) will exceed their debts, (y) the
Borrower (on a stand-alone basis) and the Borrower and its Subsidiaries (on a
consolidated basis) will not have incurred or intended to, or believe that they
will, incur debts beyond their ability to pay such debts as such debts mature
and (z) the Borrower (on a stand-alone basis) and the Borrower and its
Subsidiaries (on a consolidated basis) will have sufficient capital with which
to conduct its or their business. For purposes of this Section 6.11(a), "debt"
means any liability on a claim, and "claim" means (i) right to payment whether
or not such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured; or (ii) right to an equitable remedy for breach of performance if
such breach gives rise to a payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
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(b) The financial statements and pro forma balance sheet (after giving
effect to the Transaction and the other transactions contemplated hereby)
delivered to the Administrative Agent pursuant to Section 5.11 present fairly in
all material respects the financial position of the respective Persons referred
to in such Section at the dates of said statements and the results of operations
for the periods covered thereby (or, in the case of the pro forma balance sheet,
present a good faith estimate of the consolidated pro forma financial condition
of the Borrower and its Subsidiaries as of the date thereof). All such financial
statements have been prepared in accordance with SAP or GAAP, as indicated in
Section 5.11, consistently applied except to the extent provided in the notes to
said financial statements.
(c) Since December 31, 1998, nothing has occurred which, individually or
when taken as a whole with other occurrences, has or is reasonably likely to
have a Material Adverse Effect.
6.12 Tax Returns and Payments. The Borrower and each of its Subsidiaries
has filed all federal income tax returns and all other material tax returns,
domestic and foreign, required to be filed by it and has paid all material taxes
and assessments payable by it which have become due, except for those contested
in good faith and adequately disclosed and fully provided for in the financial
statements of the Borrower and each of its Subsidiaries in accordance with GAAP
or SAP, as the case may be. The Borrower and each of its Subsidiaries have paid,
or have provided adequate reserves (in the good faith judgment of the management
of such Person) for the payment of, all federal, state and foreign income taxes
applicable for all prior fiscal years and for the current fiscal year to date.
There is no material action, suit, proceeding, investigation, audit or claim now
pending or, to the knowledge of the Borrower or any of its Subsidiaries,
threatened by any authority regarding any taxes relating to the Borrower or any
of its Subsidiaries. Neither the Borrower nor any of its Subsidiaries has
entered into an agreement or waiver or been requested to enter into an agreement
or waiver extending any statute of limitations relating to the payment or
collection of taxes of the Borrower or any of its Subsidiaries, or is aware of
any circumstances that would cause the taxable years or other taxable periods of
the Borrower or any of its Subsidiaries not to be subject to the normally
applicable statute of limitations.
6.13 Compliance with ERISA. (a) Annex IV sets forth each Plan and
each Multiemployer Plan as of the Effective Date; each Plan (and each related
trust, insurance contract or fund) is in substantial compliance with its terms
and with all applicable laws, including without limitation ERISA and the Code,
except to the extent that any such non-compliance could not result in a material
liability; each Plan (and each related trust, if any) which is intended to be
qualified under Section 401(a) of the Code has received a determination letter
from the Internal Revenue Service to the effect that it meets the requirements
of Sections 401(a) and 501(a) of the Code; no Reportable Event has occurred; no
Multi-employer Plan is insolvent or in reorganization; no Plan has an Unfunded
Current Liability; no Plan which is subject to Section 412 of the Code or
Section 302 of ERISA has an accumulated funding deficiency, within the meaning
of such sections of the Code or ERISA, or has applied for or received a waiver
of an accumulated funding deficiency or an extension of any amortization period,
within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA;
except as would not result in any material liability, all contributions required
to be made with respect to a Plan and each Multiemployer Plan have been timely
made; neither the Borrower nor any Subsidiary of the Borrower nor any ERISA
Affiliate has incurred any material liability (including any indirect,
contingent or secondary liability) to or on account of a Plan pursuant to
Section 409, 502(i), 502(1), 4062, 4063, 4064, or 4069 of ERISA or Section
401(a)(29), 4971 or 4975 of the Code or to or on account of a Multiemployer Plan
pursuant to Section 515, 4201, 4204 or 4212 of ERISA or reasonably expects to
incur any of such liability under any of the foregoing sections with respect to
any Plan or Multiemployer Plan; to the Borrower's knowledge no condition exists
which presents a material risk to the Borrower or any Subsidiary of the Borrower
or any ERISA Affiliate of incurring a material liability to or on account of a
Plan or Multiemployer Plan pursuant to the foregoing provisions of ERISA and the
Code; no proceedings have been instituted to terminate or appoint a trustee to
administer any Plan which is subject to Title IV of ERISA; except as would not
result in any material liability, no action, suit, proceeding, hearing, audit or
investigation with respect to the administration, operation or the investment of
assets of any Plan (other than routine claims for benefits) is pending,
reasonably expected or to the Borrower's knowledge threatened; using actuarial
assumptions and computation methods consistent with Part 1 of subtitle E of
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Title IV of ERISA, the aggregate liabilities of the Borrower and its
Subsidiaries and its ERISA Affiliates to each Multiemployer Plan in the event of
a complete withdrawal therefrom, as of the close of the most recent fiscal year
of each such Multiemployer Plan ended prior to the date of the most recent
Credit Event, would not exceed $10,000,000; each group health plan (as defined
in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) other than a
multiemployer plan described in Section 3(37) of ERISA maintained or contributed
to by the Borrower, a Subsidiary of the Borrower or an ERISA Affiliate which
covers or has covered employees or former employees of the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate has at all times been operated
in compliance with the provisions of Part 6 of sub-title B of Title I of ERISA
and Section 4980B of the Code except as would not result in any material
liability; no lien imposed under the Code or ERISA on the assets of the Borrower
or any Subsidiary of the Borrower or any ERISA Affiliate exists or, to the
Borrower's knowledge, is likely to arise on account of any Plan or Multiemployer
Plan; and the Borrower and its Subsidiaries do not maintain or contribute to any
employee welfare benefit plan (as defined in Section 3(1) of ERISA) which
provides benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or any Plan obligations with respect to which
could reasonably be expected to have a material adverse effect on the ability of
the Borrower to perform its obligations under this Agreement.
(b) Except as would not result in a material liability, each Foreign
Pension Plan has been maintained in substantial compliance with its terms and
with the requirements of any and all applicable laws, statutes, rules,
regulations and orders and has been maintained, where required, in good standing
with applicable regulatory authorities. Except as would not result in a material
liability, all contributions required to be made with respect to a Foreign
Pension Plan have been timely made. Neither the Borrower nor any of its
Subsidiaries has incurred any material obligation in connection with the
termination of or withdrawal from any Foreign Pension Plan. Except as set forth
in Annex IV, the present value of the accrued benefit liabilities (whether or
not vested) under each Foreign Pension Plan, determined as of the end of the
Borrower's most recently ended fiscal year on the basis of actuarial
assumptions, each of which is reasonable, did not exceed the current value of
the assets of such Foreign Pension Plan allocable to such benefit liabilities.
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6.14 Subsidiaries. (a) Annex V hereto lists each Subsidiary of the Borrower
(and the direct and indirect ownership interest of the Borrower therein) and
also identifies the owner thereof in each case existing on the Effective Date
(after giving effect to the Transaction). Except as set forth on Annex V, all
such Subsidiaries are direct or indirect Wholly-Owned Subsidiaries of the
Borrower.
(b) There are no restrictions on the Borrower or any of its Subsidiaries
which prohibit or otherwise restrict the transfer of cash or other assets from
any Subsidiary of the Borrower to the Borrower, other than prohibitions or
restrictions existing under or by reason of (i) this Agreement, the other Credit
Documents, the Chartwell Senior Notes or the Trenwick Senior Notes, (ii) Legal
Requirements, (iii) customary non-assignment provisions in contracts entered
into in the ordinary course of business and consistent with past practices, and
(iv) purchase money obligations for property acquired in the ordinary course of
business, so long as such obligations are permitted under this Agreement.
6.15 Intellectual Property, etc. The Borrower and each of its Subsidiaries
own or possess the right to use all material patents, trademarks, servicemarks,
trade names, copyrights, licenses and other rights, free from burdensome
restrictions, that are necessary for the operation of their respective
businesses as presently conducted and as proposed to be conducted.
6.16 Pollution and Other Regulations. The Borrower and each of its
Subsidiaries are in compliance with all laws and regulations relating to
pollution and environmental control, equal employment opportunity and employee
safety in all domestic and foreign jurisdictions in which the Borrower and each
of its Subsidiaries is presently doing business, and the Borrower will comply
and cause each of its Subsidiaries to comply with all such laws and regulations
which may be imposed in the future in jurisdictions in which the Borrower or
such Subsidiary may then be doing business; in each case other than those the
non-compliance with which is not reasonably likely to have a Material Adverse
Effect.
6.17 Labor Relations; Collective Bargaining Agreements. (a) Set forth on
Annex VI is a list and description (including dates of termination) of all
collective bargaining and similar agreements between or applicable to the
Borrower or any of its Subsidiaries and any union, labor organization or other
bargaining agent in respect of the employees of the Borrower and/or any
Subsidiary on the Effective Date.
(b) Neither the Borrower nor any of its Subsidiaries is engaged in any
unfair labor practice that is reasonably likely to have a Material Adverse
Effect. (i) There is no significant unfair labor practice complaint pending
against the Borrower or any of its Subsidiaries or threatened in writing against
any of them, before the National Labor Relations Board, and no significant
grievance or significant arbitration proceeding arising out of or under any
collective bargaining agreement is now pending against the Borrower or any of
its Subsidiaries or threatened in writing against any of them, (ii) there is no
significant strike, labor dispute, slowdown or stoppage pending against the
Borrower or any of its Subsidiaries or threatened in writing against the
Borrower or any of its Subsidiaries and (iii) to the best knowledge of the
Borrower, no union representation question exists with respect to the employees
of the Borrower or any of its Subsidiaries, except (with respect to any matter
specified in clause (i), (ii) or (iii) above, either individually or in the
aggregate) such as could not reasonably be expected to have a Material Adverse
Effect.
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6.18 Capitalization. On the Effective Date, and after giving effect to
the Transaction and the other transactions contemplated hereby, the authorized
capital stock of the Borrower consists of (i) 30,000,000 shares of common stock,
$.10 par value per share, 17,747,808 shares of which shall be issued and
outstanding and (ii) 2,000,000 shares of preferred stock, $.10 par value per
share, of which none shall be issued and outstanding. As of the Effective Date,
all such outstanding shares of the Borrower have been duly and validly issued
and are fully paid and nonassessable. On the Effective Date and after giving
effect to the Transaction and the other transactions contemplated hereby, the
Borrower does not have outstanding any securities convertible into or
exchangeable for its capital stock or outstanding any rights to subscribe for or
to purchase, or any options for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments or claims
of any character relating to, its capital stock, except for options, warrants
and grants outstanding in the aggregate amounts set forth on Annex IX.
6.19 Indebtedness. Annex III sets forth a true and complete list of all
Indebtedness outstanding under Sections 8.04(c) and (i) of the Borrower and its
Subsidiaries as of the Effective Date (after giving effect to the Transaction),
in each case showing the aggregate principal amount thereof, the name of the
lender in respect thereof and the name of the respective borrower and any other
entity which has directly or indirectly guaranteed such Indebtedness.
6.20 Compliance with Statutes, etc. The Borrower and each of its
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all Governmental
Authorities in respect of the conduct of its business and the ownership of its
property (including compliance with all applicable environmental laws), except
those the noncompliance with which, in the aggregate, is not reasonably likely
to have a Material Adverse Effect.
6.21 Insurance Licenses. Each Regulated Insurance Company has obtained
and maintains in full force and effect all licenses and permits from all
regulatory authorities necessary to operate in the jurisdictions in which such
Regulated Insurance Company operates, in each case other than such licenses and
permits the failure of which to obtain or maintain, individually or in the
aggregate, is not reasonably likely to have a Material Adverse Effect.
6.22 Year 2000 Compliance. Any reprogramming required to permit the
proper functioning, in and following the year 2000, of (i) the Borrower's and
its Subsidiaries' computer systems and (ii) equipment containing embedded
microchips (including systems and equipment supplied by others and used by the
Borrower and one or more of its Subsidiaries or with which Borrower's or its
Subsidiaries' systems interface) and the testing of all such systems and
equipment, as so reprogrammed, have been completed. The cost to the Borrower and
its Subsidiaries of such reprogramming and testing and of the reasonably
foreseeable consequences of year 2000 to the Borrower and its Subsidiaries
(including, without limitation, reprogramming errors and the failure of others'
systems or equipment) will not result in a Default or a Material Adverse Effect.
Except for such of the reprogramming referred to in the preceding sentence as
may be necessary, the computer and management information systems of the
Borrower and its Subsidiaries are and, with ordinary course upgrading and
maintenance, will continue for the term of this Agreement to be, sufficient to
permit the Borrower to conduct its business without a Material Adverse Effect.
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SECTION 7. Affirmative Covenants. The Borrower hereby covenants and agrees
that on the Effective Date and thereafter, for so long as this Agreement is in
effect and until the Total Commitment and the Letter of Credit are terminated
and all the Loans and Unpaid Drawings, together with interest, Fees and all
other Obligations incurred hereunder, are paid in full:
7.01 Information Covenants. The Borrower will furnish or cause to be
furnished to each Bank:
(a) Annual Financial Statements. (i) As soon as available and in any
event within 90 days after the close of each fiscal year of the Borrower, (x)
the consolidated balance sheet of the Borrower and its Subsidiaries, in each
case, as at the end of such fiscal year and the related consolidated statements
of income, of stockholders' equity and of cash flows for such fiscal year and
(y) the consolidating balance sheet of the Borrower and each of its Subsidiaries
as at the end of the fiscal year and the related consolidating statements of
income, of stockholders' equity and of cash flows for such fiscal year; in each
case prepared in accordance with GAAP and setting forth comparative figures for
the preceding fiscal year, and, in the case of such consolidated statements,
examined by independent certified public accountants of recognized national
standing whose opinion shall not be qualified as to the scope of audit or as to
the status of the Borrower and its Subsidiaries as a going concern, together
with a certificate of such accounting firm stating that in the course of its
regular audit of the business of the Borrower and its Subsidiaries, which audit
was conducted in accordance with GAAP, such accounting firm has obtained no
knowledge of any Default or Event of Default which has occurred and is
continuing or, if in the opinion of such accounting firm such a Default or Event
of Default has occurred and is continuing, a statement as to the nature thereof.
(ii) As soon as available and in any event within 90 days after the close
of each fiscal year of each Regulated Insurance Company which is a Material
Subsidiary, the Annual Statement (prepared in accordance with SAP) for such
fiscal year of such Regulated Insurance Company, as filed with the Applicable
Insurance Regulatory Authority in compliance with the requirements thereof (or a
report containing equivalent information for any Regulated Insurance Company not
so required to file the foregoing with the Applicable Insurance Regulatory
Authority) together with the opinion thereon of the Chief Financial Officer or
other Authorized Officer of such Regulated Insurance Company stating that such
Annual Statement presents fairly in all material respects the financial
condition and results of operations of such Regulated Insurance Company in
accordance with SAP.
(iii) As soon as available and in any event within 90 days after the close
of each fiscal year of the Borrower, a copy of the "Statement of Actuarial
Opinion" and "Management Discussion and Analysis" for each Regulated Insurance
Company which is a Material Subsidiary and Domestic Subsidiary (prepared in
accordance with SAP) for such fiscal year and as filed with the Applicable
Regulatory Insurance Authority in compliance with the requirements thereof (or a
report containing equivalent information for any Regulated Insurance Company not
so required to file the foregoing with the Applicable Regulatory Insurance
Authority).
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(b) Quarterly Financial Statements. (i) As soon as available and in any
event within 45 days after the close of each of the first three quarterly
accounting periods in each fiscal year of the Borrower, (x) the consolidated
balance sheet of the Borrower and its Subsidiaries at the end of such fiscal
quarter and the related consolidated statements of income, of stockholders'
equity and of cash flows for such quarterly period and for the elapsed portion
of the fiscal year ended with the last day of such quarterly period and (y) the
consolidating balance sheet of the Borrower and each of its Subsidiaries as at
the end of such fiscal quarter and the related consolidating statements of
income, of stockholders' equity and of cash flows for such quarterly period and
for the elapsed portion of the fiscal year ended with the last day of such
quarterly period; in each case setting forth comparative figures for the related
periods in the prior fiscal year, and all of which shall be prepared in
accordance with GAAP and certified by the Chief Financial Officer or other
Authorized Officer of the Borrower, as the case may be, subject to changes
resulting from normal year-end audit adjustments.
(ii) As soon as available and in any event within 45 days after the close
of each of the first three quarterly accounting periods in each fiscal year of
each Regulated Insurance Company which is a Material Subsidiary, quarterly
financial statements (prepared in accordance with SAP) for such fiscal period of
such Regulated Insurance Company, as filed with the Applicable Insurance
Regulatory Authority, together with the opinion thereon of the Chief Financial
Officer or other Authorized Officer of such Regulated Insurance Company stating
that such financial statements present fairly in all material respects the
financial condition and results of operations of such Regulated Insurance
Company in accordance with SAP.
(c) Financial Plans, etc. No later than 45 days following the first day of
each fiscal year of the Borrower, copies of the annual financial plan or budget
for such fiscal year prepared by management of the Borrower for its internal use
and distributed to the Board of Directors of the Borrower. Together with each
delivery of financial statements pursuant to Section 7.01(a)(ii) and (b)(ii), a
comparison of the current year to date financial results (other than in respect
of the balance sheets included therein) against the plans required to be
submitted pursuant to this clause (c) shall be presented.
(d) Officer's Certificates. At the time of the delivery of the financial
statements provided for in Sections 7.01(a)(i) and (ii) and (b)(i) and (ii), a
certificate of the Chief Financial Officer or other Authorized Officer of the
Borrower to the effect that no Default or Event of Default exists or, if any
Default or Event of Default does exist, specifying the nature and extent
thereof, which certificate shall set forth the calculations required to
establish whether the Borrower and its Subsidiaries were in compliance with the
provisions of Sections 8.12 through 8.16, inclusive, as at the end of such
fiscal year or quarter, as the case may be.
(e) Notice of Default or Litigation. Promptly, and in any event within
five Business Days after the Borrower or any of its Subsidiaries obtains
knowledge thereof, (x) notice of the occurrence of any event which constitutes a
Default or Event of Default, which notice shall specify the nature thereof, the
period of existence thereof and what action the Borrower proposes to take with
respect thereto and (y) promptly after the Borrower or any of its Subsidiaries
obtains knowledge thereof, notice of any outstanding litigation or governmental
or regulatory proceeding pending against the Borrower or any of its Subsidiaries
which is reasonably likely to have a Material Adverse Effect, or a material
adverse effect on the ability of any Credit Party to perform its respective
obligations hereunder or under any other Credit Document.
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(f) Reserve Reports. Promptly upon receipt thereof, a copy of each
report submitted to the Borrower or any of its Subsidiaries by any independent
actuary with respect to reserve adequacy.
(g) Reserve Adequacy Report. Promptly following a request from the
Administrative Agent or the Required Banks (which request may only be made when
an Event of Default has occurred and is continuing), a report prepared by an
independent actuarial consulting firm of recognized professional standing
reasonably satisfactory to the Administrative Agent or the Required Banks, as
the case may be, reviewing the adequacy of reserves of each Regulated Insurance
Company determined in accordance with SAP, which firm shall be provided access
to or copies of all reserve analyses and valuations relating to the insurance
business of each Regulated Insurance Company in the possession of or available
to the Borrower or its Subsidiaries.
(h) Annual Report for Managed Syndicate. As soon as the same becomes
available, but in any event within 90 days after the end of each year of account
of the Managed Syndicate, the annual report in respect thereof.
(i) Business Plan and Realistic Disaster Scenarios for Managed Syndicate.
As soon as the same becomes available, the business plan prepared in relation to
the Managed Syndicate and (if separate) the Realistic Disaster Scenarios
relating thereto.
(j) Syndicate Quarterly Report. As soon as the same becomes available,
the Syndicate Quarterly Report for the Managed Syndicate.
(k) Other Regulatory Statements and Reports. Promptly (A) after receipt
thereof, copies of all triennial examinations and risk adjusted capital reports
of any Regulated Insurance Company, delivered to such Person by any Applicable
Insurance Regulatory Authority, insurance commission or similar regulatory
authority, (B) after receipt thereof, written notice of any assertion by any
Applicable Insurance Regulatory Authority or any governmental agency or agencies
substituted therefor, as to a violation of any Legal Requirement by any
Regulated Insurance Company which is reasonably likely to have a Material
Adverse Effect, (C) after receipt thereof, a copy of the final report to each
Regulated Insurance Company from the NAIC for each fiscal year, as to such
Regulated Insurance Company's compliance or noncompliance with each of the NAIC
Tests, (D) after receipt thereof, a copy of any notice of termination,
cancellation or recapture of any Reinsurance Agreement or Retrocession Agreement
to which a Regulated Insurance Company is a party to the extent such termination
or cancellation is reasonably likely to have a Material Adverse Effect, (E) and
in any event within ten Business Days after receipt thereof, copies of any
notice of actual suspension, termination or revocation of any license of any
Regulated Insurance Company by any Applicable Insurance Regulatory Authority,
including any request by an Applicable Insurance Regulatory Authority which
commits a Regulated Insurance Company to take or refrain from taking any action
or which otherwise affects the authority of such Regulated Insurance Company to
conduct its business, except where such suspension, termination or revocation is
not reasonably likely to have a Material Adverse Effect, and (F) in any event
within ten Business Days after the Borrower or any of its Subsidiaries obtains
knowledge thereof, notice of any actual changes in the insurance laws enacted in
any state in which any Regulated Insurance Company is domiciled which is
reasonably likely to have a Material Adverse Effect.
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(l) Other Information. Promptly upon filing thereof with the SEC or
transmission thereof, as the case may be, copies of any final registrations and
documents, and other reports specified in Section 13 and 15(d) of the Exchange
Act filed by the Borrower or any of its Subsidiaries (other than any
registration statement on Form S-8) and copies of all financial statements and
proxy statements, and material notices and reports, as the Borrower or any of
its Subsidiaries shall send to analysts generally or the holders of their
capital stock in their capacity as such holders (in each case to the extent not
theretofore delivered to the Banks pursuant to this Agreement) and, with
reasonable promptness, such other information or existing documents (financial
or otherwise) as the Administrative Agent or any Bank may reasonably request
from time to time.
7.02 Books, Records and Inspections. The Borrower will, and will cause
each of its Subsidiaries to, permit officers and designated representatives of
the Administrative Agent or any Bank to visit and inspect any of the properties
or assets of the Borrower and any of its Subsidiaries in whomsoever's possession
(but only to the extent the Borrower or such Subsidiary has the right to do so
to the extent in the possession of another Person), and to examine the books of
account of the Borrower and any of its Subsidiaries and discuss the affairs,
finances and accounts of the Borrower and of any of its Subsidiaries with, and
be advised as to the same by, its and their officers and independent accountants
and independent actuaries, if any, all at such reasonable intervals and during
business hours, upon reasonable prior notice and to such reasonable extent as
the Administrative Agent or any Bank may request. All such visits shall be at
the expense of the Administrative Agent or the respective Bank unless and until
a Default or Event of Default exists.
7.03 Insurance. The Borrower will, and will cause each of its Subsidiaries
to, at all times maintain in full force and effect insurance in such amounts,
covering such risks and liabilities and with such deductibles or self-insured
retentions as are in accordance with normal industry practice.
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7.04 Payment of Taxes. The Borrower will pay and discharge, and will cause
each of its Subsidiaries to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims for sums that have become due and payable which,
if unpaid, might become a Lien not otherwise permitted under Section 8.03(a);
provided that neither the Borrower nor any Subsidiary shall be required to pay
any such tax, assessment, charge, levy or claim which is being contested in good
faith and by proper proceedings if it has maintained adequate reserves with
respect thereto in accordance with GAAP.
7.05 Corporate Franchises. The Borrower will do, and will cause each
Subsidiary to do, or cause to be done, all things reasonably necessary to
preserve and keep in full force and effect its corporate existence, rights and
authority, except where the failure to do so is not reasonably likely to have a
Material Adverse Effect; provided that any transaction permitted by Section 8.02
will not constitute a breach of this Section 7.05.
7.06 Compliance with Statutes, etc. The Borrower will, and will cause
each Subsidiary to, comply with all applicable statutes, regulations and orders
of, and all applicable restrictions imposed by, all Government Authorities, in
respect of the conduct of its business and the ownership of its property
(including applicable statutes, regulations, orders and restrictions relating to
environmental standards and controls) other than those the non-compliance with
which is not reasonably likely to have a Material Adverse Effect.
7.07 ERISA. As soon as possible and, in any event, within 15 days after
the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate knows or has
reason to know of the occurrence of any of the following, the Borrower will
deliver to each of the Banks a certificate of the chief financial officer of the
Borrower setting forth the full details as to such occurrence and the action, if
any, that the Borrower, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be given or
filed by such Borrower, such Subsidiary, the Plan administrator or such ERISA
Affiliate, to or with the PBGC or any other government agency, or a Plan or
Multiemployer Plan participant and any notices received by such Borrower, such
Subsidiary or ERISA Affiliate from the PBGC or any other government agency, or a
Plan or Multiemployer Plan participant with respect thereto: that a Reportable
Event has occurred (except to the extent that the Borrower has previously
delivered to the Banks a certificate and notices (if any) concerning such event
pursuant to the next clause hereof); that a contributing sponsor (as defined in
Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject
to the advance reporting requirement of PBGC Regulation Section 4043.61 (without
regard to subparagraph (b)(1) thereof), and an event described in subsection
.62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is
reasonably expected to occur with respect to such Plan within the following 30
days; that an accumulated funding deficiency, within the meaning of Section 412
of the Code or Section 302 of ERISA, has been incurred or an application may
reasonably expected to be or has been made for a waiver or modification of the
minimum funding standard (including any required installment payments) or an
extension of any amortization period under Section 412 of the Code or Section
303 or 304 of ERISA with respect to a Plan; except as would not result in a
material liability that any contribution required to be made with respect to a
Plan, Multiemployer Plan or Foreign Pension Plan has not been timely made; that
a Plan has been or may be terminated, reorganized, partitioned or declared
insolvent under Title IV of ERISA; that a Plan has an Unfunded Current
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Liability; that proceedings are reasonably expected to be or have been
instituted to terminate or appoint a trustee to administer a Plan which is
subject to Title IV of ERISA; that a proceeding has been instituted pursuant to
Section 515 of ERISA to collect a delinquent contribution to a Multiemployer
Plan; that the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate
will or are reasonably expected to incur any material liability (including any
indirect, contingent, or secondary liability) to or on account of the
termination of a Plan under Section 4062, 4063, 4064, or 4069 of ERISA or with
respect to the withdrawal from a Multiemployer Plan under Section 4201, 4204 or
4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or
4980 of the Code or Section 409, 502(i) or 502(l) of ERISA or with respect to a
group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2)
of the Code) under Section 4980B of the Code; or that the Borrower or any
Subsidiary of the Borrower may incur any material liability pursuant to any
employee welfare benefit plan (as defined in Section 3(1) of ERISA) that
provides benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or any Plan or any Foreign Pension Plan. The
Borrower will deliver to each of the Banks copies of any records, documents or
other information that must be furnished to the PBGC with respect to any Plan
pursuant to Section 4010 of ERISA. The Borrower will also deliver to each of the
Banks a complete copy of the annual report (on Internal Revenue Service Form
5500-series) of each Plan (including, to the extent required, the related
financial and actuarial statements and opinions and other supporting statements,
certifications, schedules and information) required to be filed with the
Internal Revenue Service. In addition to any certificates or notices delivered
to the Banks pursuant to the first sentence hereof, copies of annual reports and
any records, documents or other information required to be furnished to the PBGC
or any other government agency, and any material notices received by the
Borrower, any Subsidiary of the Borrower or any ERISA Affiliate from any
relevant government agency with respect to any Plan or any Foreign Pension Plan
or received from any government agency or plan administrator or sponsor or
trustee with respect to any Multiemployer Plan shall be delivered to the Banks
no later than 15 days after the date such annual report has been filed with the
Internal Revenue Service or such records, documents and/or information has been
furnished to the PBGC or any other government agency or such notice has been
received by the Borrower, the Subsidiary or the ERISA Affiliate, as applicable.
The Borrower and each of its applicable Subsidiaries shall ensure that all
Foreign Pension Plans administered by it or into which it makes payments obtains
or retains (as applicable) registered status under and as required by applicable
law and is administered in a timely manner in all respects in compliance with
all applicable laws except where the failure to do any of the foregoing would
not be reasonably likely to result in a material adverse effect upon the
business, operations, condition (financial or otherwise) or prospects of the
Borrower or any Subsidiary of the Borrower.
7.08 Performance of Obligations. The Borrower will, and will cause each
of its Subsidiaries to, perform in all material respects all of its obligations
under the terms of each mortgage, indenture, security agreement, other debt
instrument and material contract by which it is bound or to which it is a party;
provided, that the failure to pay any Indebtedness shall not constitute a breach
of this Section 7.08 unless it shall give rise to an Event of Default under
Section 9.04.
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7.09 Good Repair. The Borrower will, and will cause each of its
Subsidiaries to, ensure that its material properties and equipment used or
useful in its business in whomsoever's possession they may be, are kept in good
repair, working order and condition, normal wear and tear excepted, and that
from time to time there are made in such properties and equipment all needful
and proper repairs, renewals, replacements, extensions, additions, betterments
and improvements thereto, to the extent and in the manner customary for
companies in similar businesses.
7.10 End of Fiscal Years; Fiscal Quarters. The Borrower will, for
financial reporting purposes, cause (i) each of its, and each of its Domestic
Subsidiaries', fiscal years to end on December 31 of each year and (ii) each of
its, and each of its Domestic Subsidiaries', fiscal quarters to end on March 31,
June 30, September 30 and December 31 of each year.
7.11 Maintenance of Licenses and Permits. The Borrower will, and will cause
each of its Subsidiaries to, maintain all permits, licenses and consents as may
be required for the conduct of its business by any state, federal or local
government agency or instrumentality except where failure to maintain the same
is not reasonably likely to have a Material Adverse Effect.
7.12 Chartwell Senior Notes. The Borrower will cause Chartwell Re Holdings
to repay all principal of and interest and premium (if any) on the Chartwell
Senior Notes in full no later than March 1, 2000.
7.13 Subsidiary Guaranties. Promptly, and in any event within ten Business
Days, following the repayment of the Chartwell Senior Notes in accordance with
Section 7.12, the Borrower will cause Chartwell Re Holdings and each of its
Domestic Subsidiaries which is a Material Subsidiary and a Non-Regulated Company
to (i) become party to the Subsidiary Guaranty as a Subsidiary Guarantor
pursuant to documentation in form and substance satisfactory to the
Administrative Agent and (ii) deliver all legal opinions, officers' certificates
and corporate documentation as would have been required pursuant to Sections
5.04 and 5.05 if such Persons had been Credit Parties on the Initial Credit
Event Date.
SECTION 8. Negative Covenants. The Borrower hereby covenants and agrees
that on the Effective Date and thereafter, for so long as this Agreement is in
effect and until the Total Commitment and the Letter of Credit are terminated
and all Loans and Unpaid Drawings, together with interest, Fees and all other
Obligations incurred hereunder, are paid in full:
8.01 Changes in Business. The Borrower and its Subsidiaries will not engage
in any business other than the property and casualty insurance and reinsurance
business and any other businesses engaged in by the Borrower and its
Subsidiaries as of the Effective Date (after giving effect to the Transaction)
and activities related, ancillary or complimentary thereto.
8.02 Fundamental Changes; Acquisitions. (a) The Borrower will not, and
will not permit any of its Material Subsidiaries to, wind up, liquidate or
dissolve its affairs, or enter into any transaction of merger or consolidation,
or sell or otherwise dispose of all or substantially all of its assets to any
other Person, provided that (x) the Borrower may merge with another Person if
(i) the Borrower is the corporation surviving such merger and (ii) immediately
after giving effect to such merger, no Default or Event of Default shall have
occurred and is continuing; (y) Subsidiaries of the Borrower may merge with one
another, provided that the Borrower's ownership percentage of the surviving
entity is at least equal to the Borrower's ownership percentage of the
Subsidiary party to such merger in which the Borrower owns the greater
percentage equity interest prior to such merger; and (z) the Transaction shall
be permitted.
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(b) The Borrower will not, and will not permit any of its Subsidiaries
to, purchase, lease or otherwise acquire (in one transaction or a series of
related transactions) all or any part of the property or assets of any Person
(excluding any purchases, leases or other acquisitions of property or assets in,
and for use in, the ordinary course of business) or agree to do any of the
foregoing at any future time, except that the following shall be permitted:
(i) The investments, acquisitions and transfers or dispositions of
property permitted pursuant to Section 8.05;
(ii) Any Regulated Insurance Company may enter into any Insurance
Contract, Reinsurance Agreement or Retrocession Agreement in the ordinary course
of business in accordance with its normal underwriting, indemnity and retention
policies, provided that no Regulated Insurance Company shall enter into any
Financial Reinsurance Agreements unless the Indebtedness arising under such
Financial Reinsurance Agreements is permitted under Section 8.04(i); and
(iii) so long as no Default or Event of Default then exists or would result
therefrom, the Borrower and its Subsidiaries may acquire assets or the capital
stock of any Person (any such acquisitions permitted by this clause (iii), a
"Permitted Acquisition"), provided, that (A) such Person (or the assets so
acquired) was, immediately prior to such acquisition, engaged (or used)
primarily in the businesses permitted pursuant to Section 8.01, (B) each such
acquisition shall be for an amount not greater than the fair market value
thereof (as determined in good faith by the Board of Directors of the Borrower),
(C) the aggregate amount (both cash and non-cash, including capital stock of the
Borrower) expended by the Borrower and its Subsidiaries for Permitted
Acquisitions after the Effective Date shall not exceed $400,000,000, (D) on a
pro forma basis determined as if such acquisition had been consummated on the
date occurring twelve months prior to the last day of the most recently ended
fiscal quarter of the Borrower, the Borrower and its Subsidiaries would have
been in compliance with Sections 8.12 through 8.16 of this Agreement as of, or
for the relevant period ended on, the last day of such fiscal quarter, and (E)
on a pro forma basis determined as if such acquisition had been consummated, the
covenants contained in Sections 8.12 through 8.16 will continue to be met for
the twelve-month period following the last day of the fiscal quarter ended after
the date of the consummation of such acquisition.
8.03 Liens. The Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets of any kind (real or personal, tangible or
intangible) of the Borrower or any such Subsidiary whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable or notes with recourse to the
Borrower or any of its Subsidiaries) or assign any right to receive income, or
file or permit the filing of any financing statement under the UCC or any other
similar notice of Lien under any similar recording or notice statute relating to
any such property, except:
(a) Liens for taxes and other assessments not yet due or being contested in
good faith and by appropriate proceedings for which adequate reserves (in the
good faith judgment of the management of the Borrower) have been established;
(b) Liens in respect of property or assets imposed by law which were
incurred in the ordinary course of business, such as carriers', warehousemen's
and mechanics' Liens and other similar Liens arising in the ordinary course of
business, and (x) which do not in the aggregate materially detract from the
value of such property or assets or materially impair the use thereof in the
operation of the business of the Borrower or any Subsidiary or (y) which are
being contested in good faith by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property or asset subject
to such Lien;
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(c) Cash collateral requirements in respect of outstanding Letters of
Credit pursuant to this Agreement and the other Credit Documents;
(d) Liens in existence on the Effective Date which are listed, and the
property subject thereto on the Effective Date described, in Annex VII, together
with any extensions or renewals thereof so long as the obligations secured and
assets encumbered by such Liens are not increased in connection with such
extension or renewal by more than $5,000,000 (provided that the securities
subject to any such Lien may be replaced by other securities of no greater
principal amount);
(e) Liens arising from judgments, decrees or attachments in circumstances
not constituting an Event of Default under Section 9.08;
(f) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return-of-money
bonds, Reinsurance Agreements, Retrocession Agreements and other similar
obligations incurred in the ordinary course of business (exclusive of
obligations in respect of the payment for borrowed money);
(g) Leases or subleases granted to others not interfering in any material
respect with the business of the Borrower or any of its Subsidiaries and any
interest or title of a lessor under any lease not in violation of this
Agreement;
(h) Easements, rights-of-way, restrictions, minor defects or irregularities
in title and other similar charges or encumbrances not interfering in any
material respect with the ordinary conduct of the business of the Borrower or
any of its Subsidiaries;
(i) Liens arising from UCC financing statements regarding leases not in
violation of this Agreement;
(j) Liens on pledges or deposits of cash or securities made by any
Regulated Insurance Company as a condition to obtaining or maintaining any
licenses issued to it by any Applicable Insurance Regulatory Authority;
(k) Liens arising pursuant to purchase money mortgages, Capital Leases
or security interests securing Indebtedness representing the purchase price (or
financing of the purchase price within 90 days after the respective purchase) of
assets acquired after the Initial Credit Event Date, provided that (i) any such
Liens attach only to the assets so purchased, (ii) the Indebtedness secured by
any such Lien does not exceed 100%, nor is less than 80%, of the lesser of the
fair market value or the purchase price of the property being purchased at the
time of the incurrence of such Indebtedness and (iii) the Indebtedness secured
thereby is permitted to be incurred pursuant to Section 8.04(b);
(l) Liens on property or assets acquired pursuant to an acquisition,
or on property or assets of a Subsidiary of the Borrower in existence at the
time such Subsidiary is acquired pursuant to an acquisition, provided that (i)
any Indebtedness that is secured by such Liens is permitted to exist under
Section 8.04(f) and (ii) such Liens are not incurred in connection with or in
contemplation or anticipation of such acquisition and do not attach to any other
asset of the Borrower or any of its Subsidiaries; and
(m) Liens consisting of customary set-off rights or bankers' liens on
amounts on deposit and securing reimbursement obligations in respect of letters
of credit issued for the account of the Borrower or any of its Subsidiaries,
whether arising by contract or operation of law, to the extent incurred in the
ordinary course of business.
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8.04 Indebtedness. The Borrower will not, and will not permit any of
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the other Credit
Documents;
(b) Capitalized Lease Obligations and Indebtedness of the Borrower and
its Subsidiaries incurred pursuant to purchase money Liens permitted under
Section 8.03(k);
(c) Indebtedness in existence on the Effective Date which is listed in
Annex III, together with extension, renewal or refinancing thereof so long as
the principal amount of any such Indebtedness is not increased as a result of
any such extension, renewal or refinancing;
(d) Obligations of any Regulated Insurance Company with respect to (i)
letters of credit securing obligations (A) under Reinsurance Agreements and (B)
required by Lloyds entered into in the ordinary course of business of any such
Regulated Insurance Company, (ii) letters of credit issued in lieu of deposits
to satisfy Legal Requirements or (iii) letters of credit or surety bonds issued
in lieu of depositing securities with any Applicable Insurance Regulatory
Authority to satisfy regulatory requirements; in any case to the extent such
letters of credit are not drawn upon or, if and to the extent drawn upon, such
drawing is reimbursed no later than 10 days following receipt by the Borrower or
such Subsidiary of notice of payment on such letter of credit;
(e) Indebtedness under Interest Rate Agreements or Other Hedging Agreements
entered into in respect of the Obligations or otherwise in the conduct of its
business and not for speculative purposes;
(f) Indebtedness of the Borrower or a Wholly-Owned Subsidiary of the
Borrower acquired pursuant to an acquisition (or Indebtedness assumed at the
time of a permitted acquisition of an asset securing such Indebtedness), and any
refinancing of such Indebtedness so long as the principal amount thereof is not
increased, provided that (i) such Indebtedness was not incurred in connection
with or in contemplation of such acquisition, (ii) such Indebtedness does not
constitute Indebtedness for borrowed money, it being understood and agreed that
Capitalized Lease Obligations and purchase money Indebtedness shall not
constitute Indebtedness for borrowed money for purposes of this clause (i), and
(iii) at the time of such acquisition, such Indebtedness does not exceed 10% of
the total value of the assets of the Subsidiary so acquired, or of the assets so
acquired, as the case may be;
(g) Indebtedness constituting a loan from the Borrower or any Wholly-
Owned Subsidiary to the Borrower or any Wholly-Owned Subsidiary;
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(h) Indebtedness consisting of senior notes issued by the Borrower
in an aggregate outstanding principal amount not to exceed $200,000,000, so long
as the maturity date of any such senior notes is no earlier than March 31, 2005;
and
(i) Other Indebtedness of the Borrower and its Subsidiaries in an aggregate
outstanding principal amount not to exceed $50,000,000 at any time.
8.05 Advances, Investments and Loans. The Borrower will not, and will not
permit any of its Subsidiaries to, lend money or credit or make advances to any
Person, or purchase or acquire any stock, obligations or securities of, or any
other interest in, or make any capital contribution to, any Person, except:
(a) The Transaction shall be permitted;
(b) The Borrower and its Subsidiaries may make investments (i) in
accordance with the Borrower's and Subsidiaries' investment guidelines as in
effect on the Effective Date (in the form delivered to the Banks on or prior to
such date) or (ii) in accordance with modified investment guidelines from time
to time so long as such modified guidelines are not materially less restrictive
on the Borrower and its Subsidiaries than those referred to in clause (i) above;
(c) The Borrower and its Subsidiaries may acquire and hold receivables
owing to them in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms;
(d) Loans and advances to employees for business-related travel expenses,
moving expenses and other similar expenses, in each case incurred in the
ordinary course of business;
(e) The transactions described in Section 8.02 shall be permitted;
(f) Any Regulated Insurance Company may make investments in companies which
are Wholly-Owned Subsidiaries of such Person (or any other Subsidiary of such
Person created or acquired in accordance with Section 8.09) but only to the
extent that any such investment, at the time made, does not reduce Statutory
Surplus of such Regulated Insurance Company;
(g) Investments pursuant to commitments in effect as of the Effective Date
and described (as to matter and amount) on Annex VIII;
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(h) Investments acquired by the Borrower or any of its Subsidiaries
(x) in exchange for any other investment held by the Borrower or any such
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other investment, (y)
as a result of a foreclosure by the Borrower or any of its Subsidiaries with
respect to any secured investment or other transfer of title with respect to any
secured investment in default or (z) in settlement of delinquent obligations of,
and other disputes with, customers and suppliers arising in the ordinary course
of business;
(i) Investments existing on the Effective Date which are identified on
Annex VIII;
(j) the Borrower may acquire and hold obligations of one or more officers
or employees of the Borrower or its Subsidiaries in connection with such
officers' or employees' acquisition of shares of capital stock of the Borrower
or options to purchase shares of capital stock of the Borrower so long as no
cash is paid by the Borrower or any of its Subsidiaries in connection with the
acquisition of any such obligations and such obligations;
(k) Investments consisting of intercompany loans to the extent permitted
under Section 8.04(g);
(l) Investments by the Borrower in Wholly-Owned Subsidiaries, and
investments by Wholly-Owned Subsidiaries in other Wholly-Owned Subsidiaries;
(m) Investments consisting of prepaid expenses;
(n) Investments consisting of non-cash consideration received in connection
with a sale of assets permitted under Section 8.02 (it being understood and
agreed that the consideration received in respect of any such asset sale shall
be at least 75% cash); and
(o) additional investments (including such additional investments
identified pursuant to this Section 8.05(o) in Annex VIII) in an aggregate
outstanding amount not to exceed, at the time any such investment is made, an
amount equal to 5% of the invested assets of the Borrower and its Subsidiaries
at such time.
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8.06 Dividends, etc. (a) The Borrower will not, and will not permit any
of its Subsidiaries to, declare or pay any dividends (other than dividends
payable solely in common stock of such Person) or return any capital to, its
stockholders or authorize or make any other distribution, payment or delivery of
property or cash to its stockholders as such, or redeem, retire, purchase or
otherwise acquire, directly or indirectly, for a consideration, any shares of
any class of its capital stock now or hereafter outstanding (or any warrants for
or options or stock appreciation rights in respect of any of such shares), or
set aside any funds for any of the foregoing purposes, or purchase or otherwise
acquire or permit any of its Subsidiaries to purchase or otherwise acquire for
consideration any shares of any class of the capital stock of the Borrower or
any of its Subsidiaries, as the case may be, now or hereafter outstanding (or
any options or warrants or stock appreciation rights issued by such Person with
respect to its capital stock) (all of the foregoing "Dividends"), except that:
(i) Any Subsidiary of the Borrower may pay cash dividends to its parent
if such parent is the Borrower or a Wholly-Owned Subsidiary of the Borrower;
(ii) The Borrower may redeem or purchase its capital stock at any time so
long as no Default or Event of Default exists at such time or would exist
immediately after giving effect to such redemption or purchase; and
(iii) The Borrower may pay cash dividends on its capital stock in any
fiscal quarter, provided that the aggregate amount of dividends paid in any
fiscal quarter shall not exceed an amount equal to the greater of (A) $0.26
multiplied by the number of shares of the Borrower's common stock outstanding as
of the record date declared by the Borrower's Board of Directors for such fiscal
quarter; provided that to the extent there is more than one record date for such
fiscal quarter, the first record date for such fiscal quarter shall be used in
determining the numbers of shares of the Borrower's common stock outstanding for
such period and (B) an amount, if positive, equal to 50% of the Borrower's
Consolidated Net Income for the four most recently completed consecutive fiscal
quarters of the Borrower ending on the last day of such fiscal quarter (taken as
one accounting period) divided by four; provided that no dividends may be paid
pursuant to this Section 8.06(a)(iii) if any Default or Event of Default exists
at the time of the payment of such cash dividends or would exist immediately
after giving effect thereto.
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(b) The Borrower will not, and will not permit any of its Subsidiaries
to, create or otherwise cause or suffer to exist any encumbrance or restriction
which prohibits or otherwise restricts (i) the ability of any Subsidiary to (A)
pay dividends or make other distributions or pay any Indebtedness owed to the
Borrower or any of its Subsidiaries, as applicable, (B) make loans or advances
to the Borrower or any Subsidiary, as applicable, (C) transfer any of its
properties or assets to the Borrower or any Subsidiary, as applicable, or (D)
guarantee the Obligations or (ii) the ability of the Borrower or any Subsidiary
of the Borrower to create, incur, assume or suffer to exist any Lien upon its
property or assets to secure the Obligations, other than prohibitions or
restrictions existing under or by reason of (I) this Agreement and the other
Credit Documents, (II) the Chartwell Senior Notes, (III) the Trenwick Senior
Notes and (IV) Legal Requirements.
8.07 Transactions with Affiliates. The Borrower will not, and will not
permit any Subsidiary to, enter into any transaction or series of transactions
with any Affiliate (excluding the Borrower or any Wholly-Owned Subsidiary of the
Borrower) other than on terms and conditions substantially as favorable to the
Borrower or such Subsidiary as would be obtainable by the Borrower or such
Subsidiary at the time in a comparable arm's-length transaction with a Person
other than an Affiliate.
8.08 Issuance of Stock. (a) The Borrower will not directly or indirectly
issue, sell, assign, pledge, or otherwise encumber or dispose of any shares of
its capital stock or other equity securities (or warrants, rights or options to
acquire shares or other equity securities), except (i) the issuance of common
stock (and warrants, options and other rights to acquire common stock), so long
as no Event of Default occurs under Section 9.09, and (ii) the issuance of
preferred stock, so long as (x) no part of such preferred stock is mandatorily
redeemable (whether on a scheduled basis or as a result of the occurrence of any
event or circumstance) and (y) any dividends associated with such preferred
stock are solely payable in kind.
(b) The Borrower will not permit any of its Subsidiaries directly or
indirectly to issue, sell, assign, pledge, or otherwise encumber or dispose of
any shares of its capital stock or other equity securities (or warrants, rights
or options to acquire shares or other equity securities) of such Subsidiary,
except (i) to the Borrower or to a Wholly-Owned Subsidiary of the Borrower, and
(ii) to qualify directors if required by applicable law.
8.09 Creation of Subsidiaries. The Borrower shall not create or acquire
any Subsidiary other than (i) Regulated Insurance Companies which are direct or
indirect Wholly-Owned Subsidiaries of the Borrower; and (ii) Non-Regulated
Companies which are not Subsidiaries of any Regulated Insurance Company, so long
as such new Subsidiary executes a counterpart of the Subsidiary Guaranty (to the
extent such Subsidiary is a Domestic Subsidiary and a Material Subsidiary). In
addition, at the request of the Administrative Agent, each new Subsidiary that
is required to execute any Credit Document shall execute and deliver, or cause
to be executed and delivered, all other relevant documentation of the type
described in Section 5 as such new Subsidiary would have had to deliver if such
new Subsidiary were a Credit Party on the Initial Credit Event Date.
8.10 Partnership Agreements. The Borrower will not enter into any
partnership agreement as a general partner.
8.11 Prepayments of Indebtedness, Modifications of Agreements, etc. The
Borrower will not, and will not permit any of its Subsidiaries to:
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(a) make (or give any notice in respect thereof) any voluntary or optional
payment or prepayment or redemption or acquisition for value of (including,
without limitation, by way of depositing with the trustee with respect thereto
money or securities before due for the purpose of payment when due) or exchange
of, any Contingent Interest Notes or Trust Preferred Notes; and/or
(b) amend or modify (or permit the amendment or modification of) any of the
terms or provisions of the documents or agreements evidencing or governing the
Contingent Interest Notes or the Trust Preferred Notes.
8.12 Leverage Ratio. The Borrower will not permit the ratio of (i)
Consolidated Indebtedness of the Borrower to (ii) Consolidated Total Capital of
the Borrower at any time to be greater than 0.325:1.00.
8.13 Interest Coverage Ratio. The Borrowe will not permit the Interest
Coverage Ratio for any Test Period ending during a period set forth below to be
less than the ratio set forth opposite such period below:
Period Ratio
------ -----
Fiscal Year ending 12/31/00 2.25:1.00
Fiscal Year ending 12/31/01 2.50:1.00
Fiscal Year ending 12/31/02 2.75:1.00
Thereafter 3.00:1.00
8.14 Minimum Risk Based Capital. (a) The Borrower will not permit the Risk
Based Capital Ratio for Trenwick America Reinsurance Corporation to be less than
325%.
(b) The Borrower will not permit the Risk Based Capital Ratio for any
Regulated Insurance Company which is a Domestic Subsidiary (other than Trenwick
America Reinsurance Corporation) to be less than 275%.
8.15 Minimum Combined Statutory Surplus. The Borrower will not permit
the Regulated Insurance Companies, collectively, on a Combined basis, to have
Statutory Surplus at any time of less than $400,000,000.
8.16 Minimum Consolidated Tangible Net Worth. The Borrower will not permit
its Consolidated Tangible Net Worth to be less than $325,000,000 at any time.
SECTION 9. Events of Default. Upon the occurrence of any of the following
specified events (each an "Event of Default"):
9.01 Payments. The Borrower shall (i) default in the payment when due of
any principal of the Loans or any Unpaid Drawing, (ii) default, and such default
shall continue for three or more Business Days, in the payment when due of any
interest on the Loans or any Fees or (iii) default, and such default shall
continue for five or more Business Days in the payment of any other amounts
owing hereunder or under any other Credit Document; or
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9.02 Representations, etc. Any representation, warranty or statement made
or deemed made by the Borrower or any other Credit Party herein or in any other
Credit Document or in any statement or certificate delivered or required to be
delivered pursuant hereto or thereto shall prove to be untrue in any material
respect on the date as of which made or deemed made; or
9.03 Covenants. Any Credit Party shall (a) default in the due performance
or observance by it of any term, covenant or agreement contained in Section 7.10
or 8 (except for Sections 8.01, 8.07 and 8.09), or (b) default in the due
performance or observance by it of any term, covenant or agreement (other than
those referred to in Section 9.01 or clause (a) of this Section 9.03) contained
in this Agreement and such default shall continue unremedied for a period of at
least 30 days; or
9.04 Default Under Other Agreements. (a) The Borrower or any of its
Subsidiaries shall (i) default in any payment with respect to Indebtedness
(other than the Obligations), in excess of $10,000,000 individually or in the
aggregate, for the Borrower and its Subsidiaries (collectively, "Material
Indebtedness"), beyond the period of grace, if any, provided in the instrument
or agreement under which such Indebtedness was created or (ii) default in the
observance or performance of any agreement or condition relating to any such
Material Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition exist,
the effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Material Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause any such Material
Indebtedness to become due prior to its stated maturity; or (b) any such
Material Indebtedness of the Borrower or any of its Subsidiaries shall be
declared to be due and payable, or required to be prepaid other than by a
regularly scheduled required prepayment or as a mandatory prepayment (unless
such required pre-payment or mandatory prepayment results from a default
thereunder or an event of the type that constitutes an Event of Default), prior
to the stated maturity thereof; or
9.05 Bankruptcy, etc. The Borrower or any of its Subsidiaries shall
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the
Borrower or any of its Subsidiaries and the petition is not controverted within
10 days, or is not dismissed within 60 days, after commencement of the case; or
a custodian (as defined in the Bankruptcy Code) is appointed for, or takes
charge of, all or substantially all of the property of the Borrower or any of
its Subsidiaries; or the Borrower or any of its Subsidiaries commences
(including by way of applying for or consenting to the appointment of, or the
taking of possession by, a rehabilitator, receiver, custodian, trustee,
conservator or liquidator (collectively, a "conservator") of itself or all or
any substantial portion of its property) any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency, liquidation, rehabilitation, conservatorship or similar law of any
jurisdiction whether now or hereafter in effect relating to the Borrower or any
of its Subsidiaries; or any such proceeding is commenced against the Borrower or
any of its Subsidiaries and remains undismissed for a period of 60 days; or the
Borrower or any of its Subsidiaries is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding is entered;
or (a) any Regulated Insurance Company which is engaged in the business of
underwriting insurance and/or reinsurance in the United States suffers any
appointment of any conservator or the like for it or any substantial part of its
property, or (b) the Borrower or any of its Subsidiaries (other than any
Regulated Insurance Company described in the immediately preceding clause (a))
suffers any appointment of any conservator or the like for it or any substantial
part of its property which continues undischarged or unstayed for a period of 60
days; or the Borrower or any of its Subsidiaries makes a general assignment for
the benefit of creditors; or any corporate action is taken by the Borrower or
any of its Subsidiaries for the purpose of effecting any of the foregoing; or
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9.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph
(b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66,
.67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur
with respect to such Plan within the following 30 days, any Plan which is
subject to Title IV of ERISA shall have had or is likely to have a trustee
appointed by the PBGC to administer such Plan, any Plan or Multiemployer Plan
which is subject to Title IV of ERISA is, shall have been or is likely to be
terminated or to be the subject of termination proceedings under ERISA, any Plan
shall have an Unfunded Current Liability, a contribution required to be made
with respect to a Plan, Multiemployer Plan or Foreign Pension Plan has not been
timely made, the Borrower or any Subsidiary of the Borrower or any ERISA
Affiliate has incurred or is likely to incur any liability to or on account of a
Plan or Multiemployer Plan under Section 409, 502(i), 502(l), 515, 4062, 4063,
4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of
the Code or on account of a group health plan (as defined in Section 607(1) of
ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code, or
the Borrower or any Subsidiary of the Borrower has incurred or is likely to
incur liabilities pursuant to one or more employee welfare benefit plans (as
defined in Section 3(1) of ERISA) that provide benefits to retired employees or
other former employees (other than as required by Section 601 of ERISA) or Plans
or Foreign Pension Plans, a "default," within the meaning of Section 4219(c)(5)
of ERISA, shall occur with respect to any Multiemployer Plan; any applicable
law, rule or regulation is adopted, changed or interpreted, or the
interpretation or administration thereof is changed, in each case after the date
hereof, by any governmental authority or agency or by any court (a "Change in
Law"), or, as a result of a Change in Law, an event occurs following a Change in
Law, with respect to or otherwise affecting any Plan or Multiemployer Plan; (b)
there shall result from any such event or events the imposition of a lien, the
granting of a security interest, or a liability or a material risk of incurring
a liability; and (c) such lien, security interest or liability, individually
and/or in the aggregate, in the opinion of the Required Banks has had, or could
reasonably be expected to have, a Material Adverse Effect; or
9.07 Subsidiary Guaranty. The Subsidiary Guaranty or any provision thereof
shall cease to be in full force and effect, or any Subsidiary Guarantor or any
Person acting by or on behalf of such Subsidiary Guarantor shall deny or
disaffirm such Subsidiary Guarantor's obligations under the Subsidiary Guaranty
or any Subsidiary Guarantor shall default in the due performance or observance
of any term, covenant or agreement on its part to be performed or observed
pursuant to the Subsidiary Guaranty; or
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9.08 Judgments. One or more judgments or decrees shall be entered against
the Borrower or any of its Subsidiaries involving a liability, net of undisputed
reinsurance, of $10,000,000 or more in the case of any one such judgment or
decree or in the aggregate for all such judgments and decrees for the Borrower
and its Subsidiaries and any such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal within 60 days from the
entry thereof; or
9.09 Change of Control. A Change of Control shall occur; or
9.10 Senior Unsecured Debt Ratings. By the 90th day following the Effective
Date, the Borrower shall not have received a confirmed S&P Credit Rating (taking
into account the Acquisition) of at least BBB- and a confirmed Moody's Credit
Rating (taking into account the Acquisition) of at least Baa3; or
9.11 A.M. Best Ratings. Any Rated Ongoing Regulated Subsidiary shall fail
to have an A.M. Best claims paying rating of at least A-;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent shall, upon the written
request of the Required Banks, by written notice to the Borrower, take any or
all of the following actions, without prejudice to the rights of the
Administrative Agent or any Bank to enforce its claims against the Borrower or
any other Credit Party, except as otherwise specifically provided for in this
Agreement (provided that if an Event of Default specified in Section 9.05 shall
occur with respect to the Borrower, the result which would occur upon the giving
of written notice by the Administrative Agent as specified in clauses (i), (ii),
(iii) and (v) below shall occur automatically without the giving of any such
notice): (i) declare the Total Revolving Loan Commitment terminated, whereupon
the Revolving Loan Commitment of each Bank shall forthwith terminate
immediately, (ii) declare the Total Unutilized L/C Commitment terminated,
whereupon the Unutilized L/C Commitment of each Bank shall forthwith terminate
immediately, (iii) declare the principal of and any accrued interest in respect
of all Loans and all other Obligations owing hereunder and under the other
Credit Documents to be, whereupon the same shall become, forthwith due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Borrower, (iv) terminate any Letter of Credit if
permitted in accordance with its terms, and (v) direct the Borrower to pay (and
the Borrower hereby agrees upon receipt of such notice, or upon the occurrence
of any Event of Default specified in Section 9.05, to pay) to the Administrative
Agent at the Payment Office an amount of cash to be held as security for the
Borrower's reimbursement obligations in respect of all Letters of Credit then
outstanding, equal to the aggregate Stated Amount of all Letters of Credit at
such time.
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SECTION 10. Definitions. As used herein, the following terms shall have
the meanings herein specified unless the context otherwise requires. Defined
terms in this Agreement shall include in the singular number the plural and in
the plural the singular:
"Acquisition" shall mean the merger of Chartwell with and into the Borrower
on October 27, 1999 pursuant to the Acquisition Agreement.
"Acquisition Agreement" shall mean the Agreement of Merger dated June 21,
1999 between the Borrower and Chartwell.
"Acquisition Documents" shall mean the Acquisition Agreement and the Stock
Option Agreement dated June 21, 1999 between the Borrower and Chartwell,
including the Annexes and Exhibits thereto, as the same may be amended or
modified pursuant to the terms thereof.
"Administrative Agent" shall have the meaning provided in the first
paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to Section 11.09.
"Affected Eurodollar Loans" shall have the meaning provided in Section
4.02(ii)(b).
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with, such Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power (i) to vote 10% or more
of the securities having ordinary voting power for the election of directors of
such corporation or (ii) to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" shall mean this Credit Agreement, as the same may be from time
to time modified, amended and/or supplemented.
"Alternate Currency" shall mean each Primary Alternate Currency and each
Other Alternate Currency.
"Alternate Currency Letter of Credit" shall mean the Letter of Credit to
the extent denominated in an Alternate Currency.
"Alternate Currency Loan" shall mean any Revolving Loan denominated in an
Alternate Currency.
"Annual Statement" shall mean the annual financial statement required to be
filed by any Regulated Insurance Company with the Applicable Insurance
Regulatory Authority.
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"Applicable Commitment Fee Percentage" shall mean, for any day, the
percentage set forth below opposite the Applicable Period then in effect:
Applicable Period Applicable Commitment Fee Percentage
----------------- ------------------------------------
Category A Period 0.200%
Category B Period 0.250%
Category C Period 0.300%
Category D Period 0.375%
Category E Period 0.500%
"Applicable Credit Rating" shall mean (i) the Moody's Credit Rating and the
S&P Credit Rating, if the same; (ii) if the Moody's Credit Rating and the S&P
Credit Rating differ by one rating level, the higher of such Ratings; and (iii)
if the Moody's Credit Rating and the S&P Credit Rating differ by two or more
rating levels, the Applicable Credit Rating shall be one rating level below the
higher of such Ratings. If only one Rating Agency rates the senior unsecured
debt of the Borrower, such rating shall be the Applicable Credit Rating unless
the other Rating Agency ceased rating such senior unsecured debt at the request
of the Borrower, in which case the Applicable Credit Rating shall be deemed to
be below BBB-/Baa3.
"Applicable Insurance Regulatory Authority" shall mean, when used with
respect to any Regulated Insurance Company, (x) the insurance department or
similar administrative authority or agency located in each state or other
jurisdiction (foreign or domestic) in which such Regulated Insurance Company is
domiciled, (y) the insurance department, authority or agency in each state or
other jurisdiction (foreign or domestic) in which such Regulated Insurance
Company is licensed, to the extent it has regulatory jurisdiction over such
Regulated Insurance Company, and (z) any Federal or national insurance
regulatory department, authority or agency that may be created and that has
regulatory jurisdiction over such Regulated Insurance Company.
"Applicable Lloyds Coming in Line Date" shall mean the Lloyds Coming in
Line Date occurring in November, 2000; provided that if in any year in which the
Applicable Lloyds Coming in Line Date is scheduled to occur, the expiration date
of any Letter of Credit is extended in accordance with the terms thereof as
provided in Section 2.05(a), then the Applicable Lloyds Coming in Line Date
shall be extended to the Lloyds Coming in Line Date occurring in the immediately
succeeding year (e.g., if in 2000, the expiration date of any Letter of Credit
is extended from December 31, 2004 to December 31, 2005 as provided in Section
2.05(a), the Applicable Lloyds Coming in Line Date shall be extended from the
Lloyds Coming in Line Date occurring in November, 2000 to the Lloyds Coming in
Line Date occurring in November, 2001).
"Applicable Margin" shall mean, for any day, the rate per annum set forth
below opposite the Applicable Period then in effect:
Applicable Margin
-----------------
Applicable Period Eurodollar Loans Base Rate Loans
----------------- ---------------- -----------------
Category A Period 1.10% 0.00%
Category B Period 1.30% 0.05%
Category C Period 1.50% 0.25%
Category D Period 1.75% 0.50%
Category E Period 2.00% 0.75%
"Applicable Period" shall mean, at any time, the period set forth below
then in effect:
Applicable Period Criteria
----------------- --------
Category A Period The Applicable Credit Rating is A-/A3 or above.
Category B Period The Applicable Credit Rating is BBB+/Baa1.
Category C Period The Applicable Credit Rating is BBB/Baa2.
Category D Period The Applicable Credit Rating is BBB-/Baa3.
Category E Period None of a Category A Period, a Category B
Period a Category C Period nor a Category D
Period is in effect at such time.
Notwithstanding anything to the contrary set forth above, (i) at all times
during the first three months following the Initial Credit Event Date, the
Applicable Period shall be a Category C Period, and (ii) if neither Rating
Agency rates the unsecured senior debt of the Borrower, then the Applicable
Period shall be a Category E Period.
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"Approved Bank" shall have the meaning provided in the definition of "Cash
Equivalents."
"Approved Company" shall have the meaning provided in the definition of
"Cash Equivalents."
"Approved Credit Institution" shall mean a credit institution within the
meaning of the First Council Directive on the coordination of laws, regulations
and administrative provisions relating to the taking up and pursuit of the
business of credit institutions (No. 77/780/EEC) which has been approved by the
Council of Lloyd's for the purpose of providing guarantees and issuing or
confirming letters of credit comprising a Member's Funds at Lloyd's.
"Approved Currency" shall mean each of Dollars, each Primary Alternate
Currency and each Other Alternate Currency.
"Asset Sale" shall mean any sale, transfer or other disposition effected on
or after the Effective Date by the Borrower or any of its Subsidiaries of (i)
any capital stock or equity securities of a Subsidiary of the Borrower or (ii)
any other asset, in each case to any Person other than the Borrower or any of
its Wholly-Owned Subsidiaries (other than (a) sales, transfers or other
dispositions in the ordinary course of business, (b) sales, transfers or other
dispositions of investments made or maintained pursuant to Section 8.05(b), (g),
(i) and (o), and (c) other sales, transfers and dispositions the Net Available
Proceeds from which do not exceed $1,000,000).
"Assignment and Assumption Agreement" shall have the meaning provided in
Section 12.04(b).
"Associated Cost Rate" shall mean, with respect to each Interest Period for
Pounds Sterling-denominated Loans, the costs (expressed as a percentage rounded
up to the nearest four decimal places and as determined on the first day of such
Interest Period and any three month anniversary thereof by the Administrative
Agent) of compliance with then existing requirements of the Bank of England in
respect of Loans denominated in Pounds Sterling.
"Authorized Control Level" shall mean "Authorized Control Level" as defined
by the NAIC from time to time and as applied in the context of the Risk Based
Capital Guidelines promulgated by the NAIC (or any term substituted therefor by
the NAIC).
"Authorized Officer" shall mean, as to any Person, any senior officer of
such Person designated as such in writing by such Person to, and found
acceptable by, the Administrative Agent.
"Available Total Revolving Loan Commitment" shall mean (i) prior to the
date on which all principal of and accrued interest and premium (if any) on the
Chartwell Senior Notes have been paid in full, an amount equal to the Total
Revolving Loan Commitment at such time minus $48,750,000, and (ii) on and after
the date on which all principal of and accrued interest and premium (if any) on
the Chartwell Senior Notes have been paid in full, the Total Revolving Loan
Commitment at such time.
"Bank" shall have the meaning provided in the first paragraph of this
Agreement.
"Bank Default" shall mean (i) the refusal (which has not been retracted) of
a Bank to make available its portion of any Borrowing or any Letter of Credit
drawing or (ii) a Bank having notified the Administrative Agent and/or the
Borrower that it does not intend to comply with its obligations under this
Agreement with respect to its Revolving Loan Commitment or L/C Commitment, in
the case of either clause (i) or (ii) above, as a result of the appointment of a
receiver or conservator with respect to such Bank at the direction or request of
any regulatory agency or authority.
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"Bankruptcy Code" shall have the meaning provided in Section 9.05.
"Base Rate" at any time shall mean the higher of (x) the rate which is 1/2
of 1% in excess of the Federal Funds Effective Rate as in effect at such time
and (y) the Prime Lending Rate as in effect at such time.
"Base Rate Loan" shall mean each Loan bearing interest at the rates
provided in Section 1.08(a).
"Benchmark Statement" shall mean, as of any date, an annual financial
statement of the Regulated Insurance Companies as would be prepared as of such
date utilizing the identical format utilized by Trenwick America Reinsurance
Corporation in preparing its December 31, 1998 Annual Statement filed with the
Insurance Department of the State of Connecticut, with each page, line item and
column of a Benchmark Statement to contain the same type of information,
computed in the same manner, as contained in the identically numbered page, line
item and column of such Annual Statement.
"Borrower" shall have the meaning provided in the first paragraph of this
Agreement.
"Borrower Cash Flow" shall mean, for any period, the sum of (i) dividends
paid by direct Subsidiaries of the Borrower to the Borrower (determined as if,
during such period, each direct and indirect Subsidiary of the Borrower paid a
dividend to its parent corporation in an amount equal to (x) for each Regulated
Insurance Company which is a Domestic Subsidiary, the aggregate amount of
dividends which such Regulated Insurance Company could pay to its parent
corporation under Legal Requirements during such period (without obtaining
extraordinary dividend approval from any Applicable Insurance Regulatory
Authority), in each case whether or not such dividends are actually paid and (y)
for each Regulated Insurance Company which is a Foreign Subsidiary and each
Non-Regulated Company, the net income of such Company for such period, (ii) tax
sharing payments made by Regulated Insurance Companies directly to the Borrower
during such period (less cash taxes paid by the Borrower during such period),
and (iii) payments during such period of principal and interest on surplus notes
issued by Regulated Insurance Companies to the Borrower.
"Borrowing" shall mean the incurrence by the Borrower of one Type of Loan
(A) denominated in Dollars that are Base Rate Loans on a pro rata basis from all
of the Banks and (B) of a single Approved Currency that are Eurodollar Loans on
a pro rata basis from all of the Banks on a given date (or resulting from
conversions on a given date), having in the case of Eurodollar Loans the same
Interest Period, provided that Base Rate Loans incurred pursuant to Section
1.10(b) shall be considered part of any related Borrowing of Eurodollar Loans.
"Business Day" shall mean (i) for all purposes other than as covered by
clause (ii) below, any day, excluding Saturday, Sunday and any day which shall
be in the City of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close, and
(ii) with respect to all notices and determinations in connection with, and
payments of principal, interest on Unpaid Drawings and other amounts, Eurodollar
Loans and Alternate Currency Letters of Credit, any day which is a Business Day
described in clause (i) and which is also a day for trading by and between banks
in the London interbank market and with respect to any notices or determinations
in respect of Euros, which is customarily a "Business Day" for such notices and
determinations.
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"Capital Lease" as applied to any Person, shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is, or is required to be, accounted for as a capital lease
on the balance sheet of that Person.
"Capitalized Lease Obligations" shall mean all obligations under Capital
Leases of the Borrower or any of its Subsidiaries in each case taken at the
amount thereof accounted for as liabilities in accordance with GAAP.
"Cash Equivalents" shall mean (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than one year from the date of acquisition, (ii) U.S. dollar denominated time
deposits, certificates of deposit and bankers acceptances of (x) any FDIC
insured bank, in amounts up to the FDIC insured limit, (y) any Bank having
capital and surplus in excess of $500,000,000 or the U.S. dollar equivalent
thereof or (z) any bank whose short-term commercial paper rating from S&P is at
least A-1 or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank, an "Approved Bank"), in each case with
maturities of not more than one year from the date of acquisition, (iii)
commercial paper issued by any Bank or Approved Bank or by the parent company of
any Bank or Approved Bank and commercial paper issued by, or guaranteed by, any
industrial or financial company with a short-term commercial paper rating of at
least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent
thereof by Moody's (any such company, an "Approved Company"), or guaranteed by
any industrial company with a long term unsecured debt rating of at least A or
A2, or the equivalent of each thereof, from S&P or Moody's, as the case may be,
and in each case maturing within six months after the date of acquisition, (iv)
commercial paper of any United States municipal, state or local government rated
at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent
thereof by Moody's and maturing within one year after the date of acquisition,
(v) any fund or funds investing solely in investments of the type described in
clauses (i) through (iv) above, and (vi) agreements to sell and repurchase
direct obligations of, or obligations that are fully guaranteed as to principal
and interest by, the U.S. Treasury, such agreements to be with primary treasury
dealers, to be evidenced by standard industry forms and to have maturities of
not more than six months from the date of commencement of the repurchase
transaction.
"Cash Proceeds" shall mean, with respect to any Asset Sale, the aggregate
cash payments (including any cash received by way of deferred payment pursuant
to a note receivable issued in connection with such Asset Sale, other than the
portion of such deferred payment constituting interest, but only as and when
received) received by the Borrower and/or any Subsidiary from such Asset Sale,
provided that any such proceeds received in currency other than Dollars shall be
converted into Dollars at the spot exchange rate for the currency in question on
the date of receipt by the Borrower and/or its Subsidiaries of such proceeds.
"Change in Law" shall have the meaning provided in Section 9.06.
"Change of Control" shall mean (i) any Person or "group" (within the
meaning of Rule 13d-5 of the Securities Exchange Act of 1934, as in effect on
the date hereof), shall (A) have acquired beneficial ownership of 30% or more on
a fully diluted basis of the economic and voting interest in the Borrower's
capital stock or (B) have obtained the power (whether or not exercised) to elect
a majority of the Borrower's directors or (ii) the Board of Directors of the
Borrower shall not consist of a majority of Continuing Directors.
"Chartwell" shall mean Chartwell Re Corporation, a Delaware corporation.
"Chartwell Re Holdings" shall mean Chartwell Re Holdings Corporation,
a Delaware corporation.
"Chartwell Senior Notes" shall mean the 10-1/4% Senior Notes Due 2004
originally issued by Chartwell and subsequently assumed by Chartwell Re
Holdings.
"Chase" shall mean The Chase Manhattan Bank, together with its successors
by merger.
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<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Combined" shall mean, when used with reference to any amount or financial
statement, such amount as determined, or financial statement as prepared, on a
combined basis for all of the specified Persons and their respective
Subsidiaries; provided that any such amount or financial statement determined or
prepared for any specified Person and its Subsidiaries separately shall be
determined or prepared on a consolidated basis in accordance with GAAP or SAP,
as the case may be.
"Commitment" shall mean, with respect to each Bank, such Bank's Revolving
Loan Commitment (if any) and such Bank's L/C Commitment (if any).
"Confidential Bank Memorandum" shall mean the Confidential Bank Memorandum,
dated October, 1999, distributed to Banks and prospective Banks in connection
with this Agreement.
"Confidential Information" shall have the meaning provided in Section
12.15.
"Consolidated Indebtedness" shall mean, at any time, the aggregate
outstanding principal amount of all Indebtedness of the Borrower and its
Subsidiaries at such time determined on a consolidated basis in accordance with
GAAP, but excluding therefrom (i) the Contingent Interest Notes, (ii) the Trust
Preferred Securities (but including therein the portion, if any, of the Trust
Preferred Securities which exceeds 15% of Consolidated Total Capital) and (iii)
the Letter of Credit and all letters of credit issued under Section 8.04(d) (so
long as no drawing has occurred thereunder) .
"Consolidated Interest Expense" shall mean, for any period and as to any
Person, the sum, without duplication, of (i) total cash interest expense
(including interest paid in connection with the Trust Preferred Securities and
the interest component in respect of Capital Lease Obligations in accordance
with GAAP) of such Person and its Subsidiaries during such period determined on
a consolidated basis in accordance with GAAP, including, without limitation, all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing and net costs under Interest Rate
Agreements, but excluding however, any amortization of deferred financing costs
plus (ii) all dividends on preferred stock paid by such Person during such
period.
"Consolidated Net Income" shall mean, for any period, the consolidated net
after tax income (or loss) of the Borrower and its Subsidiaries determined in
accordance with GAAP.
"Consolidated Net Worth" shall mean, with respect to any Person, the Net
Worth of such Person and its Subsidiaries determined on a consolidated basis in
accordance with GAAP after appropriate deduction for any minority interests in
Subsidiaries.
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<PAGE>
"Consolidated Tangible Net Worth" shall mean, as of the date of any
determination thereof, Consolidated Net Worth of the Borrower at such time less
the amount of all intangible items, including, without limitation, goodwill,
franchises, licenses, patents, trademarks, trade names, copyrights, service
marks, brand names, write-ups of assets and any unallocated excess costs of
investments in Subsidiaries over equity in underlying net assets at dates of
acquisition.
"Consolidated Total Capital" shall mean, at any time, the sum of (i)
Consolidated Indebtedness (determined without giving effect to the enumerated
exclusions set forth in clauses (i) and (ii) therein) at such time and (ii)
Consolidated Net Worth of the Borrower at such time.
"Contingent Interest Notes" shall mean the Contingent Interest Notes Due
2006 originally issued by Piedmont Management Company Inc. and in respect of
which the Borrower is the obligor as of the Effective Date.
"Contingent Obligations" shall mean, as to any Person, any obligation of
such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the owner of
such primary obligation against loss in respect thereof; provided, however, that
the term Contingent Obligation shall not include (x) endorsements of instruments
for deposit or collection in the ordinary course of business or (y) any
obligations of any Regulated Insurance Company under Insurance Contracts,
Reinsurance Agreements or Retrocession Agreements (including any Liens with
respect thereto). The amount of any Contingent Obligation shall be deemed to be
an amount equal to the stated or determinable amount of the primary obligation
in respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Continuing Directors" shall mean the directors of the Borrower on the
Initial Credit Event Date and each other director if such director's nomination
for the election to the Board of Directors of the Borrower is recommended by a
majority of the then Continuing Directors.
"Conversion Date" shall mean the 364th day following the Effective Date.
"Credit Documents" shall mean this Agreement, the Notes and the Subsidiary
Guaranty.
"Credit Event" shall mean the making of any Revolving Loan, the issuance of
any Letter of Credit or an increase in the Stated Amount of any Letter of
Credit.
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"Credit Party" shall mean the Borrower and each Subsidiary Guarantor.
"Default" shall mean any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a Bank Default
is in effect.
"Dividends" shall have the meaning provided in Section 8.06.
"Documentation Agent" shall have the meaning provided in the first
paragraph of this Agreement.
"Dollar Equivalent" shall mean, at any time for the determination thereof,
the amount of Dollars which could be purchased with the amount of the relevant
Alternate Currency involved in such computation at the spot exchange rate
therefor as quoted by the Administrative Agent as of 11:00 A.M. (London time) on
the date three Business Days prior to the date of any determination thereof for
purchase on such date.
"Dollars" and the "$" shall mean freely transferable lawful money of the
United States.
"Domestic Subsidiary" shall mean each Subsidiary of the Borrower which is
not a Foreign Subsidiary.
"Effective Date" shall have the meaning provided in Section 12.10.
"EMU Legislation" shall mean the legislative measures of the European
Council for the introduction of, changeover to or operation of a single or
unified European currency.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA, as in effect at the date
of this Agreement and any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9) of
ERISA) which together with the Borrower or a Subsidiary of the Borrower would be
deemed to be a "single employer" (i) within the meaning of Section 414(b) or (c)
of the Code, and for the purpose of Section 302 of ERISA and/or Section 412,
4971, 4977 and/or each "applicable section" under Section 414(t)(z) of the code,
within the meaning of Section 414(b), (c), (m) or (o) of the Code.
"Euro Equivalent" shall mean, at any time for the determination thereof,
the amount of Euros which could be purchased with the amount of Dollars involved
in such computation at the spot exchange rate therefor as quoted by the
Administrative Agent as of 11:00 A.M. (London time) on the date three Business
Days prior to the date of any determination thereof for purchase on such date.
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"Euro LIBOR" shall mean, for each Interest Period applicable to any Loan
denominated in Euros, the rate per annum that appears on page 3750 (or other
appropriate page if such currency does not appear on such page) of the Dow Jones
Telerate Screen (or any successor page) for Euro deposits with maturities
comparable to such Interest Period as of 11:00 A.M. (London time) on the date
which is three Business Days prior to the commencement of such Interest Period
or, if such a rate does not appear on the Dow Jones Telerate Screen (or any
successor page), the offered quotations to first-class banks in the London
interbank market by Chase for Euro deposits of amounts in same day funds
comparable to the outstanding principal amount of such Loan with maturities
comparable to such Interest Period determined as of 11:00 A.M. (London time) on
the date which is three Business Days prior to the commencement of such Interest
Period.
"Eurodollar Loan" shall mean each Loan that at the election of any Borrower
is bearing interest at the rate provided in Section 1.08(b).
"Euros" shall mean the single currency of participating member states of
the European Union.
"Event of Default" shall have the meaning provided in Section 8.
"Federal Funds Effective Rate" shall mean for any period, a fluctuating per
annum interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal Funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three Federal
Funds brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred to in,
Section 3.01.
"Financial Reinsurance Agreement" shall mean a reinsurance agreement
covering any transaction in which any Regulated Insurance Company cedes business
that does not meet the conditions for reinsurance accounting as provided by the
Financial Accounting Standards Board in Statement of Financial Accounting
Standards No. 113, as the same may be revised, replaced, or supplemented from
time to time.
"Foreign Pension Plan" shall mean any plan, fund (including, without
limitation, any superannuation fund) or other similar program, other than social
security or social insurance, established or maintained outside the United
States of America by the Borrower or any one or more of its Subsidiaries
primarily for the benefit of employees of the Borrower or such Subsidiaries
residing outside the United States of America, which plan, fund or other similar
program provides, or results in, retirement income, a deferral of income in
contemplation of retirement or severance or termination payments to be made upon
termination of employment, and which plan is not subject to ERISA or the Code.
"Foreign Subsidiary" shall mean each Subsidiary of the Borrower that is
incorporated under the laws of any jurisdiction other than the United States of
America, any State thereof or any territory thereof.
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"Funds at Lloyds" shall have the meaning provided in paragraph 4 of the
Membership Byelaw (No. 17 of 1993).
"GAAP" shall mean generally accepted accounting principles in the United
States of America; it being understood and agreed that determinations in
accordance with GAAP for purposes of Section 8, including defined terms as used
therein, are subject (to the extent provided therein) to Section 12.07(a).
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Indebtedness" of any Person shall mean (without duplication) (i) all
indebtedness of such Person for borrowed money, (ii) the deferred purchase price
of assets or services which in accordance with GAAP would be shown on the
liability side of the balance sheet of such Person, (iii) the face amount of all
letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder, (iv) all Indebtedness of a second
Person secured by any Lien on any property owned by such first Person, whether
or not such Indebtedness has been assumed, (v) the principal portion of all
Capitalized Lease Obligations of such Person, (vi) all obligations of such
Person to pay a specified purchase price for goods or services whether or not
delivered or accepted, i.e., take-or-pay and similar obligations, (vii) the net
termination obligations of such Person under Interest Rate Agreements and Other
Hedging Agreements, calculated as of any date as if such agreement were
terminated as of such date, (viii) all obligations of such Person under
Financial Reinsurance Agreements and (ix) all Contingent Obligations of such
Person; provided that Indebtedness shall not include trade payables (including
obligations under insurance contracts and reinsurance payables) and accrued
expenses, in each case arising in the ordinary course of business.
"Initial Credit Event Date" shall mean the date of the occurrence of the
initial Credit Event.
"Insurance Business" shall mean one or more aspects of the business of
selling, issuing or underwriting insurance or reinsurance.
"Insurance Contract" shall mean any insurance contract or policy issued by
a Regulated Insurance Company but shall not include any Reinsurance Agreement or
Retrocession Agreement.
"Interest Coverage Ratio" shall mean, for any Test Period, the ratio of (a)
Borrower Cash Flow for such Test Period to (b) Consolidated Interest Expense for
such Test Period; provided that (i) for the Test Period ending on or about March
31, 2000, Consolidated Interest Expense and the portion of Borrower Cash Flow
determined by reference to net income shall be the actual such amounts
calculated for such Test Period multiplied by 4.00 (other than the portion of
Consolidated Interest Expense for such Test Period incurred in connection with
the Trust Preferred Securities and Chartwell Senior Notes which shall be
multiplied by 2.00), (ii) for the Test Period ending on or about June 30, 2000,
Consolidated Interest Expense and the portion of Borrower Cash Flow determined
by reference to net income shall be the actual such amounts calculated for such
Test Period multiplied by 2.00 and (iii) for the Test Period ending on or about
September 30, 2000, Consolidated Interest Expense and the portion of Borrower
Cash Flow determined by reference to net income shall be the actual such amounts
calculated for such Test Period multiplied by 1.33 (other than the portion of
Consolidated Interest Expense for such Test Period incurred in connection with
the Trust Preferred Securities and Chartwell Senior Notes which shall be the
actual such amounts for such Test Period).
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"Interest Period" shall mean, with respect to any Eurodollar Loan, the
interest period applicable thereto, as determined pursuant to Section 1.09.
"Interest Rate Agreement" shall mean any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate
hedging agreement or other similar agreement or arrangement.
"Issuing Agent" shall mean Chase Manhattan International Limited.
"Issuing Country" shall have the meaning provided in Section 12.18.
"Judgment Currency" shall have the meaning provided in Section 12.17(a).
"Judgment Currency Conversion Date" shall have the meaning provided in
Section 12.17(a).
"L/C Bank" shall mean each Bank with an L/C Commitment.
"L/C Commitment" shall mean, with respect to each Bank, the amount set
forth opposite such Bank's name on Annex I directly below the column entitled
"L/C Commitment," as the same may be reduced from time to time or terminated
pursuant to Sections 3.02, 3.03 and/or 9.
"L/C Commitment Fee" shall have the meaning provided in Section 3.01(b).
"L/C Exposure" of any L/C Bank at any time shall mean such L/C Bank's L/C
Percentage of the aggregate Stated Amount of all outstanding Letters of Credit
at such time.
"L/C Issuance Expiration Date" shall mean the earlier of (i) the Applicable
Lloyds Coming in Line Date and (ii) the first date on which a Notice of
Non-Extension is delivered to Lloyds in accordance with Section 2.05(a).
"L/C Maturity Date" shall mean, at any time, the later of (i) December 31,
2004 and (ii) the latest expiration date of any Letter of Credit issued in
accordance with the terms of this Agreement.
"L/C Percentage" of any Bank at any time shall mean a fraction (expressed
as a percentage) the numerator of which is the L/C Commitment of such Bank at
such time and the denominator of which is the Total L/C Commitment at such time,
provided that if the L/C Percentage of any Bank is to be determined after the
Total L/C Commitment has been terminated, then the L/C Percentages of the Banks
shall be determined immediately prior (and without giving effect) to such
termination.
"L/C Supportable Obligations" shall mean the obligations of the Borrower or
its Subsidiaries to Lloyds.
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"Legal Requirements" shall mean all applicable laws, rules and regulations
made by any governmental body or regulatory authority (including, without
limitation, any Applicable Insurance Regulatory Authority) having jurisdiction
over the Borrower or a Subsidiary of the Borrower.
"Letter of Credit" shall have the meaning provided in Section 2.01(a).
"Letter of Credit Fee" shall have the meaning provided in Section 3.01(c).
"Letter of Credit Outstandings" shall mean, at any time, the sum of,
without duplication, (i) the aggregate Stated Amount of all outstanding Letters
of Credit and (ii) the aggregate amount of all Unpaid Drawings in respect of all
Letters of Credit.
"Letter of Credit Request" shall have the meaning provided in Section
2.02(a).
"LIBOR" shall mean (i) with respect to any Borrowing of Loans denominated
in Dollars or a Primary Alternate Currency, the relevant interest rate, i.e.,
U.S. LIBOR, Pounds Sterling LIBOR or Euro LIBOR and (ii) with respect to any
Borrowing of Loans denominated in an Other Alternate Currency, such rate per
annum as shall be agreed upon at the time such Other Alternate Currency is
approved.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease
in the nature thereof).
"Lloyds" shall mean the Society incorporated by Lloyd's Act 1871 by the
name of Lloyd's.
"Lloyds Coming in Line Date" shall mean, for any year, the Lloyds coming in
line date for such year (which date shall occur between November 20 and November
30 of each year, and for purposes of this Agreement shall be deemed to occur on
November 30 of any year if it has not otherwise occurred by such date).
"Loan" shall mean (i) prior to the Conversion Date, Revolving Loans, and
(ii) on or after the Conversion Date, Term Loans.
"Managed Syndicate" shall mean each underwriting syndicate at Lloyds in
which either (i) any Subsidiary of the Borrower is acting as the managing agent
for such syndicate or (ii) the Borrower and its Subsidiaries collectively
provide 50% or more of the underwriting capital for such syndicate.
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on the
business, operations, property or condition (financial or otherwise) of the
Borrower and its Subsidiaries taken as a whole after giving effect to the
Transaction.
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"Material Subsidiary" shall mean any Subsidiary of the Borrower whose total
assets or total revenues exceed 1% of the total assets or gross revenues,
respectively, of the Borrower and its Subsidiaries on a consolidated basis as of
the most recent fiscal quarter end and for the most recent four quarter period,
respectively, determined in accordance with GAAP.
"Member" shall mean an underwriting member of Lloyd's.
"Minimum Borrowing Amount" shall mean (i) for any Loans that are Dollar
denominated, $5,000,000, and if in excess thereof, shall be in an integral
Dollar denominated multiple of $1,000,000, and (ii) for any Revolving Loans that
are Alternate Currency Loans, an amount in the respective Approved Currency
having a Dollar Equivalent (determined at the time a Notice of Borrowing is
received or a prepayment made) of $5,000,000, and if in excess thereof, shall be
in a Dollar Equivalent multiple of $1,000,000 in the respective Approved
Currency.
"Moody's" shall mean Moody's Investors Service, Inc. and its successors.
"Moody's Credit Rating" shall mean the rating level (it being understood
that a rating level shall include numerical modifiers and (+) and (-) modifiers)
assigned by Moody's to the senior unsecured long-term debt of the Borrower. If
the foregoing rating shall be changed by Moody's, such change shall be effective
for purposes of this definition on the Business Day following the day on which
Moody's announces such change.
"Multiemployer Plan" shall mean any multiemployer plan as defined in
Section 4001(a)(3) of ERISA, which is a pension plan as defined in Section 3(2)
of ERISA and which the Borrower, a Subsidiary of the Borrower or an ERISA
Affiliate maintains, contributes to or has an obligation to contribute (or
maintained, contributed to or had an obligation to contribute to in the last
five years).
"NAIC" shall mean the National Association of Insurance Commissioners or
any successor organization thereto.
"NAIC Tests" shall mean the ratios and other financial measurements
developed by the NAIC under its Insurance Regulatory Information System, as in
effect from time to time.
"Net Available Proceeds" shall mean (i) with respect to any Asset Sale
consummated by a Regulated Insurance Company, the Surplus Increase with respect
to such Regulated Insurance Company as a result of such Asset Sale, (ii) with
respect to any Asset Sale consummated by the Borrower or any Non-Regulated
Company which is not a Subsidiary of a Regulated Insurance Company, the Net Cash
Proceeds resulting therefrom and (iii) with respect to any Asset Sale
consummated by a Non-Regulated Company which is a Subsidiary of a Regulated
Insurance Company, an amount equal to the dividend that such Regulated Insurance
Company would be permitted to pay in accordance with the Legal Requirements
applicable to it as a result of the receipt by such Regulated Insurance Company
of a dividend from such Non-Regulated Insurance Company in an amount equal to
the Net Cash Proceeds resulting from such Asset Sale; in each case as determined
in good faith by the Borrower and certified in writing by the Borrower to the
Administrative Agent (showing the calculation thereof and supporting
assumptions) on or prior to the date on which the Borrower or any Subsidiary is
to receive the initial proceeds from such Asset Sale.
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"Net Cash Proceeds" shall mean, with respect to any Asset Sale, the Cash
Proceeds resulting therefrom net of (a) cash expenses of sale (including payment
of principal, premium and interest on Indebtedness other than the Loans required
to be repaid as a result of such Asset Sale), (b) incremental taxes paid or
payable as a result thereof and (c) amounts provided as a reserve, in accordance
with GAAP, against any liabilities under any indemnification obligations,
purchase price adjustments or similar items associated with such Asset Sale, in
each case as determined in good faith by the Borrower and certified in writing
by the Borrower to the Administrative Agent (showing the calculation thereof and
supporting assumptions) on or prior to the date on which the Borrower or any
Subsidiary is to receive the initial proceeds from such Asset Sale.
"Net Worth" shall mean, as to any Person, the sum of its capital stock
(including, without limitation, its preferred stock), capital in excess of par
or stated value of shares of its capital stock (including, without limitation,
its preferred stock), retained earnings and any other account which, in
accordance with GAAP, constitutes stockholders equity, but excluding (i) any
treasury stock and (ii) the effects of Financial Accounting Statement No. 115.
"Non-Defaulting Bank" shall mean any Bank other than a Defaulting Bank.
"Non-Regulated Company" shall mean each Subsidiary of the Borrower which is
not a Regulated Insurance Company.
"Note" shall mean and include each promissory note, in the form agreed by
the Borrower and the Administrative Agent prior to the Effective Date, to the
extent issued pursuant to Section 1.05(b) hereof.
"Notice of Borrowing" shall have the meaning provided in Section 1.03.
"Notice of Conversion" shall have the meaning provided in Section 1.06.
"Notice of Non-Extension" shall have the meaning provided in Section 2.05.
"Notice Office" shall mean the office of the Administrative Agent at One
Chase Manhattan Plaza, New York, New York 10081, Attention: Linda Hill,
Telephone (212) 552-7935, Facsimile: (212) 552-7490, or such other office as the
Administrative Agent may designate to the Borrower and the Banks from time to
time.
"Obligation Currency" shall have the meaning provided in Section 12.17(a).
"Obligations" shall mean all amounts, direct or indirect, contingent or
absolute, of every type or description, and at any time existing, owing to the
Administrative Agent or any Bank pursuant to the terms of this Agreement or any
other Credit Document.
"Other Alternate Currency" shall mean any freely transferable currency
other than any Primary Alternate Currency, to the extent such currency is
approved by the Administrative Agent and each Bank.
"Other Hedging Agreements" shall mean any foreign exchange contracts,
currency swap agreements or other similar agreements or arrangements designed to
protect against fluctuations in currency values.
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"Payment Office" shall mean the office of the Administrative Agent c/o The
Loan and Agency Services Group, One Chase Manhattan Plaza, 8th Floor, New York,
New York 10081, Attention: Linda Hill, Telephone No.: (212) 552-7935, Facsimile
No.: (212) 552-7490 or such other office as the Administrative Agent may
designate to the Borrower and the Banks from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Acquisition" shall have the meaning provided in Section 8.02(c).
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
or any government or political sub-division or any agency, department or
instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2) of ERISA
other than a Foreign Pension Plan or a Multiemployer Plan, which is maintained
or contributed to by (or to which there is an obligation to contribute of) the
Borrower or a Subsidiary of the Borrower or an ERISA Affiliate, and each such
plan for the five year period immediately following the latest date on which the
Borrower, or a Subsidiary of the Borrower or an ERISA Affiliate maintained,
contributed to or had an obligation to contribute to such plan.
"Pounds Sterling" shall mean freely transferable lawful money of the United
Kingdom.
"Pounds Sterling Equivalent" shall mean, at any time for the determination
thereof, the amount of Pounds Sterling which could be purchased with the amount
of Dollars involved in such computation at the spot exchange rate therefor as
quoted by Chase as of 11:00 A.M. (London time) on the date three Business Days
prior to the date of any determination thereof for purchase on such date.
"Pounds Sterling LIBOR" shall mean, with respect to each Interest Period
for any Loan denominated in Pounds Sterling, (I) the rate per annum that appears
on page 3750 (or other appropriate page if such currency does not appear on such
page) of the Dow Jones Telerate Screen (or any successive page) with maturities
comparable to such Interest Period as of 11:00 A.M. (London time) on the date
which is the commencement date of such Interest Period or, if such a rate does
not appear on page 3750 (or such other appropriate page) of the Dow Jones
Telerate Screen (or any successor page) the offered quotations to first-class
banks in the London interbank EuroDollar market by Chase for Pounds Sterling
deposits of amounts in same day funds comparable to the outstanding principal
amount of such Loans with maturities comparable to such Interest Period
determined as of 11:00 A.M. (London time) on the date which is the commencement
of such Interest Period plus (II) the Associated Cost Rate for such Loans for
such Interest Period.
"Primary Alternate Currency" shall mean each of Pounds Sterling and Euros.
"Prime Lending Rate" shall mean the rate of interest per annum which Chase
announces from time to time as its prime commercial lending rate in effect at
its principal office in New York City, the Prime Lending Rate to change when and
as such prime commercial lending rate changes. The Prime Lending Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. Chase may make commercial loans or other loans
at rates of interest at, above or below the Prime Lending Rate.
"Principal Amount" shall mean (i) the stated principal amount of each Loan
denominated in Dollars and/or (ii) the Dollar Equivalent of the stated principal
amount of each Alternate Currency Loan, as the context may require.
"Projections" shall mean the financial projections contained in the
Confidential Bank Memorandum.
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"Quarterly Statement" shall mean the quarterly financial statement required
to be filed by any Regulated Insurance Company with the Applicable Regulatory
Insurance Authority.
"Rated Ongoing Regulated Subsidiary" shall mean each Regulated Insurance
Company which has an A.M. Best claims paying rating (including, without
limitation, Trenwick America Reinsurance Corporation, Trenwick International
Limited, The Insurance Corporation of New York, Dakota Specialty Insurance
Company and Chartwell Reinsurance Company, but excluding any Regulated Insurance
Company (including any of the aforementioned companies) if such Company is not
being employed in the writing of new insurance or reinsurance business following
the consummation of the Acquisition).
"Rating Agency" shall mean S&P or Moody's as the case may be.
"Realistic Disaster Scenario" shall mean any realistic disaster scenario
presented in a business plan prepared in relation to the Managed Syndicate under
paragraph 57A(a) of the Underwriting Agents Bylaw (No. 4 of 1984) which shows
the potential impact upon the Managed Syndicate of a catastrophic event.
"Refinancing" shall mean the refinancing of not less than $50,000,000 of
existing Indebtedness for borrowed money of Chartwell and its Subsidiaries.
"Refinancing Documents" shall mean the documents related to the
Refinancing.
"Register" shall have the meaning provided in Section 1.05.
"Regulated Insurance Company" shall mean any Subsidiary of the Borrower
(including, without limitation, Subsidiaries acquired or created in connection
with the Acquisition), whether now owned or hereafter acquired, that is
authorized or admitted to carry on or transact Insurance Business in any
jurisdiction (domestic or foreign) and is regulated by any Applicable Insurance
Regulatory Authority.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing reserve requirements.
"Regulation T" shall mean Regulation T of the Board of Governors of the
Federal Reserve System from time to time in effect and any successor to all or a
portion thereof establishing margin requirements.
"Regulation U" shall mean Regulation U of the Board of Governors of the
Federal Reserve System from time to time in effect and any successor to all or a
portion thereof establishing margin requirements.
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"Regulation X" shall mean Regulation X of the Board of Governors of the
Federal Reserve System from time to time in effect and any successor to all or a
portion thereof establishing margin requirements.
"Reinsurance Agreement" shall mean any agreement, contract, treaty or other
arrangement whereby one or more insurers, as reinsurers, assume liabilities
under insurance policies or agreements issued by another insurance or
reinsurance company or companies.
"Relevant Currency Equivalent" shall mean the Dollar Equivalent, the Euro
Equivalent or the Pounds Sterling Equivalent.
"Replaced Bank" shall have the meaning provided in Section 1.13.
"Replacement Bank" shall have the meaning provided in Section 1.13.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan that is subject to Title IV of ERISA other than
those events as to which the 30-day notice period is waived under subsection
.22, .23, .25, .27, or .28 of PBGC Regulation Section 4043.
"Required Banks" shall mean Non-Defaulting Banks the sum of whose Revolving
Loan Commitment (or, after the Total Revolving Loan Commitment has been
terminated, outstanding Revolving Loans or Term Loans) and L/C Commitment (or,
after the Total L/C Commitment has been terminated, the amount of any Unpaid
Drawings owing to such Non-Defaulting Banks) constitute a majority of the sum of
(i) the Total Revolving Loan Commitment less the aggregate Revolving Loan
Commitments of Defaulting Banks, if any, or, after the Total Revolving Loan
Commitment has been terminated, the total outstanding Revolving Loans or Term
Loans of Non-Defaulting Banks) and (ii) the Total L/C Commitment or, after the
Total L/C Commitment has been terminated, the aggregate Unpaid Drawings.
"Retrocession Agreement" shall mean any agreement, contract, treaty or
other arrangement whereby one or more insurers or reinsurers, as
retrocessionaires, assume liabilities of reinsurers under a Reinsurance
Agreement or other retrocessionaires under another Retrocession Agreement.
"Revolving Loan" shall have the meaning provided in Section 1.01(a).
"Revolving Loan Commitment" shall mean, with respect to each Bank, the
amount set forth opposite such Bank's name in Annex I directly below the column
entitled "Revolving Loan Commitment," as the same may be reduced from time to
time or terminated pursuant to Sections 3.02, 3.03 and/or 9.
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"Risk Based Capital Ratio" shall mean, for any Regulated Insurance Company,
the ratio (expressed as a percentage), at any time, of the Total Adjusted
Capital of such Regulated Insurance Company to the Authorized Control Level of
such Regulated Insurance Company.
"RL Commitment Fee" shall have the meaning provided in Section 3.01(a).
"RL Percentage" of any Bank at any time shall mean a fraction (expressed as
a percentage) the numerator of which is the Revolving Loan Commitment of such
Bank at such time and the denominator of which is the Total Revolving Loan
Commitment at such time, provided that if the RL Percentage of any Bank is to be
determined after the Total Revolving Loan Commitment has been terminated, then
the RL Percentages of the Banks shall be determined immediately prior (and
without giving effect) to such termination.
"S&P" shall mean Standard & Poor's Ratings Group and its successors.
"S&P Credit Rating" shall mean the rating level (it being understood that a
rating level shall include numerical modifiers and (+) and (-) modifiers)
assigned by S&P to the senior unsecured long-term debt of the Borrower. If the
foregoing rating shall be changed by S&P, such change shall be effective for
purposes of this definition on the Business Day following the day on which S&P
announces such change.
"SAP" shall mean, with respect to any Regulated Insurance Company, the
accounting procedures and practices prescribed or permitted by the Applicable
Insurance Regulatory Authority of the state or other jurisdiction (domestic or
foreign) in which such Regulated Insurance Company is domiciled; it being
understood and agreed that determinations in accordance with SAP for purposes of
Section 8, including defined terms as used therein, are subject (to the extent
provided therein) to Section 12.07(a).
"Scheduled Repayments" shall have the meaning provided in Section
4.02(i)(a).
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto.
"SEC Regulation D" shall mean Regulation D as promulgated under the
Securities Act of 1933, as amended, as the same may be in effect from time to
time.
"Section 4.04(b)(ii) Certificate" shall have the meaning provided in
Section 4.04(b)(ii).
"Stated Amount" shall mean, at any time, (i) if the Letter of Credit is
denominated in Dollars, the maximum amount available to be drawn under the
Letter of Credit (regardless of whether any conditions for drawing could then be
met) and (ii) if the Letter of Credit is an Alternative Currency Letter of
Credit, the Dollar Equivalent of the maximum amount available to be drawn under
the Letter of Credit (regardless of whether any conditions for drawing could
then be met).
"Statutory Surplus" shall mean, at any date for any Regulated Insurance
Company, (a) the total amount as would be shown on line 27, page 3, column 1 of
a Benchmark Statement for such Regulated Insurance Company prepared as of such
date.
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"Subsidiary" of any Person shall mean and include (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, limited
liability company, joint venture or other entity in which such Person directly
or indirectly through Subsidiaries has more than a 50% equity or voting interest
at the time. Unless otherwise expressly provided, all references herein to
"Subsidiary" shall mean a Subsidiary of the Borrower.
"Subsidiary Guarantor" shall mean each Domestic Subsidiary of the Borrower
which is a Non-Regulated Company and a Material Subsidiary; provided that
Chartwell Re Holdings and its Domestic Subsidiaries which are Non-Regulated
Companies shall not be required to become Subsidiary Guarantors until such time
as the Chartwell Senior Notes are paid in full.
"Subsidiary Guaranty" shall have the meaning provided in Section 5.08.
"Surplus Increase" shall mean, with respect to each Asset Sale effected by a
Regulated Insurance Company, the increase in Statutory Surplus of such Regulated
Insurance Company as a result of such Asset Sale.
"Syndication Agent" shall have the meaning provided in the first paragraph
of this Agreement.
"Taxes" shall have the meaning provided in Section 4.04(a).
"Term Loan" shall mean each Revolving Loan that is converted into a term
loan on the Conversion Date pursuant to 1.01(b).
"Term Loan Maturity Date" shall mean the fifth anniversary of the Effective
Date.
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"Test Period" shall mean (i) for any determination made on and prior to
September 30, 2000, the period from January 1, 2000 to the last day of the
fiscal quarter of the Borrower then last ended, provided that the first Test
Period shall end on March 31, 2000, and (ii) for any determination made
thereafter, the four consecutive fiscal quarters of the Borrower ended on the
last day of the most recently ended fiscal quarter of the Borrower (taken as one
accounting period).
"Total Adjusted Capital" shall mean "Total Adjusted Capital" as defined by
the NAIC as of December 31, 1997 and as applied in the context of the Risk Based
Capital Guidelines promulgated by the NAIC.
"Total Commitment" shall mean the sum of the Total Revolving Loan
Commitment and Total L/C Commitment.
"Total L/C Commitment" shall mean the sum of the L/C Commitments of each of
the L/C Banks.
"Total Revolving Loan Commitment" shall mean the sum of the Revolving Loan
Commitments of each of the Banks.
"Total Unutilized L/C Commitment" shall mean, at any time, the sum of the
Unutilized L/C Commitments of the L/C Banks at such time.
"Total Unutilized Revolving Loan Commitment" shall mean, at any time, (i)
the Total Revolving Loan Commitment at such time less (ii) the sum of the
aggregate Principal Amount of all Revolving Loans outstanding at such time.
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"Trenwick Senior Notes" shall mean the 6.70% Senior Notes due April 1, 2003
issued by the Borrower.
"Trust Preferred Securities" shall mean the 8.82% Junior Subordinated
Deferrable Interest Debentures issued by the Borrower pursuant to the Indenture,
dated as of January 31, 1997, between the Borrower and The Chase Manhattan Bank,
as Trustee, and all securities issued by Trenwick Capital Trust I pursuant to
the Amended and Restated Declaration of Trust, dated as of January 31, 1997.
"Type" shall mean any type of Loan determined with respect to currency and
the interest option applicable thereto.
"Unfunded Current Liability" of any Plan shall mean the amount, if any, by
which the value of the accumulated plan benefits under the Plan determined on a
plan termination basis in accordance with actuarial assumptions at such time
consistent with those prescribed by the PBGC for purposes of Section 4044 of
ERISA, exceeds the fair market value of all plan assets allocable to such
liabilities under Title IV of ERISA (excluding any accrued but unpaid
contributions).
"Unpaid Drawing" shall have the meaning provided in Section 2.03(a).
"Unutilized L/C Commitment" with respect to any Bank at any time shall mean
such Bank's L/C Commitment at such time less such Bank's L/C Exposure at such
time.
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"Unutilized Revolving Loan Commitment" with respect to any Bank at any time
shall mean such Bank's Revolving Loan Commitment at such time less the aggregate
outstanding Principal Amount of all Revolving Loans made by such Bank at such
time.
"U.S. LIBOR" shall mean for each Interest Period applicable to a Loan
denominated in Dollars (other than a Base Rate Loan), the rate per annum that
appears on page 3750 of the Dow Jones Telerate Screen (or any successor page)
for Dollar deposits with maturities comparable to such Interest Period as of
11:00 A.M. (London time) on the date which is two Business Days prior to the
commencement of such Interest Period or, if such a rate does not appear on page
3750 of the Dow Jones Telerate Screen (or any successor page), the offered
quotations to first-class banks in the London interbank market by Chase for
Dollar deposits of amounts in same day funds comparable to the outstanding
principal amount of such Dollar denominated Loan with maturities comparable to
such Interest Period determined as of 11:00 A.M. (London time) on the date which
is two Business Days prior to the commencement of such Interest Period.
"Wholly-Owned Subsidiary" of any Person shall mean any Subsidiary of such
Person to the extent all of the capital stock or other ownership interests in
such Subsidiary, other than directors' or nominees' qualifying shares, is owned
directly or indirectly by such Person.
"Written" or "in writing" shall mean any form of written communication or a
communication by means of telex, facsimile device, telegraph or cable.
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SECTION 11. The Administrative Agent.
11.01 Appointment. Each Bank hereby irrevocably designates and appoints
Chase as Administrative Agent (such term as used in this Section 11 to include
Chase Manhattan International Limited, acting as the Issuing Agent under this
Agreement and the Letters of Credit) to act as specified herein and in the other
Credit Documents, and each such Bank hereby irrevocably authorizes Chase, as the
Administrative Agent for such Bank, to take such action on its behalf under the
provisions of this Agreement and the other Credit Documents and to exercise such
powers and perform such duties as are expressly delegated to the Administrative
Agent by the terms of this Agreement and the other Credit Documents, together
with such other powers as are reasonably incidental thereto. The Administrative
Agent agrees to act as such upon the express conditions contained in this
Section 11. Notwithstanding any provision to the contrary elsewhere in this
Agreement, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein or in the other Credit
Documents, nor any fiduciary relationship with any Bank, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent.
The provisions of this Section 11 are solely for the benefit of the
Administrative Agent and the Banks, and no Credit Party shall have any rights as
a third party beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement, the Administrative Agent shall act
solely as agent of the Banks and does not assume and shall not be deemed to have
assumed any obligation or relationship of agency or trust with or for the Credit
Party.
11.02 Delegation of Duties. The Administrative Agent may execute any of its
duties under this Agreement or any other Credit Document by or through its
affiliates, agents or attorneys- in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care except to the extent
otherwise required by Section 11.03.
11.03 Exculpatory Provisions. Neither the Administrative Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement (except for its or
such Person's own gross negligence or willful misconduct) or (ii) responsible in
any manner to any of the Banks for any recitals, statements, representations or
warranties made by the Borrower or any Subsidiary or any of their respective
officers contained in this Agreement, any other Credit Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or any other Credit Document or for any failure of the Borrower or any
of its Subsidiaries or any of their respective officers to perform its
obligations here-under or thereunder. The Administrative Agent shall not be
under any obligation to any Bank to ascertain or to inquire as to the observance
or performance of any of the agreements contained in, or conditions of, this
Agreement, or to inspect the properties, books or records of the Borrower or any
of its Subsidiaries. The Administrative Agent shall not be responsible to any
Bank for the effectiveness, genuineness, validity, enforceability,
collectibility or sufficiency of this Agreement or any Credit Document or for
any representations, warranties, recitals or statements made herein or therein
or made in any written or oral statement or in any financial or other
statements, instruments, reports, certificates or any other documents in
connection herewith or therewith furnished or made by the Administrative Agent
to the Banks or by or on behalf of the Borrower to the Administrative Agent or
any Bank or be required to ascertain or inquire as to the performance or
observance of any of the terms, conditions, provisions, covenants or agreements
contained herein or therein or as to the use of the proceeds of the Loans or of
the existence or possible existence of any Default or Event of Default.
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11.04 Reliance by Administrative Agent. The Administrative Agent shall be
entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, facsimile transmission, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon advice
and statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Credit
Document unless it shall first receive such advice or concurrence of the
Required Banks as it deems appropriate or it shall first be indemnified to its
satisfaction by the Banks against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the other Credit Documents in
accordance with a request of the Required Banks, and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Banks.
11.05 Notice of Default. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Bank or any
Credit Party referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default." In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give prompt notice thereof to the Banks. The Administrative Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Banks, provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Banks.
11.06 Non-Reliance. Each Bank expressly acknowledges that neither the
Administrative Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates have made any representations or warranties to
it and that no act by the Administrative Agent hereinafter taken, including any
review of the affairs of the Borrower or any of its Subsidiaries, shall be
deemed to constitute any representation or warranty by the Administrative Agent
to any Bank. Each Bank represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, assets,
operations, property, financial and other conditions, prospects and
credit-worthiness of the Borrower and its Subsidiaries and made its own decision
to make its Loans hereunder, participate in the Letter of Credit issued
hereunder and enter into this Agreement. Each Bank also represents that it will,
independently and without reliance upon the Administrative Agent or any other
Bank, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit analysis, appraisals and decisions
in taking or not taking action under this Agreement, and to make such
investigation as it deems necessary to inform itself as to the business, assets,
operations, property, financial and other conditions, prospects and
creditworthiness of the Borrower and its Subsidiaries. The Administrative Agent
shall not have any duty or responsibility to provide any Bank with any credit or
other information concerning the business, operations, assets, property,
financial and other conditions, prospects or creditworthiness of the Borrower or
any Subsidiary which may come into the possession of the Administrative Agent or
any of its officers, directors, employees, agents, attorneys- in-fact or
affiliates.
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11.07 Indemnification. Each Bank agrees to indemnify the Administrative
Agent in its capacity as such ratably according to such Bank's percentage used
in determining Required Banks from time to time, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, reasonable expenses or disbursements of any kind whatsoever which may at
any time (including, without limitation, at any time following the payment of
the Obligations) be imposed on, incurred by or asserted against the
Administrative Agent in its capacity as such in any way relating to or arising
out of this Agreement or any other Credit Document, or any documents
contemplated by or referred to herein or the transactions contemplated hereby or
any action taken or omitted to be taken by the Administrative Agent under or in
connection with any of the foregoing, but only to the extent that any of the
foregoing is not paid by the Borrower or any of its Subsidiaries, provided that
no Bank shall be liable to the Administrative Agent for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the
Administrative Agent's gross negligence or willful misconduct. If any indemnity
furnished to the Administrative Agent for any purpose shall, in the opinion of
the Administrative Agent, be insufficient or become impaired, the Administrative
Agent may call for additional indemnity and cease, or not commence, to do the
acts indemnified against until such additional indemnity is furnished. The
agreements in this Section 11.07 shall survive the payment of all Obligations.
11.08 The Administrative Agent in its Individual Capacity. Chase and its
affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrower and its Subsidiaries as though Chase were not
acting as Administrative Agent hereunder. With respect to the Loans made by it
and all Obligations owing to it, Chase shall have the same rights and powers
under this Agreement as any Bank and may exercise the same as though it were not
the Administrative Agent, and the terms "Bank" and "Banks" shall include the
Administrative Agent in its individual capacity.
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11.09 Successor Administrative Agent. The Administrative Agent may resign
as the Administrative Agent upon 20 days' notice to the Banks and the Borrower.
Upon such resignation, the Required Banks shall, with the consent of the
Borrower (such consent not to be unreasonably withheld), appoint from among the
Banks a successor Administrative Agent for the Banks, whereupon such successor
agent shall succeed to the rights, powers and duties of the Administrative
Agent, and the term "Administrative Agent" shall include such successor agent
effective upon its appointment, and the resigning Administrative Agent's rights,
powers and duties as the Administrative Agent shall be terminated, without any
other or further act or deed on the part of such former Administrative Agent or
any of the parties to this Agreement. After the retiring Administrative Agent's
resignation hereunder as the Administrative Agent, the provisions of this
Section 11 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent under this Agreement.
11.10 Other Agents. Nothing in this Agreement or any other Credit Document
shall impose on the Documentation Agent or the Syndication Agent, in each case
in such capacity, any duties or obligations.
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SECTION 12. Miscellaneous.
12.01 Payment of Expenses, etc. The Borrower hereby agree to: (i) whether
or not the transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses of the Administrative Agent in connection with
the negotiation, preparation, syndication, execution and delivery of the Credit
Documents and the documents and instruments referred to therein and any
amendment, waiver or consent relating thereto (including, without limitation,
the reasonable fees and disbursements of White & Case LLP); (ii) pay all
reasonable out-of-pocket costs and expenses of the Administrative Agent and each
of the Banks in connection with the enforcement of the Credit Documents and the
documents and instruments referred to therein (including, without limitation,
the reasonable fees and disbursements of counsel for the Administrative Agent
and for each of the Banks); (iii) pay and hold each of the Banks harmless from
and against any and all present and future stamp and other similar taxes with
respect to the foregoing matters and save each of the Banks harmless from and
against any and all liabilities with respect to or resulting from any delay or
omission to pay such taxes; and (iv) indemnify the Administrative Agent and each
Bank, and their respective officers, directors, employees, representatives and
agents (each, an "indemnified person") from and hold each of them harmless
against any and all losses, liabilities, claims, damages or expenses
(collectively, "Claims") incurred by any of them as a result of, or arising out
of, or in any way related to, or by reason of, any investigation, litigation or
other proceeding (whether or not the Administrative Agent or any Bank is a party
thereto) related to the entering into and/or performance of any Credit Document
or any other Transaction Document or the use of the proceeds of any Loans or the
Letter of Credit here-under or the Transaction or the consummation of any other
transactions contemplated in any Credit Document, including, without limitation,
the reasonable fees and disbursements of counsel incurred in connection with any
such investigation, litigation or other proceeding (but excluding any such
losses, liabilities, claims, damages or expenses to the extent incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified). No Bank shall be liable for any damages arising from the use by
others of information or other materials obtained through electronic,
telecommunications or other information transmission systems.
12.02 Right of Setoff. In addition to any rights now or hereafter granted
under applicable law or otherwise, and not by way of limitation of any such
rights, upon the occurrence and continuance of an Event of Default, each Bank is
hereby authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to any Credit Party or to any other Person,
any such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other Indebtedness at
any time held or owing by such Bank (including, without limitation, by branches
and agencies of such Bank wherever located) to or for the credit or the account
of such Credit Party against and on account of the Obligations and liabilities
of such Credit Party to such Bank or any other Bank under this Agreement or
under any of the other Credit Documents, including, without limitation, all
interests in Obligations of such Credit Party purchased by such Bank or any
other Bank pursuant to Section 12.06(b), and all other claims of any nature or
description arising out of or connected with this Agreement or any other Credit
Document, irrespective of whether or not such Bank shall have made any demand
hereunder and although said Obligations, liabilities or claims, or any of them,
shall be contingent or unmatured. Each Bank is hereby designated the agent of
all other Banks for purposes of effecting set off pursuant to this Section 12.02
and each Credit Party hereby grants to each Bank for such Bank's own benefit and
as agent for all other Banks a continuing security interest in any and all
deposits, accounts or moneys of such Credit Party maintained from time to time
with such Bank.
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12.03 Notices. Except as otherwise expressly provided herein, all notices
and other communications provided for hereunder shall be in writing (including
facsimile communication) and mailed, telecopied or delivered, if to any Credit
Party, at the address specified opposite its signature below; if to any Bank, at
its address specified for such Bank on Annex II hereto; or, at such other
address as shall be designated by any party in a written notice to the other
parties hereto. All such notices and communications shall be mailed, telecopied,
sent by overnight courier or delivered by hand and shall be deemed to have been
given on the date of receipt if delivered by hand or overnight courier or sent
by telecopy, or the date that is five Business Days after being deposited in the
mail, postage prepaid, in each case delivered, sent or mailed (properly
addressed) to such party as provided in this Section 12.03 or in accordance with
the last unrevoked notice from such party given in accordance with this Section
12.03; provided that notices and communications to the Administrative Agent
shall be effective when received by the Administrative Agent.
12.04 Benefit of Agreement. (a) This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, the Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior written
consent of the Banks. Each Bank may at any time grant participations in any of
its rights hereunder or under any of its Notes to any bank or other financial
institution; provided that in the case of any such participation, (i) such
Bank's obligations under this Agreement shall remain unchanged, (ii) such Bank
shall remain solely responsible to the other parties hereto for the performance
of such obligations (iii) the participant shall agree to be bound by the
confidentiality provisions contained in Section 12.15 and (iv) the participant
shall not have any rights under this Agreement or any of the other Credit
Documents, including rights of consent, approval or waiver (the participant's
rights against such Bank in respect of such participation to be those set forth
in the agreement executed by such Bank in favor of the participant relating
thereto) and all amounts payable by the Borrower hereunder shall be determined
as if such Bank had not sold such participation, except that the participant
shall be entitled to receive the additional amounts under Sections 1.10, 1.11
and 4.04 of this Agreement to, and only to, the extent that, and in no greater
amount than, such Bank would be entitled to such benefits if the participation
had not been entered into or sold; and provided further, that no Bank shall
transfer, grant or assign any participation under which the participant shall
have rights to approve any amendment to or waiver of this Agreement or any other
Credit Document except to the extent such amendment or waiver would (i) extend
any Scheduled Repayment or the final scheduled maturity of any Loan, Note or
Letter of Credit in which such participant is participating (it being understood
that any waiver of the application of any prepayment or the method of
application of any prepayment to the amortization of, the Loans shall not
constitute an extension of a Scheduled Repayment or the final scheduled maturity
date), or reduce the rate or extend the time of payment of interest thereon or
Fees, or reduce the principal amount thereof, or increase such participant's
participating interest in any Commitment, Loan or Letter of Credit over the
amount thereof then in effect (it being understood that a waiver of any Default
or Event of Default or of a mandatory reduction in the Total Commitment or of a
mandatory repayment or prepayment shall not constitute a change in the terms of
any Commitment and that an increase in any Commitment shall be permitted without
the consent of any participant if such participant's participation is not
increased as a result thereof), or (ii) consent to the assignment or transfer by
the Borrower of any of its rights and obligations under this Agreement or any
other Credit Document except in accordance with the terms hereof and thereof.
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(b) Notwithstanding the foregoing, any Bank may assign all or a portion of
its rights and obligations hereunder to a bank or other financial institution
with the prior written consent of the Administrative Agent and the Borrower,
which consents shall not be unreasonably withheld or delayed (provided that (i)
no such consents shall be required in connection with an assignment to a Person
which is already a Bank hereunder and (ii) the consent of the Borrower shall not
be required at any time when a Default or Event of Default exists). No
assignment of less than all of a Bank's rights and obligations hereunder
pursuant to the immediately preceding sentence shall, to the extent such
transaction represents an assignment to an institution other than one or more
Banks hereunder, be in an aggregate amount less than the minimum of $5,000,000
unless otherwise agreed to by the Administrative Agent and the Borrower in
writing. No assignment of all or any portion of a Bank's L/C Commitment shall be
made to an institution which is not an Approved Credit Institution, and no such
assignment shall be effective until all then outstanding Letters of Credit are
returned by Lloyds to the Issuing Agent for cancellation in exchange for new or
amended Letters of Credit having a Schedule 1 thereto which gives effect to such
assignment. If any Bank so sells or assigns all or a part of its rights
hereunder or under the Notes, any reference in this Agreement or the Notes to
such assigning Bank shall thereafter refer to such Bank and to the respective
assignee to the extent of their respective interests and the respective assignee
shall have, to the extent of such assignment (unless otherwise provided
therein), the same rights, obligations and benefits as it would if it were such
assigning Bank. Each assignment pursuant to this Section 12.04(b) shall be
effected by the assigning Bank and the assignee Bank executing an Assignment and
Assumption Agreement substantially in the form of Exhibit H (appropriately
completed) (the "Assignment and Assumption Agreement"). At the time of any such
assignment, (i) Annex I shall be deemed to be amended to reflect the
Commitments, if any, and outstanding Loans of the respective assignee (which
shall result in a direct reduction to the Commitments, if any, and outstanding
Loans of the assigning Bank) and of the other Banks, (ii) if any such assignment
occurs after the Initial Credit Event Date, at the request of the assignor or
the assignee the Borrower will issue new Notes to the respective assignee and to
the assigning Bank in conformity with the requirements of Section 1.05, (iii)
the Administrative Agent shall receive from the assigning Bank and/or the
assignee Bank or financial institution at the time of each assignment the
payment of a nonrefundable assignment fee of $3,500, (iv) the Administrative
Agent shall receive from the assignee Bank the Administrative Agent's
administrative questionnaire completed by such assignee Bank and (v) if any such
assignment is of all or a portion of the assigning Bank's L/C Commitment, all
then outstanding Letters of Credit shall be amended or returned to the Issuing
Agent for cancellation and reissued to reflect such assignment. At the time of
each assignment pursuant to this Section 12.04(b) to a Person which is not
already a Bank hereunder and which is not a United States person (as such term
is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes,
the respective assignee Bank shall provide to the Borrower and the
Administrative Agent the appropriate Internal Revenue Service forms (and, if
applicable a Section 4.04(b)(ii) Certificate) described in Section 4.04(b). Each
Bank and the Borrower agrees to execute such documents (including, without
limitation, amendments to this Agreement and the other Credit Documents) as
shall be necessary to effect the foregoing. Promptly following any assignment
pursuant to this Section 12.04(b), the assigning Bank shall promptly notify the
Borrower and the Administrative Agent thereof. Nothing in this Section 12.04
shall prevent or prohibit any Bank from pledging its Loans or Notes hereunder to
a Federal Reserve Bank in support of borrowings made by such Bank from such
Federal Reserve Bank.
(c) Notwithstanding any other provisions of this Section 12.04, no transfer
or assignment of the interests or obligations of any Bank hereunder or any grant
of participations therein shall be permitted if such transfer, assignment or
grant would require the Borrower to file a registration statement with the SEC
or to qualify the Loans under the "Blue Sky" laws of any state.
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(d) Each Bank initially party to this Agreement hereby represents, and each
Person that becomes a Bank pursuant to an assignment permitted by clause (b)
above will upon its becoming party to this Agreement represent, that it is a
commercial lender, other financial institution or other "accredited investor"
(as defined in SEC Regulation D) which makes loans in the ordinary course of its
business or is acquiring the Loans without a view to distribution of the Loans
within the meaning of the federal securities laws, and that it will make or
acquire Loans for its own account in the ordinary course of such business,
provided that, subject to the preceding clauses (a) through (c), the disposition
of any promissory notes or other evidences of or interests in Indebtedness held
by such Bank shall at all times be within its exclusive control.
12.05 No Waiver; Remedies Cumulative. No failure or delay on the part of
the Administrative Agent or any Bank in exercising any right, power or privilege
hereunder or under any other Credit Document and no course of dealing between
any Credit Party and the Administrative Agent or any Bank shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which the Administrative
Agent or any Bank would otherwise have. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances or constitute a waiver of the rights of the
Administrative Agent or the Banks to any other or further action in any
circumstances without notice or demand.
12.06 Payments Pro Rata. (a) The Administrative Agent agrees that promptly
after its receipt of each payment from or on behalf of the Borrower in respect
of any Obligations of the Borrower, it shall distribute such payment to the
Banks (other than any Bank that has consented in writing to waive its pro rata
share of such payment) pro rata based upon their respective shares, if any, of
the Obligations with respect to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings or Fees, of a sum which with respect to the
related sum or sums received by other Banks is in a greater proportion than the
total of such Obligation then owed and due to such Bank bears to the total of
such Obligation then owed and due to all of the Banks immediately prior to such
receipt, then such Bank receiving such excess payment shall purchase for cash
without recourse or warranty from the other Banks an interest in the Obligations
of the Borrower to such Banks in such amount as shall result in a proportional
participation by all of the Banks in such amount, provided that if all or any
portion of such excess amount is thereafter recovered from such Bank, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding Sections 12.06(a) and (b) shall be subject to the
express provisions of this Agreement which require, or permit, differing
payments to be made to Non-Defaulting Banks as opposed to Defaulting Banks.
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12.07 Calculations; Computations. (a) The financial statements to be
furnished to the Banks pursuant hereto shall be made and prepared in accordance
with GAAP or SAP, as the case may be, consistently applied throughout the
periods involved (except as set forth in the notes thereto or as otherwise
disclosed in writing by the Borrower to the Banks). In addition, except as
otherwise specifically provided herein, all computations determining compliance
with Section 8, including definitions used therein, shall utilize accounting
principles and policies in effect from time to time; provided that (i) if any
such accounting principle or policy (whether GAAP or SAP or both) shall change
after the Effective Date, the Borrower shall give reasonable notice thereof to
the Administrative Agent and each of the Banks and if within 30 days following
such notice the Borrower, the Administrative Agent or the Required Banks shall
elect by giving written notice of such election to the other parties hereto,
such computations shall not give effect to such change unless and until this
Agreement shall be amended pursuant to Section 12.12 to give effect to such
change, and (ii) if at any time the computations determining compliance with
Section 8 utilize accounting principles different from those utilized in the
financial statements then being furnished to the Banks pursuant to Section 7.01,
such financial statements shall be accompanied by reconciliation work-sheets.
(b) All computations of interest on Eurodollar Loans and Fees hereunder
shall be made on the actual number of days elapsed over a year of 360 days.
(c) All computations of interest on Base Rate Loans hereunder shall be made
on the actual number of days elapsed over a year of 365/366 days.
(d) For purposes of this Agreement, the Dollar Equivalent of each Loan that
is an Alternate Currency Loan and the Dollar Equivalent of the stated amount of
each Letter of Credit that is an Alternate Currency Letter of Credit shall be
calculated on the date when any such Loan is made or such Letter of Credit is
issued, on the first Business Day of each month and at such other times as
designated by the Administrative Agent at any time when a Default or an Event of
Default exists. Such Dollar Equivalent shall remain in effect until the same is
recalculated by the Administrative Agent as provided above and notice of such
recalculation is received by the Borrower, it being understood that until such
notice is received, the Dollar Equivalent shall be that Dollar Equivalent as
last reported to the Borrower by the Administrative Agent. The Administrative
Agent shall promptly notify the Borrower and the Banks of each such
determination of the Dollar Equivalent.
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12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (a) THIS AGREEMENT
AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED
BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT
TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF
THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH CREDIT PARTY HEREBY
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. EACH
CREDIT PARTY HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS
LACK JURISDICTION OVER SUCH CREDIT PARTY, AND AGREES NOT TO PLEAD OR CLAIM, IN
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
CREDIT DOCUMENT BROUGHT IN ANY OF THE AFORESAID COURTS, THAT ANY SUCH COURT
LACKS JURISDICTION OVER SUCH CREDIT PARTY. EACH CREDIT PARTY FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFORE-MENTIONED COURTS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH CREDIT PARTY AT ITS ADDRESS FOR NOTICES
PURSUANT TO SECTION 12.03, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH
MAILING. EACH CREDIT PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH
SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR
CLAIM IN ANY ACTION OR PROCEEDING HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT
THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY BANK TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER JURISDICTION.
(b) EACH CREDIT PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR
PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY
FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.
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12.09 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.
12.10 Effectiveness. This Agreement shall become effective on the date (the
"Effective Date") on which the Borrower and each of the Banks shall have signed
a copy hereof (whether the same or different copies) and shall have delivered
the same to the Administrative Agent at the Administrative Agent's Notice Office
or, in the case of the Banks, shall have given to the Administrative Agent
telephonic (confirmed in writing), written, telex or telecopy notice (actually
received) at such office that the same has been signed and mailed to it. The
Administrative Agent will give the Borrower and each Bank prompt written notice
of the occurrence of the Effective Date.
12.11 Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
12.12 Amendment or Waiver. Neither this Agreement nor any other Credit
Document nor any terms hereof or thereof may be changed, waived, discharged or
terminated unless such change, waiver, discharge or termination is in writing
signed by the respective Credit Parties party thereto and the Required Banks,
provided that no such change, waiver, discharge or termination shall, without
the consent of each Bank affected thereby (other than a Defaulting Bank), (i)
extend any Scheduled Repayment or the scheduled final maturity of any Loan,
Letter of Credit or Note (it being understood that any waiver of the application
of any prepayment or the method of application of any prepayment to the
amortization of the Loans shall not constitute an extension of any Scheduled
Repayment or the scheduled final maturity thereof), or reduce the rate, or
extend the time of payment, of interest thereon or Fees or reduce the principal
amount thereof, (ii) increase the Commitments of any Bank over the amount
thereof then in effect (it being understood that a waiver of any Default or
Event of Default or of a mandatory reduction in the Total Commitment or
mandatory repayment or prepayment shall not constitute a change in the terms of
any Commitment of any Bank), (iii) amend, modify or waive any provision of this
Section 12.12, (iv) reduce any percentage specified in, or otherwise modify, the
definition of Required Banks or (v) consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement. No provision
of Section 11 or any other provision relating to the rights and/or obligations
of the Administrative Agent may be amended without the consent of the
Administrative Agent.
12.13 Survival. All indemnities set forth herein including, without
limitation, in Section 1.10, 1.11, 4.04, 11.07 or 12.01 shall survive the
execution and delivery of this Agreement and the making of the Loans, the
repayment of the Obligations and the termination of the Total Commitment.
12.14 Domicile of Loans. Subject to Section 12.04, each Bank may transfer
and carry its Loans at, to or for the account of any branch office, subsidiary
or affiliate of such Bank, provided that the Borrower shall not be responsible
for costs arising under Section 1.10 or 4.04 resulting from any such transfer to
the extent not otherwise applicable to such Bank prior to such transfer.
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12.15 Confidentiality. The Administrative Agent and each Bank shall hold
all non-public information furnished by or on behalf of the Borrower in
connection with such Bank's evaluation of whether to become a Bank hereunder or
obtained by such Bank pursuant to the requirements of this Agreement
("Confidential Information") in accordance with its customary procedure for
handling confidential information of this nature and in accordance with safe and
sound banking or lending practices; provided that any Bank and/or its affiliates
may disclose any such Confidential Information (a) to their respective
affiliates, directors, officers, employees, auditors or counsel for purposes
related to the Credit Documents and the transactions contemplated thereby,
provided that the Bank disclosing such confidential information pursuant to this
clause (a) shall remain liable for any non-permitted disclosure of such
information by any such employee, director, agent, attorney, accountant or
professional advisor, (b) as has become generally available to the public other
than as a result of disclosure in violation of this Section 12.15, (c) as has
become available to such Bank or any such affiliate on a non-confidential basis
from a source other than the Borrower and its affiliates, provided that the
source is not known by such Bank to be prohibited from transmitting such
information to such Bank by a contractual, legal or fiduciary obligation, (d) as
may be required or appropriate in any report, statement or testimony submitted
to any municipal, state or Federal regulatory body having or claiming to have
jurisdiction over such Bank and/or its affiliates, (e) as may be required or
appropriate in respect to any summons or subpoena or in connection with any
litigation or other judicial process (it being understood that, to the extent
reasonably practicable and legally permitted under the circumstances, the
Borrower shall be given prior notice and an opportunity to contest any proposed
disclosure pursuant to this clause (e)), (f) in order to comply with any law,
order, regulation or ruling applicable to such Bank and/or its affiliates, and
(g) to any permitted prospective or actual syndicate member or participant in
the Loans, provided that such prospective or actual syndicate member or
participant agrees with the respective assigning Bank to be bound by the
provisions of this Section 12.15. The provisions of this Section 12.15 shall
survive any termination of this Agreement.
12.16 WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE CREDIT DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
12.17 Judgment Currency. (a) The Borrowers' Obligations hereunder and under
the other Credit Documents to make payments in the applicable Approved Currency
(the "Obligation Currency") shall not be discharged or satisfied by any tender
or recovery pursuant to any judgment expressed in or converted into any currency
other than the Obligation Currency, except to the extent that such tender or
recovery results in the effective receipt by the Administrative Agent or the
respective Bank of the full amount of the Obligation Currency expressed to be
payable to the Administrative Agent or such Bank under this Agreement or the
other Credit Documents. If, for the purpose of obtaining or enforcing judgment
against the Borrower in any court or in any jurisdiction, it becomes necessary
to convert into or from any currency other than the Obligation Currency (such
other currency being hereinafter referred to as the "Judgment Currency") an
amount due in the Obligation Currency, the conversion shall be made at the
Relevant Currency Equivalent, and, in the case of other currencies, the rate of
exchange (as quoted by the Administrative Agent or if the Administrative Agent
does not quote a rate of exchange on such currency, by a known dealer in such
currency designated by the Administrative Agent) determined, in each case, as of
the Business Day immediately preceding the day on which the judgment is given
(such Business Day being hereinafter referred to as the "Judgment Currency
Conversion Date").
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(b) If there is a change in the rate of exchange prevailing between the
Judgment Currency Conversion Date and the date of actual payment of the amount
due, the Borrowers covenant and agree to pay, or cause to be paid, such
additional amounts, if any (but in any event not a lesser amount) as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the rate of exchange prevailing on the date of payment, will
produce the amount of the Obligation Currency which could have been purchased
with the amount of Judgment Currency stipulated in the judgment or judicial
award at the rate of exchange prevailing on the Judgment Currency Conversion
Date.
(c) For purposes of determining the Relevant Currency Equivalent or any
other rate of exchange for this Section, such amounts shall include any premium
and costs payable in connection with the purchase of the Obligation Currency.
12.18 Euro. (a) If at any time that an Alternate Currency Loan or an
Alternate Currency Letter of Credit is outstanding, the relevant Alternate
Currency is fully replaced as the lawful currency of the country that issued
such Alternate Currency (the "Issuing Country") by the Euro so that all payments
are to be made in the Issuing Country in Euros and not in the Alternate Currency
previously the lawful currency of such country, then such Alternate Currency
Loan or Alternate Currency Letter of Credit shall be automatically converted
into a Loan or Letter of Credit denominated in Euros in a principal amount or
stated amount equal to the amount of Euros into which the principal amount or
stated amount of such Alternate Currency Loan or Letter of Credit would be
converted pursuant to the EMU Legislation and thereafter no further Loans will
be available in such Alternate Currency, with the basis of accrual of interest,
notices requirements and payment offices with respect to such converted Loans or
Letters of Credit to be that consistent with the convention and practices in the
London interbank market for Euro denominated Loans or Letters of Credit.
(b) The Borrower shall from time to time, at the request of any Bank, pay
to such Bank the amount of any losses, damages, liabilities, claims, reduction
in yield, additional expense, increased cost, reduction in any amount payable,
reduction in the effective return of its capital, the decrease or delay in the
payment of interest or any other return forgone by such Bank or its affiliates
as a result of the tax or currency exchange resulting from the introduction,
changeover to or operation of the Euro in any applicable nation or Eurocurrency
market.
84
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this
Agreement to be duly executed and delivered as of the date first above written.
Address:
Trenwick Group Inc. TRENWICK GROUP INC.
One Canterbury Green
Stamford, Connecticut 06901
Tel: (203) 353-5500
Fax: (203) 353-5557 By: /s/ Alan L. Hunte
--------------------------------
Attention: Alan L. Hunte
Title: Executive Vice President
& Chief Financial Officer
THE CHASE MANHATTAN BANK,
Individually and as Administrative
Agent
By: /s/ Donald Rands
---------------------------------
Title: Vice President
CHASE MANHATTAN INTERNATIONAL
LIMITED, as Issuing Agent
By: /s/ Stephen Hurford
----------------------------------
Title: Vice President
By: /s/Stephen Clark
----------------------------------
Title: Second Vice President
FIRST UNION NATIONAL BANK,
Individually and as Syndication Agent
By: /s/ Thomas L. Stitchberry
----------------------------------
Title: Senior Vice President
FLEET NATIONAL BANK, Individually
and as Documentation Agent
By: /s/ Elizabeth Shelley
----------------------------------
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Peter Rasmussen
----------------------------------
Title: Vice President
<PAGE>
DRESDNER BANK AG, New York
and Grand Cayman Branches
By: /s/ Lloyd C. Stevens
----------------------------------
Title: Vice President
By: /s/ Anthony C. Valencourt
----------------------------------
Title: Senior Vice President
NATIONAL WESTMINSTER BANK PLC
By: /s/ Ian Grimsley
----------------------------------
Title: Head of Lloyd's Insurance Team
STATE STREET BANK AND TRUST COMPANY
By: /s/ Edward M. Anderson
----------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ Todd S. Meller
----------------------------------
Title: Senior Relationship Manager
THE FUJI BANK, LIMITED
By: /s/ Raymond Ventura
----------------------------------
Title: Vice President & Manager
EXHIBIT 10.2
FIRST AMENDMENT
FIRST AMENDMENT (the "Amendment"), dated as of December 31, 1999, among
TRENWICK GROUP INC., a Delaware corporation (the "Borrower"), the lending
institutions from time to time party to the Credit Agreement referred to below
(each a "Bank" and, collectively, the "Banks"), FIRST UNION NATIONAL BANK, as
Syndication Agent, FLEET NATIONAL BANK, as Documentation Agent and THE CHASE
MANHATTAN BANK, as Administrative Agent. Unless otherwise defined herein,
capitalized terms used herein and defined in the Credit Agreement referred to
below are used herein as so defined.
W I T N E S E T H :
WHEREAS, the Borrower, the Banks, the Syndication Agent, the
Documentation Agent and the Administrative Agent have entered into a Credit
Agreement, dated as of November 24, 1999 (as amended, modified or supplemented
through, but not including, the date hereof, the "Credit Agreement"); and
WHEREAS, subject to the terms and conditions set forth below, the
parties hereto wish to amend the Credit Agreement as provided herein;
NOW, THEREFORE, it is agreed;
A. Amendment
1. Section 8.16 of the Credit Agreement is hereby amended to read
in its entirety as follows:
"8.16 Minimum Consolidated Tangible Net Worth. The Borrower
will not permit its Consolidated Tangible Net Worth to be less than
(i) at any time on or prior to June 30, 2000, $290,000,000 and (ii) at
any time thereafter $325,000,000."
B. Miscellaneous Provisions
1. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that (i) the representations and
warranties contained in the Credit Agreement and in the other Credit Documents
are true and correct in all material respects on and as of the Amendment
Effective Date (as defined below) (except with respect to any representations
and warranties limited by their terms to a specific date, which shall be true
and correct in all material respects as of such date), and (ii) there exists no
Default or Event of Default under the Credit Agreement on the Amendment
Effective Date, in each case after giving effect to this Waiver.
1
<PAGE>
2. This Amendment is limited as specified and shall not constitute an
amendment modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
3. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
4. This Amendment shall become effective on the date (the "Amendment
Effective Date") when the Borrower and the Required Banks shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered (including by way of telecopier) the same to the Administrative Agent.
5. From and after the Amendment Effective Date, all references in the
Credit Agreement and in the other Credit Documents to the Credit Agreement shall
be deemed to be referenced to the Credit Agreement as modified hereby.
* * *
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed and delivered as of the date first above written.
TRENWICK GROUP INC.
By: /s/ Alan L. Hunte
--------------------------------
Title: Executive Vice President and
Chief Financial Officer
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
By: /s/ Don Randa
-----------------------------------
Title: Vice President
CHASE MANHATTAN INTERNATIONAL LIMITED,
as Issuing Agent
By: /s/ Stephen Hurford
----------------------------------
Title: Vice President
By: /s/ Steve Clarke
----------------------------------
Title: Vice President
FIRST UNION NATIONAL BANK, Individually
and as Syndication Agent
By: /s/ Thomas L. Stickberry
----------------------------------
Title: Senior Vice President
-3-
<PAGE>
FLEET NATIONAL BANK, Individually
and as Documentation Agent
By: /s/ Jan-Gee McCollam
----------------------------------
Title: Senior Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Sebastian Rocco
----------------------------------
Title: Senior Vice President
DRESDNER BANK AG, New York and Grand
Cayman Branches
By:
----------------------------------
Title:
By:
----------------------------------
Title:
NATIONAL WESTMINSTER BANK PLC
By:
----------------------------------
Title:
STATE STREET BANK AND TRUST COMPANY
By:
----------------------------------
Title:
-4-
<PAGE>
THE BANK OF NOVA SCOTIA
By:
----------------------------------
Title:
THE FUJI BANK, LIMITED
By:
----------------------------------
Title:
BARCLAYS BANK PLC
By: /s/ Melvin Bean
-----------------------------------
Title: Relationship Director
-5-
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
EMPLOYMENT ASSUMPTION AND AMENDMENT AGREEMENT, dated as of October 25, 1999
(the "Agreement"), between Trenwick Group Inc., a Delaware corporation (the
"Company"), and Steven J. Bensinger ("Executive").
WHEREAS, Chartwell Re Corporation ("Chartwell") and the Executive entered into
an Employment Agreement, dated March 6, 1992, as amended from time to time (the
"Employment Agreement"), a copy of which, including all amendments, is attached
hereto as Exhibit A; and
WHEREAS, the Company has agreed to assume the Employment Agreement and the
Company and the Executive have agreed to make certain amendments to the
Employment Agreement, all as set forth herein.
NOW, THEREFORE, the Company and Executive hereby agree that the Employment
Agreement shall be amended to provide as follows:
1. Assumption
The Company hereby assumes the Employment Agreement as if the Company, rather
than Chartwell, had been the signatory thereto and the Company and the Executive
hereby consent to the assumption thereto by the Company and the substitution of
the Company for Chartwell in each place it appears in the Employment Agreement
and the deletion of Chartwell as a party thereto, subject to the terms and
conditions of this Agreement.
2. Term and Non-Competition
The Company and the Executive hereby agree (i) to amend the Employment Agreement
to extend the Term under Section 2 of the Employment Agreement to end on
December 31, 2000 and (ii) that, notwithstanding Section 10(b) of the Employment
Agreement, the provisions of Section 10(b)(A) of the Employment Agreement shall
not apply to the Executive on or after the date of any termination pursuant to
Section 6 of the Employment Agreement.
3. Position and Duties.
Section 3 of the Employment Agreement is hereby amendment to read as follows:
"The Executive shall serve as Executive Vice President of the Company
and shall have such responsibilities and duties (consistent with his
position as Executive Vice President) as may from time to time be
assigned to the Executive by the Chief Executive Officer and the Board
and all of the powers and duties usually incident to the office of
Executive Vice President. The Executive shall devote substantially all
of his working time and efforts to the business and affairs of the
Company, except for vacations, illness or incapacity. The Executive
also agrees to serve without additional compensation, if elected or
appointed thereto, on the board of directors or as an executive officer
of any majority-owned subsidiary of the Company. The Executive may
devote reasonable time to (i) insurance associations and charitable and
civic organizations, (ii) managing personal investments, and (iii)
service as a director or member of an advisory committee of any
corporation not in competition with the Company, provided that the
performance of his duties and responsibilities in such service does not
interfere substantially with the performance of his duties and
responsibilities under this Agreement."
1
<PAGE>
4. Compensation and Benefits:
The term "Base Salary" set forth in Section 5(a) of the Employment Agreement
shall refer to the Base Salary as most recently determined by the Board of
Chartwell prior to the Merger (as defined in Section 6(a) of this Agreement).
Section 5(k) of the Employment Agreement shall be deleted in its entirely for
tax years beginning after December 31, 1999. Section 5(d) of the Employment
Agreement shall be amended to read as follows for periods after the date of the
Merger (defined in Section 6(a) of this Agreement):
"5(d) Automobile. During the Term, the Company shall provide Executive
with an automobile appropriate to his status as Executive Vice
President of the Company and shall reimburse the Executive for the cost
of reasonable and proper maintenance, insurance and parking expenses
for such automobile."
5. Termination for Good Reason:
The Executive hereby agrees that any right he may have to terminate his
employment for "Good Reason" shall be based on the terms and conditions of the
Employment Agreement as amended by this Agreement. The Company and the Executive
hereby amend Section 6(d)(iii) to read as follows:
"(iii) failure to be elected to the Board of the Company or failure to
be elected President of the Company (provided that a Notice of
Termination has not been provided under this Agreement at such time),"
The following sentence shall be added to the end of Section 6(d) of the
Employment Agreement:
"For the purpose of this Section 6(d), the Company shall be treated as
curing any failure to elect the Executive under Section 6(d)(iii) if,
prior to the earlier of November 1, 2001 or the time that the Executive
gives Notice of Termination for "Good Reason" under Section 6(c)(iii),
the Company provides the Executive with a letter signed by the Chairman
of the Board and the Chief Executive Officer of the Company agreeing to
place the Executive's name before the Board of Directors for election
as a Director of the Company and as President of the Company by the
earlier of the next meeting of the Board of Directors of the Company or
within thirty (30) days after such written notice and he is so elected
within such time period."
2
<PAGE>
6. Change of Control
(a) The Company and the Executive agree that (i) a "Change of
Control" shall have occurred under the Employment Agreement, as
amended by this Agreement, upon the merger ("Merger") of
Chartwell into the Company ("Chartwell Change of Control"), (ii)
the date of the Chartwell Change of Control shall be the
effective date of the Merger, (iii) for the purpose of the
Chartwell Change of Control, the two year period set forth in
Section 8(e) of the Employment Agreement shall be extended to end
on December 31, 2001 and (iv) the term "Base Salary" in Section
8(e)(A) shall mean $ 375,000 and the term "highest annual bonus"
in Section 8(e)(B)(1) and (2) shall mean $187,500, subject to the
provision for adjustment for Excise Tax.
(b) The Company and the Executive hereby agree that, except with
respect to the Chartwell Change of Control, the term "Change of
Control" shall be amended to read as follows:
"For the Purposes of this Agreement, a "Change in Control" of
the Company shall mean the first to occur of one of the following
events:
(i) The acquisition, in one or more transactions, of
beneficial ownership(within the meaning of Rule13d-3
under the Securities Exchange Act of 1934 (the
"Exchange Act") by any person or entity or any group
of persons or entities who constitute a group (within
the meaning of Rule 13d-3 of the Exchange Act), other
than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a
subsidiary, of any securities of the Company if, as a
result of such acquisition, such person, entity or
group either(A) beneficially owns (within the meaning
of Rule 13d-3 under the Exchange Act), directly or
indirectly, more than 50% of the Company's
outstanding voting securities entitled to vote on a
regular basis for a majority of the members of the
Board or (B) otherwise has the ability to elect,
directly or indirectly, a majority of the members of
the Board;
(ii) A change in the composition of the Board such that a
majority of the members of the Board are not
Continuing Directors. A "Continuing Director" means,
as of any date of determination, any member of the
Board who (A) was a member of the Board on the date
of this Agreement, or (B) was nominated and elected
to such Board with the affirmative vote of a majority
of the Continuing Directors who were members of the
Board at the time of such nomination or election; or
3
<PAGE>
(iii) The stockholders of the Company approve (A) a merger
or consolidation of the Company with any other
corporation, othe than a merger or consolidation
which would result in the voting securities of the
Company outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity) at least 50% of
the total voting power represented by the voting
securities of the Company or such surviving entity
outstanding immediately after such merger or
consolidation, or (B) a plan of complete liquidation
of the Company or an agreement for the sale or
disposition by the Company (in one or more
transactions) of all or substantially all of the
Company's assets."
(c) The Company and the Executive hereby agree that, other than with
respect to the Chartwell Change of Control and any amounts
payable under the Employment Agreement with respect to the
Chartwell Change of Control, Section 8(f) of the Employment
Agreement shall be amended to read as follows:
"Notwithstanding any other provision of this Agreement or of
any other agreement, understanding or compensation plan,
Executive shall not be entitled to receive any payment which,
taking into account all payments, rights and benefits, would
be deemed to be an "excess parachute payment" under Section
280G (of the Internal Revenue Code of 1986, as amended), and
the amount of each payment shall be reduced to the extent
necessary to ensure that the Executive receives no "parachute
payment" in connection with a Change of Control; provided that
no such reduction shall occur to the extent that Executive
shall have elected to defer receipt of payments beyond the
dates such payments were otherwise to be made to the Executive
("Payment Period") and such deferral shall have resulted in
the present value of such payment not constituting an "excess
parachute payment". Any such election by Executive, to be
effective for purposes of this Agreement: (a) must be in
irrevocable when made, (b) must be made in a writing delivered
to the Company prior to the occurrence of a Change of Control,
(c) must be for a period not be exceed five years after the
date on which the Payment Period would otherwise end, and (d)
must be concurred in by the Company, on the basis of the
advice of its tax advisors, as being both necessary and
effective to reduce the extent to which payments to be made
hereunder will constitute an "excess parachute payment". If,
at any future date following the making of a payment
hereunder, it shall have been determined by the IRS that such
payment was in excess of the limits set forth in Section 280G,
and such excess shall not have been caused by a voluntary
action of the Executive not required by this Agreement, then
the Executive shall be entitled to receive from the Company,
and the Company shall pay to Executive promptly upon
notification to the Company of such determination, an Excise
Tax Adjustment Payment equal to the amount of all applicable
U.S. federal, state and local taxes (computed at the maximum
marginal rates and including interest penalties and any cost
of contest or defense and including any applicable Excise Tax)
imposed upon the Excise Tax Adjustment Payment."
4
<PAGE>
(d) In the event that the Company provides to its most senior
executives, other than its Chairman and Chief Executive Officer,
with a Change of Control Agreement with provisions that are in
the aggregate more beneficial for these senior executives that
those set forth in the Employment Agreement, as amended by this
Agreement, then the Company will immediately offer the same to
the Executive, in lieu of those set forth in the Employment
Agreement, as amended by this Agreement .
7. Notice:
Section 11 of the Employment shall be amended to read as follows:
"Notice. For the purposes of this Agreement, notices, demands and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered to the recipient, addressed as
follows:"
If to the Executive:
Steven J. Bensinger
1049 Fifth Avenue, Apt. 11A
New York, NY 10028
If to the Company:
Trenwick Group Inc.
Second Floor
One Canterbury Green
Stamford, CT 06902
Attention: James W. Billett, Jr.
8. Termination and Miscellaneous:
This Agreement is conditioned upon the Merger and, in the event the Merger does
not occur and the Agreement and Plan of Merger dated June 21, 1999 between the
Company and Chartwell is terminated for any reason, this Agreement shall be null
and void. All capitalized terms used in this Agreement shall have the same
meaning as called for by the Employment Agreement, unless otherwise indicated in
this Agreement. All of the provisions of Sections 13-17 of the Employment
Agreement shall apply to this Agreement as if set forth herein
5
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date set forth above.
TRENWICK GROUP INC.
By: /s/ James F. Billett, Jr.
----------------------------
Name: James F. Billett, Jr.
Title: Chairman, Presisdent & Chief
Executive Officer
EXECUTIVE
By: /s/ Steven J. Bensinger
----------------------------
Name: Steven J. Bensinger
Title: President
Chartwell Re Corporation hereby
consents to the substitution of
Trenwick Group Inc. as a
party to the Employment Agreement
as of the date of the Merger.
Chartwell Re Corporation
By: /s/ John V. Del Col
-----------------------------
Name: John V. Del Col
Title: Senior Vice President, General Counsel
and Secetary
6
EXHIBIT 10.26
DATED: 26th October 1995
SOREMA (UK) UNDERWRITING
MANAGEMENT LIMITED (1)
-and-
SOREMA (UK) REINSURANCE LIMITED (2)
-and-
RUSSELL JOHN ENGLISH (3)
SERVICE AGREEMENT
THIS AGREEMENT IS MADE BETWEEN:
(1) SOREMA UNDERWRITING MANAGEMENT LIMITED (Registered Number 2279272)
whose registered office is at 16 Eastcheap, London EC3M 1BD (the
"Company") and
(2) SOREMA (UK) REINSURANCE LIMITED (Registered Number 2494812) whose
registered office is at 16 Eastcheap, London EC3M 1BD ("Reinsurance")
(3) RUSSELL JOHN ENGLISH (the "Executive") of 16, Onslow Road, Richmond,
Surrey TW10 6QF.
WHEREAS:
The Executive has been employed by the Company as Managing Director of the
Company. Specialist Risk Underwriters Limited and Reinsurance and as General
Manager of SOREMA (UK) Group Limited (collectively "the Associated Companies")
and the parties wish his employment as such by the Company to continue on the
terms and conditions set out in this Agreement in substitution for any previous
agreement or arrangement.
IT IS AGREED:
1. Appointment and term
The Company shall employ the Executive and the Executive shall serve
the Associated Companies as Managing Director of the Company,
Specialist Risk Underwriters Limited and Reinsurance and as General
Manager of SOREMA (UK) Group Limited with effect from 1st March 1995.
The Company by its Chairman of its Board of Directors may terminate the
employment at any time by giving not less than 24 calendar months'
notice in writing to the Executive and the Executive may terminate the
employment at any time by giving not less than 6 calendar months'
notice in writing to the Company. Both the Company and the Executive
are entitled to elect for the Executive's employment to be terminated
by payment by the Company in lieu of notice for all or any part of the
period of notice given by the Company. For avoidance of doubt such
payment shall include but is not limited to salary, bonus, pension,
motor car allowance, medical insurance, death in service assurance,
permanent health insurance and subscriptions.
2. Duties
2.1 During his employment hereunder the Executive shall:
<PAGE>
(a) perform the duties and exercise the powers
and functions which from time to time may
reasonably be assigned to or vested in him
by the Chairman or Board of Directors (the
"Board") of the Company in relation to the
Company and any Associated Company at such
place or places within the United Kingdom as
the Board shall determine,
(b) during working hours devote the whole of his
time, attention and ability to his duties
hereunder and shall faithfully and loyally
serve the Company to the best of his ability
and use his utmost endeavors to promote its
interests in all reasonable respects;
in accordance with English law and relevant
recommended practices applicable to insurance and
reinsurance companies.
3. Remuneration
3.1 As remuneration for his services hereunder the
Company shall pay to the Executive a salary at the
rate of One Hundred and Forty Thousand Pounds
((pound)140,000) per annum (which shall be deemed
to accrue from day to day) payable by equal monthly
installments on the 25th day of each calendar month
such salary being inclusive of any fees to which the
Executive may be entitled as a director of the
Company or of any Associated Company. The said
salary shall be reviewed by the Board on or before
the 1st March each year and the rate thereof may be
increased with effect from many such review date.
3.2 The Executive shall be entitled to participate in the
SOREMA (UK) Bonus Scheme and any replacement thereof
particulars of which may be obtained from the Company
Secretary.
3.3 For the purposes of the Wages Act 1986 and otherwise
the Executive hereby consents to the deduction of any
sums properly owing by him to the Company at any time
from his salary or from any other payment due from
the Company to the Executive and the Executive hereby
also agrees to make any payment to the Company of any
sums properly owed by him to the Company.
4. Pension and Insurance Benefits
4.1 The Executive shall be entitled to be a member of the
SOREMA (UK) Pension Scheme (the "Scheme"),
particulars of which may be obtained from the Company
Secretary. In addition to the normal contributions
made by the Company to the Scheme in respect of the
Executive the Company will make an additional
contribution of (pound)25,000 per annum in respect of
the Executive, such contribution to be adjusted
annually in accordance with the Retail Price Index on
the 1st March of each year.
<PAGE>
4.2 The Company shall provide the Executive with medical
insurance, permanent health insurance, death in
service and life assurance, particulars of which may
be obtained from the Company Secretary.
5. Expenses
The Company shall reimburse to the Executive all worldwide travelling,
hotel, entertainment and other expenses properly and reasonably
incurred by him in the performance of his duties hereunder and properly
claimed and vouched for in accordance with the Company's expense
reporting procedure in force from time to time.
6. Motor Car Allowance
The Company shall pay to the Executive an annual motor car allowance at
the rate of 17.5% of his salary from time to time prevailing. The
allowance shall be paid to the Executive in 12 monthly installments
paid with his salary on the 25th day of each calendar month.
7. Holidays and holiday pay
7.1 In addition to the normal Bank and public holidays
the Executive shall be entitled to 30 working days'
paid holiday during each holiday year commencing on
1st October each year to be taken at such time or
times as may be agreed with the Board. The Executive
may not without the consent of the Board carry
forward any unused part of his holiday entitlement to
a subsequent calendar year.
7.2 For the holiday year during which the Executive's
employment hereunder terminates he shall be entitled
to such proportion of his annual holiday entitlement
as the period of his employment in such year bears
to one holiday year. Upon termination of his
employment for whatever reason he shall if
appropriate either be entitled to salary in lieu of
any outstanding holiday entitlement or be required
to pay to the Company any salary received in respect
of holiday taken in excess of his proportionate
holiday entitlement.
8. Sickness/incapacity
8.1 If the Executive shall be prevented by illness,
accident or other incapacity from properly performing
his duties hereunder he shall report this fact
forthwith to the Company Secretary's office and if he
is so prevented for more than seven consecutive days
he shall provide an appropriate doctor's certificate.
8.2 If the Executive shall be absent from his duties
hereunder owing to illness, accident or other
incapacity duly certified in accordance with the
provisions of clause 8.1 he shall be paid his full
remuneration until six consecutive months of absence
have elapsed and thereafter such remuneration as the
Board shall in its discretion allow PROVIDED THAT
there shall be deducted from such remuneration any
Statutory Sick Pay or any social security or other
benefits payable to the Executive including any sums
recoverable from a third party and any sums payable
to the Executive under the permanent health insurance
arrangement referred to in clause 4.2 above.
<PAGE>
9. Confidential information
The Executive shall not during his employment hereunder (save
in the proper course thereof) or at any time after its
termination for any reason whatsoever disclose to any person
whatsoever or otherwise make use of any confidential or secret
information of which he has or may have in the course of his
employment hereunder become possessed concerning the business,
affairs, finance, customers or trade connections of the
Company or any Associated Company or any of its or their
suppliers, agents, distributors or customers and shall use his
best endeavours to prevent the unauthorised publication or
disclosure of any such confidential or secret information.
10. Termination on the happening of certain events
(a) The Company without prejudice to any remedy which it
may have against the Executive for the breach or
non-performance of any of the provisions of this
Agreement may by notice in writing to the Executive
forthwith terminate this Agreement if the Executive
shall:
(i) be convicted of any criminal offence (other
than an offence under road traffic
legislation in the United Kingdom or
elsewhere for which a penalty other than
imprisonment for three months or more is
imposed); or
(ii) be prevented by illness or otherwise from
performing his duties hereunder for a
consecutive period of 9 calendar months; or
(iii) be guilty of any serious misconduct, any
conduct tending to bring the Company or
himself into disrepute, or any material
breach or non-observance of any of the
provisions of this Agreement or shall
neglect fail or refuse to carry out duties
properly assigned to him hereunder.
(b) Subject to the provisions of Clause 10(c) below, in
the event of the sale or cessation of all or
substantially all of the business, assets or
undertaking of Reinsurance and/or Societe de
Reassurance des Assurances Mutuelles Agricoles S.A.
and/or SOREMA International Holding N.V., the
Executive shall be entitled to treat such sale or
cessation as repudiation by the Company and on giving
to the Company written notice of acceptance of such
repudiation within 6 calendar months of such sale or
cessation the Executive shall be entitled to the
compensation referred to at Clause 11(b).
(c) Notwithstanding the provisions of Clause 10(b) above,
the Executive shall not be entitled to treat
intra-SOREMA group transactions as constituting
repudiation by the Company of this Agreement.
<PAGE>
11. Obligations upon termination of employment
(a) Upon the termination of his employment hereunder for whatever
reason the Executive shall:
(i) forthwith tender his resignation as a
Director of the Company and of any
Associated Company without compensation;
(ii) deliver up to the Company all vehicles,
keys, credit cards, correspondence,
documents, specifications, report, papers
and records (including any computer
materials such as discs or tapes) and all
copies thereof and any other property
(whether or not similar to the foregoing or
any of them) belonging to the Company or any
Associated Company which may be in his
possession or under his control; and
(iii) not at any time represent himself still to
be connected with the Company or any
Associated Company.
(b) In the event of this Agreement being
terminated under Clause 10(b) above, the
Executive shall be entitled to receive
payment in lieu of 24 calendar months'
notice.
<PAGE>
12. Covenant by Reinsurance
Reinsurance hereby covenants with the Executive that in the event of
any default by the Company in the performance of its obligations
hereunder Reinsurance will pay the salary, benefits and all other sums
howsoever due to the Executive hereunder including any increased salary
or benefits payable under the provisions hereof on the days and in the
manner mentioned herein and will duly perform and observe all the
Company's covenants and obligations contained herein and in case of
default in any such payments or in the performance or observance of the
Company's covenants and obligations Reinsurance will pay and make good
to the Executive on demand all losses, damages, costs and expenses
thereby arising or incurred by the Executive provided always that any
variation of the terms of this Agreement or the Executive's employment
in any manner which is not material to this covenant and any neglect or
forbearance by the Executive in endeavouring to obtain or enforce
payment of any sums due or observance of any of the Company's duties
hereunder and any time which may be given to the Company by the
Executive shall not release or exonerate or affect the liability of
Reinsurance under this covenant.
13. Other terms and conditions
13.1 The provisions of the Company's standard terms and
conditions of employment and handbook shall apply to
the Executive's employment hereunder except so far as
inconsistent herewith.
13.2 The following particulars are given in compliance
with the requirements of section 1 of the Employment
Protection (Consolidation) Act 1978.
(a) The Executive's normal place of work is 16
Eastcheap London EC3M 1BD but he may be
required to work at any other office or
location in London as may be directed by the
Board from time to time.
(b) The Executive's continuous employment began
on 1st January 1994. No employment of the
Executive with a previous employer counts as
part of the Executive's continuous
employment with the Company.
(c) If the Executive's hours of work shall be
the normal hours of work of the Company
which are from 9am to 5pm Monday to Friday
together with such additional hours as may
be reasonably necessary for the proper
discharge of his duties hereunder.
(d) If the Executive is dissatisfied with any
disciplinary decision or if he has any
grievance relating to his employment
hereunder he should refer such disciplinary
decision or grievance to the Board and the
reference will be dealt with by discussion
at and decision of a Board Meeting.
<PAGE>
(e) Save as otherwise herein provided there are
no terms or conditions of employment
relating to hours of work or to normal
working hours or to entitlement to holiday
(including public holidays) or holiday pay
or to incapacity for work due to sickness or
injury or to pensions or pension schemes.
14. Applicable law
English law shall apply to this Agreement and the parties submit to the
jurisdiction of the English Courts.
IN WITNESS whereof this deed has been duly executed and delivered on
the 26th day of October 1995.
Executed as a deed by )
the Company )
acting by )
---------------------------- -------------------------
Director Director/Secretary
Executed as a deed by Reinsurance )
)
acting by )
---------------------------- -------------------------
Director Director/Secretary
Signed as a deed by the Executive )
)
in the presence of )
/s/ Joanne Merrick 31 Alexandra Road
----------------------------- -------------------------
Witness's name and signature St. Albans,
-------------------------
Witness's address
<PAGE>
ADDENDUM TO SERVICE AGREEMENT - IT IS HEREBY NOTED AND AGREED that:
(1) in consequence of Board resolutions approved by SOREMA (UK) Limited and
SOREMA (UK) Group Limited on 9th July, 1996, and with effect from 9th
July 1996
(a) SOREMA (UK) GROUP LIMITED (Registered Number 2488310)
whose registered office is at 16, Eastcheap, London
EC3M 1BD ("Group") shall become a party to the
Service Agreement dated 26th October 1995 between
SOREMA (UK) Underwriting Management Limited and
SOREMA (UK) Reinsurance Limited and Russell John
English ("the Executive")
(b) Group shall covenant with the Executive in the terms
of Clause 12 of the said Agreement, in place of
SOREMA (UK) Reinsurance Limited and SOREMA (UK)
reinsurance Limited shall be released from all
liability in respect of the said covenant
(2) with effect from 1st March 1996 the Executive's salary at clause 3.1 of
the said Agreement shall be amended from One Hundred and Forth Thousand
Pounds ((pound)140,000) per annum to One Hundred and Forty Seven
Thousand Pounds ((pound)147,000) per annum
(3) the terms and conditions of the said Agreement shall otherwise remain
unchanged.
<PAGE>
IN WITNESS whereof this deed has been duly executed and delivered on the 12th
day of July 1996.
Executed as a deed by )
SOREMA (UK) Underwriting Management Limited
acting by )
/s/ David Leaper /s/ Ginette Handfield
---------------------------- ----------------------
Director Director/Secretary
Executed as a deed by Reinsurance )
SOREMA (UK) Limited (formerly
SOREMA (UK) reinsurance Limited)
acting by )
/s/ Andrew Okell /s/ Joanne Merrick
----------------------------- ----------------------
Director Director/Secretary
Executed as a deed by Group )
acting by )
/s/ Andrew Okell /s/ Joanne Merrick
---------------------------- ----------------------
Director Director/Secretary
Signed as a deed by the Executive )
in the presence of )
/s/ Andrew Shirley /s/ Russell English
----------------------------- ---------------------
Andrew Shirley 20 Bowes Wood
Witness's name and signature New Ash Green, Kent
DA3 8QJ
---------------------
Witness's address
<PAGE>
ADDENDUM TO SERVICE AGREEMENT - IT IS HEREBY NOTED AND AGREED that:
(1) with effect from 1st October 1996 clause 4.1 of the Service Agreement
between various SOREMA (UK) companies and Russell John English ("the
Executive") dated 26th October 1995 shall be amended to read as
follows:
4.1 "The Executive shall be entitled to be a member of the SOREMA (UK)
Pension Scheme (the "Scheme"), particulars of which may be obtained
from the Company Secretary. In addition to the normal contributions
made by the Company to the Scheme the Company will make such additional
contribution in respect of the Executive as is equivalent, after the
deduction of tax, to 21% of his salary from time to time prevailing.
All contributions payable by the Company under the Scheme in respect of
the Executive shall be paid free of tax to the extent that such
payments do not exceed the earnings limitation approved by the Inland
Revenue for tax exempt pension schemes according to statutory
provisions from time to time prevailing. All other payments payable
under the Scheme in respect of the Executive into pension funds or
similar investments approved by the Trustee of the Scheme shall be paid
gross of any tax payable in consequence of the contributions exceeding
the earnings limitation approved by the Inland Revenue."
(2) the terms and conditions of the said Agreement shall otherwise remain
unchanged.
IN WITNESS whereof this deed has been duly executed and delivered on the 24th
day of September 1996.
Executed as a deed by )
SOREMA (UK) Underwriting Management Limited
acting by )
/s/ Andrew Okell /s/ Ginette Handfield
-------------------------- -------------------------
Director Director/Secretary
Executed as a deed by Reinsurance )
SOREMA (UK) Limited )
acting by )
/s/ Andrew Okell /s/ Joanne Merrick
-------------------------- -----------------------
Director Director/Secretary
<PAGE>
Executed as a deed by Group )
acting by )
/s/ Andrew Okell /s/ Joanne Merrick
-------------------------- -----------------------
Director Director/Secretary
Signed as a deed by the Executive )
in the presence of )
/s/ Russell English
-----------------------
/s/ Alison Moore 7 Tudor Close
--------------------------- -----------------------
Witness's name and signature Stienfield, Essex
-----------------------
Witness's address
<PAGE>
DEED OF WAIVER
THIS DEED is made the 27th day of February 1998
BY:
(1) RUSSELL JOHN ENGLISH of 16 Onslow Road, Richmond, Surrey TW10 6QS (the
"Employee")
(2) SOREMA (UK) UNDERWRITING MANAGEMENT LIMITED a company incorporated in
the United Kingdom with registered number 2279272 whose registered
office is at 16 Eastcheap, London EC3M 1BD (the "Company")
(3) TRENWICK GROUP INC, a corporation organised under the laws of the State
of Delaware, United States of America, whose principal office is at
Metro Center, One Station Parade, Stamford, Connecticut 06902, United
States of America ("Trenwick").
RECITALS:
(A) Trenwick has agreed to purchase all of the issued share capital of
Sorema (UK) Group Limited (the "Transaction") from Societe de
Reassurance des Assurances Mutuelles Agricoles SA ("Sorema SA") under a
Share Purchase Agreement entered into between Trenwick and Sorema SA
(the "Share Purchase Agreement") on 16 January 1998.
(B) Sorema (UK) Limited and the Company are both wholly-owned subsidiaries
of Sorema (UK) Group Limited.
(C) The Employee entered into a Service Agreement dated 26 October 1995
(the "Service Agreement") with the Company.
(D) Clause 10(b) of the Service Agreement provides that the Employee is
entitled to treat a sale of all or substantially all of the combined
assets or undertaking of the Sorema SA and/or of Sorema (UK) Limited as
a repudiatory breach by the Company of the Service Agreement.
(E) The Employee agrees to waive his right to treat the transaction as a
repudiatory breach by the Company of the Service Agreement on the terms
and conditions set out in this Deed.
<PAGE>
TERMS AGREED:
1. In consideration of the sum of one pound sterling ((pound)1) from the
Company and from Trenwick, the receipt of which the Employee hereby
acknowledges, the Employee hereby irrevocably and unconditionally:
1.1 waives his right under Clause 10(b) of the Service Agreement to treat
the Transaction or any act done by Sorema SA, Trenwick or Sorema (UK)
Group Limited or any event occurring in connection with the Transaction
under the terms and conditions of the Share Purchase Agreement as a
repudiation by the Company of the Service Agreement; and
1.2 covenants not to claim from the Company as a result of the Transaction
the compensation referred to in Clause 11(b) of the Service Agreement.
Executed as a Deed on the date first mentioned above.
SIGNED and DELIVERED as a DEED )
by RUSSELL JOHN ENGLISH )
in the presence of: ) /s/ Russell J. English
------------------------------
Witness: /s/ L. I. Wade
-------------------------
Lauren Wade
EXECUTED as a DEED )
by SOREMA (UK) UNDERWRITING )
MANAGEMENT LIMITED by the )
signature of: ) /s/ D. Leaper
------------------------------
Director: D. Leaper
/s/ Joanne Merrick
------------------------------
Secretary: J. Merrick
EXECUTED as a DEED )
for and on behalf of )
TRENWICK GROUP INC ) /s/ J. F. Billett, Jr.
------------------------------
President and Chief
Executive Officer
EXHIBIT 10.27
AGREEMENT
THIS AGREEMENT is made as of the 3rd day of November, 1999 (the "Agreement"), by
and between Trenwick Group Inc., a Delaware corporation with a principal place
of business in Stamford, Connecticut (the "Company"), and James F. Billett, Jr.,
of 14 John Applegate Road, Redding, Connecticut 06896 ("Executive").
WHEREAS, the Executive is the Chairman, President and Chief Executive Officer
("Position") of the Company, a publicly traded holding company with operating
subsidiaries in the insurance and reinsurance business, reporting to, and
subject only to the direction and control of, the Board of Directors of the
Company (the "Board") and is a key employee of the Company and its subsidiaries;
WHEREAS, the Company believes that the maintenance of sound management is
essential to protecting and enhancing the business and operations of the Company
and is in the best interests of the Company and its shareholders and recognizes
that the possibility of a change of control raises uncertainty and questions
among its key employees that could result in, or lead to, the loss of such key
employees or their distraction from their duties, all to the detriment of the
Company and its shareholders;
WHEREAS, the Company wishes to assure that it will have the continued dedication
of the Executive as a key employee of the Company or one of its subsidiaries and
the continued availability of the Executive's advice, counsel and services,
notwithstanding the possibility, threat or actual occurrence of a change of
control of the Company, and to induce the Executive to remain as a key employee
of the Company or one of its subsidiaries; and
WHEREAS, the Executive is willing to continue to be employed by the Company and
its subsidiaries in his Position, taking into consideration the terms and
conditions of this Agreement and, to induce the Company to make the agreements
and undertakings set forth in this Agreement, hereby agrees to the provisions in
Section 5 of this Agreement concerning, among other things, confidentiality,
trade secrets, non-solicitation and non-competition.
NOW, THEREFORE, in consideration of the mutual terms and covenants contained
herein, the receipt and sufficiency of which the parties acknowledge and accept,
the Company and the Executive hereby agree as follows:
1. DEFINITIONS.
For purposes of this Agreement,
(a) A "Change in Control" shall be deemed to have occurred upon the earliest to
happen of the following:
(A) The acquisition, in one or more transactions, of beneficial
ownership (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934 (the "Exchange Act") by any person or entity or
any group of persons or entities who constitute a group (within the
meaning of Rule 13d-3 of the Exchange Act), other than a trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or a subsidiary, of any securities of the Company if, as a
result of such acquisition, such person, entity or group either (i)
beneficially owns (within the meaning of Rule 13d-3 under the Exchange
Act), directly or indirectly, more than 20% of the Company's
outstanding voting securities entitled to vote on a regular basis for
a majority of the members of the Board or (ii) otherwise has the
ability to elect, directly or indirectly, a majority of the members of
the Board;
1
<PAGE>
(B) A change in the composition of the Board such that a majority of the
members of the Board are not Continuing Directors. A "Continuing
Director" means, as of any date of determination, any member of the
Board who (i) was a member of the Board on the date of this Agreement,
or (ii) was nominated and elected to such Board with the affirmative
vote of a majority of the Continuing Directors who were members of
the Board at the time of such nomination or election; or
(C) The stockholders of the Company approve (i) a merger or consolidation
of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the total voting
power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation, or (ii) a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company (in one or
more transactions) of all or substantially all of the Company's
assets.
Notwithstanding the foregoing, the events in Section 1(a)(A)(i) or
Section 1(a)(C)(i) shall not be deemed a Change in Control if, prior
to any transactions constituting such change,a majority of the
Continuing Directors shall have voted not to treat such transaction or
transactions as resulting in a Change in Control; provided, however,
if any such transaction would be a Change of Control if 50% were
substituted for the 20% in Section 1(a)(A)(i) or for the 80% in
Section 1(a)(C)(i), then the written consent of the Executive
shall also be required.
(b) Cause: "Cause" shall mean: (A) the commission by the Executive
of any felonious act or any other criminal act involving moral
turpitude, dishonesty, theft or unethical business conduct, (B) the
willful and continued failure of the Executive to substantially
perform his duties (other than as a result of incapacity due to
physical or mental injury or illness) which duties the Executive has
been directed in writing to perform by the Board; (C) willful
misconduct or gross negligence by the Executive in the performance of
the Executive's duties, or (D) the failure of the Executive to comply
with the policies or procedures of the Company. No action or failure
to act by the Executive shall be considered "willful" if it is
determined by the Board to have been done by the Executive in good
faith and with the reasonable belief that the Executive's action or
omission is in the best interest of the Company.
2
<PAGE>
(c) Good Reason: "Good Reason" shall mean any of the following events,
provided that it occurs within the ninety (90) day period prior to
the date the Executive gives notice pursuant to Section 2(c) of
this Agreement:
(A) The position or responsibilities of the Executive are significantly
reduced (including, without limitation, the elimination of his
Position, a change in the reporting responsibilities of his Position,
a substantial reduction in the size of the Company or other
substantial change in the character or scope of the Company's
operations), or the Executive is assigned without his written consent
to any duties inconsistent with his Position with the Company
immediately prior to such assignment or the status and stature of
those with whom the Executive is asked to work or the position,
authority, responsibility or type of work or the working conditions
under which the Executive is assigned is inconsistent with, not
comparable to, or reduced in status or altered in nature from the
Executive's Position;
(B) The annual incentive compensation opportunity provided to the
Executive is eliminated or significantly reduced, the Executive's
participation level is reduced or the manner of assessing actual
performance is changed in a manner that results in the Executive
earning significantly less annual incentive compensation for a given
period than he or she would have for the same period absent such
change;
(C) The Executive's aggregate level of benefits under the Company's
benefit plans is significantly reduced;
(D) The Company fails to provide the Executive with benefits and
perquisites which are substantially similar in the aggregate to those
to which the Executive is entitled under the Company's benefit plans
in which the Executive was participating immediately prior to the
Change in Control, or fails to provide the Executive with directors'
or officers' insurance, as applicable, at least at the level
maintained immediately prior to the Change in Control;
(E) The Executive is required to change his regular work location to a
location that requires the Executive to commute a distance more
than 50 miles further from the Executive's principal place of
employment existing at the time of the Change in Control; or
(F) The Company fails to pay the Executive any amount otherwise vested
and due hereunder or under any plan or policy of the Company, or
fails to comply with any other provision of or perform any of its
other obligations under this Agreement.
(d) Date of Termination: "Date of Termination" shall mean (A) if the
Executive's employment is terminated by the Executive's death, the
date of the Executive's death, or by reason of the Executive's
Disability, the date all of the conditions to constitute a Disability
have occurred, (B) if the Executive's active employment is terminated
by the Company pursuant to Section 2(b), whether or not for Cause, the
date specified in the Notice of Termination, and (C) if the
Executive's active employment is terminated by the Executive pursuant
to Section 2(c) whether or not for Good Reason, the date which is ten
(10) business days after the date of receipt of the Executive's notice
of intention to terminate or such other date as may be agreed by
Executive and the Board. If Executive's active employment shall be
terminated pursuant to Section 2, Executive shall, following the Date
of Termination enter into a period of "Post Employment" to the extent
that he or she is entitled to benefits under this Agreement.
3
<PAGE>
(e) Protected Period: "Protected Period" shall mean the two year period
after the occurrence, during the term of this Agreement, of a Change
in Control.
(f) Disability: "Disability" shall have the same meaning as set forth in
the Company's long-term disability insurance policy providing
disability insurance for the Executive, as the same shall exist from
time to time.
(g) Notice of Termination: "Notice of Termination" shall mean written
notice of the termination of the Executive's active employment with
the Company either delivered to the Executive by the Company pursuant
to Section 2(b) or delivered to the Company by the Executive pursuant
to Section 2(c).
2. TERMINATION.
(a) Change in Control. The Executive shall be entitled to the benefits
provided in Section 3 hereof upon any termination of his active
employment with the Company and its subsidiaries within a Protected
Period, except a termination of active employment (i) because of his
death, (ii) because of a Disability, (iii) by the Company or its
subsidiaries for Cause, or (iv) by the Executive other than for Good
Reason. No amounts shall be payable under this Agreement if the
Executive's employment terminates outside of a Protected Period.
(b) Termination by Company.Any termination by the Board of the Executive's
active employment must, in order to be effective, be preceded by a
written Notice of Termination to the Executive indicating the Date of
Termination and the reasons therefor and, if the termination is for
Cause, the specific provision of Section 1(b) relied upon and setting
forth in reasonable detail the facts and circumstances supporting
termination for Cause. Nothing herein shall bar the Executive from
contesting the basis for his termination under this Section 2(b).
(c) Termination by Executive. Any termination by the Executive of his
active employment for Good Reason must, in order to be effective,
be preceded by a written Notice of Termination to the Company
indicating the specific provision of Section 1(c) relied upon and
setting forth in reasonable detail the facts and circumstances
supporting the termination under the provision so indicated. After
receipt of such Notice of Termination, the Company shall have ten (10)
business days from the date of receipt of such Notice of Termination
to cure the event described therein, and upon cure thereof by the
Company to the Executive's reasonable satisfaction, such event shall
no longer constitute "Good Reason" for purposes of this Agreement.
4
<PAGE>
3. COMPENSATION AND BENEFITS: POST EMPLOYMENT.
(a) Change in Control. If, within a Protected Period, the Executive's
employment by the Company and its subsidiaries shall be terminated (i)
by the Company and its subsidiaries other than for Cause and other
than because of a Disability or death, or (ii) by the Executive for
Good Reason, the Executive shall be entitled to the benefits provided
for below:
(A) Base Salary - The Executive shall continue, during Post
Employment, to receive base salary for three (3) years after the
Date of Termination, payable in installments on the Company's
normal payroll dates. For this purpose, base salary shall be the
current base salary of the Executive at the Date of Termination or
at the base salary at any time in the last twelve months, if
higher.
(B) Bonus - The Executive shall continue to receive a Bonus for three
(3) years after the Date of Termination and for the period of the
year elapsed prior to the Date of Termination, pro rated for the
portion of the year elapsed. Such amount shall be determined based
on the greater of the last annual performance bonus paid or the
average of the last two annual performance bonuses paid
immediately preceding the Executive's Date of Termination.
(C) Car Allowance - The Executive shall continue to receive a car
allowance for the 3- year period after the Executive's Date of
Termination. The amount of such allowance shall equal the amount,
if any, being received by the Executive as of the date of the
Change in Control.
(D) Medical & Dental, 401(k), Pension Plans and Supplemental Pension
Plans - The Executive shall continue to be treated as a
participant in all such plans in which the Executive shall have
been a participant on the date of the Notice of Termination, based
on then applicable and corresponding elections and contribution
rates, for the 3-year period commencing on the Executive's Date
of Termination. If such plans do not permit the Executives
continued participation, the tax-adjusted value the Executive
would have received shall be determined and paid by the Company
(outside of the plans). The Executive shall be allowed to change
the Executive's payment election under the terms of such
Supplemental Benefit Plan at the Executive's Date of Termination.
(E) Life & Disability Insurance - The Company shall continue to pay
the premium related to the Executive's life insurance and
long-term disability insurance for the 3-year period commencing on
the Executive's Date of Termination.
5
<PAGE>
(F) Benefits - The Executive shall be paid or be provided such other
benefits for which the Executive is otherwise eligible, if any,
under the terms of any employee benefit, incentive, option, stock
award or other plans or programs of the Company in which he may
be, or may have been, a participant and any unused vacation
time. All awards made to the Executive under such employee
benefit, incentive, option, stock award or other plans or programs
shall immediately vest and be payable and all restrictions shall
lapse. If such plans do not permit the Executive's continued
participation or immediate vesting, the tax-adjusted value the
Executive would have received shall be determined and paid by the
Company (outside of the plans).
(b) Other This Agreement shall not be considered a "change of control or
an employment agreement" for the purposes of the Trenwick Group Inc.
Merger Severance Policy adopted in connection with the merger of the
Company and Chartwell Re Corporation; provided, however, if there is a
Change of Control under this Agreement and the Executive is entitled
to benefits under Section 3(a) of this Agreement, then the Executive
shall not be covered by, or entitled to any benefits under, such
Merger Severance Policy.
4. EXCISE TAX.
It is the intention of this provision that the Executive receive a net amount,
after payment of all Excise Taxes (including Excise Taxes on any Excise Tax
Adjustment) equal to the aggregate compensation, benefits and other amounts
which gave rise to the Excise Tax.
(a) In the event that Executive receives or derives from the Company or
otherwise any compensation, benefit or any amount under any option
plan, performance plan, or incentive plan, which is determined to be
subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended, (the "Excise Tax"), then the
Executive shall be entitled to receive from the Company an Excise Tax
Adjustment Payment equal to the amount of all applicable U.S.federal,
state and local taxes (computed at the maximum marginal rates and
including interest penalties and any cost of contest or defense)
including Excise Tax imposed upon the Excise Tax Adjustment Payment.
The amount of the any Excise Tax Adjustment Payment to be made shall
be determined, at the Company's expense, by a nationally recognized
accounting firm acceptable to the Executive and the Company.
(b) The Executive shall notify the Company in writing promptly of any
written claim by the IRS that would require the payment of the Excise
Tax Adjustment Payment. The Company may elect, by notifying the
Executive in writing within thirty (30) days of its receipt of
Executive's notice, to contest such claim and/or to retain legal
counsel selected by the Company to represent the Executive. Such
contest will be at the Company's sole cost and expense and the Company
shall advance any amounts required to be paid in respect of such
Excise tax or the contest thereof. The Executive shall cooperate fully
with the Company in good faith including permitting the Company to
participate in any proceedings relating to such claim or contest and
giving the Company any information reasonably requested by the Company
relating to such claim or contest.
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(c) The Company shall be entitled to control all proceedings, conferences,
and appeals it may elect to take, but only with respect to the Excise
Tax, and may sue for a refund or contest the claim in any permissible
manner provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. The Executive shall promptly
pay to the Company the amount of any refund with respect to such
claim (together with any interest paid or credited thereon but after
payment by Executive of any taxes applicable thereto).
5. CONFIDENTIAL INFORMATION: COMPETITION.
Except as necessary or appropriate to the proper performance of the Executive's
duties, or with the prior written consent of the Company, or as ordered by a
court of competent jurisdiction, the Executive shall not at any time either
during the continuance of the Executive's employment or after its termination
disclose or communicate to any person or use for the Executive's own benefit or
the benefit of any person other than the Company or any subsidiary or affiliate
any information relating to the Company or any subsidiary or affiliate that is
not generally known to the public ("Confidential Information") which may come to
the Executive's knowledge in the course of the Executive's employment, and the
Executive shall during the continuance of the Executive's employment use the
Executive's best endeavors to prevent the unauthorized publication or misuse of
any Confidential Information, provided that such restrictions shall cease to
apply to any Confidential Information which may enter the public domain other
than through the fault of the Executive. During the term of this Agreement and
for a period of three (3) years after the Date of Termination, the Executive
agrees not to carry on or set up or be employed or engaged by or otherwise
assist in or be interested in any capacity (including without limitation as a
shareholder) in any State of the United States of America or in any foreign
country in which the Company or any subsidiary or affiliate thereof is
conducting business, any business materially competitive to that being carried
on by the Company or any subsidiary or affiliate thereof; provided, however,
that the ownership by the Executive for investment purposes (directly or through
nominees) of not more than 5% of the outstanding stock of any corporation which
is publicly held and traded shall not be deemed to be violation of this
Agreement. The Executive will not solicit, entice away, or otherwise encourage
any executive or other employee of the Company or its subsidiaries or affiliates
to leave his employment in order to join the Executive in any business endeavor,
nor shall the Executive aid, promote, encourage or be a party to any acts, the
effect of which would divert, diminish or prejudice the goodwill or business of
the Company or any of its subsidiaries or affiliates. The agreements by the
Executive in this Section 5 are intended to be separate and severable and
enforceable as such.
6. MERGER OR REORGANIZATION.
This Agreement shall not be terminated by the voluntary or involuntary
dissolution of the Company or by any merger or consolidation where the Company
is not the surviving or resulting corporation, or upon any transfer of all or
substantially all of the assets of the Company. In the event of any such merger
or consolidation or transfer of assets, the provisions of this Agreement shall
be binding and shall inure to the benefit of the Executive and the surviving or
resulting entity or the entity to which such assets shall be transferred. The
Company's successor, as the Executive's employer (whether such succession is
direct or indirect, by purchase, merger, consolidation or otherwise, to all or a
substantial portion of the business and/or assets of the Company), assumes and
agrees to perform this Agreement in the same manner and to the same extent as
the Company would be required to perform if no such succession had taken place.
As used in this Agreement, the term "Company" shall mean the Company and any
successor to all or a substantial portion of the Company's business or assets.
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7. ARBITRATION; JURY WAIVER.
Any controversy or claim arising out of or relating to this Agreement, the
breach thereof or the coverage of this arbitration provision shall be settled by
arbitration administered by the American Arbitration Association in accordance
with its Commercial Arbitration Rules in effect on the date of delivery of
demand for arbitration. The arbitration of such issues, including the
determination of the amount of any damages suffered by either party hereto by
reason of the acts or omissions of the other, shall be to the exclusion of any
court. The decision of the arbitrators shall be final and binding on the parties
and their respective heirs, executors, administrators, successors and assigns.
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction. There shall be three arbitrators, one to be chosen directly
by each party and the third arbitrator to be selected by the two arbitrators so
chosen. The arbitration shall be conducted in Stamford, Connecticut or at such
other location as agreed by the parties. All decisions and awards shall be made
by a majority of the arbitrators. Each party shall pay the fees and expenses of
that party's arbitrator and any representatives, witnesses and all other
expenses related to the presentation of that party's case. The cost of the third
arbitrator, the record or any transcripts, any administrative fees, and all
other fees and costs shall be borne equally by the parties.
By agreeing to arbitration under this Section, the Company and the Executive
understand that they are each waiving any right to a trial by jury and each
party makes that waiver knowingly and voluntarily with full consideration of the
ramifications of such waiver.
Nothing contained herein shall be construed or interpreted to preclude the
Company prior to, or pending the resolution of, any matter subject to
arbitration from seeking injunctive relief in any court for any breach or
threatened breach of any of the Executive's obligations in Section 5 hereof.
8. NON-ASSIGNABILITY.
The obligations of the Executive hereunder are personal and may not be
delegated, assigned or transferred by the Executive in any manner whatsoever,
nor are such obligations subject to involuntary alienation, assignment or
transfer.
9. AMENDMENT; TERMINATION.
This Agreement contains the entire agreement of the parties. It may not be
changed orally but only by a written agreement executed by the Executive and the
Board that expressly references this Agreement. This Agreement may be terminated
by the Board at any time upon one year's written notice to the Executive,
setting forth the date of termination of this Agreement. Notwithstanding such a
termination of this Agreement, this Agreement shall continue with respect to any
Change of Control that occurs during the term of this Agreement, until the end
of its Protected Period, but shall not apply to any Change of Control that
occurs after the date of termination of this Agreement.
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10. NOTICES.
All notices which a party is required or may desire to give to the other party
under or in connection with this Agreement shall be sufficient if given by hand
delivery or by addressing same to the other party as follows:
(a) if to the Executive, to:
James F. Billett Jr.
14 John Applegate Road
Redding CT 06896
(b) if to the Company, to:
Trenwick Group Inc.
One Canterbury Green
Stamford, CT 06901
Attn: Secretary
or at such other place as may be designed in writing by like notice. Any notice
shall be deemed to have been delivered when addressed as required herein and
deposited postage prepaid, in the United States Mail.
11. WAIVER; MODIFICATION.
No provision of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing that expressly
references this Agreement and is signed by the Executive and the Company. The
waiver by either party of any breach by the other party, or of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall not be deemed a waiver of the same provisions or conditions at any other
time, nor shall it be deemed a waiver of any other provisions or conditions at
any time.
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12. SEVERABILITY.
The various Sections of this Agreement are severable, and if any Section or an
identifiable part thereof is held to be invalid or unenforceable by any court of
competent jurisdiction, then such invalidity or unenforceability shall not
affect the validity or enforceability of the remaining Sections or identifiable
parts thereof in this Agreement, and the parties hereto agree that the portion
so held invalid, unenforceable or void shall, if possible, be deemed amended or
reduced in scope, or otherwise be stricken from this Agreement, to the extent
required for the purposes of the validity and enforcement hereof.
13. CHOICE OF LAW.
The parties agree that Connecticut, as the place of contracting and where the
Company has its principal place of business, has a substantial relationship to
this Agreement and so the parties agree that this Agreement shall be governed by
the laws of the State of Connecticut, without reference to any conflict of law
rules.
14. SURVIVAL AND CONTINUATION OF AGREEMENT PROVISIONS.
The termination of the Executive's employment for any reason whatsoever shall
not operate to terminate this Agreement or otherwise adversely affect the
respective continuing rights and obligations of the parties, including those
under Sections 3, 4, 5, 7, 8, 9, 10, 11, 13 and 18 of this Agreement, all of
which shall survive the effective date of such termination of employment in
accordance with their respective terms.
15. ENTIRE AGREEMENT.
This Agreement sets forth the entire agreement between the parties with respect
to the subject matter hereof and supersedes any and all prior agreements between
the Company and the Executive, whether written or oral, relating to any or all
matters covered by, and contained or otherwise dealt with, in this Agreement. No
agreements or representations, oral or otherwise, express or implied, have been
made by either party with respect to the subject matter of this Agreement,
unless set forth expressly in this Agreement.
16. BENEFICIARIES; REFERENCES.
The Executive may select (and change, to the extent permitted under any
applicable law) a beneficiary or beneficiaries to receive any compensation or
benefit payable under this Agreement following the Executive's death, and may
change such election by giving the Company written notice thereof. In the event
of the Executive's death, Disability or a judicial determination of the
Executive's incompetence, all references in this Agreement to the Executive
shall be deemed, where appropriate, to refer to the Executive's named
beneficiary, estate or other legal representative.
17. ACTION OF THE BOARD.
Except for the reference in Section 1(a), any reference in this Agreement to the
Board shall include the Compensation Committee thereof and any officers of the
Company to which the Board or the Compensation Committee thereof has by
resolution delegated any explicit authority or responsibilities with respect to
this Agreement.
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18. TAX WITHHOLDINGS.
All payments to the Executive hereunder shall be subject to such withholding of
federal, state and local income and excise taxes and to such employment taxes as
may be reasonably determined by the Company to be required.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date set forth above.
TRENWICK GROUP INC.
By: /s/ John V. Del Col
---------------------------------
Name: John V. Del Col
Title: Senior Vice President,
General Counsel & Secretary
EXECUTIVE
/s/ James F. Billett,Jr.
------------------------------------
James F. Billett, Jr.
11
EXHIBIT 10.28
AGREEMENT
THIS AGREEMENT is made as of the 3rd day of November, 1999 (the "Agreement"), by
and between Trenwick Group Inc., a Delaware corporation with a principal place
of business in Stamford, Connecticut (the "Company"), and [ ]
of [ ] ("Executive").
WHEREAS, the Executive is a key employee of the Company or one of its
subsidiaries;
WHEREAS, the Company believes that the maintenance of sound management is
essential to protecting and enhancing the business and operations of the Company
and is in the best interests of the Company and its shareholders and recognizes
that the possibility of a change of control raises uncertainty and questions
among its key employees that could result in, or lead to, the loss of such key
employees or their distraction from their duties, all to the detriment of the
Company and its shareholders;
WHEREAS, the Company wishes to assure that it will have the continued dedication
of the Executive as a key employee of the Company or one of its subsidiaries and
the continued availability of the Executive's advice, counsel and services,
notwithstanding the possibility, threat or actual occurrence of a change of
control of the Company, and to induce the Executive to remain as a key employee
of the Company or one of its subsidiaries; and
WHEREAS, the Executive is willing to continue to be employed by the Company or
one of its subsidiaries, taking into consideration the terms and conditions of
this Agreement and, to induce the Company to make the agreements and
undertakings set forth in this Agreement, hereby agrees to the provisions in
Section 5 of this Agreement concerning, among other things, confidentiality,
trade secrets, non-solicitation and non-competition.
NOW, THEREFORE, in consideration of the mutual terms and covenants contained
herein, the receipt and sufficiency of which the parties acknowledge and accept,
the Company and the Executive hereby agree as follows:
1. DEFINITIONS.
For purposes of this Agreement,
(a) A "Change in Control" shall be deemed to have occurred upon the earliest to
happen of the following:
(A) The acquisition, in one or more transactions, of beneficial ownership
(within the meaning of Rule 13d-3 under the Securities Exchange Act
of 1934 (the "Exchange Act") by any person or entity or any group of
persons or entities who constitute a group (within the meaning of
Rule 13d-3 of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or a subsidiary, of any securities of the Company if, as a
result of such acquisition, such person, entity or group either (i)
beneficially owns (within the meaning of Rule 13d-3 under the Exchange
Act), directly or indirectly, more than 50 of the Company's
outstanding voting securities entitled to vote on a regular basis
for a majority of the members of the Board or (ii) otherwise has the
ability to elect, directly or indirectly, a majority of the members of
the Board;
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(B) A change in the composition of the Board such that a majority of the
members of the Board are not Continuing Directors. A "Continuing
Director" means, as of any date of determination, any member of the
Board who (i) was a member of the Board on the date of this Agreement,
or (ii) was nominated and elected to such Board with the affirmative
vote of a majority of the Continuing Directors who were members
of the Board at the time of such nomination or election; or
(C) The stockholders of the Company approve (i) a merger or
consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 50% of the total
voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or (ii) a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company (in
one or more transactions) of all or substantially all of the Company's
assets.
(b) Cause: "Cause" shall mean: (A) the commission by the Executive of
any felonious act or any other criminal act involving moral turpitude,
dishonesty, theft or unethical business conduct, (B) the willful and
continued failure of the Executive to substantially perform his duties
(other than as a result of incapacity due to physical or mental injury
or illness) which duties the Executive has been directed in writing to
perform by the Board; (C) willful misconduct or gross negligence by
the Executive in the performance of the Executive's duties, or (D
the failure of the Executive to comply with the policies o procedures
of the Company. No action or failure to act by the Executive shall be
considered "willful" if it is determined by the Board to have been
done by the Executive in good faith and with the reasonable belief
that the Executive's action or omission is in the best interest of the
Company.
(c) Good Reason: "Good Reason" shall mean any of the following events
provided that it occurred within ninety (90) days prior to the date the
Executive gives notice pursuant to Section 2(c) of this Agreement:
(A) The position or responsibilities of the Executive are
significantly reduced (including, without limitation, the
elimination of his position, a change in the reporting
responsibilities of his position, a substantial reduction in
the size of the Company or other substantial change in the
character or scope of the Company's operations), or the Executive
is assigned without his written consent to any duties inconsistent
with his position with the Company immediately prior to such
assignment or the status and stature of those with whom the
Executive is asked to work or the position, authority,
responsibility or type of work or the working conditions under
which the Executive is assigned is inconsistent with, not
comparable to, or reduced in status or altered in nature from the
Executive's position immediately preceding the Change in Control;
(B) The annual incentive compensation opportunity provided to the
Executive is eliminated or significantly reduced, the Executive's
participation level is reduced or the manner of assessing actual
performance is changed in a manner that results in the Executive
earning significantly less annual incentive compensation for a
given period than he or she would have for the same period absent
such change;
(C) The Executive's aggregate level of benefits under the Company's
benefit plans is significantly reduced;
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(D) The Company fails to provide the Executive with benefits and
perquisites which are substantially similar in the aggregate to
those to which the Executive is entitled under the Company's
benefit plans in which the Executive was participating immediately
prior to the Change in Control, or fails to provide the Executive
with directors' or officers' insurance, as applicable, at least at
the level maintained immediately prior to the Change in Control;
(E) The Executive is required to change his regular work location to a
location that requires the Executive to commute a distance more
than 50 miles further from the Executive's principal place of
employment existing at the time of the Change in Control; or
(F) The Company fails to pay the Executive any amount otherwise vested
and due hereunder or under any plan or policy of the Company, or
fails to comply with any other provision of or perform any of its
other obligations under this Agreement.
(d) Date of Termination: "Date of Termination" shall mean (A) if the
Executive's employment is terminated by the Executive's death, the
date of the Executive's death, or by reason of the Executive's
Disability, the date all of the conditions to constitute a Disability
have occurred, (B) if the Executive's active employment is terminated
by the Company pursuant to Section 2(b), whether or not for Cause,
the date specified in the Notice of Termination, and (C) if the
Executive's active employment is terminated by the Executive pursuant
to Section 2(c) whether or not for Good Reason, the date which is
ten (10) business days after the date of receipt of the Executive's
notice of intention to terminate or such other date as may be agreed
by Executive and the Board. If Executive's active employment shall
be terminated pursuant to Section 2, Executive shall, following the
Date of Termination enter into a period of "Post Employment" to the
extent that he or she is entitled to benefits under this Agreement.
(e) Protected Period: "Protected Period" shall mean the two year period
after the occurrence, during the term of this Agreement, of a Change in
Control.
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(f) Disability: "Disability" shall have the same meaning as set forth in
the Company's long-term disability insurance policy providing
disability insurance for the Executive, as the same shall exist from
time to time.
(g) Notice of Termination: "Notice of Termination" shall mean written
notice of the termination of the Executive's active employment with the
Company either delivered to the Executive by the Company pursuant to
Section 2(b) or delivered to the Company by the Executive pursuant to
Section 2(c).
2. TERMINATION.
(a) Change in Control. The Executive shall be entitled to the benefits
provided in Section 3 hereof upon any termination of his active
employment with the Company and its subsidiaries within a Protected
Period, except a termination of active employment (i) because of his
death, (ii) because of a Disability, (iii) by the Company or its
subsidiaries for Cause, or (iv) by the Executive other than for Good
Reason. No amounts shall be payable under this Agreement if the
Executive's employment terminates outside of a Protected Period.
(b) Termination by Company. Any termination by the Board of the Executive's
active employment must, in order to be effective, be preceded by a
written Notice of Termination to the Executive indicating the Date of
Termination and the reasons therefor and, if the termination is for
Cause, the specific provision of Section 1(b) relied upon and setting
forth in reasonable detail the facts and circumstances supporting
termination for Cause. Nothing herein shall bar the Executive from
contesting the basis for his termination under this Section 2(b).
(c) Termination by Executive. Any termination by the Executive of his
active employment for Good Reason must, in order to be effective, be
preceded by a written Notice of Termination to the Company indicating
the specific provision of Section 1(c) relied upon and setting forth in
reasonable detail he facts and circumstances supporting the
termination under the provision so indicated. After receipt of such
Notice of Termination, the Company shall have ten (10) business days
from the date of receipt of such Notice of Termination to cure the
event described therein, and upon cure thereof by the Company to the
Executive's reasonable satisfaction, such event shall no longer
constitute "Good Reason" for purposes of this Agreement.
3. COMPENSATION AND BENEFITS: POST EMPLOYMENT.
(a) Change in Control. If, within a Protected Period, the Executive's
employment by the Company and its subsidiaries shall be terminated (i)
by the Company and its subsidiaries other than for Cause and other
than because of a Disability or death, or (ii) by the Executive for
Good Reason, the Executive shall be entitled to the benefits provided
for below:
(A) Base Salary -The Executive shall continue, during Post Employment,
to receive base salary for two (2) years after the Date of
Termination, payable in installments on the Company's normal
payroll dates. For this purpose, base salary shall be the current
base salary of the Executive at the Date of Termination or at the
base salary at any time in the last twelve months, if higher.
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(B) Bonus - The Executive shall receive a full year annual performance
bonus for the calendar year in which severance occurs equal to the
latest performance bonus paid or the average of last 2 performance
bonuses paid, whichever is greater. Such payment will be made at
the same time that bonus consideration and payments for other
senior executives for the same performance period are made.
(C) Car Allowance - The Executive shall continue, during Post
Employment, to receive a car allowance for two (2) years after the
Date of Termination. The amount of such car allowance shall equal
the amount, if any, being received by the Executive immediately
prior to the Date of Termination.
(D) Medical & Dental, 401(k), Pension Plans and Supplemental Pension
Plans - The Executive shall continue to be treated as a
participant in all such plans in which the Executive shall have
been a participant on the date of the Notice of Termination, based
on then applicable and corresponding elections and contribution
rates, for the 2-year period commencing on the Executive's Date
of Termination. If such plans do not permit the Executives
continued participation, the tax-adjusted value the Executive
would have received shall be determined and paid by the Company
(outside of the plans). The Executive shall be allowed to change
the Executive's payment election under the terms of such
Supplemental Benefit Plan at the Executive's Date of Termination.
(E) Life & Disability Insurance - The Company shall continue to pay
the premium related to the Executive's life insurance and
long-term disability insurance for the 2-year period commencing on
the Executive's Date of Termination.
(F) Benefits - The Executive shall be paid or be provided such other
benefits for which the Executive is otherwise eligible, if any,
under the terms of any employee benefit, incentive, option, stock
award or other plans or programs of the Company in which he may
be, or may have been, a participant and any unused vacation time.
All awards made to the Executive under such employee benefit,
incentive, option, stock award or other plans or programs shall
immediately vest and be payable and all restrictions shall lapse.
If such plans do not permit the Executive's continued
participation or immediate vesting, the tax-adjusted value the
Executive would have received shall be determined and paid by the
Company (outside of the plans).
(b) Other: This Agreement shall not be considered a "change of control or
an employment agreement" for the purposes of the Trenwick Group Inc.
Merger Severance Policy adopted in connection with the merger of the
Company and Chartwell Re Corporation (the "Merger Severance Policy");
provided, however, if there is a Change of Control under this Agreement
and the Executive is entitled to benefits under Section 3(a) of this
Agreement, then the Executive shall not be covered by, or entitled to
any benefits under, the Merger Severance Policy.
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4. REDUCTION OF PAYMENT.
Notwithstanding any other provision of this Agreement or of any other agreement,
understanding or compensation plan, Executive shall not be entitled to receive
any payment which, taking into account all payments, rights and benefits, would
be deemed to be an "excess parachute payment" under Section 280G (of the
Internal Revenue Code of 1986, as amended), and the amount of each payment shall
be reduced to the extent necessary to ensure that the Executive receives no
"parachute payment" in connection with a Change of Control; provided that no
such reduction shall occur to the extent that Executive shall have elected to
defer receipt of payments beyond the end of the Post Employment and such
deferral shall have resulted in the present value of such payment not
constituting an "excess parachute payment". Any such election by Executive, to
be effective for purposes of this Agreement: (a) must be in irrevocable when
made, (b) must be made in a writing delivered to the Company prior to the
occurrence of a Change of Control, (c) must be for a period not be exceed five
years after the date on which Executive's period of Post Employment would
otherwise end, and (d) must be concurred in by the Company, on the basis of the
advice of its tax advisors, as being both necessary and effective to reduce the
extent to which payments to be made hereunder will constitute an "excess
parachute payment". If, at any future date following the making of a payment
hereunder, it shall have been determined by the IRS that such payment was in
excess of the limits set forth in Section 280G, and such excess shall not have
been caused by a voluntary action of the Executive not required by this
Agreement, then the Executive shall be entitled to receive from the Company, and
the Company shall pay to Executive promptly upon notification to the Company of
such determination, an Excise Tax Adjustment Payment equal to the amount of all
applicable U.S. federal, state and local taxes (computed at the maximum marginal
rates and including interest penalties and any cost of contest or defense and
including any applicable Excise Tax) imposed upon the Excise Tax Adjustment
Payment.
5. PROTECTION OF THE COMPANY'S BUSINESS; CONFIDENTIAL INFORMATION AND
TRADE SECRETS; NON-SOLICITATION; AND NON-COMPETE.
This Section 5 sets forth rights of the Company and obligations of the Executive
which are mutually acknowledged to be for the protection of the Company and its
successors and assigns and to be reasonable in scope and duration. Executive
acknowledges that the provisions of this Section 5 are not intended to and will
not have the effect of preventing Executive from earning a living. The
provisions of this Section 5 shall be enforceable strictly in accordance with
their terms, notwithstanding any termination of this agreement, whether by the
Company or by the Executive and whether during the period of active employment
or during post-employment.
(a) Confidential Information; Trade Secrets. During Executive's active
employment with the Company, and thereafter for two (2) years, the
Executive shall not (1) disclose, directly or indirectly, any
Confidential Information to anyone outside of the Company or to any
employees of the Company not authorized to receive such information
or (2) use any Confidential Information other than as may be necessary
to perform the Executive's duties at the Company. In no event shall
the Executive disclose any Confidential Information to, or use any
Confidential Information for the benefit of, any current or future
competitor, supplier or client of the Company, whether on behalf of
Executive, any subsequent employer, or any other person or entity.
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The Executive is not, however, prohibited from using the general
skills, knowledge and experience that the Executive has learned or
developed in his position or positions with the Company or with
others. The Executive agrees that his position with the Company
creates a relationship of high trust and confidence with respect to
Confidential Information owned or used by the Company, and its clients
or suppliers that may be learned or developed by him while employed by
the Company. For purposes of this Agreement, the term "Confidential
Information" includes all information that the Company desires to
protect and keep confidential or that the Company is obligated to third
parties to keep confidential, including but not limited to "Trade
Secrets" to the full extent of the definition of that term under
state law. It does not include "general skills, knowledge and
experience" as those terms are defined under applicable state law.
Confidential Information includes, but is not limited to: product
information and designs, computer programs, unpatented inventions,
discoveries or improvements; marketing, sales, organizational,
financial, operating, research, development and business plans;
company policies and manuals; sales forecasts; personnel information
(including the identity of the Company employees, their
responsibilities, competence, abilities and compensation); medical
information about employees; information relating to the Company's
agents and brokers; pricing and nonpublic financial information;
current and prospective client lists and information on clients or
their employees; information concerning planned or pending
acquisitions or divestitures; and information concerning purchases of
major equipment or property.
(b) Non-Solicitation. During the Executive's active employment, and
thereafter for two (2) years, the Executive shall not directly or
indirectly solicit any customer or client of the Company or any person
or entity who is a prospect of the Company on the Date of Termination
or induce or encourage any employee of the Company to terminate
employment with the Company or to accept employment with any
competitor, supplier, agent or broker of the Company, nor shall the
Executive cooperate with any others in doing or attempting to do any
of the foregoing. As used herein, the term "solicit, induce or
encourage" includes, but is not limited to, the Executive's (i)
initiating communications with any employee of the Company relating
to possible employment or independent contractor relationship, (ii)
offering bonuses or additional compensation to encourage the Company's
employees to terminate their employment with the Company and accept
employment with a competitor, supplier, client, agent or broker of the
Company, or (iii) referring the Company's employees to personnel
or agents employed by competitors, suppliers, clients, agents or
brokers of the Company (iv) initiating communications with or offering
inducements to any customer or client (or prospect) of the Company
for the purpose of inducing such customer or client to transact
business with a competitor of the Company.
(c) Non-Compete. Until the sixth month after the Date of Termination, and
thereafter during Post Employment and while Executive is entitled to
receive payments pursuant to this Agreement or under any other
agreement or an agreement he or she may have with the Company
(including the Merger Severance Policy), the Executive shall not,
directly or indirectly, as principal, agent, contractor, employee,
employer, partner, shareholder (other than solely as an owner of
7
<PAGE>
2% or less of the stock of a public corporation) or in any other
capacity engage in or perform any managerial or executive services for
any corporation, partnership, individual or entity, a primary business
of which is competitive with the Company in any of the places where
the Company is doing business in the United States, Canada, Puerto
Rico, or Virgin Islands (the "Territory"). Notwithstanding the
foregoing provisions of this subparagraph, the Executive may accept
employment with a person or entity whose business is diversified and
includes a line of business competitive with the Company; provided
that, prior to such employment, the Company is given reasonable
assurance in writing that the Executive shall not, during such
restricted period, render managerial or executive services, directly
or indirectly, specifically for any line of business of such person or
entity which is competitive with the Company. The Executive
understands and agrees that the Company has sales and operations
facilities throughout the Territory and, therefore, to provide the
Company with reasonable protection, the Executive's obligations under
this subparagraph shall extend throughout the Territory.
(d) Return of Property. Immediately upon the termination of the Executive's
employment with the Company and at any time upon the Company's request,
the Executive shall deliver to the Company all the Company property in
the Executive's possession, custody or control including notebooks,
reports, manuals, programming data, listings and materials, engineering
or patent drawings, patent applications, any other documents, files or
materials which contain, mention or relate to Confidential Information,
and all copies and summaries of such materials whether in written,
mechanical, electromagnetic, analog, digital or any other format or
medium.
(e) Consent to Modifications by the Court. It is the express intention
of the parties to this Agreement that, if it should appear that
any of the terms or covenants of this section are in conflict with any
rule of law or statutory provision of the State of Connecticut or any
other jurisdiction where this Agreement is being enforced, which
conflict would ordinarily render such terms or covenants inoperative
or null and void, the parties request that the courts of such state
modify any such term or covenant so that the intention of the parties
hereto is carried out to as great a degree and extent as the court
deems reasonable in order to conform with any rule of law or statutory
provision regarding restrictive covenants of the State of Connecticut
or of such other jurisdiction.
6. MERGER OR REORGANIZATION.
This Agreement shall not be terminated by the voluntary or involuntary
dissolution of the Company or by any merger or consolidation where the Company
is not the surviving or resulting corporation, or upon any transfer of all or
substantially all of the assets of the Company. In the event of any such merger
or consolidation or transfer of assets, the provisions of this Agreement shall
be binding and shall inure to the benefit of the Executive and the surviving or
resulting entity or the entity to which such assets shall be transferred. The
Company's successor, as the Executive's employer (whether such succession is
direct or indirect, by purchase, merger, consolidation or otherwise, to all or a
substantial portion of the business and/or assets of the Company), assumes and
agrees to perform this Agreement in the same manner and to the same extent as
the Company would be required to perform if no such succession had taken place.
As used in this Agreement, the term "Company" shall mean the Company and any
successor to all or a substantial portion of the Company's business or assets.
8
<PAGE>
7. ARBITRATION; JURY WAIVER.
Any controversy or claim arising out of or relating to this Agreement, the
breach thereof or the coverage of this arbitration provision shall be settled by
arbitration administered by the American Arbitration Association in accordance
with its Commercial Arbitration Rules in effect on the date of delivery of
demand for arbitration. The arbitration of such issues, including the
determination of the amount of any damages suffered by either party hereto by
reason of the acts or omissions of the other, shall be to the exclusion of any
court. The decision of the arbitrators shall be final and binding on the parties
and their respective heirs, executors, administrators, successors and assigns.
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction. There shall be three arbitrators, one to be chosen directly
by each party and the third arbitrator to be selected by the two arbitrators so
chosen. The arbitration shall be conducted in Stamford, Connecticut or at such
other location as agreed by the parties. All decisions and awards shall be made
by a majority of the arbitrators. Each party shall pay the fees and expenses of
that party's arbitrator and any representatives, witnesses and all other
expenses related to the presentation of that party's case. The cost of the third
arbitrator, the record or any transcripts, any administrative fees, and all
other fees and costs shall be borne equally by the parties.
By agreeing to arbitration under this Section, the Company and the Executive
understand that they are each waiving any right to a trial by jury and each
party makes that waiver knowingly and voluntarily with full consideration of the
ramifications of such waiver.
Nothing contained herein shall be construed or interpreted to preclude the
Company prior to, or pending the resolution of, any matter subject to
arbitration from seeking injunctive relief in any court for any breach or
threatened breach of any of the Executive's obligations in Section 5 hereof.
8. NON-ASSIGNABILITY.
The obligations of the Executive hereunder are personal and may not be
delegated, assigned or transferred by the Executive in any manner whatsoever,
nor are such obligations subject to involuntary alienation, assignment or
transfer.
9
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9. AMENDMENT; TERMINATION.
This Agreement contains the entire agreement of the parties. It may not be
changed orally but only by a written agreement executed by the Executive and the
Board that expressly references this Agreement. This Agreement may be terminated
by the Board at any time upon one year's written notice to the Executive,
setting forth the date of termination of this Agreement. Notwithstanding such a
termination of this Agreement, this Agreement shall continue with respect to any
Change of Control that occurs during the term of this Agreement, until the end
of its Protected Period, but shall not apply to any Change of Control that
occurs after the date of termination of this Agreement.
10. NOTICES.
All notices which a party is required or may desire to give to the other party
under or in connection with this Agreement shall be sufficient if given by hand
delivery or by addressing same to the other party as follows:
(a) if to the Executive, to:
[
]
(b) if to the Company, to:
Trenwick Group Inc.
One Canterbury Green
Stamford, CT 06901
Attn: Secretary
or at such other place as may be designed in writing by like notice. Any notice
shall be deemed to have been delivered when addressed as required herein and
deposited postage prepaid, in the United States Mail.
11. WAIVER; MODIFICATION.
No provision of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing that expressly
references this Agreement and is signed by the Executive and the Company. The
waiver by either party of any breach by the other party, or of compliance with,
any condition or provision of this Agreement to be performed by such other party
shall not be deemed a waiver of the same provisions or conditions at any other
time, nor shall it be deemed a waiver of any other provisions or conditions at
any time.
12. SEVERABILITY.
The various Sections of this Agreement are severable, and if any Section or an
identifiable part thereof is held to be invalid or unenforceable by any court of
competent jurisdiction, then such invalidity or unenforceability shall not
affect the validity or enforceability of the remaining Sections or identifiable
parts thereof in this Agreement, and the parties hereto agree that the portion
so held invalid, unenforceable or void shall, if possible, be deemed amended or
reduced in scope, or otherwise be stricken from this Agreement, to the extent
required for the purposes of the validity and enforcement hereof.
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<PAGE>
13. CHOICE OF LAW.
The parties agree that Connecticut, as the place of contracting and where the
Company has its principal place of business, has a substantial relationship to
this Agreement and so the parties agree that this Agreement shall be governed by
the laws of the State of Connecticut, without reference to any conflict of law
rules.
14. SURVIVAL AND CONTINUATION OF AGREEMENT PROVISIONS.
The termination of the Executive's employment for any reason whatsoever shall
not operate to terminate this Agreement or otherwise adversely affect the
respective continuing rights and obligations of the parties, including those
under Sections 3, 4, 5, 7, 8, 9, 11, 13, 15 and 19 of this Agreement, all of
which shall survive the effective date of such termination of employment in
accordance with their respective terms.
15. RIGHT TO INJUNCTIVE AND OTHER RELIEF; CONSENT TO JURISDICTION.
(a) The Executive acknowledges that the Company will suffer irreparable
harm, not readily susceptible of valuation in monetary damages,
if the Executive breaches any of his obligations in Section 5 of this
Agreement. Accordingly, the Executive agrees that the Company shall be
entitled to injunctive relief against any breach or prospective breach
by the Executive of his obligations in Section 5 in any federal or
state court of competent jurisdiction, and the Executive hereby
submits to the jurisdiction of any such federal or state court in the
State of Connecticut for the purposes of any actions or proceedings
instituted by the Company to obtain such injunctive relief. Nothing
herein shall be construed as prohibiting the Company from pursuing any
other remedies available to the Company for such breach or threatened
breach, including the recovery of damages from the Executive,
(b) In addition to the rights set forth in subsection (a), above,
if Executive breaches any of his obligations under Section 5 the
Company shall be entitled (A) to the recovery of damages arising out
of the breach or threatened breach of his obligations under Section 5
and any expenses or attorney's fees incurred by the Company resulting
from the enforcement of this Agreement; (B) to cease making further
payments to Executive pursuant to clauses (A) through (D) of Section
3(a); (C) to terminate Executive's rights of participation under
clause (E) of Section 3(a); and (D) to the return of any such payments
previously made to the Executive with respect to periods after the
date that the Executive first breached any of his obligations under
this Agreement. This Section 15 shall survive the termination of the
Executive's active employment
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<PAGE>
16. ENTIRE AGREEMENT.
This Agreement sets forth the entire agreement between the parties with respect
to the subject matter hereof and supersedes any and all prior agreements between
the Company and the Executive, whether written or oral, relating to any or all
matters covered by, and contained or otherwise dealt with, in this Agreement. No
agreements or representations, oral or otherwise, express or implied, have been
made by either party with respect to the subject matter of this Agreement,
unless set forth expressly in this Agreement.
17. BENEFICIARIES; REFERENCES.
The Executive may select (and change, to the extent permitted under any
applicable law) a beneficiary or beneficiaries to receive any compensation or
benefit payable under this Agreement following the Executive's death, and may
change such election by giving the Company written notice thereof. In the event
of the Executive's death, Disability or a judicial determination of the
Executive's incompetence, all references in this Agreement to the Executive
shall be deemed, where appropriate, to refer to the Executive's named
beneficiary, estate or other legal representative.
18. ACTION OF THE BOARD.
Except for the reference in Section 1(a), any reference in this Agreement to the
Board shall include the Compensation Committee thereof and any officers of the
Company to which the Board or the Compensation Committee thereof has by
resolution delegated any explicit authority or responsibilities with respect to
this Agreement.
19. TAX WITHHOLDINGS.
All payments to the Executive hereunder shall be subject to such withholding of
federal, state and local income and excise taxes and to such employment taxes as
may be reasonably determined by the Company to be required.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date set forth above.
TRENWICK GROUP INC.
By:
----------------------------
Name:
Title:
EXECUTIVE
-------------------------------
12
EXHIBIT 10.31
FOUR STAMFORD PLAZA
STANDARD FORM OFFICE LEASE
BETWEEN
ZML - FOUR STAMFORD PLAZA LIMITED
PARTNERSHIP ("LANDLORD"), by its agent, Equity Office
Holdings, L.L.C., a Delaware limited liability company
AND
CHARTWELL RE CORPORATION, a Delaware corporation ("TENANT")
<PAGE>
TABLE OF CONTENTS
I. Basic Lease Information; Definitions................................1
II. Lease Grant.........................................................3
III. Possession..........................................................4
IV. Rent................................................................4
V. Use................................................................12
VI. Security Deposit...................................................13
VII. Services to be Furnished by Landlord...............................13
VIII. Leasehold Improvements.............................................15
IX. Graphics...........................................................16
X. Repairs and Alterations............................................16
XI. Use of Electrical Services by Tenant...............................18
XII. Entry by Landlord..................................................18
XIII. Assignment and Subletting..........................................19
XIV. Liens..............................................................22
XV. Indemnity and Waiver of Claims.....................................22
XVI. Tenant's Insurance.................................................23
XVII. Subrogation........................................................25
XVIII. Landlord's Insurance...............................................25
XIX. Casualty Damage....................................................25
XX. Demolition.........................................................28
XXI. Condemnation.......................................................28
XXII. Events of Default..................................................28
XXIII. Remedies...........................................................30
XXIV. LIMITATION OF LIABILITY............................................31
XXV. No Waiver..........................................................32
XXVI. Event of Bankruptcy................................................32
XXVII. Waiver of Jury Trial...............................................33
XXVII. Relocation.........................................................33
XXIX. Holding Over.......................................................33
XXX. Subordination to Mortgages; Estoppel Certificate...................34
XXXI. Attorneys' Fees....................................................35
XXXII. Notice.............................................................35
XXXIII. Landlord's Lien....................................................35
XXXIV. Excepted Rights....................................................35
XXXV. Surrender of Premises..............................................36
XXXVI. Miscellaneous......................................................36
XXXVII. Entire Agreement...................................................39
i
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OFFICE LEASE AGREEMENT
This Office Lease Agreement (the "Lease") is made and entered into as of the
29th day of March, 1996, by and between ZML - Four Stamford Plaza Limited
Partnership, an Illinois Limited Partnership ("Landlord") by its agent, Equity
Office Holdings, L.L.C., a Delaware limited liability company, and Chartwell Re
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 sum of thirteen million nine hundred
eighty-two thousand four hundred sixty and 00/100 dollars ($13,982,460.00),
payable by Tenant to Landlord in one hundred twenty (120) monthly
installments as follows:
a. twelve (12) equal installments of eighty-five thousand seven hundred
forty-one and 50/100 dollars ($85,741.50), each payable on or before the
first day of each month during the period beginning August 1, 1996 and
ending July 31, 1997, provided that the installment of Base Rental for the
first full calendar month of the Lease Term shall be payable upon the
execution of this Lease by Tenant.
b. twelve (12) equal installments of ninety-two thousand three hundred
thirty-seven and 00/100 dollars ($92,337.00), each payable on or before the
first day of each month during the period beginning August 1, 1997 and
ending July 31, 1998.
c. twelve (12) equal installments of ninety-six thousand seven hundred
thirty-four and 00/100 dollars ($96,734.00), each payable on or before the
first day of each month during the period beginning August 1, 1998 and
ending July 31, 1999.
d. twelve (12) equal installments of one hundred one thousand one hundred
thirty-one and 00/100 dollars ($101,131.00), each payable on or before the
first day of each month during the period beginning August 1, 1999 and
ending July 31,2000.
e. twelve (12) equal installments of one hundred twelve thousand one hundred
twenty-three and 50/100 dollars ($112,123.50), each payable on or before
the first day of each month during the period beginning August 1, 2000 and
ending July 31, 2001.
f. twelve (12) equal installments of one hundred eighteen thousand seven
hundred nineteen and 00/100 dollars ($118,719.00), each payable on or
before the first day of each month during the period beginning August 1,
2001 and ending July 31, 2002.
g. twelve (12) equal installments of one hundred twenty-three thousand one
hundred sixteen and 00/100 dollars ($123,116.00), each payable on or before
the first day of each month during the period beginning August 1, 2002 and
ending July 31, 2003.
h. twelve (12) equal installments of one hundred thirty-six thousand three
hundred seven and 00/100 dollars ($136,307.00), each payable on or before
the first day of each month during the period beginning August 1, 2003 and
ending July 31, 2004.
i. twelve (12) equal installments of one hundred forty-five thousand one
hundred one and 00/100 dollars ($145,101.00), each payable on or before the
first day of each month during the period beginning August 1, 2004 and
ending July 31, 2005.
j. twelve (12) equal installments of one hundred, fifty-three thousand eight
hundred ninety-five and 00/100 dollars ($153,895.00), each payable on or
before the first day of each month during the period beginning August
1, 2005 and ending July 31, 2006.
1
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3. "Building" shall mean the office building located at 107 Elm Street,
Stamford, Connecticut 06902, commonly known as Four Stamford Plaza.
4. The "Lease Term" shall mean a period of ten (10) years commencing on August
1, 1996, (the "Commencement Date") and, unless sooner terminated as
provided herein, ending on July 31, 2006 (the "Termination Date").
5. "Premises" shall mean the area located on the floors which are numbered as
the fourteenth (14th) and fifteenth (15th) floors of the Building (being
the two (2) uppermost or highest floors of the Building), as outlined on
Exhibits A and A-1 attached hereto and incorporated herein and known as
Suites #1400 and 1500. Landlord and Tenant hereby stipulate and agree that
the "Rentable Area of the Premises" shall mean 52,764 square feet and the
"Rentable Area of the Building" shall mean 253,513 square feet.
6. "Permitted Use" shall mean general office purposes
7. "Security Deposit" shall mean $0.
8. "Tenant's Pro Rata Share' shall mean twenty and eighty-one one hundredths
percent (20.61%), 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)" - None.
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:
300 Atlantic Street
Suite 400
Stamford, CT 06901
Attention: Thomas M. Daly/Kathleen M. Carroll, Esq.
Landlord:
Equity Office Properties, L.L.C.
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901
Attention: Building Manager
With a copy to:
Equity Office Holdings, L.L.C.
Two North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Attention: General Counsel
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<PAGE>
Payments of Rent only shall be made payable
to the order of ZML-Four Stamford Plaza Limited Partnership at the
following address:
Equity Office Properties, L.L.C.
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901
Attention: Building Manager
B. The following are additional definitions of some of the defined terms used in
the Lease.
1. "Base Year" shall mean the 1996 calendar year.
2. "Basic Costs" as defined in Article IV hereof.
3. "Broker" means Rostenberg - Doern Company, 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 malt rooms, restrooms, vending areas, lobby areas
(whether at ground level or otherwise), other similar facilities and those
portions of the Property that Landlord, from time to time, makes available
to the tenants of the Building in general.
7. Intentionally Omitted.
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. In the event that, at any
time during the Term of this Lease, Landlord modifies its Normal Business
Hours to include any additional weekday or weekend hours, Tenant shall also
be entitled to the benefit of such additional hours. Until such time,
however, the cost of furnishing HVAC service to any leased premises in the
Building at times other than Normal Business Hours (as currently defined)
shall not be included within Basic Costs.
1O. "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 Garage (hereinafter defined), the Building and the
parcel(s) of land on which it is located and all other improvements located
on such parcel(s) of land that serve the Building and the tenants thereof.
12. "Garage" shall mean the motor-vehicle parking areas located on floors
three (3), two (2), one (1) and the Iower-level of the Building.
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.
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III. Possession.
A. Upon the full and final execution of this Lease by Landlord and Tenant,
Tenant shall have the right to occupy the Premises for the performance of the
Initial Alterations (as defined in Exhibit C). 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 agrees to act reasonably in connection with its approval
of any contractor proposed by Tenant, provided that in no event shall Landlord
be required to grant its approval to any contractor that is not licensed, is not
capable of being bonded for the amount of the Initial Alterations or does not
maintain insurance of the types and amounts required by this Lease, Tenant's
occupancy of the Premises for the period prior to the Commencement Date shall be
subject to all of the terms and conditions of the Lease, provided 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. Notwithstanding the
foregoing, if Tenant begins to conduct its business in the Premises prior to the
Commencement Date, Tenant shall pay Base Rental to Landlord for the period
beginning on the date Tenant first begins to conduct its business and ending on
the day prior to the Commencement Date at the rate of eighty-five thousand seven
hundred forty-one and 50/100 dollars per month, pro rated for any partial
months.
B. Tenant hereby accepts the Premises in its as-is condition and configuration,
except as provided in this Lease, including Exhibit C, with no representation or
warranty by Landlord as to the condition of the Premises or the Building or
suitability thereof for Tenant's use, except as provided in this Lease.
C. Landlord shall deliver exclusive possession of the entire Premises to
Tenant, free from all tenancies and occupancies (except under this Lease) upon
the date of the full execution of this Lease. Notwithstanding anything to the
contrary set forth herein, in the event Landlord is unable for any reason to
deliver exclusive possession of the Premises to Tenant, free from all tenancies
and occupancies, within thirty (30) days after the full and final execution of
this Lease, Tenant, prior to the date Landlord provides Tenant with exclusive
possession of the Premises, may elect to terminate this Lease effective upon the
delivery of written notice thereof to Landlord. In the event Tenant terminates
this Lease, Landlord shall return all prepaid Rent to Tenant and Tenant shall
return any Work Allowance of other sums paid by Landlord to Tenant. Thereafter,
the parties hereto shall have no further obligations hereunder. In addition, the
assignment of the 300 Atlantic Lease to Landlord shall immediately become null
and void.
IV. Rent.
A. During each calendar year subsequent to the Base 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 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 separate
and independent 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
4
<PAGE>
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 of each calendar year after the Base 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.
Landlord agrees to use good faith efforts to provide Tenant with such estimate
by no later than April 30th of the applicable calendar year. 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 one time right during each calendar year during the Lease Term 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. Each revised estimate
shall be accompanied by an explanation of the differences between the initial
estimate and revised estimate, including the particular line items of expense
that are in addition to or of a materially different amount than those assumed
in the preparation of the initial estimate. If Landlord does not provide Tenant
with an estimate of the Basic Costs and the Excess by January 1 of any calendar
year, Tenant shall continue to pay a monthly installment based on the previous
years 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 during the current
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 be
credited against the installment of Base Rental and Additional Base Rental due
for the month immediately following the furnishing of such estimate. If the
amount of such overpayment cannot be fully credited against the immediately
following installment of Base Rental and Additional Base Rental, any uncredited
amount shall be promptly refunded to Tenant. 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. Landlord agrees to
use good faith efforts to provide Tenant with such estimate by no later than
April 30th of the applicable 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 for the month immediately
following the furnishing of such statement, provided if the Lease Term expires
prior to the determination of such overpayment, Landlord shall refund such
overpayment to Tenant after first deducting the amount of any Rent due
hereunder. In addition, If the amount of such overpayment cannot be fully
credited against the immediately following installment of Base Rental and
Additional Base Rental, any uncredited amount shall be promptly refunded to
Tenant. Likewise, Tenant shall pay to Landlord, within thirty (30) days after
demand, any underpayment with respect to the prior 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 shall mean Taxes and all other costs and expenses that are
reasonably paid or incurred in each calendar year in connection with operating,
maintaining, repairing and managing the Building and the Property, including,
but not limited to, the following:
1. All labor costs for all persons performing services required or utilized in
connection with the operation (excluding leasing functions), repair,
replacement and maintenance of and control of access to the Building
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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 maintaining at management office at the
Building, accounting services, legal fees not attributable to leasing and
collection activity, and all other reasonable administrative costs relating to
the Building and the Property. Notwithstanding the foregoing, the cost of
"maintaining a management office" shall not include the initial cost of
equipment necessary to operate such management office (e.g. computers, fax
machines, etc.), it being agreed that only the cost of replacing existing
equipment may be included in Basic Costs. 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.
3. All rental and/or purchase costs of materials, supplies, tools and
equipment used in the operation, repair, non-capital replacement and 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, non-capital replacement parts, components, materials, equipment and
supplies furnished in connection with the operation, repair, maintenance,
non-capital 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.
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. Notwithstanding the foregoing, if the cost of earthquake and/or
rental loss insurance is not included within the Base Year, the cost of
earthquake and/or rental insurance shall not be included in any subsequent
years.
6. Charges for all utilities that are (i) provided to the Common Areas, (ii)
used in connection with the operation of the Building systems, including but not
limited to, the HVAC, security and fire/life safety systems, or (iii) used in
connection with any services provided in general to the tenants of the Building,
but excluding those charges for which Landlord is otherwise reimbursed by
tenants (other than through Basic Costs).
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
used in the operation of the Building, (c) all taxes imposed on services that
Landlord is required to provide under the terms of this Lease, and (d) all
reasonable 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. 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 Landlord shall elect to pay
the same in the maximum number of permissible installments and 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
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include the amount due and payable for such year. If a reduction in Taxes is
obtained for any year of the Lease Term during which Tenant paid its Pre 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. If the amount of such credit cannot be fully credited against the
immediately following installment of Base Rental and Additional Base Rental, any
uncredited amount shall be promptly refunded to Tenant. Likewise, if a reduction
is subsequently obtained for Basic Costs 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. Notwithstanding anything herein to the
contrary, the term "Taxes" shall not mean or include, (i) municipal, state or
federal income taxes assessed against Landlord; municipal, state or federal
estate, succession, corporate, inheritance or transfer taxes of Landlord; or
corporation franchise taxes imposed upon any corporate owner of the Building;
(ii) taxes for which Landlord is reimbursed by Tenant or by other tenants of the
Building (except through clauses similar to this clause); and (iii) any interest
or penalties which may become due by reason of the failure to pay any taxes when
the same are due and payable. Upon written request by Tenant, Landlord shall
allow Tenant to review and copy the City's Assessor's report or reports showing
the assessment for the Building and the Property and the report or reports
showing any increased assessments therefor and all applicable tax bills, or such
other evidence coming from the City's Assessor's and/or Tax Collector's office
which will show the assessments and amount of Tax payable by Landlord. Taxes for
the Base Year and each subsequent Lease Year shall be calculated based upon a
fully assessed building.
8. All landscape expenses and costs of maintaining, repairing and striping of
the parking areas of the Property and Garage. In the event that the parking area
and Garage service building(s) other than the Building, than only a pro rata
share of these expenses may be included in Basic Costs which reflects the
percentage of total usage that is attributable to the Building and its
occupants, employees and visitors. Further, all costs of maintaining and
repairing the parking area and Garage included in Basic Costs shall be net of
all parking revenue generated by the operation of the Garage, including but not
limited to parking revenue from tenants of the Building. All costs and expenses
incurred in resurfacing of the parking area and Garage shall be deemed to be of
a capital nature, and amortized over the useful life of the resurfacing.
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, 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, (c)
performed for the purpose of upgrading the then existing security system of the
Building so as to maintain such system at a level that is at comparable to other
first class office buildings in Stamford, Connecticut. The cost of such capital
improvements shall be amortized over a period of ten (10) years 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
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performed, provided if the "payback period" for any capital improvement is less
than ten (10) years, Landlord may amortize the cost of such capital improvement
over the payback period. For purposes hereof, the term "payback period" shall
mean the period of time that it takes for the cost savings resulting from any
capital improvement to equal to cost of such capital improvement, including any
actual or imputed interest that is included in Basic Costs with respect to such
capital improvement. 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 projected annual amortized reduction in
expenses for that portion of the amortization period of the capital improvement
which falls within the Lease Term (based on the total cost savings for such
period, as reasonably estimated by Landlord).
Except as set forth above in section IV.B.11 and as distinguished from
replacement parts or components purchased and installed in the ordinary course,
Basic Costs shall not include the cost of capital improvements, whether in the
nature of replacements, repairs, improvements, alterations or additions. Basic
Costs shall also exclude depreciation, interest (except as provided above with
respect to the amortization of capital improvements under IV.B.11.), lease
commissions, and principal payments on mortgage and other non-operating debts of
Landlord. In addition, the following costs, expenses and items shall also be
deemed to be excluded from the calculation of Expenses:
a) amortization and depreciation of Landlord's acquisition cost, development
expenses and construction costs for the Building and, except as provided in
IV.B.11 above, all future capital additions or improvements thereto;
b) except as provided in IV.B.11 above, interest and principal payments on any
debt of Landlord or debt which is secured with a lien on the Building, including
late fees, default interest and other costs charged to Landlord with respect to
such indebtedness;
c) the cost of tenant installations and decorations incurred in connection with
preparing, altering or improving space for any tenant, other than maintenance
and repairs provided by Landlord to tenants of the Building in general;
d) overhead and profit increment paid to subsidiaries or other affiliates of
Landlord for services on or to the Property, Building and/or Premises to me
extent only that the costs of such services exceed the competitive cost for such
services rendered by persons or entities of comparable skill and experience;
e) property management fees in excess of the prevailing market management fee,
from time to time, for comparable first class buildings in the Fairfield County
area. In determining whether the management fee payable hereunder is in excess
of the prevailing market management fee, all forms of compensation and expense
reimbursement (including amounts under IV.B.2 above) shall be taken into
consideration. For example, consideration shall be given to the percentage of
gross receipts the managing agent is entitled to receive, the amount of all
costs that are paid for by the managing agent out of the management fee, and the
amount of all costs of managing the building that are paid for directly by the
owner of the building in question;
f) any repairs or other work resulting from or occasioned by damage or
destruction due to fire or other major casualty, provided that the amount of any
reasonable insurance policy deductible may be included within Basic Costs;
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g) the cost of any repairs or alterations directly resulting from a condemnation
or other taking by any governmental agency;
h) marketing expenses, advertising expenses and brokerage commissions;
i) legal fees incurred in connection with disputes with tenants, the enforcement
of leases of space in the Building, procuring new tenants or prospective new
tenants for the Building, including preparing leases, procuring, negotiation and
closing any financing, or any sale of Landlord's interest in the Building;
j) the cost of any services that are provided to one or more tenants of the
Building, but not available to Tenant;
k) the cost of any specific services that are of a benefit only to tenants that
are engaged in a specific business or type of business (e.g. a shuttle bus to
the county court house that will only be of use to attorneys occupying space in
the Building);
l) the cost of installation, operating and maintaining any specialty service
from which Tenant shall be excluded;
m) any fee for the management of the Building other than the fee specified in
paragraph IV.B.2 above, provided that Landlord shall not be prohibited from
including any such management or similar fee in Basic Costs so long as the
aggregate amount of all such fees (including all forms of compensation and
expense reimbursement) does not exceed the prevailing market management fee
(determined as provided above), from time to time, for comparable first class
buildings in the Fairfield County area;
n) costs properly allocable to other properties owned or managed by Landlord or
any parties affiliated with Landlord (or affiliated with Landlord's partners),
provided if Landlord incurs costs and expenses that benefit other buildings in
addition to the Building, Landlord shall have the right to equitably allocate
such costs and expenses among any and all buildings (including the Building)
receiving the benefit thereof;
o) the cost of any items for which Landlord is reimbursed by insurance,
manufacturer's warranty, judgment, settlement, tax rebate or otherwise, net of
all reasonable costs of recovery of insurance or other proceeds;
p) insurance premiums to the extent Landlord is separately reimbursed therefor;
q) lease payments for rented equipment, the cost of which equipment (i) would
constitute a capital expenditure if purchased, and (ii) could not properly be
included in Basic Costs under the terms hereof, provided that Landlord shall be
entitled to include the cost of any equipment that is rented on a temporary
basis for the purpose of restoring any essential service to the Building;
r) costs incurred by Landlord for trustee's fees, partnership organizational
expenses and accounting fees to the extent relating to Landlord's general
corporate overhead and general administrative expenses;
s) Landlord's general corporate overhead and administrative expenses, including
but not limited to, salaries of officers and executives of Landlord above the
level of general manager;
t) the incremental cost of HVAC provided to specific tenant spaces during hours
other than Normal Business Hours;
u) legal costs and expenses and court costs and expenses in connection with
default by any tenant of the Building;
v) ground rent, or any other payments made by Landlord under any superior lease
of the Building;
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w) expenses incurred in connection with the financing, refinancing, sale,
transfer or other disposition of the Building or Property or of the Landlord's
interest therein;
x) repairs to the structure of the Building;
y) the cost of remediating any Hazardous Substances (as such term is defined in
Exhibit C hereto), and all costs of defending, challenging and complying with
any Environmental Laws (as such term is defined in Exhibit C hereto) enacted
after the date hereof.
z) travel and mileage reimbursements for Landlord's employees that are above and
beyond those reimbursements that are recognized as appropriate Expenses under
commonly acceptable building management principles.
If a cost or expense may permissibly be included under more than one category of
Basis Costs, such cost or expense shall be included only once where to do so
more than once would cause a duplication of, and a similar increase in, Basic
Costs. In no event shall the total amount of Expenses (prior to gross-up) exceed
Landlord's actual out-of-pocket costs for operating, maintaining, repairing and
managing the Building in such calendar year.
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. 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, but not limited to, management fees,
utilities, Taxes [if and to the extent the Building is not fully assessed] and
janitorial and cleaning service) 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.
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 (not to exceed thirty [30] days) after
receipt of a timely Review Notice, Landlord shall make such books and records
available to Tenant or Tenant's agent for its review and photocopying (at
Tenant's expense) during Normal Business Hours at the office of the Building.
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. Upon Landlord's receipt of a timely
objection notice from Tenant, Landlord and Tenant shall work together in good
faith for a period of up to ninety (90) days to resolve the discrepancy between
Landlord's statement and Tenant's review. If Landlord and Tenant are unable to
resolve such dispute within ninety (90) days, the disagreement
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may be referred by either party for prompt decision by a mutually acceptable
"big six" codified public accounting firm, which firm shall be deemed to be
acting as an expert and not as an arbitrator, and a determination signed by the
selected big six accounting firm shall be final and binding on both Landlord and
Tenant. Notwithstanding the foregoing, if Tenant has Landlord's books and
records reviewed by an entity that will be compensated by Tenant on a
contingency basis, the results of such review shall not be available to the big
six accounting firm (and shall not be considered in such firms decision) unless
such results are first certified to be correct by an independent certified
public accounting firm. If Landlord and Tenant determine (by mutual agreement or
by a third party "big six" accounting firm) that Basic Costs for the calendar
year in question are less than reported, Landlord shall promptly provide Tenant
with a refund in the amount of any overpayment by Tenant. In addition, in the
event that it is determined (by mutual agreement or by a third party "big six"
accounting firm) that Landlord's statement of Basic Costs for the Building with
respect to the period in question are equal to or greater than one hundred five
percent (105%) of the actual Basic Costs for the Building for such period,
Landlord shall reimburse Tenant for any reasonable and direct costs paid by
Tenant to third parties performing such audit. 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 tax levied or imposed by any city, state,
county or other governmental body having authority upon any Rent payable by
Tenant hereunder, such payments to be in addition to all other payments required
to be paid to Landlord by Tenant under the terms and conditions of this Lease.
Any such payments shall be paid concurrently with the payments of the Rent on
which the tax is based. Notwithstanding the foregoing, Tenant shall only be
liable for tax imposed upon the Rent hereunder if the applicable statute or
ordinance makes Tenant the party responsible for the payment of such tax,
regardless of whether the duty to collect such tax is imposed upon Landlord. 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 first 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 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 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
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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, provided that Tenant shall be entitled to a
grace period of five (5) days with respect to the first two (2) late payments in
any calendar year. In addition, if Tenant fails to pay any installment of Rent
when due and payable hereunder and such failure continues for five (5) 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.
A. 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. In addition, Tenant agrees not to use or
permit the use of the Premises for any purpose which would increase the cost of
insurance coverage with respect to the Building, unless Tenant agrees to pay
such increase in insurance costs and such use is not (i) otherwise prohibited by
the Lease, or (ii) dangerous to persons or property. Tenant shall conduct its
business and control its agents, servants, contractors, employees, customers,
licensees, and invitees in such a manner as not to unreasonably 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 shall have the
right, upon giving prior written notice thereof to Landlord, to contest, at its
expense, any such laws and requirements with which Tenant must comply under this
Article V, and, to the extent permitted by such law or other requirement, to
defer compliance during the pendency of the contest, provided that (a) Tenant
shall diligently prosecute such contest; (b) Tenant's failure to comply with
such law or requirement will not subject Landlord to any prosecution or criminal
penalty, or foreclosure of a mortgage covering the Building; and (c) Tenant
shall defend and indemnify and hold harmless Landlord against all liability for
any damages resulting from or incurred in connection with such contest or
compliance. Tenant will comply with the rules and regulations of the Building
attached hereto as Exhibit B and such other reasonable 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. All changes to such rules and regulations will be reasonable and shall be
sent by Landlord to Tenant in writing.
B. Nothing herein shall require Tenant to perform any alterations, additions
or improvements to comply with laws or requirements of public authorities under
any of the following circumstances (i) such laws or requirements are applicable,
generally, to other office space in the Building and are not applicable to the
Premises solely by reason of the Tenant's unique or particular use of the
Premises, provided that subject to (ii) and (iii) below, Tenant shall be
responsible for any changes with respect to the Initial Alterations and
subsequent alterations, additions and improvements performed by Tenant and
Landlord shall be responsible for changes to those elements of the Premises that
are in place on the date possession is delivered to Tenant and are not modified
by Tenant as part of the Initial
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Alterations, (ii) such laws or requirements would require the installation or
upgrading of new or additional mechanical, electrical, plumbing, HVAC or
fire/life safety systems on a Building-wide basis without reference to the
particular use of Tenant or any other tenant, or (iii) such laws or requirements
would affect the Building's structural components, foundation, roof, exterior
windows or exterior walls. Landlord will, at Landlord's expense, perform all
acts required to comply with such laws or requirements as the same affect the
Premises and the Building. Landlord shall have the right to contest any such
laws and requirements with which Landlord must comply under this Article V, and,
to the extent permitted by such law or other requirement, to defer compliance
during the pendency of the contest, provided that (a) Landlord shall diligently
prosecute such contest; and (b) Landlord's failure to comply with such law or
requirement will not subject Tenant to any prosecution or criminal penalty or
unsafe or unhealthful condition.
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. Cold water for use in the existing (as of the date hereof) hallway
drinking fountains and hot and cold water for the lavatories and janitorial
closets on the floors on which the Premises is located. If Tenant desires water
in the Premises for any other reason, including a private lavatory or kitchen,
cold water shall be supplied 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 addition to the base
building lavatories and janitorial closets) 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. Core and perimeter heat and air conditioning to the Premises during
Normal Business Hours, at such temperatures and in such amounts as are in
compliance with the following basic performance conditions attached hereto as
Exhibit E, or as required by governmental authority, provided that Landlord
shall not be liable for any failure to maintain the temperature ranges set forth
in Exhibit E to the extent that such failure arises out of either (a) an excess
density or electrical load within the Premises beyond any density or load limits
specified in this Lease, or (b) modifications performed to the HVAC system by
Tenant or any contractors retained by Tenant, 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. of the Business Day for which such usage is requested, or if
such usage is requested for other than a Business Day, prior to 3:00 p.m. of the
Business Day immediately preceding the day for which service 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 charge for after hours HVAC service is: $25.00 per
hour per quarter floor; $35.00 per hour per half floor; and $45.00 per hour per
full floor. If Tenant desires after hour HVAC service for less than a full
floor, Tenant's written notice to Landlord shall specify the portion of the
floor for which after hours service is required. Landlord shall have the right
to increase the rates of after hours HVAC service from time to time during
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the term of this Lease, provided in no event shall any such increase exceed the
corresponding increase to Landlord in the cost of electricity and labor expended
by Landlord in furnishing such after hours HVAC service.
3. Maintenance and repair of all Common Areas in the manner and to the
extent reasonably deemed by Landlord to be standard for Class A office buildings
in Fairfield, Connecticut.
4. Janitor and cleaning service to the Premises on Business Days in
accordance with Exhibit F (Cleaning Specifications); 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 and freight elevator service to both floors of the Premises
in common with other tenants of the Building. Subject to the non-operation of
certain passenger and freight elevators due to events of Force Majeure or during
periods of maintenance, repair, renovation or replacement, Landlord, as part of
Basic Costs, shall provide public elevator service from the Building Lobby and
Garage to the Premises by six passenger elevators and one freight elevator
during Normal Business Hours, provided that, subject to Force Majeure, at least
one passenger elevator and one freight elevator shall be available for Tenant's
use at all other times. Use of the freight elevator, however, shall be subject
to advance scheduling, taking into consideration the scheduled usage of Landlord
and the other tenants and occupants of the Building.
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. Landlord will maintain not less than one (1) roving security guard at the
Building 24-hours per day for each and every day of the Lease Term. Provided
that such security guard is on call by radio, walkie talkie or other similar
means of communication and is available to provide service to the Building, such
security guard may be stationed at the Building or the building commonly known
as Three Stamford Plaza and/or may rove between the Building and the building
known as Three Stamford Plaza. Landlord shall also (i) maintain sign-in
procedures or another comparable method of keeping track of persons entering the
Building after Normal Business Hours, and (ii) have closed circuit TV
surveillance in selected portions of the Garage and Building lobby areas, which
closed circuit cameras shall be monitored by security personnel located at the
Building or the building known as Three Stamford Plaza. Notwithstanding the
foregoing to the contrary, the means, method or system of security may be
reasonably changed and replaced by Landlord, provided that at all times the
security system shall be reasonably comparable to the existing security system
described above. In making any such changes, Landlord shall use reasonable
efforts to assure that the Building's security system is comparable to other
first-class office buildings of similar age in Stamford, Connecticut, provided
that any decision as to whether the cost of a particular upgrade will justify
the anticipated benefit to be derived therefrom shall be made by Landlord in its
reasonable discretion.
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. Should any of
the equipment or machinery used in the provision of such services for any cause
cease to function properly, Landlord shall use reasonable efforts to repair such
equipment or machinery as promptly as possible. Notwithstanding anything to the
contrary contained in this Section VII.B. if: (i) Landlord ceases to furnish any
service in the Building or Premises which Landlord is required to supply under
Article VII.A. above for a period in excess of three (3) consecutive days after
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Tenant notifies Landlord of such cessation (the "Interruption Notice")(provided
that such Interruption Notice shall not be required if Landlord has independent
knowledge of the cessation of such service), (ii) such cessation does not arise
as a result of an act or omission of Tenant, (iii) such cessation is not caused
by a fire or other casualty (in which case Article XIX shall control), (iv) the
restoration of such service is reasonably within the control of Landlord, and
(v) as a result of such cessation, the Premises or a material portion thereof,
is rendered untenantable (meaning that Tenant is unable to use the Premises or
any portion thereof in the normal course of its business) and Tenant in fact
ceases to use the Premises, or material portion thereof, then Tenant, as its
sole remedy, shall be entitled to receive an abatement of Base Rental and
Additional Base Rental payable hereunder during the period beginning on the
first (1st) day of such cessation and ending on the day when the service in
question has been restored.
C. Landlord shall not be deemed to have warranted the efficiency of any
security personnel, service, procedures or equipment. Notwithstanding the
foregoing, Landlord's failure to maintain the security described in Section
VII.A.7 above shall be considered to be a default by Landlord.
VIII. Leasehold Improvements.
Any trade fixtures, equipment, personal property, furnishings, art and
furniture, or other personalty brought into the Premises by Tenant ("Tenant's
Property") which can be removed without material damage to the Building 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 the Initial
Alterations (as defined in Exhibit C), including any built-in furniture other
than Tenant's Property (collectively, "Leasehold Improvements") shall be owned
and insured by Landlord and shall remain upon the Premises, all without
compensation, allowance or credit to Tenant. Except as provided below, Landlord
may, nonetheless, at any time 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 shalt remove such Required Removables within ten (10) 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 of the Premises. In addition to
Tenant's obligation to remove the Required Removables, Tenant shall repair any
material damage caused by such removal. 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 ten (10) days after
demand from Landlord, shall reimburse Landlord for any and all reasonable costs
incurred by Landlord in connection with the Required Removables. Notwithstanding
any provisions to the contrary, the Tenant shall not be obligated to remove any
of its Initial Alterations unless Landlord, within ten (10) days after the date
on which it approves Tenant's final plans for the Initial Alterations, notifies
Tenant in writing that such Initial Alterations, or applicable portion thereof,
must be removed at the end of the Lease Term. In addition, with respect to any
alterations, additions or improvements performed by or on behalf of Tenant
subsequent to the Initial Alterations, Tenant may request in writing at the time
it submits its plans and specifications for such alteration, addition or
improvement, that Landlord advise Tenant whether Landlord will require Tenant to
remove, at tr~e termination of this Lease or Tenant's right to possession
hereunder, SUCh alteration, addition or improvement, or any particular portion
thereof and Landlord shall advise Tenant in writing within ten (10) days after
receipt of Tenant's request as to whether Landlord will require removal;
provided, however, Landlord shall not require Tenant to remove any usual office
improvements such as gypsum board, partitions, ceiling grids and tiles,
fluorescent lighting panels, building standard doors and carpeting that is not
glued down
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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 Provided that Tenant has made any necessary selections
in a timely manner and the necessary materials are available, Landlord shall
coordinate with Tenant and Tenant's contractors to assure that such signage is
installed in a prompt and timely manner. With the exception of Building Standard
signs, Tenant shall not be permitted to install any signs or other
identification on any multi-tenant floors on which the Premises are located
without Landlord's prior written consent. Provided that the same are not visible
from the exterior of the Building, Tenant shall have the right to install
additional signs on any full floor on which the Premises are located. For
purposes hereof, Tenant shall be considered to be a "full floor" tenant with
respect to any floor that Tenant has leased in its entirety, regardless of
whether Tenant may have sublet or assigned all or any portion of such floor to
one or more transferees. Landlord, as part of Basic Costs, shall maintain a
Building directory in the lobby of the Building. Tenant shall be entitled to
have its Pro Rata Share of lines on the Building's lobby directory for the
purpose of identifying Tenant and its subsidiaries and their respective and its
officers. Landlord shall be responsible for the cost of the initial installation
of such names and Tenant shall be responsible for the cost of any changes
thereto or replacements thereof. Landlord shall use good faith efforts to
accomplish any such changes to the Building directory within a reasonable time
after written request from Tenant for such change.
X. Repairs and Alterations.
A. Except to the extent such obligations are imposed upon Landlord hereunder
and except as to damage caused by fire or other casualty, Tenant, at its sole
cost and expense, shall perform all 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) any alterations,
additions or improvements performed by contractors retained by Tenant.
Notwithstanding the foregoing, Tenant shall not be responsible for and Landlord,
at its sole cost and expense (except to the extent properly included in Basic
Costs) shall be responsible for promptly making any repairs to the Premises
which may be required by reason of (1) the neglect or other fault of Landlord,
its employees, agents or contractors, (2) defects in workmanship or materials
with respect to the initial construction of the Building, (3) a default by
Landlord in the performance of its maintenance and repair obligations hereunder
(including any obligation to repair defects in the external windows and window
seals) after notice and a reasonable opportunity to cure, (4) any latent or
hidden defects in the Base Building construction; and (5) all structural repairs
to the Premises, not necessitated by the acts of Tenant or any of its agents,
employees, contractors, transferees or invitees. 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 within thirty (30) days after written notice from Landlord (or such
shorter period of time as is reasonable in the event of an emergency), 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.
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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) the roof, exterior walls, exterior windows,
foundations and structural elements of the Building; and (b) all mechanical,
electrical, HVAC and plumbing systems that serve the Building in general or
which connect to the Premises; (c) all perimeter and core HVAC serving the
Premises and all plumbing and electrical systems serving the perimeter and core
HVAC serving the Premises, provided that Tenant shall be responsible for the
cost of any repairs or replacements that are necessitated by any work
(including, without limitation, the Initial Alterations) performed by Tenant or
any contractors retained by Tenant; and (d) the Building facilities common to
all tenants including, but not limited to, the Garage and Common Areas.
Landlord, as part of Basic Costs, shall also keep and maintain the public areas
and public facilities of the Building, including the Garage, clean and in good
order. To the extent the same are owned or controlled by Landlord, Landlord
shall keep tho oidcwalko adjoining the Building in good repair and shall use
reasonable efforts to keep the same free of accumulation of trash, snow, ice and
any unlawful obstructions.
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 shall not be unreasonably delayed or
withheld. 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 $50,000.00, 2) is not visible from the
exterior of the Premises or Building, and 3) will not affect the structure of
the Building, could not adversely affect the systems (e.g. plumbing, electrical,
HVAC. fire/life safety) of the Building outside of the Premisp. s :~nd dn~ 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 alt 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 or working drawings reasonably
acceptable to Landlord; names and addresses of contractors reasonably acceptable
to Landlord; copies of contracts; necessary permits and approvals; evidence of
contractor's and subcontractor's insurance in accordance with Article XVI
section B. hereof; and payment bond or other security, ali in form and amount
satisfactory to Landlord (not to exceed 100% of the cost of work).
Notwithstanding the foregoing, it is hereby agreed that Tenant shall not be
required to post a payment bond or other security in connection with the Initial
Alterations (as defined in Exhibit C). All such improvements, alterations er
additions shall be constructed in a good and workmanlike manner using Building
Standard materials or other new materials of equal or greater quality. Landlord,
to the extent reasonably necessary to avoid any unreasonable disruption to the
tenants and occupants of the Building (e.g. excessive noise from core drilling,
fumes from painting or staining, etc.), 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 reasonable, out-of-pocket sums, if any, expended by Landlord for
third party examination of the architectural, mechanical, electric and plumbing
plans for any alterations, additions or improvements. 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 lite safety systems
of the Building. In addition, if, due to the nature of the alterations,
additions or improvements, work needs to be performed in the Premises after
Normal Business Hours,
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Tenant, within thirty (30) days after demand, shall reimburse Landlord for the
reasonable cost (on an hourly basis) of having Landlord's management or
engineering personnel oversee the performance of such work. 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. All electricity used by Tenant in the Premises (except for electricity to
perimeter and core HVAC units serving the Premises) shall be paid for by a
separate charge billed directly to Tenant by Landlord and payable by Tenant as
Additional Base Rental. Such billing shall be based upon the average bulk rate
per kilowatt hour per billing period paid by Landlord for electricity furnished
to the Building for the period in question, plus a reasonable administrative fee
(not to exceed 5%) for the cost of reading the meter in the Premises and billing
Tenant for the cost of any such electricity. To the extent such work has not
already been performed, Tenant shall be required to install a demand watt hour
check meter in the Premises as part of the Initial Alterations to measure the
amount of electricity that is consumed by Tenant in the Premises. Landlord shall
be responsible for reading such meter and billing Tenant for the cost of
electricity consumed as measured by such meter. Tenant's use of electrical
service in the Premises shall not exceed seven (7) watts per usable 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 seven (7) watts per usable
square foot, Landlord shall provide such excess usage (provided Tenant agrees to
pay for any required 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 of such service upgrades shall
be paid for by Tenant as Additional Base Rental. Notwithstanding anything herein
to the contrary, Landlord hereby represents and agrees that the core and
perimeter HVAC units serving the Premises shall not be connected to the
electrical meter for the Premises. Any supplemental HVAC units installed by or
for Tenant shall, however, be connected to Tenant's electrical meter and Tenant
shall be responsible for the cost of all electricity consumed in connection with
the operation of such supplemental HVAC unit(s).
B. If Landlord generates or distributes electric current for the Building,
Tenant shall obtain all current from Landlord and pay as Additional Base Rental
Landlord's separately metered charges therefor, provided, however, that if the
cost of providing electricity is not included in Base Rental or Basic Costs, the
charges to Tenant shall not exceed the rate that would be charged Tenant if
billed directly by the local utility for the same services. Landlord may cease
to furnish electricity upon thirty (30) days' prior written notice, provided
that within such thirty (30) day period Landlord connects the Building and
Premises with another adequate source of electric supply at Landlord's sole cost
and expense.
Xll. 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 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. Notwithstanding the foregoing, Landlord, without the consent
of Tenant, shall not perform any alterations or additions to or in the Premises,
unless Landlord, in its reasonable judgment, determines that such additions (i)
will increase the
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safety and security of the Building, (ii) will be beneficial to the occupants of
the Building in general, (iii) are necessary to comply with applicable laws, or
(iv) will improve the operating efficiency of the Building. 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 upon reasonable prior notice to Tenant to
temporarily close the Premises to perform repairs, alterations or additions in
the Premises, provided that Landlord shall use reasonable efforts to perform alt
such work on weekends and after Normal Business Hours and to complete such work
and "reopen" the Premises as quickly as possible. Landlord will also use
reasonable efforts to perform work on weekends and after Normal Business Hours
and to complete such work as quickly as possible if such work will cause an
unreasonable disruption to the operation of Tenant's business in the Premises.
Entry by Landlord hereunder shall not constitute a constructive eviction or
except as otherwise provided herein, entitle Tenant to any abatement or
reduction of Rent by reason thereof. Notwithstanding anything to the contrary
contained herein, Landlord shall perform any entry into the Premises in a manner
that is reasonably designed to minimize any interference with Tenant's access to
or use of the Premises. In the event the making of any such repair, alteration,
improvement or addition shall cause the Premises to be inaccessible or unusable
by Tenant, as determined in Tenant's reasonable judgment, for a period of three
(3) days, then Base Rental and Additional Base Rental payable under the Lease
shall abate during the period beginning on the first (1st) day that the
Premises, or portion thereof, are inaccessible or unusable and ending on the
date on which the Premises, or applicable portion thereof, are once again
accessible and usable by Tenant. if less than then the entire Premises are
inaccessible or unusable by Tenant, any abatement hereunder shall be in
proportion to the percentage of the Premises that are inaccessible or unusable.
Notwithstanding the foregoing, Tenant shall not be entitled to a partial
abatement of Base Rental and Additional Base Rental hereunder unless at least
ten percent (10%) of the Premises are rendered inaccessible or unusable.
XIII. Assignment and Subletting,
A. Except as otherwise provided in XIII.F. below, 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 or delayed with respect to any proposed assignment
or subletting. Landlord's consent shall not be considered unreasonably withheld
if: (1) 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 a Class-A Building; (3) the proposed
use is different than the Permitted Use; (4) the proposed transferee is a
government agency; (5) the proposed transferee is an occupant of the Building
and Landlord has comparable space in the Building suitable for Lease by such
occupant; (6) Tenant is in default beyond the expiration of all applicable
notice and cure periods; (7) Landlord would be subject to additional material
obligations or would be required to incur additional material costs as a result
of any portion of the Building or Premises becoming 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
(unless Tenant or such proposed assignee or sublessee agrees to be responsible
for payment of such additional costs and, in addition, agrees to place an amount
sufficient to perform any necessary restoration in an escrow account reasonably
acceptable to Landlord); (8) the proposed transferee desires to use all or any
portion of the Premises for the operation of a executive suite or personal
agency and such use would result in a violation by Landlord of an exclusive
right granted to another tenant in the Building; or (g) Cummings & Lockwood or a
successor thereof is a tenant in the Building and the transferee desires to use
all or any portion of the Premises for the operation of a law firm. Tenant
acknowledges that Landlord is currently prohibited from allowing the Premises to
be used for
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the operation of a law firm pursuant to the terms and conditions of its lease
with Cummings & Lockwood. 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; provided that (7) identifies all
"exclusive rights" which shall be binding upon Tenant. 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 prior consent, publicly advertise the proposed rental rate
for any Transfer. Landlord acknowledges that direct broker mailings shall not be
considered to be public advertisements for purposes hereof.
B. If Tenant requests Landlord's consent to a Transfer, Tenant, together with
such 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 reasonably satisfactory to Landlord
that the proposed transferee is financially responsible in light of the
remaining Tenant obligations under this Lease. Notwithstanding Landlord's
agreement to act reasonably under Section XIII.A. above, Landlord may, within
thirty (30) days after its receipt of all information and documentation required
herein, either, (1) consent to or reasonably refuse to consent to such Transfer
in writing; or (2) if Tenant desires to assign this Lease or to sublet one full
floor or more of the Premises for substantially all of the then remaining Lease
Term, negotiate directly with the proposed transferee and in the event Landlord
is able to reach an agreement with such proposed transferee, terminate this
Lease with respect to the portion of the Premises being assigned or sublet upon
thirty (30) days' notice; or (3) if Tenant desires to assign this Lease or to
sublet one full floor or more of the Premises for substantially all of the then
remaining Lease Term, cancel and terminate this Lease with respect to the
portion of the Premises being assigned or sublet upon thirty (30) days' notice.
Notwithstanding the foregoing, Landlord shall not have the right to terminate
this Lease in accordance with (2) or (3) above in connection with a Corporate
Transfer (defined below) or with respect to a subletting of any portion of the
Premises that had not previously been occupied by Tenant. In addition, if
Landlord would be entitled to terminate this Lease under (2) or (3) above,
Tenant, prior to entering into a sublease or assignment, shall have the right to
advise Landlord (the "Prior Notice") of its intention to sublet substantially
all of the Premises or assign this Lease. Such Prior Notice shall set forth the
proposed effective date of such subletting or assignment. Landlord, within
thirty (30) days after receipt of the Prior Notice, shall have the right to
terminate this Lease with respect to any full floor or more of the Premises
proposed to be assigned or sublet for substantially all of the remaining Lease
Term as of the effective date set forth in the Prior Notice. If Landlord fails
to exercise its right to terminate within thirty (30) days after the Prior
Notice, Landlord shall not have the right to cancel and terminate this Lease
under (2) or (3) above, in connection with any proposed sublease or assignment
that Tenant enters into within a period of twelve (12) months after the
expiration of such thirty (30) day period. In the event Landlord consents to any
such Transfer, the Transfer and consent thereto shall be in a form reasonably
approved by Landlord, and Tenant shall bear all reasonable costs and expenses
incurred by Landlord in connection with the review and approval of such
documentation. So long as Tenant or any proposed transferee does not request any
changes to this Lease or Landlord's standard form of consent to sublease
attached hereto as Exhibit G-1 or Landlord's standard form of consent to
assignment attached hereto as Exhibit G-2, as the case may be, Landlord shall
not be entitled to recover more than Seven Hundred Fifty Dollars ($750.00) in
connection with its review and approval of any subletting or assignment.
C. If Landlord consents to any subletting, then one-half (1/2) of any rent or
other consideration paid to Tenant by such subtenant in excess of the Rent paid
by Tenant which is allocable to the subleased space, less Tenant's
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marketing expenses, brokers' commissions, attorney's fees, Landlord's fees under
B. above, free-rent, other concessions provided to such sublessee and the costs
of alterations to the Premises to accommodate a sublease, shall be paid by
Tenant to Landlord upon receipt by Tenant from such sublessee. In the event
Landlord consents to any assignment of this Lease, then one half (1/2) of any
rent paid by such assignee which is in excess of the Rent then being paid by
Tenant to Landlord pursuant to the terms of this Lease, less Tenant's marketing
expenses, brokers' commissions, attorney's fees, Landlord's fees under B. above,
free-rent and other concessions provided to such assignee, shall be paid by
Tenant to Landlord. In addition to any other rights Landlord may have in
connection with an uncured event of monetary 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.
D. Except as provided in F. below, if Tenant is a corporation, limited
liability company or similar entity, and if at any time during the Lease Term
the person, persons or 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 Tenants 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, or transfers resulting from the public offering of any voting stock of
Tenant.
E. 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.
F. Notwithstanding any provision of this Lease to the contrary, the Tenant
may, without the necessity of obtaining the Landlord's consent, and without the
same being deemed an event of default hereunder:
(i) assign or sublet its interest in this Lease, in whole or in part, to (a) any
person, persons, entity or entities, then owning a majority of the capital stock
of Tenant, (b) any entity in which the majority of the total interest is owned
by Tenant or is owned by the owner(s) of the majority of the capital stock of
the Tenant, (c) any successor corporation to Tenant by merger or consolidation
and any transferee of substantially all of the Tenant's business assets,
providing such transferee also assumes substantially all of Tenant's liabilities
(including all of Tenant's liabilities under this Lease) and has a net worth,
immediately prior to such transfer, not less than that of the Tenant at the date
of this Lease or immediately prior to such transfer (any assignment pursuant to
this subparagraph (i) shall be referred to as a "Permitted Assignment"), and
(ii) transfer a majority, or all, of the capital stock of the Tenant,
voluntarily or involuntarily, to any individual or entity related to or
affiliated with the holder of a majority of the outstanding capital stock of the
Tenant at the time of the execution of this Lease.
The transfers described in Xll1.F.(i) and Xl11.F.(ii) above are collectively
referred to as "Corporate Transfers". Tenant shall provide Landlord with notice
of any Corporate Transfer within fifteen (15) days after the effective date
thereof. On or before the effective date of any Corporate Transfer, Tenant and
any such corporate transferee shall execute and deliver to
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Landlord a fully executed copy of Landlord's standard form of consent to
assignment or consent to sublease, as the case may be.
XIV. Liens.
Tenant will not permit any mechanic's liens or other liens, resulting
from work performed at Tenant's request or materials furnished to the Premises
at Tenant's request, 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 forty-five (45) 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.
Notwithstanding the foregoing, if Landlord is then under contract for a sale of
the Building or receives notice from its Mortgagee that the existence of a lien
of the nature described herein constitutes a default under Landlord's Mortgage,
the forty-five (45) day period set forth above shall be shortened to ten (10)
days after the date on which Landlord provides Tenant with notice of such sate
or default. If Tenant shall fail to se discharge or bond over such lien within
the applicable time period set forth herein, then, in addition to any other
right or remedy of Landlord, upon prior written notice to Tenant, 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,
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 air
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 in connection with any third party claim arising 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, or licensees; (2) any
use, non-use, possession, occupation, condition, operation or maintenance of the
Premises or any part thereof (except if due to Landlord's failure to perform any
required obligation under this Lease, or if due to the negligence or misconduct
of Landlord or its agents or another Building tenant); (3) any act or omission
of Tenant or any of its transferees, agents, servants, contractors, employees,
or licensees, 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 (except if due to Landlord's failure to
perform any required obligation under this Lease, or if due to the negligence or
misconduct of Landlord or its agents or another Building tenant); 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 reasonably approved by Landlord.
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Notwithstanding Section XV.A. above to the contrary, Tenant shall not be
required to indemnify, defend and hold harmless any Landlord Related Parties and
Landlord shall indemnify, defend and hold Tenant, its members, principals,
beneficiaries, partners, officers, directors, employees and agents and the
respective principals and members of such agents (collectively, the "Tenant
Related Parties") harmless from and against 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 Tenant or any of the Tenant Related Parties in connection with
any third party claim arising out of or in connection with (i) any negligence or
misconduct of Landlord or its agents, servants, contractors, and employees, or
(ii) Landlord's failure to perform any obligation Landlord is required to
perform under this Lease within a reasonable period of time after written notice
from Tenant.
B. Landlord and the Landlord Related Parties shall not be liable for, and,
except as provided in Vll.B. and Xll. herein, Tenant hereby waives, all claims
for loss or damage to Tenant's business or damage to person or property
sustained by Tenant (or any sublessee or licensee claiming through Tenant)
resulting from any accident or occurrence in, on or about the Premises, the
Building or the Property, including, without limitation, claims far 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 to Building; (0) the falling of any fixture, plaster, tile or other
material; (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; or (11) any other
cause of any nature except, as to items 1-9, where such loss or damage is due to
Landlord's negligence, misconduct, breach of this Lease or failure to make
repairs required to be made pursuant to other provisions of this Lease, after
the expiration of a reasonable time after written notice to Landlord of the need
for such repairs (provided such written notice shall not be necessary if
Landlord has independent knowledge of the need for such repair).
XVl. 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 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).
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. Tenant shall, upon request, obtain such additional insurance
as is normally and customarily maintained by tenants at
Class-A office space in Stamford, Connecticut at Tenant's
expense and provide Landlord with evidence thereof.
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B. Except for items for which andlord is responsible under Exhibit C hereto
and 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 "owner(s) of
the Building and its (or their) respective members, principals, beneficiaries,
partners, officers, directors, employees, agents ( and their respective members
and principals) and mortgagee(s)" (and any other designees of Landlord as the
interest of such designees shall appear) as 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
being referred to as "Tenant's Insurance"), as welt 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) shall specify Tenant as named insured and the "owner(s)
of the Building and its (or their) respective members, principals,
beneficiaries, partners, officers, directors, employees, agents (and their
respective members and principals) and mortgagee(s)" (and any other designees of
Landlord as the interest of such designees shall appear) 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. Ail policies of Tenant's Insurance shall contain endorsements that
the insurer(s) will give to Landlord and its designees at least thirty (30)
days' (ten (10) days in the event of non-payment of premium) 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 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 any customary terms (taking into consideration any
unique characteristics of the Building) of any of Landlord's insurance policies;
(2) prevent Landlord from obtaining policies of insurance reasonably 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, after ten (10) days prior written notice to Tenant,
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.
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XVll. 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 Toss 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
Landlord or Tenant is permitted to and self-insures any risk which would have
been covered by the insurance required to be carried by such party hereunder or
if Landlord or Tenant fails to carry any insurance required to be carried
hereunder, then all loss or damage to Landlord or Tenant, as the case may be,
its leasehold interest, its business, its property, the Building, Premises or
any additions or improvements thereto or contents thereof shall be deemed
covered by and recoverable by such party under valid and collectible policies of
insurance.
Without limiting the scope of the foregoing, each party hereto hereby
releases the other (and its servants, agents, contractors, employees and
invitees) with respect to any claim (including a claim for negligence) which it
might otherwise have against the other party for loss, damages or destruction of
the type covered by insurance which such party is required or agrees to maintain
hereunder with respect to its property by fire or other casualty i.e. in the
case of Landlord, as to the Building, and, in the case of Tenant, as to Tenant's
Property (including rental value or business interruption, as the case may be)
occurring during the Term of this Lease.
XVIII. Landlord's Insurance.
Landlord shall maintain full replacement cost, all-risk, extended
coverage property insurance on the Building and Garage and the Leasehold
Improvements (excluding Tenant's Property). In addition, so long as ZML-Four
Stamford Plaza Limited Partnership or an affiliated entity is the owner of the
Building, Landlord shall maintain Commercial General Liability Insurance
applicable to the Building and its appurtenances providing, on an occurrence
basis, a minimum combined single limit of Two Million Dollars ($2,000,000.00).
The cost of all 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,
A. If the Premises or any part thereof or access thereto 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
eighteen (18) months 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
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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.
Notwithstanding anything in this Article XlX to the contrary, if the Premises or
any portion thereof are rendered inaccessible or inadequate for the operation of
Tenant's business as a result of a fire or other casualty, then the entire
Premises shall be deemed to be untenantable by Tenant regardless of whether the
entire Premises is physically damaged as a result of any such fire or casualty.
If Landlord does not elect to terminate this Lease, Landlord shall commence and
proceed with reasonable diligence to restore the Building and Garage (provided
that Landlord shall not be required to restore any unleased premises in the
Building unless necessary to obtain a certificate of occupancy for the Premises
or ameliorate a hazard) and the Leasehold Improvements (but excluding any
improvements, alterations or additions made by Tenant in violation of this
Lease) located within the Premises, to the same condition they were in
immediately prior to the happening 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 reasonably
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 Rent shall fully abate on a per diem basis during the time
and to the extent any damage to the Premises causes the Premises to be rendered
untenantabte and not used by Tenant. If a portion of the Premises is rendered
untenantable or inaccessible, Rent shall abate on a pro rata basis. 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 to the contrary set forth in Section XIX.A above,
within sixty (60) days following the date of any damage to the Premises by fire
or other casualty or any damage to any other part of the Building by fire or
other casualty that renders the Premises inaccessible, Landlord must provide
Tenant with written notice stating whether Landlord, within twelve (12) months
following the date of such fire or other casualty, shall rebuild and restore any
damaged portions of the Premises and perform such other work as is necessary to
make the Premises reasonably accessible by Tenant. In the event Landlord shall
fail to provide such notice to Tenant within such sixty (60) day period and such
failure shall continue for fifteen (15) days after Landlord's receipt of written
notice of such failure from Tenant, or in the event Landlord shall timely
provide such notice to Tenant and shall indicate that restoration of the
Building and Premises within such twelve (12) month period is not feasible, or
that Landlord does not intend to restore the Building or Premises, then Tenant
may terminate this Lease effective upon delivery of written notice of Tenant's
election to Landlord, in which event the parties hereto shall have no further
obligation to one another by reason of this Lease, except with respect to such
matters as are expressly provided to survive the termination of this Lease. In
such event, the Term of this Lease shall be at an end as if the date of Tenant's
notice were the stated Expiration Date hereunder. Notwithstanding the foregoing,
Tenant's notice of termination must be given within thirty (30) days after the
date on which Tenant first becomes entitled to exercise such right hereunder. In
the event Landlord, in a timely manner, shall provide Tenant with written notice
that Landlord has elected to restore the Building and Premises, then the
Landlord shall be required to fully repair and restore the Building and
Premises, including the Leasehold Improvements (other than the Tenant's Property
and improvements performed by Tenant in violation of the terms of this Lease),
to their condition prior to such damage within such twelve (12) month period
whether or not the insurance proceeds received by
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Landlord are adequate for such restoration and whether or not the Landlord's
mortgagee permits Landlord to apply such insurance proceeds to restoration. In
the event that Landlord is unable to substantially complete such restoration to
the Premises, including the Leasehold Improvements other than the Tenant's
Property and to perform such other work as is necessary to make the Premises
reasonably accessible by Tenant within such twelve (12) month period, with time
being of the essence thereof, then the Tenant may elect to terminate this Lease
effective upon the delivery of written notice of such election to Landlord, in
which event the parties hereto shall have no further obligation to one another
by reason of this Lease, except with respect to such matters as are expressly
stated to survive the termination of this Lease. In such event, the Lease Term
of this Lease shall be at an end as if the date of Tenant's notice were the
stated Expiration Date hereunder. Notwithstanding the foregoing, Tenant's notice
of termination must be given within thirty (30) days after the date on which
Tenant first becomes entitled to exercise such right hereunder. In addition, the
twelve (12) month repair and restoration period set forth above shall be
extended on a day for day basis for each day that Landlord is delayed in
restoring the Premises or access thereto as a result of (i) any delays caused by
Tenant, or (ii) any delays caused by events of Force Majeure, provided that in
no event shall such twelve (12) months period be extended by more that ninety
(90) days as a result of events of Force Majeure. Notwithstanding anything
herein to the contrary, if Landlord determines that it will be unable to restore
the Premises or access thereto within the applicable time period provided
herein, Landlord shall have the right to provide Tenant with written notice (the
"Outside Extension Notice") of such inability, which Outside Extension Notice
shall set forth the date on which Landlord reasonably believes that it will be
able to restore the Premises and access thereto. Upon receipt of the Outside
Extension Notice, Tenant shall have the right to terminate this Lease by
providing written notice of termination to Landlord within thirty (30) days
after the date of the Outside Extension Notice. In the event that Tenant does
not terminate this Lease within such thirty (30) day period, Tenant shall not
have the right to terminate this Lease in accordance with the terms hereof
unless Landlord fails to restore the Premises and make the same reasonably
accessible to Tenant by the date set forth in Landlord's Outside Extension
Notice. The date set forth in Landlord's Outside Extension Notice shall be
extended on a day for day basis for each day after the Outside Extension Notice
that Landlord is delayed in restoring the Premises or access thereto as a result
of any delays caused by Tenant.
C. Notwithstanding anything to the contrary set forth in Article XIX, in the
event all or substantially all of the Premises shall be damaged by fire or other
casualty at any time during the last eighteen (18) months of the Lease Term (or
any Renewal Term then in effect), then Tenant may elect to terminate this Lease
effective upon delivery of written notice of such election to Landlord
regardless of whether or not Landlord would agree to restore the Premises, in
which event the parties hereto shall have no further obligations under this
Lease, except with respect to such matters as are expressly provided to survive
the termination of this Lease. In such event the Lease Term of this Lease shall
be at an end as if the date of Tenant's notice were the stated Expiration Date
hereunder. Notwithstanding the foregoing, Tenant's notice of termination must be
given within thirty (30) days after the date on which Tenant first becomes
entitled to exercise such right hereunder.
D. For purposes of this Article XIX, damage following casualty shall be deemed
to have been completely repaired when all Leasehold Improvements in the Premises
prior to such casualty have been fully reconstructed by Landlord and a final,
unconditional certificate of occupancy for such Premises has been issued and
when any "punch list" items remaining to be completed will not materially
interfere with Tenant's use and occupancy of the Premises for the Permitted Use.
Notwithstanding the foregoing, if materials are not reasonably available to
reconstruct any portion of the Leasehold improvements, Landlord and Tenant shall
work together in good faith to agree upon reasonably comparable substitute
materials.
E. In the event that the Premises are not rendered inaccessible or unusable by
Tenant but, as a result of a fire or other casualty, Tenant is denied access to
all or a portion of the parking spaces to be provided to Tenant hereunder in the
Garage, Landlord shall use reasonable efforts to locate substitute
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parking for Tenant in the buildings commonly known as One Stamford Plaza, Two
Stamford Plaza and/or Three Stamford Plaza. In addition, if substitute parking
is not reasonably available in such buildings, Landlord shall use reasonable
efforts to locate substitute parking in other buildings in Stamford, Connecticut
that are reasonably accessible to the Building. If Landlord or Tenant is able to
locate substitute parking, during the period of time that Tenant is denied
access to all or any portion of its spaces in the Garage, Landlord shall be
required to reimburse Tenant for the difference between: (i) The amount Tenant
is required to pay for substitute parking, and (ii) the amount Tenant would
otherwise be required to pay Landlord for the spaces in the Garage that are
rendered inaccessible to Tenant. Notwithstanding the foregoing, if Tenant
locates substitute parking and Landlord, in good faith, feels that the cost of
such substitute parking is in excess of the prevailing market rate, Landlord
shall have the right to locate less expensive alternative parking in a location
that is equally as close to the Building as the parking located by Tenant. In
such event, Tenant shall use the less expensive parking located by Landlord
during the period that the spaces in the Garage are inaccessible to Tenant.
XX. Demolition.
INTENTIONALLY OMITTED.
XXl. Condemnation.
If (a) the whole or any substantial part of the Premises or access
thereto, or the Garage, 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. Notwithstanding the foregoing, if the whole or any
material part of the Premises or access thereto, or any material part of the
Garage 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, Tenant shall also have the right to terminate
this Lease effective as of the date the physical taking of the Premises occurs
or access to the Premises or use of any material part of the Garage is taken.
Such right to terminate shall be exercised by written notice to Landlord within
sixty (60) days after the date on which Tenant is first notified of the taking.
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 safe 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. In addition, Tenant shall
be entitled to bring a separate claim for any of Tenant's moving and relocation
expenses. Notwithstanding anything herein to the contrary, Tenant shall not be
entitled to terminate this Lease in connection with a taking of a material
portion of the Garage if reasonably acceptable substitute parking is available
to Tenant at prevailing market rates. Without limiting the scope of the
foregoing sentence, it is hereby agreed that substitute parking in the buildings
commonly known as One Stamford Plaza, Two Stamford Plaza or Three Stamford Plaza
shall be deemed to be reasonably acceptable substitute parking.
XXll. 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 five (5)
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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 thirty (30) days after
delivery to Tenant of notice of the occurrence of such failure, provided that if
any such failure creates a hazardous condition, such failure must be cured
promptly following receipt of such notice from Landlord; provided, however, that
if such failure or default cannot practicably be cured within such thirty (30)
day period, then such thirty (30) day cure period shall be extended to the
extent reasonably necessary to permit Tenant to cure such default, provided
further that Tenant shall diligently proceed to cure such default and, from time
to time upon request, shall furnish Landlord with evidence of Tenant's efforts
to cure such default. Notwithstanding the foregoing, Tenant's cure period shall
be limited to a total of ten (10) days with respect to any failure to provide
Landlord with an estoppel certificate or evidence of insurance within the time
periods provided in the Lease. In addition, 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 ninety (90) 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 ninety (90)
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. Tenant shall abandon or vacate any substantial portion of the Premises for
more than ninety (90) consecutive days without the prior written permission of
Landlord.
H. Tenant shall fail to take possession of and occupy the Premises withi
thirty (30) days following the Commencement Date and issuance of a Certificate
of Occupancy for the Premises and thereafter continuously conduct its operations
in the Premises for the Permitted Use.
I. The liquidation, termination, dissolution, forfeiture of right to do
business, or death of Tenant or any Guarantor.
J. Tenant is in default beyond any notice and cure period under any other lease
with Landlord.
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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. Notwithstanding the foregoing, in addition to the
notice periods required under Article XXII, Landlord shall provide Tenant with
an additional five (5) days notice of any termination of the Lease pursuant to
subsections XXIII.A.1 or XXIII.A.5 hereof. Tenant shall not, however, have the
right to cure such default during such five (5) day period.
1. Terminate this Lease, in which event Tenant shall immediately surrender
the Premises to Landlord. If Tenant fails to surrender the Premises upon
termination of the Lease hereunder, Landlord may without prejudice to any other
remedy which it may have, after procuring an appropriate judicial order
therefor, 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. Tenant hereby agrees to pay to Landlord on demand an amount equal to
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 difference
between (i) the total Rent that Tenant would have been required to pay for the
remainder of the Lease Term, minus (ii) the amount of rent actually received by
Landlord for the Premises during such period from third parties, after deducting
all Costs of Reletting (as defined below).
2. After procuring an appropriate judicial order from a court of competent
jurisdiction, Enter upon and take possession of the Premises and expel or remove
Tenant or any other person who may be occupying said Premises, or any part
thereof, without having any civil or criminal liability therefor and without
terminating this Lease. Landlord shall use reasonable efforts to mitigate its
damages and relet the Premises or any part thereof for the account of Tenant, in
the name of Tenant or Landlord or otherwise, without notice to Tenant for such
term or terms which may be greater or less than the period which would otherwise
have constituted the balance of the Lease Term and 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. Tenant agrees
to pay Landlord on demand all Costs of Reletting and any deficiency that may
arise by reason of such reletting or failure to relet. Provided Landlord uses
reasonable efforts to mitigate its damages, Landlord's damages shall not be
reduced for any failure to relet the Premises or any part thereof or for any
failure to collect any Rent due upon any such reletting. No such re-entry or
taking of possession of the Premises by Landlord shall be construed as an
election on Landlord's part to terminate this Lease unless a written notice of
such termination is given to Tenant. Notwithstanding anything herein to the
contrary, Tenant acknowledges and agrees that reasonable efforts to relet by
Landlord shall not require Landlord to relet the Premises in preference to any
other space that is available for lease in the Building.
3. After procuring an appropriate judicial order from a court of competent
jurisdiction, 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 reasonable
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
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in accordance with local law in the event of a default by Tenant, Landlord or
its agent may, after procuring an appropriate judicial order form a court of
competent jurisdiction, at the expense and liability of the Tenant, alter or
change any or all locks or other security devices controlling access to the
Premises. 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
reasonable 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 reasonable, out-of-pocket expenses incurred by Landlord
including tenant incentives, allowances and inducements.
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.
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.
E. This Article XXlll 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, BEING INTENDED THAT NEITHER LANDLORD NOR
ANY MEMBER, PRINCIPAL, PARTNER, SHAREHOLDER, OFFICER, DIRECTOR OR BENEFICIARY OF
LANDLORD SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT AGAINST LANDLORD 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
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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. IN ADDITION, TENANT ACKNOWLEDGES THAT EQUITY
OFFICE HOLDINGS, L.L.C., AND EQUITY OFFICE PROPERTIES, L.L.C., ARE ACTING SOLELY
IN THEIR CAPACITY AS AGENTS FOR 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 during the continuance of such default and prior to any cure
of such default instituted by Tenant within the time and manner specified in
this Lease 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:
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 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 from 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..
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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, 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 entity other than
Tenant within the meaning of Sections 365(o) 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.
XXVlll. Relocation.
Intentionally Omitted.
XXlX. 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 XXlll hereof (and provided Tenant has not exercised its
Renewal Option pursuant to Exhibit C), 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, but 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 if the
holding over continues for more than fourteen (14) days, effective as of the
fifteenth (15th) 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, 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. 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
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for the Premises or has received a bona fide offer to lease the Premises, and
(2) Tenant fails to vacate the Premises within thirty (30) days after the date
of Landlord's notice.
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 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 ten (10) 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. Notwithstanding
the terms of this Article XXX above, this Lease shall only be subject and
subordinate to a ground or underlying lease or Mortgage now or hereafter placed
against or affecting any or all of the Building, Premises or Property and to any
renewals, modifications, consolidations, or extensions thereof, provided the
Landlord obtains a non-disturbance, subordination and attornment agreement from
the holder thereof on such holder's then standard form of agreement.
Notwithstanding the foregoing, such standard form of agreement shall provide,
among other things, that Tenant, upon paying the Base Rental and all of the
Additional Base Rental and other charges herein provided for, and observing and
complying with the covenants, agreements and conditions of this Lease on its
part to be observed and complied with, shall lawfully and quietly hold, occupy
and enjoy the Premises during the Lease Term, without hindrance or interference
from anyone claiming by or through said Mortgagee or lessor and that said
Mortgagee or lessor shall respect Tenant's rights under the Lease and, upon
succeeding to Landlord's interest in the Building and Lease, shall observe and
comply with all of Landlord's duties under the Lease from and after the date of
such succession.
B. In the event the Tenant shall represent to Landlord, in writing, that an
estoppel certificate from Landlord shall be necessary in order for Tenant to
obtain financing for Tenant's operations or for Tenant to issue a public stock
offering, or otherwise in connection with a third party transaction to be
entered into by Tenant, then Landlord shall, no more than once in any given
lease year, within ten (10) Business Days of written request from Tenant,
execute and deliver to Tenant an estoppel certificate, in form and substance
reasonably acceptable to Landlord and Tenant, covering, as appropriate,
substantially the matters set forth in this Article XXX with respect to an
estoppel certificate to be provided by Tenant to Landlord.
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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.
XXXll 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 codified mail with return
receipt requested, or sent by a nationally recognized 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 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 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 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 by Landlord of any landlord lien rights provided
by Connecticut statutory law.
XXXlV. Excepted Rights.
This Lease does not grant any rights to light or air over or about the
Building. Except as provided in Exhibit C, paragraph 7 (Satellite Dish) and
except with respect to Tenant's rights to use Common Areas, 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. Landlord further reserves to itself the right from
time to time: (a) to change the Building's name or street address, provided
that, during the Lease Term and any extensions thereof, in no event shall the
Building be named after a re-insurance company; (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 in
accordance with Article XII) 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 in
accordance with Article XII 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 entry doors, suite doors and closet doors 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 and
Tenant's employees right to admittance at all times under such reasonable
regulations as Landlord may prescribe from time to time, or to close
(temporarily or permanently) any of the entrances to the Building; (/) to change
the arrangement and/or location of entrances of passageways, doors and doorways,
corridors, elevators, stairs and toilets located outside of the Premises and
public parts of the Building; (j) if Tenant has vacated the Premises and removed
all
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Tenant's Property 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 provided that the granting of such exclusive rights
shall not (1) restrict or interfere with Tenant's ability to conduct its
re-insurance business in the Premises, or (2) require Tenant to do business with
any other Building tenant. 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.
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 for removal
in accordance with the terms of Article VIII hereof and quit and surrender the
Premises to Landlord, broom clean, and in the same, condition as the Premises
was in at the time of completion of the Initial Alterations and any further
subsequent alterations made in accordance with the terms of this Lease, ordinary
wear and tear and damage due to fire or other casualty 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 reasonable 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 or any memorandum hereof without
Landlord's prior written consent. Notwithstanding the foregoing, Landlord and
Tenant shall execute and deliver, upon the execution of this Lease, duplicate
originals of an instrument, in recordable form, which will constitute a
statutory Notice of Lease, pursuant to Connecticut General Statutes Section
47-19, setting forth a legal description of the Premises, the Term and any other
provisions required by statute. This instrument shall be recorded in the Land
Records of the City of Stamford, Connecticut, by Tenant. Upon the Expiration
Date or sooner termination of this Lease, Tenant, upon Landlord's request, shall
promptly execute and deliver an instrument in recordable form terminating such
Notice of Lease. The terms of this Article XXXVI B shall survive the expiration
or sooner termination of this Lease.
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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 include strikes, riots, acts of God,
shortages of labor or materials, war and other causes beyond the control of
Landlord or Tenant, as the case may be. Whenever a period of time is herein
prescribed for the taking of any action by Landlord or Tenant, as the case may
be, other than the payment of Rent or any other sums due hereunder, 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.
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. In such event Landlord's assignee or transferee shall be
liable for all of the obligations so assigned and upon such transfer Landlord
shall be released from any such obligations. From and after the date of such
assignment or transfer, 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 (other than Broker) 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. Landlord agrees to pay the
Broker a commission for this Lease pursuant to a separate agreement which
Landlord and Broker shall enter into prior to the parties' execution of 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. Tenant hereby covenants, warrants and represents: (1) that the individual
executing this Lease on its behalf 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. Upon request, Tenant
will, prior to the Commencement Date, deliver to Landlord 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 reasonable satisfaction by an appropriate individual with authority
to codify such documents, such as the secretary or assistant secretary or the
managing general partner of Tenant.
Landlord hereby covenants, warrants and represents: (1) that the individual
executing this Lease on its behalf is duly authorized to execute or attest and
deliver this Lease on behalf of Landlord; (2) that this Lease is binding upon
Landlord; (3) that Landlord 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
Landlord 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 Landlord is a party or by
37
<PAGE>
which Landlord may be bound. Upon request, Landlord will, prior to the
Commencement Date, deliver to Tenant copies of an appropriate resolution or
consent of Landlord's board of directors or other appropriate governing body of
Landlord authorizing or ratifying the execution and delivery of this Lease,
which resolution or consent will be duly codified to Tenant's reasonable
satisfaction by an appropriate individual with authority to certify such
documents, such as the secretary or assistant secretary or the managing general
partner of Landlord.
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 adverse
subsequent changes thereto as of the date of this Lease. At any time during the
Lease Term, but not more often than once a year, Tenant shall provide Landlord,
upon ten (10) days' prior written notice from Landlord, with a current financial
statement and financial statements of the two (2) years prior to the current
financial statement year. Such statement shall be prepared in accordance with
generally accepted accounting principles and, if such is the normal practice of
Tenant, shall be audited by an independent certified public accountant.
J. Except as expressly otherwise herein provided, with respect to all
required acts of Landlord and 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.
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 Tenant from Tenant'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.
O. During the entire term of this Lease, as the same may be renewed or
extended, Tenant shall, and may peacefully have, hold and enjoy the quiet
enjoyment of the Premises, providing the Tenant pays the Rent herein recited to
be paid by Tenant and performs all of Tenant's covenants and agreements herein
contained, subject only to the matters set forth in Articles III and XXX hereof.
P. Except with regard to requests for consent or approval that require
Landlord to make a determination of the aesthetics of certain signage,
alterations or other things that would be visible form outside the Premises (on
multi-tenant floors) or Building or to assume certain risks, including, without
limitation, the risk that a certain alteration, addition and/or improvement
could adversely affect the mechanical systems or structure of the Building or
require excess removal costs, Landlord agrees to act reasonably in granting its
approval or disapproval of any requests by Tenant for the consent or approval of
Landlord.
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XXXVII. Entire Agreement.
This Lease Agreement, including the following Exhibits:
Exhibit A - Outline and Location of 14th Floor Premises
Exhibit A-l- Outline and Location of 15th Floor Premises
Exhibit B - Rules and Regulations
Exhibit C - Additional Terms and Conditions
Exhibit D - Assignment and Assumption of Lease
Exhibit E - Performance Specifications
Exhibit F - Cleaning Specifications
Exhibit G-1 - Form of Consent to Sublease
Exhibit G-2 - Form of Consent to Assignment
Exhibit H - Location of windows to be replaced
Exhibit I - Location of Tenant's reserved parking spaces
Exhibit J - Letter from ZML-301 Tresser Limited Partnership
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, 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.
39
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in
multiple original counterparts as of the day and year first above written.
WITNESS/ATTEST: LANDLORD: ZML - FOUR STAMFORD
PLAZA LIMITED PARTNERSHIP
/s/ Gerard P. Hallock
- - ---------------------------
Name (print) Gerard P. Hallock BY: EQUITY OFFICE HOLDINGS, L.L.C.
a Delaware limited liability company, as
agent
/s/ Geoffrey F. Fay By: /s/ Michael Sheinkop
- - ---------------------------- -------------------------------------
Name (print) Geoffrey F. Fay Name: Michael Sheinkop
Title: Senior Vice President
Asset Management
Date: March 29, 1996
WITNESS/ATTEST: TENANT: CHARTWELL RE
CORPORATION, a Delaware Corporation
/s/ Gerard P. Hallock By: /s/ Richard E. Cole
- - ----------------------------- ------------------------------------
Name (print) Gerard P. Hallock Name: Richard E. Cole
Title: Chairman and CEO
/s/ Geoffrey F. Fay
- - ------------------------------ Date: March 29, 1996
Name (print) Geoffrey F. Fay
EXHIBIT 10.32
DATED 10th June 1994
(1) THE PRUDENTIAL
ASSURANCE COMPANY
(as Landlord)
(2) ARCHER GROUP MANAGEMENT
SERVICES LIMITED
(as Tenant)
(3) ARCHER GROUP HOLDINGS PLC
(as Guarantor)
L E A S E
of
Third Floor
Number Two
Minster Court Mincing Lane
London EC3
CLIFFORD CHANCE
200 Aldersgate Street
London EClA 4JJ
<PAGE>
INDEX
CLAUSE PAGE
1. INTERPRETATION ......................................................1
1.1 Definitions .....................................................1
1.2 Interpretation .................................................10
2. DEMISE AND RENTS ...................................................11
3. TENANT'S COVENANTS .................................................12
3.1 Rents.. ...................................................13
3.2 Outgoings .................................................13
3 .3 Repairs and Decorations ...................................14
3.4 YieldingUp ................................................16
3.5 Statutory Requirements ....................................16
3.6 PlanningActs ..............................................17
3.7 To comply with Notices ....................................19
3.8 Rights of entry by Landlord ...............................19
3.9 Landlord's Survey .........................................20
3.10 Landlord's Costs ..........................................20
3.11 Obstruction of Services, etc ..............................21
3.12 Alterations ...............................................21
3.13 Appearance of Demised Premises ............................23
3.14 Comply with Fire Regulations ..............................24
3.15 Carrying out of alterations ...............................24
3.16 User Restrictions .........................................25
3.17 User ......................................................25
3.18 Encroachments and easements ...............................25
3.19 Alienation ................................................26
3.20 Disclosure of information .................................31
3.21 Registration of dispositions ..............................31
3.22 Signs and advertisements ..................................31
3.23 Overloading floors and services ...........................31
3.24 Dangerous materials and use of machinery ..................32
3.25 Interest on overdue Payments ..............................33
3.26 Indemnity .................................................33
3.27 Covenants affecting the reversion .........................34
3.28 Defective Premises ........................................34
3.29 Value Added Tax ...........................................34
3.30 Estate Regulations ........................................35
3.31 Building Regulations ......................................35
3.32 Electricity Supply ........................................35
3.33 Taxation ..................................................35
3.34 As to the Head Lease ......................................36
<PAGE>
4. LANDLORD'S COVENANTS................................................36
4.1 Quiet Enjoyment............................................36
4.2 Head Lease ................................................37
4.3 Estate Services............................................37
4.4 Building Services..........................................38
4.5 Electricity Supply.........................................39
4.6 Void Costs.................................................40
5. PROVISOS............................................................40
5.1 Forfeiture.................................................40
5.2 Jurisdiction...............................................41
5.3 No Implied Easements.......................................41
5.4 Exclusion of Warranty as to User...........................41
5.5 Limitation of Landlord's Liability .......................42
5.6 No Liability for Staff ....................................42
5.7 Tenant's Fixtures and Fittings ............................42
5.8 Development of Adjoining Property .........................43
5.9 Notices ...................................................43
5.10 EffectofWaiver ............................................43
5.11 Covenants relating to adjoining property ..................43
5.12 Tenant not to object to works .............................44
5.13 No right of set-off etc. ..................................44
5.14 Invalidity of certain provisions ..........................44
5.15 Waiver etc of regulations .................................44
5.16 Party Walls ...............................................45
5.17 Exclusion of statutory compensation .......................45
5.18 Management Company ........................................45
6. INSURANCE ..........................................................46
6.1 Landlord to insure ........................................46
6.2 Evidence of insurance .....................................46
6.3 Destruction of Demised Premises ...........................47
6.4 Cesser of rent ............................................47
6.5 Option to determine .......................................48
6.6 Tenant not to vitiate insurance etc .......................48
6.7 Decennial Insurance .......................................49
6.8 Self Insurance ............................................49
7. ESTATE SERVICE CHARGE ..............................................50
7.1 Landlord's liability ......................................50
7.2 Tenant to pay Estate Service Charge .......................50
7.3 Estate Expenditure ........................................50
7.4 Estate Expenditure Certificate ............................51
7.5 Estate Accounting Year ....................................51
7.6 Estate Service Charge Advance Payment .....................52
7.7 Tenant to pay balance of Estate Service Charge ............53
7.8 Omission by Landlord to include item in Estate
Expenditure ...............................................53
7.9 Estate Reserve Fund .......................................53
<PAGE>
7.10 Variation of the Estate Service Charge ....................54
7.11 Estate Services provided to the Tenant ....................54
7.12 Variation of Estate Services ..............................54
7.13 Major Works ...............................................55
7.14 Raising Money by Loan or Overdraft ........................55
7.15 Interest ..................................................55
7.16 Dunster Court .............................................55
8. BUILDING SERVICE CHARGE ............................................55
8.1 Tenant to pay Building Service Charge .....................55
8.2 Building Expenditure ......................................56
8.3 Building Expenditure Certificate ..........................57
8.4 Building Accounting Year ..................................57
8.5 Building Service Charge Advance Payment ...................57
8.6 Tenant to pay balance of Building Service Charge ..........58
8.7 Omission by Landlord to include item in Building
Expenditure ...............................................59
8.8 Building Reserve Fund .....................................59
8.9 Variation of the Building Service Charge ..................59
8.10 Building Services provided to the Tenant ..................60
8.11 Variation of Building Services ............................60
8.12 Major Works ...............................................60
8.13 Raising Money by Loan or Overdraft ........................61
8.14 Interest ..................................................61
9. OPTION TO BREAK ....................................................61
10. GUARANTOR'S COVENANT ...............................................61
FIRST SCHEDULE
The Demised Premises ........................................................62
SECOND SCHEDULE
Rights Granted ..............................................................63
THIRD SCHEDULE
Exceptions and Reservations .................................................66
FOURTH SCHEDULE
Matters to which the Demised Premises are subject .......................... 69
FIFTH SCHEDULE
Rent and Rent Review ........................................................70
SIXTH SCHEDULE
Estate Services .............................................................75
<PAGE>
SEVENTH SCHEDULE
Building Services............................................................82
EIGHTH SCHEDULE
Guarantee Provisions ........................................................89
NINTH SCHEDULE
Estate Regulations ..........................................................92
TENTH SCHEDULE
Building Regulations ........................................................96
ELEVENTH SCHEDULE
Electricity Supply ..........................................................98
<PAGE>
THIS LEASE is made this 10th day of June One thousand nine hundred and ninety
four.
BETWEEN:
1) THE PRUDENTIAL ASSURANCE COMPANY LIMITED (Company Registration Number 15454)
whose registered office is at 142 HoIbom Bars London EClN 2NH (the "Landlord");
and
2) ARCHER GROUP MANAGEMENT SERVICES LIMITED (Company Registration Number
02733994) whose registered office is at 1 Minster Court Mincing Lane London EC3R
7AA (the "Tenant")
3) ARCHER\HOLDINGS PLC (Company Registration Number 02186145) whose registered
office is at 4th Floor Holland House 1-4 Bury Street London EC3A 51A (the
"Guarantor")
W I T N E S S E S as follows:
1. INTERPRETATION
1.1 IN this Lease, where the context so admits, the following expressions shall
include as follows:
1.1.1 Access Ramp" means the entrance and exit ramp from Mark Lane down to
basement level and the entrance and exit way connecting to the Basement all of
which is shown coloured brown on Plan 1, Plan 2 and Plan 3, as altered, added
to, extended, varied, stopped up or repositioned under the Third Schedule or
such alternative entrance and exit to and from a public highway as the Superior
Landlord or the Landlord may from time to time designate thereunder
1.1.2 "Basement" means the basement in the building
1.1.3 "Building" means the building currently known as Number Two Minster
Court which now abuts Mark Lane, Dunster Court and Minster Court the extent of
which is shown (for the purposes of identification only) edged red on Plan 1,
Plan 2, Plan 3 and Plan 4 and which includes (without limitation):
1
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(a) the roof, all external walls and the main structure thereof and the
foundations piles and soil upon which the Building rests; and
(b) all landlord's fixtures, fittings, plant, machinery, apparatus and
equipment now or hereafter in or upon the same, including, without
limitation, the Fixtures; and
(c) all additions alterations and improvements thereto from time to time
1.1.4 "Building Common Ruts" means such parts of the Building as are not
designed for letting or beneficial use and occupation (together with such other
parts as are occupied or (the Landlord acting reasonably in this regard)
reserved for occupation for the purpose of the management of the Building)
together with the Car Park or such other parts of the Building as may be
reasonably required by the Landlord (but excluding the Demised Premises or any
part thereof)
1.1.15 "Building Expenditure" means the sum calculated pursuant to Clause 8.2
1.1.6 "Building Regulations" means the regulations set out or referred to in
Clause 3.3 1 and the Tenth Schedule;
1.1.7 "Building Service Charge" means a sum equal to such reasonable and proper
proportion as the Landlord may from time to time reasonably and properly specify
of the Building Expenditure
1.1.8 "Building Services" means the services amenities and payments set out in
Section I of the Seventh Schedule
1.1.9 "Car Park" shall mean the car park situated in the Basement and shown for
identification purposes edged yellow on Plan 1
1.1.10 "Conducting Media" means pipes, wires, cables, sewers, drains,
watercourses, trunking, ducts, conduits and other media for the provision of
water, electricity, gas, telecommunications, heating, air-conditioning,
ventilation, fire alarm or other services and includes any fixing, louvres,
cowls and other ancillary apparatus
1.1.11 "Demised Premises" means the premises situate on the third floor of the
Building more particularly described in the First Schedule and includes each and
every part thereof
2
<PAGE>
1.1.12 "DunsterCourt Documents" means the agreement dated 15th September 1988
between The Prudential Assurance Company Limited (1) and the Clothworkers
Company (2) and includes the deed agreement and lease at Annexures A, B and C
thereof respectively (whenever the same are completed) in the form or
substantially in the form of those annexed to such agreement and includes any
other documents or arrangements governing the use of Dunster Court from time to
time
1.1.13 "Dunster Court Access" means the access road from Mincing Lane and the
turning circle and other areas shown coloured yellow on Plan 3 and as altered,
added to, extended, varied, stopped up or repositioned under the Third Schedule
or such alternative vehicular access as the Superior Landlord or the Landlord
may from time to time designate thereunder
1.1.14 "Estate" means the land shown edged blue on Plan 1, Plan 2, Plan 3 and
Plan 4 together with any additional land in the neighbourhood of the Estate in
which the Superior Landlord or the Landlord or a Group Company of the Superior
Landlord or the Landlord shall acquire a freehold or leasehold interest and
which the Superior Landlord or the Landlord from time to time reasonably
designates as part of the Estate, together in each case with all buildings and
appurtenances thereon from time to time and all additions, alterations and
improvements thereto
1.1.15 "Estate Common Parts" means those parts (other than the Building or the
building known as Number One or Number Three Minster Court) of the Estate (such
parts not being publicly adopted) which are from time to time intended for the
common use and enjoyment of the tenants or occupiers of the Estate and persons
claiming through or under them (whether or not other parties are also entitled
to use and enjoy the same) and includes without prejudice to the foregoing:
a) Minster Court, the Access Ramp, the Dunster Court Access and Minster
Pavement (as referred to in Clause 1.1.43);
b) roads to the point of connection with a highway maintainable at public
expense;
c) bridges, kerbs, pavements, footpaths, landscaped areas, and open areas,
including the central court and courtyard;
d) malls, walkways, pedestrian ways, concourses and circulation areas,
staircases, travelators, escalators, elevator ramps and lifts, loading
bays, tirecourts, service roads, service areas and service bays which
are not and are not intended to be the responsibility of a particular
tenant or tenants;
3
<PAGE>
e) Conducting Media therein which are not and are not intended to be the
responsibility of a particular tenant or group of tenants;
f) foundations, pilings, substructures, floors, walls, Glazed Roof, ramps,
accessways, entrances, exits and any other matters or things which make
up those parts of the Estate which are not and are not intended to be
the responsibility of a particular tenant or tenants, as any of the
same may be altered, added to, extended, varied, stopped up,
repositioned or substituted under the Third Schedule
1.1.16 "Estate Expenditure" means either (i) for so long as the Landlord is the
Freeholder of the Estate Common Parts the sum calculated pursuant to Clause 7.3
or (ii) in the event of the Landlord ceasing to be the Freeholder of the Estate
Common Parts and no longer responsible for providing the Estate Services the sum
payable from time to time by the Landlord under the provisions of the Head Lease
or otherwise to the person responsible for supplying the Estate Services
1.1.17 "Estate Regulations" means the regulations set out or referred to in
Clause 3.30 and the Ninth Schedule
1.1.18 "Estate Service Charge" means a sum equal to such reasonable and proper
proportion as the Landlord may from time to time reasonably and properly specify
(having regard to all relevant factors) of the Estate Expenditure
1.1.19 "Estate Services" means the services, amenities and payments set out in
Section I of the Sixth Schedule
1.1.20 "Excluded Plant" means the air handling ducts and the VAV boxes in the
void above the suspended ceilings within the Demised Premises and all Conducting
Media not exclusively serving the Demised Premises
1.1.21 "Fixtures" means all landlord's fixtures and fittings in or upon the
Demised Premises including (without limitation) any electrical and mechanical
plant, machinery, equipment and apparatus and the water and sanitary apparatus,
lights, lighting, false ceilings, floor coverings, aerials and communications
systems, all Conducting Media exclusively serving the Demised Premises and all
additions alterations and improvements thereto made from time to time (but
excluding all tenant's and trade fixtures and fittings and the Excluded Plant)
4
<PAGE>
1.1.22 "Force Majeure" means (a) any emergency, damage to or destruction of any
installations or apparatus, mechanical or other defect or breakdown not caused
by any act or default of the Landlord where the Landlord has acted prudently and
with due diligence (b) frost or other inclement conditions, shortage of energy,
supplies, fuel, materials, water or labour, strikes or lockouts or other
industrial action, enemy action, war or civil commotion, governmental
restrictions, acts of God and (c) any other cause beyond the control of the
Landlord
1.1.23 "Glazed Roof" means the glazed roof and supports over Minster Court the
Access Ramp and between the Building and Number Three Minster Court and the
Building and Number One Minster Court and includes any reinstatement or
replacement thereof and any new roof in such areas whether or not wholly glazed
or at the same level as that now in existence
1.1.24 "Group Company" means any company which is for the time being a member of
the same group of companies as the Landlord or the Tenant (as the case may be)
within the meaning of Section 42(l) of the Landlord and Tenant Act 1954
1.1.25 "Guarantor" means the person from time to time guaranteeing the
obligations of the Tenant in this Lease and includes the party so named above
and in the case of an individual includes his or her personal representatives
and in the case of a company includes any company into which it shall merge
1.1.26 "Head Lease" means the superior lease under which the Landlord holds the
Building and all leases superior thereto
1.1.27 "Initial Rent" means the following clear yearly rents for the following
periods:
a) from and including 25 April 1994 to and including 23 June
1994 - rent at the rate of pounds 03,091.59 per annum
b) from and including 24 June 1994 to and including 24 March 1996
- rent at the rate of pounds 364,768 per annum;
c) from and including 25 March 1996 to and including 24 March
1998 - rent at the rate of pounds 521,729 per annum;
d) from and including 25 March 1998 to and including 24 December
1998 - rent at the rate of pounds 577,786 per annum;
5
<PAGE>
1.1.28 "Insurance Rent" means a reasonable and proper proportion of the
aggregate of:
(i) the sums which the Landlord may from time to time incur in
respect of insurance in accordance with the provisions of
Clause 6.1; and
(ii) the costs from time to time of any insurance valuations
carried out by the Landlord in respect of the Building at such
periods as the Landlord may reasonably consider appropriate
1.1.29 "Insured Risks" means (to the extent that the same are insurable and
subject to such exclusions and limitations or conditions as may be imposed from
time to time by the insurers or contained in the policy of insurance such
exclusions limitations and conditions in both cases being reasonably common in
the insurance market at the time of imposition and which the Landlord shall
notify to the Tenant forthwith upon becoming aware thereof) fire, lightning,
explosion, storm, tempest, flood, earthquake, bursting and overflowing of water
tanks, apparatus and pipes, riot, civil commotion, malicious damage, impact by
any vehicle aircraft or aerial device or by any article dropped therefrom
subsidence heave landslip and landslide and such other risks as the Landlord
shall from time to time reasonably consider necessary
1.1.30 "Interest Rate" means the base rate for the time being of Midland Bank
public limited company or such other rate or rates for the time being replacing
the same by reference to which London and Scottish Clearing Banks determine
their own rates of interest or if none such rate of interest as the Landlord may
reasonably and properly specify
1.1.31 "Internal Decoration Year" means the year ending 3 1 December 1998 and
thereafter every subsequent fifth year of the Term (subject to the provisions of
Clause 3.3.4)
1.1.32 "Landlord" includes the person entitled to the reversion for the time
being immediately expectant on the Term
1.1.33 "Landlord's Specification" means the specification annexed to this Lease
so marked and signed on behalf of the parties for identification purposes
6
<PAGE>
1.1.34 "Landlord's Surveyor" means a surveyor or member of a firm of Surveyors
instructed by the Landlord for any of the purposes of this Lease which surveyor
or member shah be a fellow or associate of the Royal Institution of Chartered
Surveyors or the Incorporated Society of Valuers and Auctioneers and such
surveyor may be a person employed directly by the Landlord or a company which is
a Group Company of the Landlord
1.1.35 "this Lease" means this Lease and any document which is made supplemental
hereto or which is entered into pursuant'to or in accordance with the terms
hereof
1.1.36 "Lettable Areas in the Building" means those parts of the Building leased
or intended to be -leased to occupational tenants (but excluding any parts of
the Building leased or intended to be leased to statutory undertakers for the
purpose of the carrying out of their statutory obligations
1.1.37 "Lettable Areas in the Estate" means those parts of any building on the
Estate leased or intended to be leased to occupational tenants (but excluding
any parts of such building leased or intended to be leased to statutory
undertakers fir the purposes of the carrying out of their statutory obligations)
1.1.38 "Loading Bay" means the loading bay at Basement Level as shown for the
purpose of identification only coloured orange on Plan Numbered 1
1.1.39 "Management Company" means any company appointed by the Landlord pursuant
to Clause 5.18
1.1.40 "Management Premises" means any administrative and control offices and
centres and stores reasonably maintained by the Landlord or the Superior
Landlord or the person responsible for providing the Estate Services from time
to time for the purposes of managing the Estate and providing the Estate
Services and/or, as the case may be, managing the Building and providing the
Building Services together with any accommodation including residential
accommodation (if any) reasonably provided by the Landlord or such other person
from time to time for a guard or manager employed by it for purposes connected
with the Estate and/or the Building (whether or not within the Estate)
1.1.41 "Minster Court" means the main entrance to the Estate from Mincing Lane
and the covered steps, doors, gates, courtyards and piazza now fronting each of
the buildings in the Estate and which is shown coloured pink on Plan 3 and Plan
4 as altered, added to, extended, varied, stopped up or repositioned from time
to time under the Third Schedule or such
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alternative main entrance to the Estate or the Building from a public highway as
the Superior Landlord or the Landlord may from time to time designate thereunder
1.142 "Minster Court Access Hours" means the hours of 7.00 am to 7.00 pm on
Monday to Friday inclusive and 8.00 am to 1.00 pm on Saturdays (excluding
Christmas Day, Good Friday and all usual bank or public holidays) as being those
during which the entrances and exits to and from Minster Court are open or such
other reasonable hours specified by the Superior Landlord or the Landlord as
being those during which the same are to be open Provided That the Superior
Landlord or the Landlord may close the entrances and exits of Minster Court
and/or the Pedestrian Mall to and from the Dunster Court Access independently of
all other entrances and exits at such times of day and during such days as it
may reasonably require in order to accord with the Dunster Court Documents or as
may be reasonably necessary or for the more effective security of the Estate and
the Estate Common Parts
1.1.43 "Pedestrian Mall" means the mall now known as Minster Pavement connecting
from the Dunster Court Entrance through the Estate at lower ground floor level
to Mincing Lane as is shown coloured purple on Plan Number 3
1.1.44 "Permitted Part" means any part of the Demised Premises but so that such
part shall have reasonable arrangements for access to the Building Common Parts
and to lavatories within the Demised Premises
1.1.45 "Permitted User" means use as good class offices within Class Bl(a) of
the Town and Country Planning (Use Classes) Order 1987 (such Order to be read as
at the date of this Lease and not having regard to any modification or
reenactment thereof) together with ancillary storage
1.1.46 "Plan 1" means Plan Number 1344 S/1.2/10 annexed hereto
"Plan 2" means Plan Number 1344 S/1.2/11 annexed hereto
"Plan 3" means Plan Number 1344 S/1.2/12 annexed hereto
"Plan 4" means Plan Number 1344 S/1.2.13 annexed hereto
"Plan 5" means the plan numbered such annexed hereto
1.1.47 "Planning Acts" means the "consolidating Acts" as defined in the Planning
(Consequential Provisions) Act 1990 or any statutory modification or reenactment
of any such Acts for the time being in force and any regulations or orders made
or having effect thereunder
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1.1.48 "Reinstatement Cost" means the costs of reinstating the Building at the
time when such reinstatement is likely to take place having regard to any
possible increases in building costs in a sum which includes the cost of
demolition, shoring up, site clearance, ancillary expenses and architects'
surveyors' and other professional fees and Value Added Tax on all the items
mentioned in this definition
1.1.49 "Retained Parts" means all parts of the Building (which do not comprise
Lettable Areas in the Building or Estate Common Parts) including but not limited
to:
a) the Building Common Parts;
b) the Management Premises;
c) any parts of the Building reserved by the Landlord for the
housing of plant, machinery and equipment or otherwise in
connection with or required for the provision of services;
d) all Conducting Media in, upon, over or under or exclusively
serving the Building except any that form part of and
exclusively serve the Lettable Areas in the Building;
e) the main structure of the Building and in particular, but not
by way of limitation, the roof, foundations, external walls,
internal load- bearing walls and the structural parts of the
roof, ceilings and floors, all party structures, boundary
walls, the Basement, railings and fences and all exterior
parts of the Building and all roads, pavements, pavement
lights and car parking areas (if any) within the curtilage of
the Building;
f) the smoke vents in the Building;
g) the Excluded Plant;
h) such other parts of the Building as may be reasonably
designated as such by the Landlord
1.1.50 "Service Systems" means all Conducting Media within the Estate or the
Building which serve both the Demised Premises and other Lettable Areas in the
Building and/or Lettable Areas in the Estate
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1.1.51 "Superior Landlord" mans the landlord under the Head Lease or other the
person or persons for the time being entitled to any estate or estates which are
reversionary (whether immediate or mediate) upon the Landlord's estate or
interest in the Demised Premises or the Estate
1.1.52 "Tenant" includes the successors in title and assigns of the Tenant, as
the case may be and, in the case of an individual, includes his or her personal
representatives
1.1.53 "Term" means the term of fifteen (15) years commencing on 25 December
1993 (the "contractual term") and includes the period of any holding over or any
continuation whether by statute or common law
1.1.54 "VAT Deed" means the deed of today's date between the parties hereto in
relation to VAT on the rents hereby reserved
1.1.55 "Water Charges" means the Water Bate together with any charges for
services performed, facilities provided or rights made available by the water
authority under the powers granted by the Water Act 1989 including, but without
limitation, sewerage and environmental charges
1.1.56 "Water Testing" means the carrying out of all tests and sampling of the
water and sanitary systems within the Building as may in the Landlord's
reasonable opinion from time to time be appropriate or necessary in relation to
health or hygiene, including, without limitation, such testing and sampling as
may be required by any relevant legislation or applicable code of practice
1.2 Interpretation
Unless there is something in the subject or context inconsistent therewith:-
1.2.1 any words or expressions importing the singular number shall be taken to
include the plural number and vice versa and words importing gender shall be
taken to include any other gender;
1.2.2 where two or more persons are included in the expression the "Tenant"
and/or the "Landlord" and/or the "Guarantor" the covenants which are expressed
to be made by the Tenant and/or the Landlord and/or the Guarantor shall be
deemed to be made by such persons jointly and severally;
1.2.3 words importing persons shah include firms, companies and corporations and
vice versa;
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1.2.4 any covenant or regulation to be observed by the Tenant not to do any act
or thing shall include an obligation not to cause permit or suffer such act or
thing to be done by it, its tenants, undertenants, agents, contractors or others
for whom it is responsible;
1.2.5 references either to any right of the Landlord to have access to or entry
upon the Demised Premises or the rights of the Tenant in relation to any
adjoining properly shall be construed as extending respectively to the Superior
Landlord and all persons authorised by the Landlord and the Superior Landlord
and (as the case may be) by the Tenant including agents, professional advisers,
contractors, workmen and others with or without plant and materials;
1.2.6 whenever the consent or approval of the Landlord is required, the relevant
provision shall be construed as also requiring the consent or approval of the
Superior Landlord if it is also required pursuant to the Head Lease, and nothing
in the Lease shall be construed as implying that the Superior Landlord shall be
under any obligation not unreasonably to withhold its consent or approval
1.2.7 any reference to a statute (whether specifically named or not) shall
include any amendment or reenactment of such statute for the time being in force
and all instruments, orders, notices, regulations, directions, bye-laws,
permissions and plans for the time being made, issued or given thereunder or
deriving validity therefrom;
1.2.8 reference to any agreement, contract, deed or document shall be construed
as including any amendment, variation, alteration or modification thereto and
any novation thereof and any thing supplemental thereto;
1.2.9 reference to Value Added Tax shall include any tax of a similar nature
substituted for Value Added Tax;
1.2.10 the titles and headings appearing in this Lease are for reference only
and shall not affect its construction;
1.211 any reference to a clause or schedule means a clause or schedule of this
Lease
2. DEMISE AND RENTS
In consideration of the rents and covenants on the part of the Tenant
hereinafter reserved and contained the Landlord hereby demises unto the Tenant
ALL THAT the Demised Premises TOGETHER WITH the rights specified in the Second
Schedule EXCEPT AND RESERVED as mentioned in the Third Schedule TO HOLD the
Demised Premises unto
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the Tenant for the Term SUBJECT to any matters specified or referred to in the
Fourth Schedule and to all rights, covenants, conditions, agreements, easements,
quasi-easements or licences whatsoever affecting the Demised Premises PAYING
therefor yearly during the Term and so in proportion for any less time than a
year
2.1 first the Initial Rent or such rent ascertained from time to time in
accordance with the provisions contained in the Fifth Schedule by equal
quarterly payments in advance on the four usual quarter days in every year the
first such payment to be calculated from 25 April 1994 to 28 September 1994
(both dates inclusive) and to be made on 24 June 1994;
2.2 second, by way of further or additional rent (severally) the Estate Service
Charge and the Building Service Charge calculated in the manner and payable at
the times specified in Clause 7 and Clause 8 respectively;
2.3 third, by way of further or additional rent each of the Insurance Rent
payable to the Landlord within fourteen (14) days of demand and the Electricity
Charge (as defined in the Eleventh Schedule) payable at the times specified in
such schedule;
2.4 fourth, within fourteen days of demand by way of further or additional rent
(but in addition and without prejudice to any right of reentry or other remedy
herein contained or by law vested in the Landlord) all sums referred to in
Clauses 3.10 and 3.25;
2.5 fifth, by way of further or additional rent (but in addition and without
prejudice to any right of reentry or other remedy herein contained or by law
vested in the Landlord) any other moneys which are by this Lease stated to be
recoverable as rent in at-rear to be paid to the Landlord as therein provided
within fourteen (14) days of demand; and
2.6 sixth, by way of further or additional rent any Value Added Tax which may be
chargeable in respect of any rents or other sums reserved or payable hereunder
ALL such rents to be paid without any deduction, set-off, counter-claim,
abatement or reduction whatsoever (except for tax required by statute to be
deducted)
3. TENANT'S COVENANTS
THE Tenant HEREBY COVENANTS with the Landlord as follows:
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3.1 Rents
To pay the rent first hereby reserved, the Insurance Rent, the Estate Service
Charge, the Building Service Charge and the Electricity Charge (as defined in
the Eleventh Schedule hereof) and all other rents at the times and in the manner
specified in Clause 2 without any deduction, set-off, counter-claim, abatement
or reduction whatsoever (except as mentioned above)
3.2. Outgoings
3.2.1 (Subject only to any statutory direction to the contrary) to pay and
discharge all rates and Water Charges, taxes, assessments, outgoings and
impositions whatsoever (save to the extent that the same are included in the
Building Service Charge or in the Estate Service Charge) (whether parliamentary,
parochial, local or otherwise and whether or not of a capital or non-recurring
nature or of a wholly novel character), together with any Value Added Tax on any
of the same, which are now or may at any time hereafter be assessed, charged or
imposed upon the Demised Premises or on the owner or occupier in respect thereof
and all proper proportions thereof (except income or corporation tax payable by
the Landlord in respect of rents and other payments arising under this Lease or
income or corporation tax or Value Added Tax or capital gains tax payable as a
result of any dealing with any reversion immediately or mediately expectant on
the Term)
3.2.2 To pay and contribute within fourteen (14) days of demand to the Landlord
a fair and reasonable proportion (to be fairly and properly determined by the
Landlord's Surveyor) of the costs, charges, fees and expenses properly expended
or incurred by the Landlord (but only to the extent that the same do not fall to
be included in the Estate Service Charge or the Building Service Charge) in
making, laying, repairing, maintaining, rebuilding, decorating, cleansing and
lighting (as the case may be) any roadways or courts, passages, pavements,
turntables, party walls or fences, party structures, pipes or other conveniences
and easements whatsoever which may belong to, or be capable of being used or
enjoyed by, the Demised Premises in common with any adjoining property and in
default of payment to be recoverable as rent in arrear
3.2.3 To indemnify the Landlord against any loss to the Landlord of void rating
relief (or part thereof) which would have been applicable to the Demised
Premises by reason of the Demised Premises being vacant after the end of the
Term (or any earlier determination thereof) but which is not available to the
Landlord on the ground that such relief (or part thereof) has already been
allowed to the Tenant
3.2.4 To co-operate with the Landlord in respect of contesting any outgoings
referred to in Clause 3.2.1 or appealing any assessments related thereto and to
supply to the Landlord forthwith
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upon receipt copies of any such assessments and to make available to the
Landlord such information in respect thereof as the Landlord reasonably requests
3.2.5 Not to agree or appeal or contest any such outgoings or any assessments
related thereto without the prior approval in writing of the Landlord (such
approval not to be unreasonably withheld or delayed)
3.2.6 To pay to the suppliers and indemnify the Landlord against all charges for
telephone, water, gas (if any) and other services consumed in the Demised
Premises during the Term including any connection charge and meter installation
costs and rents
3.2.7 (a) To perform and observe all present and future regulations
and requirements of the electricity, telephone, gas and water
supply or other authorities; boards or companies in respect of
the supply and consumption of electricity, telephone services,
gas, water and other services on the Demised Premises and to
keep the Landlord indemnified against any breach thereof
(b) To pay to the Landlord or as it may direct an amount equal to
any rebate or rebates which the Tenant or any under-tenant may
receive from a statutory undertaker in respect of the capital
costs incurred by the Landlord or Group Company of the
Landlord for providing water, foul and surface water drainage,
gas, electricity and telecommunications
3.3 Repairs and Decorations
3.3.1 (Damage by the Insured Risks excepted save to the extent that payment of
the insurance monies shall be withheld by reason of any act, neglect or default
of the Tenant or any under-tenant or person under its or their control) to
repair and keep the Demised Premises and any Conducting Media outside the
Demised Premises exclusively serving the same in good and substantial repair and
condition and where necessary in order so to do to renew, rebuild and reinstate
the Demised Premises or any part thereof
3.3.2 To replace from time to time any Fixtures which may be or become in need
of replacement with new ones which are similar in type and quality so that at
all times throughout the Term the Fixtures shah be in first class repair working
order and condition as appropriate to the size quality and prestige of the
Demised Premises and the Building and the Estate of which they are part
3.3.3 To keep all mechanical and electrical plant, machinery, apparatus and
equipment (not being Excluded Plant or moveable property of the Tenant or any
under-tenant) in or exclusively
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serving the Demised Premises properly maintained and in good working order and
condition and for that purpose:
a) either (i) (subject to such contractors offering reasonable commercial
terms) to employ the contractors of the Landlord for the maintenance
and service of the air-conditioning and other plant within the Demised
Premises(such contractors to be notified to the Tenant by the Landlord)
or (ii) in the event of the Landlord not employing contractors, to
employ such reputable contractors as may be approved by the Landlord,
such approval not to be unreasonably withheld or delayed, regularly to
inspect, maintain and service the same and to supply to the Landlord
upon request copies of any contracts entered into by the Tenant in
respect thereof;
b) to renew or replace all working and other parts as and when necessary
and (if reasonably required by the Landlord) on the expiration or
sooner determination of the Term; and
c) to ensure by directions to the Tenant's staff and otherwise that such
plant and machinery is properly operated
3.3.4 In every Internal Decoration Year and also in the last six months of the
Term (whether determined by effluxion of time or otherwise) (hut so that the
Tenant shall not be required in the last twelve (12) months of the Term to
comply with this sub-clause otherwise than in the last six (6) months of the
Term)in a good and workmanlike manner to prepare and decorate (with two coats at
least of good quality paint) in colours to be approved by the Landlord (such
approval not to be unreasonably withheld or delayed) or otherwise treat as
appropriate all parts of the Demised Premises required to be so treated and as
often as may be reasonably necessary properly to wash down all tiles, glazed
bricks and similar washable surfaces including all doors fronting onto the
Building Common Parts, such decorations and treatment to be executed in
accordance with the reasonable conditions set down for the treatment of the
internal face of the cladding of the Building as the Landlord shall from time to
time provide to the Tenant
3.3.5 To keep the Demised Premises in a clean and tidy condition and as and when
necessary at least once in every two (2) months properly to clean the insides of
all windows and window frames and all other glass in the Demised Premises
3.3.6 To maintain and when necessary (if reasonably required by the Landlord) on
the expiration or sooner determination of the Term to replace the carpets or
such other floor coverings
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now or from time to time laid in the Demised Premises with new carpets or other
floor coverings of equivalent quality and value
3.4 Yielding Up
3.4.1 Immediately prior to the expiration or sooner determination of the Term
at the cost of the Tenant:
(a) to replace any of the' Fixtures which shall be missing broken damaged
or destroyed with new ones of similar kind and quality;
(b) to remove from the Demised Premises and the Building and the Estate any
moulding, sign, writing or painting of the name or business of the
Tenant or occupiers and all tenant's fixtures fittings furniture and
effects and to make good to the reasonable satisfaction of the Landlord
all damage caused by such removal;
(c) to the extent required by the Landlord but not otherwise, to remove all
wiring, cabling and other conducting material installed in the Demised
Premises and the Estate or the Building by or at the request of the
Tenant or any undertenant in respect of video, data and sound
communications, including telephones; and
(d) to the extent required by the Landlord but not otherwise, well and
substantially to remove all alterations carried out by the Tenant
during the Term or prior to the commencement thereof (including any
works under Clause 3.12) and to reinstate the Demised Premises in or to
the condition specified in the Landlord's Specification and otherwise
in such manner as the Landlord shall reasonably direct and to its
reasonable satisfaction
3.4.2 At the expiration or sooner determination of the Term quietly to yield up
the Demised Premises to the Landlord in good and substantial repair and
condition in accordance with the covenants and other obligations on the part of
the Tenant contained in this Lease
3.5 Statutory Requirements
3.5.1 Within fourteen (14) days (or sooner if requisite having regard to the
requirements of the notice in question or the time limits stated therein) of the
receipt of the same, to produce to the Landlord a true copy and any further
particulars reasonably required by the Landlord of any permission, notice or
order or proposal for a notice or order relevant to the Demised Premises or to
the Estate or to the Building or to the use or condition thereof or otherwise
concerning the Tenant made, given or issued to the Tenant or occupier by any
government department or local or public authority AND without delay to take all
necessary steps to
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comply therewith so far as the same is the responsibility of the Tenant AND ALSO
at the request of the Landlord but at the cost of the Tenant to the extent to
which it relates to the Demised Premises to make or join with the Landlord in
making such objections or representations against or in respect of any such
notice order or proposal as aforesaid as the Landlord shall reasonably deem
expedient
3.5.2 At the expense of the Tenant, to execute and comply with all works and
other requirements whatever as may now or at any time during the Term be
lawfully directed or required by any local or other public or competent
authority or Court of competent jurisdiction or statute (including without
limitation the Offices, Shops and Railways Premises Act 1963, the Health and
Safety at Work Etc. Act 1974 and the Fire Precautions Act 1971) or bye-law to be
executed or done upon or in respect of the Demised Premises or any addition
thereto or any part thereof or the user thereof or employment or residence
therein of any person or persons or fixtures, machinery, plant or chattels
therein or by the owner or occupier thereof and to indemnify and keep
indemnified the Landlord at all times against all costs, charges and expenses of
or incidental to any such works, things or requirements and not at any time
during the Term to do (or omit to do any act or thing for which the Tenant is
responsible hereunder) on or about the Demised Premises or any part or parts of
the Building or the Estate used for the purposes of but not comprised in the
Demised Premises any act or thing by reason of which the Landlord may under any
order or enactment incur or have imposed upon it or become liable to pay any
penalty, damages, compensation, costs, charges or expenses
3.5.3 To comply with all reasonable rules and regulations which the Landlord may
from time to time promulgate in relation to the maintenance of the water and
sanitary systems (if any) within the Demised Premises and, when reasonably
required by the Landlord, to shut down such of the water or sanitary systems as
the Landlord may specify to enable the Landlord to carry out Water Testing
3.6 Planning Acts
3.6.1 At all times during the Term, to comply in all respects with the
provisions and requirements of the Planning Acts and of all consents,
permissions and conditions (if any) granted or imposed or having effect
thereunder so far as the same respectively relate to or affect the Demised
Premises or any part thereof or any operations, works, acts or things already or
hereafter to be carried out, executed, done or omitted thereon or the use
thereof for any purpose
3.6.2 At the expense of the Tenant, to obtain all planning permissions and any
other consents and to serve all notices as may be required for the carrying out
or continuation of any operation
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or use on the Demised Premises which may constitute development but so that no
application for planning permission or for a determination under Section 64 of
the Town and Country Planning Act 1990 shall be made or any notice given to any
authority of the commencement or carrying out of any development nor shall any
notice be given of an intention to commence or carry out the same without the
prior written consent of the Landlord, such consent not to be unreasonably
withheld or delayed
3.6.3 To pay and satisfy any charge that may hereafter be imposed under the
Planning Acts in respect of the carrying out or maintenance of any such
operations or the institution or continuance of any such use as is referred to
above
3.6.4 Notwithstanding any consent which may be granted by the Landlord under
this Lease, not to carry out or make any alteration or addition to the Demised
Premises or any change of use thereof (being an alteration or addition or change
of use which is prohibited by or for which the Landlord's consent is required to
be obtained under this Lease and for which a planning permission needs to be
obtained) before a planning permission therefor has been produced to the
Landlord and acknowledged by it in writing as satisfactory to it (which
acknowledgement will not be unreasonably withheld or delayed) But so that the
Landlord may refuse so to express its satisfaction with any such planning
permission on the ground that the period thereof, any condition contained
therein or anything omitted therefrom in the reasonable opinion of the
Landlord's Surveyor would be or be likely to be prejudicial to the Landlord's
interest in the Demised Premises or the Building or the Estate whether during
the Term or following the determination or expiration thereof
3.6.5 Unless the Landlord shall otherwise direct, to carry out and complete
before the expiration or sooner determination of the Term:
a) any works stipulated to be carried out to the Demised Premises
by a date subsequent to such expiration or sooner
determination as a condition of any planning permission
granted for any development begun before such expiration or
sooner determination; and
b) any development begun upon the Demised Premises in respect of
which the Landlord shall or may be or become liable for any
charge or levy under the Planning Acts
3.6.6 If and when called upon so to do, to produce to the Landlord or the
Landlord's Surveyor all such plans documents and other evidence as the Landlord
may reasonably require in
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order to satisfy itself that the provisions of this Clause 3.6 have been
complied with in all respects 3.7 To comply with Notices 3.7.1 To permit the
agents of the Landlord and/or the Superior Landlord at all reasonable hours in
the daytime upon giving reasonable prior written notice to the Tenant (or
without notice in the case of emergency) with or without workpeople or others to
enter and remain upon the Demised Premises or any part thereof to view the state
and condition of the Demised Premises and to ensure that nothing has been done
which constitutes, or may tend to constitute, a breach of the covenants
contained in this Lease and to give or leave on the Demised Premises notice in
writing to the Tenant of any such breach
3.7.2 Whenever the Landlord shall give written notice to the Tenant of any
defects, wants of repair or breaches of covenant, the Tenant shall within sixty
(60) days of such notice, or sooner if requisite, make good and remedy the
breach of covenant to the reasonable satisfaction of the Landlord and if the
Tenant shall fail within twenty-one (21) days of such notice, or as soon as
reasonably possible in the case of emergency, to commence and then diligently
and expeditiously to continue to comply with such notice, the Landlord may (but
without prejudice to any right of forfeiture or any other right of the Landlord)
enter the Demised Premises and carry out or cause to be carried out all or any
of the works referred to in such notice and all costs and expenses thereby
reasonably and properly incurred shall be paid by the Tenant to the Landlord on
demand and, in default of payment, shall be recoverable as rent in arrear
3.8 Rights of entry by Landlord
To permit the Landlord and/or the Superior Landlord or its or their respective
agents or workpeople and also the tenants and occupiers of any adjoining
premises or their workpeople and all persons authorised by the Landlord
(reasonably) and/or the Superior Landlord with or without all necessary
materials and appliances at all reasonable times during the Term at reasonable
hours upon giving reasonable prior written notice to the Tenant (or without
notice in case of emergency) to enter and remain upon the Demised Premises for
any of the following purposes:
3.8.1 executing repairs or alterations to or upon the Retained Parts or such
adjoining premises, subject to the person so entering causing as little
disturbance and inconvenience to the Tenant as reasonably possible carrying out
all works as expeditiously as reasonably possible and in a reasonable and
workmanlike manner and forthwith in like manner making good all damage thereby
occasioned;
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3.8.2 exercising any of the rights excepted and reserved by this Lease;
3.8.3 performing any of the Landlord's obligations hereunder or providing the
Estate Services, the Building Services or valuing the Demised Premises or the
Building;
3.8.4 to take schedules or inventories of the Fixtures;
3.8.5 Water Testing and carrying out any necessary works of maintenance,
cleansing, repair or replacement to ensure that all sanitary and water systems
within the Building comply with al1 relevant enforceable rules and regulations,
whether statutory or otherwise, and all relevant codes of practice relating to
health and hygiene
3.8.6 any other reasonable purpose connected with the interest of the Landlord
and/or the Superior Landlord in the Demised Premises and their disposal or
charge
3.9 Landlord's Survey
To permit the Landlord or its surveyors or agents or any other person reasonably
authorised in writing by it at any time during the Term at reasonable hours upon
giving reasonable prior written notice to the Tenant to enter upon the Demised
Premises to survey the same
3.10 Landlord's Costs
To pay to the Landlord all proper costs, charges and expenses (including legal
costs and fees payable to a surveyor or management surveyor) which may be
properly incurred by the Landlord:
3.10.1 in relation to or in reasonable contemplation of the preparation and
service of a notice under Section 146 of the Law of Property Act 1925 or in
reasonable contemplation of proceedings under Sections 146 and/or 147 of the
said Act whether or not any right of reentry or forfeiture has been waived by
the Landlord or a notice served under the said Section 146 is complied with by
the Tenant or the Tenant has been relieved under the provisions of the said Act
and notwithstanding forfeiture is avoided otherwise than by relief granted by
the Court;
3.10.2 in relation to or in reasonable contemplation of the preparation and/or
service of notices or schedules relating to the repair of the Demised Premises
or in connection with the delivery up thereof upon the expiry or sooner
determination of the Term whether served before or within six (6) months after
the determination of the Term but relating to the state of repair up to the date
of determination of the Term;
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3.10.3 in connection with the recovery or attempted recovery of arrears of rent
or other sums due from the Tenant or in procuring the remedying of any breach of
covenant by the Tenant contained in this Lease; and
3.10.4 in relation to any application for consent required or made necessary by
this Lease (such costs to include reasonable management fees and expenses)
whether or not the same is granted (except in cases where the Landlord is
obliged not unreasonably to withhold its consent and the withholding of its
consent is held to be unreasonable) or whether or not the application be
withdrawn provided that any such costs arising under this Clause 3.10.4 shall be
reasonable
3.11 Obstruction of Services, etc.
3.11.1 Not to obstruct block up or encumber with articles or goods of any
description the Estate Common Parts or the Building Common Parts
3.11.2 Not to discharge into any Conducting Media any oil or grease or any
noxious or deleterious effluent or substance whatsoever which may cause an
obstruction or might be or become a source of danger or which might injure the
Conducting Media or the drainage system of the Demised Premises or the Building
or the Estate
3.11.3 Not to deposit on any part of the Demised Premises any trade empties,
rubbish or refuse of any kind other than in proper receptacles and not to burn
any rubbish or refuse on the Demised Premises
3.11.4 Not to do anything whereby any road, path, forecourt or other area over
which the Tenant may have rights of access or use may be damaged or the fair use
thereof by others may be obstructed in any manner whatsoever
3.12 Alterations
3.12.1 Not to erect any new building or new structure within the Demised
Premises or any part thereof nor to alter, add to or change the exterior of the
Demised Premises or the height, elevation or external architectural or
decorative design or appearance of the Demised Premises nor to merge the Demised
Premises with any adjoining property
3.12.2 Not to make any external or internal structural alterations or additions
to the Building
3.12.3 Not to make any alterations or additions to any air- conditioning,
sprinkler, alarm and other centrally controlled systems (other than security
systems installed by the Tenant) in the Demised Premises or the Conducting Media
within or serving the Demised Premises without
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3.12.4 obtaining the prior written consent of the Landlord (such consent not to
be unreasonably withheld or delayed) And in the event of the Tenant wishing to
make alterations or additions to such centrally controlled systems it shall be
reasonable for the Landlord to withhold consent to such alterations and
additions unless the Tenant agrees to employ a contractor nominated by the
Landlord for the carrying out of such work subject to such nominee being
prepared to carry out such work on reasonable commercial terms
3.12.5 Not to make any alterations or additions whatsoever (save as provided in
sub-clause 3.12.11 below) not prohibited by sub-clauses 3.12.1 or 3.12.2 or
3.12.3 without obtaining the prior written consent of the Landlord (such consent
not to be unreasonably withheld or delayed) Not to alter or change the colour of
lighting within any part of the Demised Premises which lighting is visible from
outside the Demised Premises or from other parts of the Estate or which would
affect floodlighting belonging to the Landlord or the Superior Landlord without
obtaining the prior written consent of the Landlord (such consent not to be
unreasonably withheld or delayed)
3.12.6 Subject to the rights granted in the Second Schedule, not to erect or
display on the exterior of the Demised Premises or in the windows thereof so as
to be visible from the exterior or within the curtilage of the Demised Premises
any pole, flag, aerial, advertisement, poster, signboard, fascia, placard, bill
notice or other sign or thing whatsoever
3.12.7 To ensure that all partitioning connecting to the perimeter walls within
the Demised Premises is installed only to the mullions between windows and not
to obstruct or block up whether by partitioning, or fittings any external
windows to the furniture or furnishings Demised Premises
3.12.8 Not to install any curtains, blinds or other window coverings other than
those supplied by the Landlord except as approved in writing by the Landlord
from time to time (such approval not to be unreasonably withheld or delayed)
3.12.9 Promptly to make good all damage caused to any adjoining property in the
carrying out of any alterations or additions to the Demised Premises
3.12.10 In the event that the Tenant shall carry out any alteration or addition
to the Demised Premises to notify the Landlord in writing immediately following
completion of such works of any resulting increase in the cost of reinstatement
to the Demised Premises for insurance purposes
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3.12.11 Without prejudice to the other provisions of this Lease, the Tenant may
without the consent of the Landlord install, remove and carry out alterations or
additions to the internal demountable partitioning, suspended ceilings, raised
floors and wiring PROVIDED THAT:
a) the same do not interfere with the efficient working of the Service
Systems;
b) before any works contemplated by this sub-clause 3.12.11 are commenced,
the Tenant shall supply to the Landlord fully annotated drawings which
have been approved by the Local Fire Officer or District Surveyor;
c) the Tenant obtains the approval of the Landlord to the arrangements
that are necessary to bring materials and goods into the Demised
Premises by way of the Building Common Parts; and
d) the Tenant notifies the Landlord immediately following the carrying out
of the said works and supplies two copies of plans for the parts of the
Demised Premises affected thereby showing the same
3.12.12 In the event of the Tenant failing to observe the covenants in this
Clause 3.12 for a period of twenty-eight (28) days after service of written
notice by the Landlord on the Tenant referring to this sub-clause and giving
details of the default complained of it shall be lawful for the Landlord and its
agents or surveyors with or without workmen and others and all persons
authorised by the Landlord with all necessary materials and appliances to enter
upon the Demised Premises and remove any alterations or additions and execute
such works as may be necessary to restore the Demised Premises to their former
state and the proper costs and expenses thereof (including surveyors* and other
professional tees) shall be paid by the Tenant to the Landlord on demand
3.13 Appearance of Demised Premises
3.13.1 To keep every part of the Demised Premises visible from outside the
Demised Premises or from any other parts of the Estate clean and tidy and in
such condition as shall not detract from the overall visual amenities of the
Estate or the Building
3.13.2 To keep clean and tidy, well tended, cultivated, planted and landscaped
(as applicable) any open areas within the Demised Premises and not to store
goods, materials or other things on any such open areas or outside the Demised
Premises
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3.13.3 Not to interfere with any lamps for illuminating the Estate (including
without limitation any street road plaza mall walkway or arcade) or any street
and directional signs serving the Estate
3.14 Comply with Fire Regulations
3.14.1 To comply with the requirements and lawful and proper recommendations of
the fire authority, the insurers of the Demised Premises and reasonable
requirements of the Landlord in relation to fire precautions affecting the
Demised Premises
3.14.2 To keep the Demised Premises supplied and equipped with such fire
fighting and extinguishing appliances as shall be required by any statute, the
fire authority or the insurers of the Demised Premises or as shall be reasonably
required by the Landlord and such appliances shall be open to inspection and
shall be maintained to the reasonable satisfaction of the Landlord
3.14.3. Not to obstruct the access to, or means of working of, any fire fighting
and extinguishing appliances or the means of escape from the Demised Premises in
case of fire or other emergency
3.15 Carrying out of alterations
3.15.1 Without prejudice to the provisions of Clause 3.12 or to any covenants
and conditions which the Landlord shall require or impose in giving consent for
alterations or additions to the Demised Premises where the Landlord's consent is
required under the provisions of Clause 3.12 or is otherwise given by the
Landlord, any alterations, additions, repairs, replacements or other works
carried out by the Tenant or any undertenant to or in respect of the Demised
Premises shall be performed promptly and in a good and workmanlike manner and in
compliance with rules and regulations reasonably promulgated by the Landlord
from time to time and notified in writing to the Tenant and any works the
carrying out of which may, in the Landlord's reasonable opinion, constitute a
nuisance or disrupt the businesses or activities of other tenants or occupiers
of the Building or the Estate or the public shall be performed outside the hours
of 6.30 am to 7.30 pm on Monday to Friday (inclusive)
3.15.2 Any alterations affecting the appearance of the Demised Premises from
outside the Demised Premises or from any other parts of the Estate shah, at the
Landlord's option, be performed at the Tenant's expense by the Landlord or by
contractors designated by the Landlord at a reasonable time specified by the
Landlord and at a reasonable cost and to the reasonable satisfaction of the
Tenant and, unless otherwise expressly agreed to the contrary from time to time
between the Landlord and the Tenant, all materials supplied and work performed
by the Landlord for the Tenant pursuant to this Clause shall be paid for by the
Tenant to the
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Landlord within fourteen (14) days of completion of such works to the Tenant's
reasonable satisfaction.
3.16 User Restrictions
3.16.1 Not to use the Demised Premises or any part thereof for any political
meeting nor for any dangerous noxious or offensive trade or business whatsoever
3.16.2 Not to use the Demised Premises or any part thereof or permit or suffer
the same to be used for the purpose of any betting transaction within the
meaning of the Betting Gaming and Lotteries Act 1963 or for gaming within the
meaning of the Gaming Act 1968 with or between persons resorting to the Demised
Premises or for a club where intoxicating liquor is supplied to members or their
guests and not to make or permit or suffer to be made any application for a
betting office licence or a licence or registration under the `Gaming Act 1968
in respect of the Demised Premises or any part thereof
3.16.3 Not to permit any sale by auction or public meeting to be held upon the
Demised Premises nor to permit or suffer to be done in or upon the Demised
Premises or any part thereof any act or thing which is illegal or immoral or
which shall or may be or become a nuisance, damage, annoyance or inconvenience
to the Landlord or its tenants or the occupiers of any adjoining or neighbouring
premises
3.16.4 Not to use the Demised Premises for residential or sleeping purposes or
hold any exhibitions or displays on the Demised Premises
3.16.5 Not to use the Demised Premises as offices for the purpose of turf
accountants estate agency travel agency staff agency or employment agency
3.16.6 Not to use the Demised Premises or any part thereof as offices for a
Department of Her Majesty's Government without obtaining the prior written
consent of the Landlord such consent not to be unreasonably withheld or delayed
3.17 User
Subject to the provisions of Clause 3.16, not to use the Demised Premises
thereof or suffer the same to be used otherwise than for the Permitted User
3.18 Encroachments and easements
Not to stop up, darken or obstruct any windows or lights belonging to the
Demised Premises or any other buildings belonging to the Landlord or permit any
new window, light, opening, doorway, path, passage, drain or other encroachment
or easement (together "Easements")
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to be made of acquired in against out of or upon the Demised Premises and that
in case any such Easements shall be made or acquired or attempted to be made o
acquired the Tenant will give immediate notice thereof to the Landlord and will
at the request of the Landlord adopt such means as may be reasonably required or
deemed proper for preventing any such encroachment
3.19 Alienation
3.19.1 Not to assign, underlet, mortgage, charge, agree to underlet, share or
part with the possession or occupation of, or permit any person or company to
occupy, the whole or any part of the Demised Premises save as expressly set out
in this Clause 3.19
3.19.2 Not to assign, underlet or permit the occupation of the Demised Premises
or any part thereof by, or the vesting of any interest or estate therein, in any
person, firm, company or other body or entity which has the right to claim
diplomatic immunity or exemption in relation to the observance and performance
of the covenants and conditions of and contained in this Lease unless such
immunity or exemption is capable of being and has been effectively waived,
disclaimed or otherwise negatived to the reasonable satisfaction of the Landlord
3.19.3 Not to assign the whole of the Demised Premises without first obtaining:
a) a deed of covenant by the prospective assignee with the Landlord
thenceforth to pay the rents hereby reserved and to observe and perform
the covenants and obligations on the part of the Tenant herein
contained for the residue of the Term; and
(b) if the Landlord shah reasonably so require, an acceptable
guarantor for any person to whom this Lease is to be assigned who shall
execute and deliver to the Landlord a deed containing a direct covenant
with the Landlord in the terms contained in the Eighth Schedule
(mutatis mutandis)
3.19.4 Not to underlet the whole of the Demised Premises without first
procuring: to be made or acquired in against out of or upon the Demised Premises
and that in case any such Easements shall be made or acquired or attempted to be
made or acquired the Tenant will give immediate notice thereof to the Landlord
and will at the request of the Landlord adopt such means as may be reasonably
required or deemed proper for preventing any such encroachment or the
acquisition of any such Easements (and the Tenant shall bear such proportion of
its own costs as shall be reasonable in the circumstances the Landlord paying
the balance)
(a) that any underlease to be granted hereunder shall:
i) be granted without a fine or premium and at a rent not less
than the then open market yearly rental value of the Demised
Premises at the time of
such underlease;
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(ii) contain provisions for rent review in an upward direction only
at least at such times as to coincide with the rent reviews
provided for in this Lease and otherwise consistent with the
terms set out in the Fifth Schedule;
(iii) contain a condition for reentry on breach of any covenant by
the undertenant;
(iv) contain the same or greater restrictions (mutatis mutandis) as
to assignment, underletting, mortgaging, charging, agreeing to
underlet, parting with or sharing the possession or occupation
of the Demised Premises and the same provisions (mutatis
mutandis) for direct covenants and registration as are in this
Lease;
(v) contain a covenant by the under-tenant to perform and observe
all the Tenant's covenants and the other provisions contained
in this Lease (other than the payment of the rent first hereby
reserved);
(vi) contain a covenant by the undertenant prohibiting the
under-tenant from doing or suffering any act or thing upon or
in relation to the premises underlet inconsistent with or in
breach of the provisions of this Lease; and
(vii) be in a form previously approved by the Landlord (such
approval not be unreasonably withheld or delayed)
b) (i) a direct covenant by the prospective undertenant with the Landlord
to perform and observe all the Tenant's covenants and the other provisions
contained in this Lease (other than the payment of the rents) and the proposed
underlease (other than the payment of the rents save following the termination
or surrender of this Lease and the continued existence of the underlease); and
(ii) if the Landlord shall reasonably so require, a reasonably
acceptable guarantor for any person to whom the Demised Premises are to be
underlet who shah execute and deliver to the Landlord a deed containing direct
covenants by such guarantor (or if more than one such guarantor joint and
several covenants) with the Landlord in the terms contained in the Eighth
Schedule (mutatis mutandis) or in such other terms from time to time reasonably
required by the Landlord
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3.19.5 Not to underlet any part of the Demised Premises Provided however that
the Tenant may underlet a Permitted Part upon first procuring:
a) that any underlease to be granted of a Permitted Part shall:
(i) be granted without fine or premium and at a rent not less
than the open market yearly rental value of the Permitted Part so underlet at
the time of such underlease as approved by the Landlord (such approval not to be
unreasonably withheld or delayed);
(ii) contain provisions for rent review in an upward direction only at least at
such times as to coincide with the rent reviews provided for in this Lease and
otherwise consistent with the terms set out in this Lease (mutatis mutandis);
(iii) contain a condition for re-entry on breach of covenant
by the undertenant;
(iv) contain an agreement between the lessor and lessee
excluding the provisions of Sections 24 to 28 (inclusive) of the Landlord and
Tenant Act 1954 and an order of a competent court shall have been obtained under
the provisions of Section 38(4) of the Landlord and Tenant Act 1954 authorising
such agreement in relation to such intended underlease and a certified copy of
such order produced to the Landlord;
(v) contain an absolute covenant on the part of any
prospective undertenant not to assign, underlet, mortgage, charge, agree to
underlet, share or part with the possession or occupation of, or permit any
person or company to occupy, the whole or any part of the premises to be
comprised in such underlease save by way of an assignment, underlease, mortgage
or charge of the whole of the Permitted Part comprised in such underlease and
upon the same terms (mutatis mutandis) to those relating to assignments
underleases or mortgages or charges of the whole of the Demised Premises under
this Lease and with the consent of the Landlord under this Lease (which shall
not be unreasonably withheld or delayed);
(vi) contain a covenant by the prospective undertenant to
perform and observe all the Tenant's covenants and other provisions contained in
this
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Lease (other than the payment of rents) so far as the
same are applicable to the Permitted Part to be thereby demised;
(vii) contain a covenant by the undertenant prohibiting the
undertenant from doing or suffering any act or thing upon or in relation to the
premises underlet inconsistent or in breach of the provisions of this Lease;
(viii) contain provisions for a service charge in relation to
the Permitted Part on institutionally acceptable terms and in a form previously
approved by the Landlord (such approval not to be unreasonably withheld or
delayed); and
(ix) be in a form previously approved by the Landlord (such
approval not to be unreasonably withheld or delayed)
b) that as a result of such underletting there will be not more than three
separate persons or bodies corporate in occupation of or entitled to take
occupation of the Demised Premises including any person or body corporate in
occupation or entitled to take occupation of any part of the Demised Premises
under this Lease but excluding any body corporate in occupation or entitled to
take occupation of any part of the Demised Premises pursuant to sub-clause
3.19.12 hereof Provided That for the purposes of calculation of the number of
persons or bodies corporate in occupation or entitled to take occupation of the
Demised Premises partners in a partnership together shall constitute one such
person or body corporate
(c) (i) a direct covenant by the prospective undertenant with the Landlord
to perform and observe all the Tenant's covenants and any other provisions
contained in this Lease (other than the payment of the rents) so far as the same
are applicable to the premises to be thereby demised and in the proposed
underlease (other than the payment of rents save following termination or
surrender of this Lease and the continued existence of the underlease); and
(ii) if the Landlord shall so reasonably require, a reasonably
acceptable guarantor for any such undertenant shall execute and deliver to the
Landlord a deed containing covenants by such guarantor (or if more than one such
guarantor joint and several covenants) with the Landlord in the terms contained
in the Eighth Schedule (mutatis mutandis) or on such other terms from time to
time reasonably required by the Landlord
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3.19.6 Not to assign, underlet, mortgage or charge the whole of the Demised
Premises without the prior written consent of the Landlord (which shall not be
unreasonably withheld or delayed) and not to underlet any part of the Demised
Premises without the prior written consent of the Landlord (which shah not be
unreasonably withheld or delayed) Provided That the Tenant may without the
Landlord's consent grant floating charges over its property and undertaking in
the usual course of its business
3.19.7 To enforce the performance and observance by every such under-tenant of
the covenants provisions and conditions of any underlease and not at any time
either expressly or by implication to waive any breach of the same without the
prior written consent of the Landlord (such consent not to be unreasonably
withheld or delayed)
3.19.8 Not to vary the terms of any permitted underlease or agree so to do
without the prior written consent of the Landlord (such consent not to be
unreasonably withheld or delayed)
3.19.9 (a) To procure that the rents reserved by any permitted underlease shall
not be commuted or payable more than one quarter in advance; and
(b) Not to permit the reduction of any rents reserved by any such
underlease without the prior written consent of the Landlord (such consent not
to be unreasonably withheld or delayed)
3.19.10 To procure in any permitted underlease that the rent is reviewed under
such underlease in accordance with the terms thereof but not to agree any
reviewed rent with the undertenant nor any rent payable on any renewal thereof
without the prior written consent of the Landlord (such consent not to be
unreasonably withheld or delayed) and to procure that if the rent under any
underlease is to be determined by an independent person to procure that the
Landlord's representations as to the rent payable thereunder are made to the
independent person appointed to determine the rent under the underlease to the
reasonable satisfaction of the Landlord
3.19.11 Any consent granted hereunder shall only be valid for a period of six
(6) months from the date thereof unless acted upon within such period
3.19.12 If and so long as the Tenant or any permitted undertenant hereunder for
the time being shall be a company whose registered office is in the United
Kingdom nothing in this Clause 3.19 shah prevent the Tenant or any permitted
under-tenant from sharing occupation of the whole or any part or parts of the
Demised Premises with any Group Company of the Tenant or permitted under-tenant
(as the case may be) provided that:
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(a) the registered office of the Group Company shall also be in the
United Kingdom;
(b) no relationship of landlord and tenant shall be created or be
deemed to exist between such Group Company and the Tenant or undertenant (as the
case may be); and
(c) the right of any company to share possession of the Demised
Premises or any part or parts thereof as aforesaid shall forthwith determine
upon such company ceasing to be a Group Company or upon the Tenant or permitted
undertenant ceasing to be in occupation of the Demised Premises or the part
underlet as the case may be
3.20 Disclosure of information
Within twenty-one (21) days of written request made by or on behalf of the
Landlord made not more than once in any twelve (12) month period but otherwise
as often as the Landlord may reasonably require to furnish to the Landlord in
writing and with a plan (as appropriate) details of those in occupation of the
Demised Premises and the user thereof and the rents payable in respect thereof
and to supply copies of any documents relating thereto Provided that for the
avoidance of doubt the Tenant shall not be required to give details of all
employees having resort to the Demised Premises
3.21 Registration of dispositions
Within twenty-one (21) days after any assignment, mortgage, charge or
underletting or the assignment, mortgage or charge of an underlease or the grant
of any sub-underlease out of an underlease whether immediate or mediate or after
any devolution by will or otherwise to produce to the Solicitor for the time
being of the Landlord a certified copy of the deed or instrument effecting the
same and pay its and any Superior Landlord's reasonable and proper fee for the
registration thereof
3.22 Signs and advertisements
On the expiration or sooner determination of the Term, to remove or efface any
aerial, sign, signboard, fascia, placard, bill, notice or other notification or
apparatus affixed to or upon the outside of the Demised Premises or otherwise
within the Building and to make good any damage caused thereby to the reasonable
satisfaction of the Landlord's Surveyor
3.23 Overloading floors and services
3.23.1 Not to impose or permit to be imposed on the floor of the Demised
Premises any load in excess of that which it is designed to bear and not to
suspend or permit to be suspended from the ceiling slabs and/or beams of the
Demised Premises any load in excess of that which it is designed to bear
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3.23.2 Without prejudice to the provisions of sub-clause 3.23.1, not to do
anything which may subject the Demised Premises to any strain beyond that which
it is designed to bear with due margin for safety and to pay to the Landlord on
demand all costs reasonably incurred by the Landlord in obtaining the opinion of
a qualified structural engineer as to whether the structure of the Demised
Premises or the Building is being or is about to be overloaded
3.23.3 To observe the weight limits prescribed for all lifts in the Demised
Premises
3.23.4 Not to install or use any electrical equipment unless it has been fitted
with an efficient suppressor so as to prevent any interference with radio or
television reception or the operation of any equipment in the Building or the
Estate or in any adjoining property
3.23.5 Promptly to provide details to the Landlord of the installation of all
wiring, `cabling and other conducting material installed by or at the request of
the Tenant or any under-tenant in respect of video, data and sound
communications, including telephone
3.23.6 In so far as such consent is required from the Tenant the Tenant hereby
consents to the disclosure by any public telecommunications operator to the
Landlord of details of all telecommunication, cables or apparatus installed in
or upon any part of the Demised Premises or the Building or the Estate
3.23.7 To comply with the recommendations and data contained in all maintenance
manuals relating to the constituent parts of the Demised Premises and all
Fixtures and otherwise in accordance with the Tenant's covenants hereunder
3.24 Dangerous materials and use of machinery
3.24.1 Not to bring into or keep in the Demised Premises any article or thing
which is or is likely to become dangerous, offensive, combustible, inflammable,
radioactive or explosive or which might increase the risk of fire or explosion
or which would cause nuisance or damage to the Landlord or any tenant owner or
occupier of any part of any adjoining property or the Building or the Estate
PROVIDED THAT this Clause 3.24.1 shall not prevent the use of goods and
machinery utilized in connection with a modern office building and the
activities carried on thereat
3.24.2 Not to keep or operate in the Demised Premises any machinery or
mechanical equipment which shall be unduly noisy or cause vibration or
electrical or other interference or which is likely to annoy or disturb the
other tenants and occupiers of the Estate or any adjoining property
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3.24.3 Not to install on any part of the Demised Premises any machinery engine
or other apparatus in contravention of the Factories Act 1961
3.24.4 Not to permit music or other sounds or noise to be played, broadcast,
transmitted or otherwise produced within the Demised Premises which are audible
outside the Demised Premises
3.25 Interest on overdue Payments
3.25.1 If any sum payable by the Tenant to the Landlord under this Lease shall
not be paid by way of cleared funds, in the case of the rent firstly hereby
reserved, on the due date for payment thereof, or in the case of other sums
payable hereunder, within fourteen (14) days of the same becoming due to pay to
the Landlord interest thereon at an annual rate equal to four per cent (4%)
above the Interest Rate from time to time calculated on a day to day basis
(compounded with quarterly rests) from the date of the same becoming due down to
the date of payment in cleared funds (whether before or after any judgment) and
the aggregate amount for the time being so payable shall at the option of the
Landlord be recoverable by action or otherwise as rent in arrear
3.25.2 If collection of rent has been suspended by the Landlord for breach of
covenant the Tenant shall when the breach has been made good to the reasonable
satisfaction of the Landlord or when the Lease shall be forfeited (as the case
may be) pay to the Landlord in addition to the arrears of rent then due interest
thereon at the annual rate of four per cent (4%) above the Interest Rate from
time to time such interest to be calculated on a day-today basis (compounded
with quarterly rests) from the date that rent became due down to the date of
actual payment in cleared funds (whether before or after judgment) and the
aggregate amount of interest so payable shall be recoverable in the same manner
as provided in Clause 3.25.1 above for the recovery of interest payable
thereunder
3.26 Indemnity
To indemnify the Landlord against all claims, demands, actions, proceedings,
losses, liabilities, costs, charges and expenses whatsoever, whether direct or
indirect, in respect of or incurred in connection with any damage or injury
occasioned to the Demised Premises or the Building or the Estate or any adjacent
or neighbouring premises or any person or any other property movable or
immovable (save to the extent that the same is covered by any insurance policy
effected by the Landlord) by any act default or negligence of the Tenant or any
undertenants or others deriving an interest in the Demised Premises from the
Tenant
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or of the servants agents licensees or invitees thereof or by any breach of the
covenants on the part of the Tenant herein contained
3.27 Covenants affecting the reversion
3.27.1 To perform and observe the covenants agreements and obligations mentioned
or contained in the documents referred to in the Fourth Schedule so far as they
relate to or affect the Demised Premises
3.27.2 At all times to keep the Landlord indemnified against all actions
proceedings losses costs damages claims demands and liability whatsoever whether
direct or indirect for or in respect of any breach which may be committed or
suffered by the Tenant from time to time during the Term of any of the said
covenants, agreements and conditions
3.28 Defective Premises
Forthwith upon becoming aware of any defect in the Demised Premises or when the
Tenant ought reasonably to have become aware of any defect, to give written
notice to the Landlord of any defect in the Demised Premises which might give
rise to an obligation on the Landlord to do or refrain from doing any act or
thing so as to comply with the duty of care imposed on the Landlord pursuant to
the Defective Premises Act 1972 and at all times to display and maintain all
notices which the Landlord may from time to time reasonably require to be
displayed in relation thereto
3.29 Value Added Tax
3.29.1 Where by virtue of any of the provisions of this Lease the Tenant is
required to pay, repay or reimburse to the Landlord or any person or persons any
rents, costs, charges, fees, expenses or other sums or amounts whatsoever in
respect of the supply of any goods and/or services by the Landlord or any other
person or persons, the Tenant shall also be required in addition to pay or (as
the case may be) keep the Landlord indemnified against:
a) the amount of any Value Added Tax which may be chargeable on such rents,
costs, charges, fees, expenses or other sums or amounts whatsoever in respect of
the supply of any goods and/or services as aforesaid by the Landlord to the
Tenant; and
b) the amount of Value Added Tax chargeable on the Landlord or any other person
in respect of supplies the cost of which is included in the calculation of the
sums which the Tenant is required to pay, repay or reimburse to the Landlord,
save to the extent that such Value Added Tax is recoverable by the Landlord or
other persons
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For the avoidance of doubt but without prejudice to the provisions of the VAT
Deed the Landlord shall not be under a duty to exercise or not exercise any
option or right conferred on the Landlord by the legislation relating to Value
Added Tax (including any regulations made thereunder) so as to reduce or avoid
any liability to Value Added Tax referred to in (a) or (b) above
3.29.2 Where under any provision of this Lease the Tenant agrees to pay any
amount of money or to provide any consideration, such amount or, as the case may
be, such consideration shall be regarded as exclusive of any Value Added Tax
which may from time to time be chargeable in respect thereof
3.30 Estate Regulations
In so far as the same relate to the Demised Premises or the activities, acts or
omissions of the Tenant or any undertenant or any persons under its or their
control, to comply or procure compliance with the Estate Regulations and such
other substituted or additional reasonable Estate Regulations as the Superior
Landlord or the Landlord or other the person responsible for providing the
Estate Services may from time to time notify in writing to the Tenant for the
general management, overseeing and security of the Estate
3.31 Building Regulations
In so far as the same relate to the Demised Premises or the activities, acts or
omissions of the Tenant or any undertenant or any persons under its or their
control, to comply or procure compliance with the Building Regulations and such
other substituted or additional reasonable Building Regulations as the Landlord
may from time to time notify in writing to the Tenant for the general
management, overseeing and security of the Building
3.32 Electricity Supply
3.32.1 To comply with the covenants stipulations and requirements on the part of
the Tenant contained in the Eleventh Schedule hereto
3.32.2 In the event of any change in legislation which restricts or prohibits
the Landlord from supplying electricity to the Demised Premises, the Tenant will
negotiate in good faith with the Landlord to reach agreement as to such
alternative arrangements that are necessary to maintain such supply to the
Demised Premises either by the Landlord or the electricity supply company
3.33 Taxation
To indemnify the Landlord against all liability f6r any tax, levy, charge or
other fiscal imposition of whatsoever nature (including, but not limited to,
penalties and interest on
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overdue tax and penalties for failure to give appropriate notices and
information) arising from any breach by the Tenant of its obligations hereunder
(but not income tax or corporation tax on any sums payable under Clause 3.25)
and on demand to pay to the Landlord the amount of the tax, levy, charge or
fiscal imposition which in default of payment shall be recoverable from the
Tenant as rent in arrear
3.34 As to the Head Lease
3.34.1 (Save to the extent that the Landlord expressly undertakes the same in
this Lease) to perform and observe the tenant's covenants and agreements and the
conditions and provisions contained in the Head Lease to the extent to which
they relate to or affect the Demised Premises (and so that no inconsistency
between the terms and provisions of this Lease and the Head Lease shall relieve
the Tenant of its obligations so to perform and observe the said covenants as
aforesaid contained in the Head Lease) AND to indemnify and keep indemnified the
Landlord against all actions, proceedings, claims, demands, damages, losses,
liability, costs, charges, penalties, interest, fines, fees and expenses
whatsoever arising out of or by reason of or incidental to any breach of the
covenant contained in this Clause 3.34
3.34.2 Not at any time to do omit or suffer anything whereby the Head Lease may
be avoided or forfeited
3.34.3 (Subject to the conditions for entry contained in Clause 3.8.1 in the
case of the Landlord) to allow the Landlord and all persons authorised by the
Landlord and also the Superior Landlord and all persons authorised by the
Superior Landlord at reasonable times and after giving reasonable written notice
(except in an emergency) to enter the Demised Premises and to perform therein
any of the covenants and agreements on the part of the lessee under the Head
Lease which may be necessary to prevent a forfeiture of the Head Lease
4. LANDLORD'S COVENANTS
THE Landlord HEREBY COVENANTS with the Tenant as follows:
4.1 Quiet Enjoyment
That, subject to the Tenant paying the rents hereby reserved and observing and
performing the several covenants and stipulations on the part of the Tenant
herein contained, the Tenant shall and may peaceably and quietly hold and enjoy
the Demised Premises during the Term without any lawful interruption or
disturbance from or by the Landlord or any person or persons lawfully or
equitably claiming under or in trust for it Provided that the carrying on of any
works of construction, rebuilding, reinstatement, repair, alteration, addition
or variation whatsoever in the Building or on the Estate or any neighbouring or
adjoining
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property shall (provided the Landlord uses all reasonable endeavours to cause as
little nuisance and disturbance and inconvenience as reasonably possible and
carries out all works as expeditiously as reasonably possible and in a good and
workmanlike manner and forthwith making good all damage caused to the Demised
Premises) be deemed not to be a breach of this covenant and not to be in
derogation from the Landlord's grant
4.2 Head Lease
To pay the rents reserved and made payable by and to observe and perform the
covenants on the part of the lessee contained in the Head Lease (save to the
extent to which the covenants are expressed to be or are due to be observed and
performed by the lessee under this Lease) and, at the request and cost (or a due
proportion thereof) of the Tenant, to use its reasonable endeavours to procure
that the Superior Landlord observes and performs the covenants on its part
contained in the Head Lease (and the Landlord shall if reasonably so required
commence legal proceedings where there is a reasonable prospect of such
proceedings being successful)
4.3 Estate Services
Subject to payment by the Tenant of the Estate Service Charge and subject to
Force Majeure at all times during the Term to carry out, provide, manage and
operate or procure to be carried out, provided, managed and operated such of the
Estate Services as the Landlord shall reasonably consider appropriate for the
beneficial enjoyment and use of the Demised Premises Provided that:
4.3.1 in performing such obligations the Landlord shah be entitled in its
discretion to employ managing agents, contractors or such other persons as the
Landlord may from time to time reasonably think fit (including employing any
Group Company of the Landlord to provide any of the Estate Services and for the
avoidance of doubt any such Group Company shall be entitled to charge at a
commercial rate for so doing) and whose reasonable and proper fees and expenses
(including Value Added Tax) shah form part of the Estate Expenditure;
4.3.2 the Landlord shah not incur any liability in respect of any failure or
interruption or delay in the performance or observance of any such obligations
which is the result of Force Majeure or which is not attributable to the willful
default or negligence of the Landlord its servants and agents Provided that the
Landlord uses all reasonable endeavours to make good the default and end the
interruption or delay as soon as reasonably practicable;
4.3.3 the Landlord may from time to time discontinue the supply of any of the
Estate Services or reduce the degree to which any of the Estate Services are
provided (with prior notification in writing to the Tenant and after having had
regard to any representations made by the
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Tenant) if in the interest of good estate management of the Estate it reasonably
considers it appropriate to do so;
4.3.4 the obligations of the Landlord to the Tenant in relation to the provision
of the Estate Services are as set out in this Clause 4.3 and nothing elsewhere
in this Lease shall have the effect (by implication or otherwise) of adding to
or extending or increasing those obligations and any term which would otherwise
be implied by Sections 13, 14 or 15 of the Supply of Goods and Services Act 1982
or (except where and to the extent that exclusion is thereby prohibited) any
other statute is hereby expressly negatived;
4.3.5 if the Landlord is no longer the freeholder of the Estate Common Parts and
no longer responsible for providing the Estate Services then the obligations
contained in this Clause 4.3 shall cease save that thereafter the Landlord
shall, at the request and cost of the Tenant, use all reasonable endeavours to
enforce the obligations on the part of the Landlord's lessor under the Headlease
in relation to the provision of the Estate Services (including the commencement
of legal proceedings where there is a reasonable prospect of success)
4.4 Building Services
Subject to payment by the Tenant of the Building Service Charge and subject to
Force Majeure at all times during the Term to carry out, provide, manage and
operate such of the Building Services as the Landlord shall reasonably consider
appropriate for the beneficial enjoyment and use of the Demised Premises
Provided that:
4.4.1 in performing such obligations the Landlord shall be entitled in its
discretion to employ managing agents, contractors or such other persons as the
Landlord may from time to time reasonably think fit (including employing any
Group Company of the Landlord to provide any of the Building Services and for
the avoidance of doubt any such Group Company shah be entitled to charge a
commercial rate for so doing) and whose reasonable and proper fees and expenses
(including Value Added Tax) shall form part of the Building Expenditure;
4.4.2 the Landlord shall not incur any liability in respect of any failure or
interruption or delay in the performance or observance of any such obligations
which is the result of Force Majeure or which is not attributable to the wilful
default or negligence of the Landlord its servants or agents provided that the
Landlord uses all reasonable endeavours to make good the default and end the
interruption or delay as soon as reasonably practicable;
4.4.3 the Landlord may from time to time discontinue the supply of any of the
Building Services or reduce the degree to which any of the Building Services are
provided (with prior notification in writing to the Tenant and after having had
regard to any representations made
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by the Tenant) if in the interests of good estate management of the Building i
reasonably considers it appropriate to do so;
4.4.4 the obligations of the Landlord to the Tenant in relation to the provision
of the Building Services are as set out in this Clause 4.4 and nothing elsewhere
in this Lease shall have the effect (by implication or otherwise) of adding to
or extending or increasing those obligations and any term which would otherwise
be implied by Sections 13, 14 or 15 of the Supply of Goods and Services Act 1982
or (except where and to the extent that exclusion is thereby prohibited) any
other statute is hereby expressly negatived
4.5 Electricity Supply
Subject to the payment by the Tenant to the Landlord of the Electricity Charge,
at all times during the Term subject to Force Majeure to maintain the supply of
electricity to the Demised Premises in accordance with the provisions of the
Eleventh Schedule Provided that:
4.5.1 the Landlord shall not incur any liability in respect of any failure or
interruption or delay in the performance or observance of any such obligations
which is the result of Force Majeure or which is not attributable to the willful
default or negligence of the Landlord its servants or agents provided that the
Landlord uses all reasonable endeavours to make good the default and end the
interruption or delay as soon as reasonably practicable;
4.5.2 in the event of any change in legislation which restricts or prohibits the
Landlord from supplying electricity to the Demised Premises the Landlord will
negotiate in good faith with the Tenant to reach agreement as to such
alternative arrangements that are necessary to maintain such supply to the
Demised Premises either by the Landlord or the electricity supply company
4.5.3 the obligations of the Landlord to the Tenant in relation to the
provisions of the supply of electricity to the Demised Premises are as set out
in this Clause 4.5 and nothing elsewhere in this Lease shall have the effect (by
implication or otherwise) of adding to or extending or increasing those
obligations and any term which would otherwise be implied by Sections 13, 14 or
15 of the Supply of Goods and Services Act 1982 or (except where and to the
extent that exclusion is thereby prohibited) any other statute is hereby
expressly negatived
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4.6 Void Costs
To pay and discharge that part of the Building Expenditure which relates to
Lettable Areas in the Building to the extent that the said areas are in fact
unlet during any Building Accounting Year (as hereafter defined)
5. PROVISOS
IT is HEREBY AGREED AND DECLARED as follows:
5.1 Forfeiture
Without prejudice to any other right remedy or power herein contained or
otherwise available to the Landlord:
5.1.1 if the rent reserved by this Lease or any part thereof shall be unpaid
for twenty-one (21) days after becoming payable (whether formally demanded or
not); or
5.1.2 if any of the covenants by the Tenant contained in this Lease shall not
be performed and observed; or
5.1.3 if the Tenant and/or the Guarantor (if any) (being a body corporate) has a
winding-up petition or a petition for an administration order presented against
it or passes a winding-up resolution (other than a resolution for the purposes
of an amalgamation or reconstruction resulting in a solvent corporation with a
net worth calculated in accordance with general accounting principles no less
than that on the day immediately prior to such amalgamation or reconstruction)
or resolves to present its own winding-up petition or is wound up (whether in
England or elsewhere) or the directors or shareholders of the Tenant or the
Guarantor resolve to present a petition for an administration order in respect
of the Tenant or an administrative Receiver or a Receiver or a Receiver and
Manager is appointed in respect of the property or any part thereof of the
Tenant or the Guarantor; or
5.1.4 if the Tenant and/or the Guarantor (if any) (being a body corporate) calls
or a nominee calls on its behalf a meeting of its creditors or any of them or
makes an application to the Court under Section 425 of the Companies Act 1985
(other than a scheme of arrangement for the purpose of amalgamation or
reconstruction on a solvent basis) or submits to its creditors or any of them a
proposal pursuant to Part I of the Insolvency Act 1986 or enters into any
arrangement, scheme, compromise, moratorium or composition with its creditors or
any of them (whether pursuant to Part I of the Insolvency Act 1986 or
otherwise); or
5.1.5 if the Tenant and/or the Guarantor (if any) (being an individual or if
more than one individual then any one of them) notifies the Official Receiver or
makes an application to
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the Court for an interim order under Part VIII of the Insolvency Act 1986 or
convenes a meeting of his creditors or any of them or enters into any
arrangement scheme compromise moratorium or composition with his creditors or
any of them (whether pursuant to Part VIII of the Insolvency Act 1986 or
otherwise) or has a bankruptcy petition presented against him or is adjudged
bankrupt; or
5.1.6 (where the Tenant or the Guarantor is domiciled or incorporated in a
country other than England and Wales) if analogous proceedings or events to
those referred to in Clauses 5.1.3, 5.1.4, and 5.1.5 shall be instituted or
occur in the country of domicile or incorporation THEN and in any such case the
Landlord may at any time thereafter reenter the Demised Premises or any part
thereof in the name of the whole and thereupon the Term shall absolutely cease
and determine but without prejudice to any rights or remedies which may then
have accrued to the Landlord against the Tenant in respect of any of the
covenants contained in this Lease
5.2 Jurisdiction
For the avoidance of doubt and notwithstanding the domicile or place of business
of any party from time to time having an interest in this Lease, the same shall
be governed by and construed in all respects in accordance with the Laws of
England and proceedings in connection therewith shall be subject (and the
parties hereby submit) to the nonexclusive jurisdiction of the English Courts
and for the purposes of Order 10 Rule 3 of the Rules of the Supreme Court of
England and any other relevant Rules thereof the Tenant and the Guarantor hereby
irrevocably agree that any process may be served upon them by leaving a copy
addressed to them at their address stated herein or at such other address for
service within England and Wales as may be notified in writing from time to time
to the Landlord
5.3 No Implied Easements
Nothing herein contained shall impliedly confer upon or grant to the Tenant any
easement, right or privilege other than those expressly granted by this Lease
5.4 Exclusion of Warranty as to User
5.4.1 Nothing contained in this Lease or in any consent granted by the Landlord
under this Lease shall imply or warrant that the Demised Premises may be used
under the Planning Acts for the use herein authorised or any use subsequently
authorised
5.4.2 The Tenant hereby acknowledges and admits that the Landlord has not given
or made at any time any representation or warranty that any such use is or will
be or will remain a permitted use under the Planning Acts
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5.5 Limitation of Landlord's Liability
The Landlord shall not be liable to the Tenant nor shall the Tenant have any
claim against the Landlord in respect of: 5.5.1 Any loss or damage or
interference or annoyance suffered by the Tenant during the carrying out by the
Superior Landlord or the Landlord of repairs, decorations, additions,
alterations or other works whether structural or otherwise which may appear to
the Superior Landlord or the Landlord to be necessary or desirable to the Estate
Common Parts or to the Building Common Parts or to the Estate or to the Building
provided that, in the case of the Landlord only, the Landlord shall use all
reasonable endeavours to cause as little noise disturbance and inconvenience as
reasonably possible and carry out all such work as expeditiously as reasonably
possible and in a good and workmanlike manner and forthwith make good all damage
caused to the Demised Premises;
5.5.2 Any loss or inconvenience occasioned by the closing or breakdown of any
lift, escalator or other mechanical equipment or by the failure of power supply
to any lift escalator or other mechanical equipment or whilst any repairs are
carried out thereto Provided That the Landlord uses all reasonable endeavours to
reinstate the relevant service as soon as reasonably practicable;
5.5.3 Any loss of or damage to or theft from any car using the Car Park or any
loss or damage or injury suffered by any driver of or passenger in such car not
arising out of the willful negligence of the Landlord its servants or its agents
5.6 No Liability for Staff
No caretakers, porters, maintenance staff or other persons employed in respect
of the provision of Estate Services or Building Services shall be under any
obligation to furnish attendance or make available their services exclusively to
the Tenant or otherwise than in the provision of the Estate Services or the
Building Services and in the event of any such person employed as aforesaid
rendering any such exclusive or additional services to the Tenant such person
shall be deemed to be the servant of the Tenant for all purposes and the
Landlord shall not be responsible for the manner in which such exclusive or
additional services are performed nor for any damage to the Tenant or other
persons arising therefrom
5.7 Tenant's Fixtures and Fittings
All tenant's fixtures and fittings and other property of the Tenant not removed
by the Tenant pursuant to its covenant contained in Clause 3.4 within the period
of twenty-eight (28) days after the determination of the Term shall thereafter
be deemed to belong to the Landlord and
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the Landlord shall be at liberty to dispose of the same as it thinks fit without
recourse to the Tenant
5.8 Development of Adjoining Property
Nothing contained in this Lease shall by implication of law or otherwise operate
to confer on the Tenant any easement, right or privilege whatsoever over or
against any other part of the Estate or the Building or any adjoining or other
property belonging to the Landlord or the Superior Landlord (whether forming
part of the Estate or the Building or not) which might restrict or prejudicially
affect the future rebuilding, alteration or development of any other part of the
Estate or the Building or such adjoining or other property nor (subject in the
case of the Landlord to the proviso to Clause 55.1) shall the Tenant be entitled
to compensation for any damage or disturbance caused by or suffered through any
such rebuilding, alteration or development nor (subject as aforesaid) shall the
Tenant make or permit to be made any objection to or claim in respect of any
works of construction, building, alteration, addition or repair carried out upon
any other part of the Estate or the Building or any land or property adjoining
or near any part of the Demised Premises by the Superior Landlord or the
Landlord or any persons authorised by the Superior Landlord or the Landlord
5.9 Notices
Section 196(4) of the Law of Property Act 1925 (as amended by the Recorded
Delivery Service Act 1962) shall apply to all notices and certificates required
to be given or served under this Lease
5.10 Effect of Waiver
5.10.1 Each of the Tenant's covenants shah remain in full force both at law and
in equity notwithstanding that the Landlord shall have waived any such covenant
or waived temporarily or permanently revocably or irrevocably a similar covenant
or similar covenants affecting other property belonging to the Landlord
5.10.2 Neither acceptance of any rents payable hereunder by the Landlord nor the
demand of any such rents by the Landlord shah constitute a waiver of any breach
by the Tenant of any of its obligations under this Lease
5.11 Covenants relating to adjoining property
Nothing contained in or implied by this Lease shah give the Tenant the benefit
of or the right to enforce or to prevent the release or modification of any
covenant, agreement or condition entered into by any tenant of the Landlord in
respect of any property not comprised in this Lease
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5.12 Tenant not to object to works
Subject, in the case of the Landlord, to the proviso to Clause 5.5.1 hereof the
Tenant shall make no objection, complaint or representation and shall not
institute or take any proceedings whatsoever whether by way of injunction or for
damages or otherwise and shall not permit or suffer any undertenant or other
occupier of or any person with any interest in any part of the Demised Premises
to do any such things by reason or in consequence of any noise, disturbance,
annoyance or inconvenience occasioned by any works by or on behalf of the
Superior Landlord or the Landlord or any owner or tenant on any part of the
Estate or any adjoining property or building or the Building
5.13 No right of set-off etc.
The rents reserved by this Lease are exclusive rents and any present or future
law to the contrary notwithstanding shall not terminate nor shall the Tenant be
entitled to any abatement, reduction, set-off or deduction with respect to any
rents payable to the Landlord
5.14 Invalidity of certain provisions
If any term or provision of this Lease or the application thereof to any person
or circumstances shall to any extent be invalid or unenforceable the same shall
be severable from the remainder of this Lease and 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 be enforced
to the fullest extent permitted by law
5.15 Waiver etc. of regulations
5.15.1 The Landlord reserves the right to rescind, alter, add to or waive any of
the Building Regulations at any time where in the Landlord's reasonable opinion
it is desirable or proper on good estate management grounds (and the Landlord
shall notify the Tenant thereof forthwith following any such rescission,
alteration, addition or waiver) and the Tenant acknowledges the right of the
Landlord to rescind, alter, add to or waive any of the Building Regulations as
aforesaid
5.15.2 The Tenant acknowledges the right of the Superior Landlord or other the
person responsible for providing the Estate Services to rescind, alter, add to
or waive any of the Estate Regulations where in the reasonable opinion of the
Superior Landlord or other the person responsible for providing the Estate
Services it considers it desirable or proper on good Estate Management grounds
to do so (and the Landlord shall notify the Tenant thereof following the
Landlord receiving notice of any such rescission, alteration, addition or
waiver)
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5.16 Party Walls
Any non-structural walls dividing the Demised Premises from any adjoining
property shall be deemed to be party walls within the meaning of the Law of
Property Act 1925 Section 38 and shall be maintained at the equally shared
expense of the Tenant and other respective owner
5.17 Exclusion of statutory compensation
Except where any statutory provision prohibits or modifies the right of the
Tenant to compensation being reduced or excluded by agreement neither the Tenant
nor any under-tenant (whether immediate or not) shall be entitled on quitting
the Demised Premises or any part thereof to claim any compensation from the
Landlord under the Landlord and Tenant Act 1954
5.18 Management Company
The Landlord may at any time within twenty-five (25) years from the date of this
Lease (which shall be the perpetuity period applicable thereto) establish at its
cost a Management Company for the purposes of providing the Estate Services and
operating the Estate Service Charge and/or a Management Company for the purposes
of providing the Building Services and operating the Building Service Charge in
relation to the Estate and the Building on the following terms and conditions
5.18.1 such Management Company shah undertake to the Tenant the relevant
obligations on the part of the Landlord contained in Clauses 4, 6, 7 and 8
respectively and any other obligations on the part of the Landlord under this
Lease relating thereto and the Landlord shall be released from such obligations;
5.18.2 the rent secondly hereby reserved (being the Estate Service Charge and
the Building Service Charge payable by the Tenant) shall be payable to the
Landlord or the Management Company (as the Landlord may direct);
5.18.3 the Landlord from time to time under this Lease shall guarantee the
obligations of the relevant Management Company
AND the Landlord and the Tenant and the Guarantor agree that they shall
respectively enter into a Deed supplemental to this Lease recording the same,
such Deed to be in a form prepared by the Landlord and approved by the Tenant
(such approval not to be unreasonably withheld or delayed) and to contain an
obligation on the part of the Management Company to enter into a deed in
substantially the same form as such Deed (mutatis mutandis) with any
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assignee of the Tenant so as to covenant with such assignee that the Management
Company will observe and perform the covenants contained in Clauses 4, 6, 7 and
8 hereof
6. INSURANCE
THE Landlord and the Tenant HEREBY COVENANT with each other as follows:
6.1 Landlord to insure and keep insured with The Prudential Assurance Company
Limited or with some other insurer of repute nominated by the Landlord or with
Lloyds' Underwriters and through such agency as the Landlord may from time to
time determine and subject to such exclusions, excesses, limitations and
conditions as may be imposed by the insurers or contained in any policy of
insurance (such exclusions excesses limitations or conditions in both cases
being reasonably common in the insurance market at the time of imposition);
6.1.1 the Building against loss or damage by the Insured Risks in the
Reinstatement Cost of the Building (but excluding any Tenant's or under-tenant's
fitting-out works or other alterations and improvements to the Demised Premises
whether carried out before or after the date of this Lease);
6.1.2 the loss of rent from time to time payable or reasonably estimated to be
payable under this Lease taking account of any review of the rent which may
become due under this Lease for such period as the Landlord may from time to
time reasonably deem to be necessary (being not less than three years) having
regard to the likely period for obtaining planning permission and reinstating
the Demised Premises or such longer period as the Tenant may reasonably require;
6.1.3 engineering and electrical plant and machinery against loss or damage by
the Insured Risks in the Reinstatement Cost to the extent that the same is not
covered by sub-clause 6.1.1; and
6.1.4 property owner's liability and such other insurance as the Landlord may
from time to time reasonably deem necessary to effect
6.2 Evidence of insurance
At the request of the Tenant the Landlord shall produce to the Tenant reasonable
evidence from the insurers of the terms of the insurance policy and the fact
that the policy is subsisting and in effect
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6.3 Destruction of Demised Premises
If the Demised Premises or any part thereof are destroyed or damaged by any of
the Insured Risks then: 6.3.1 unless payment of the insurance monies shall be
refused in whole or in any part by reason of any act or default of the Tenant or
any undertenant or any person under its or their control (save where the Tenant
has paid to the Landlord any shortfall); and
6.3.2 subject to the Landlord being able to obtain any necessary planning
permission and all other necessary licences, approvals and consents in respect
of which the Landlord shall use all reasonable endeavours to obtain (but shall
not be obliged to institute any appeal); and
6.3.3 subject to Force Majeure and to Clause 6.5
the Landlord shall lay out the net proceeds of such insurance, other than any in
respect of loss of rent or arising under Clause 6.1.4, (as soon as reasonably
practicable) in the rebuilding and reinstatement of the premises so destroyed or
damaged substantially as the same were prior to any such destruction or damage
with such variations as the Landlord may reasonably require or as may be
requisite in accordance with the requirements of planning control and/or
building and/or other regulations and in case any such moneys shall be
insufficient for that purpose the Landlord shall make up any such deficiency out
of its own moneys
6.3.4 Cesser of rent
In case the Demised Premises or any part thereof or the access thereto (or any
part thereof) shall at any time during the Term be so destroyed or damaged by
any of the Insured Risks as to render the Demised Premises or the access thereto
or any part thereof unfit for occupation or use and the insurance shall not have
been vitiated or payment of the policy moneys refused in whole or in part as a
result of some act or default of the Tenant or any undertenant or any person
under its or their control, then the rent first and secondly hereby reserved or
a fair proportion thereof according to the nature and extent of the damage
sustained shall from and after the date of such damage be suspended and cease to
be payable until the Demised Premises and the access thereto shall have been
made fit for occupation or use and in the event of dispute as to the amount or
duration of the rent to be abated such dispute shall be settled by a single
arbitrator to be appointed by the President, for the time being of the Royal
Institution of Chartered Surveyors who shall act in accordance with the
Arbitration Acts 1950 to 1979
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6.5 Option to-determine
In case the Demised Premises or the Building or the Estate shall be destroyed or
so damaged by any of the Insured Risks as to be unfit for occupation or use and
reinstatement of the Demised Premises and/or the Building and/or the Estate (as
the case may be) is or would be frustrated or impossible or if there is no
reasonable prospect of being able to reinstate the same within the period for
which the Landlord covenants to insure against the loss of rent hereunder, then
this Lease may at the option of the Landlord be determined by the Landlord
giving to the Tenant six months' written notice at any time Provided That if
this Lease shall be determined then the Landlord shall not be required to lay
out the net proceeds of the insurance referred to in sub-clauses 6.1.1 and 6.1.4
in reinstatement and all such insurance moneys shall belong to the Landlord
absolutely
6.6 Tenant not to vitiate insurance etc The Tenant hereby covenants with the
Landlord:
6.6.1 Not to do or permit or suffer to be done or omit to do in or upon the
Demised Premises or any part thereof anything whatsoever which may render the
Landlord liable to pay in respect of the Building and/or the Estate or any part
thereof more than the ordinary or present rate of premium for insurance against
the Insured Risks or which may make void or voidable any policy of insurance in
respect of the Demised Premises the Building or the Estate and to repay to the
Landlord all expenses incurred by it in or about any renewal of such policy
rendered necessary by a breach of this covenant and to make good to the Landlord
any shortfall in the insurance moneys payable to the Landlord by reason of any
act or default of the Tenant within fourteen days of demand therefor
6.6.2 If the payment of any insurance moneys is refused as a result of some act
or default of the Tenant or any undertenant or any person under its or their
control to pay to the Landlord on demand the amount so refused together with
interest thereon at the Interest Rate from the date upon which the costs of the
reinstatement works in respect of which the insurance moneys are refused falls
due for payment
6.6.3 Not to insure the Demised Premises or any part thereof (save for tenant's
fixtures fittings and equipment and alterations and additions made by the
Tenant) against any of the Insured Risks and not to take out any insurance in
respect of any of the matters which the Landlord is required to insure under
this Lease (save as provided herein) but if the Tenant shall become entitled to
the benefit of any insurance on the Demised Premises which is not effected or
maintained in pursuance of the obligations herein contained then the Tenant
shall apply all moneys received from such insurance (in so far as the same shall
extend) in making good the loss or damage in respect of which the same shall
have been received
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6.6.4 To notify the Landlord immediately in writing in the event of damage to
the Demised Premises or any part thereof by way of the Insured Risks
6.6.5 In the event of damage to the Demised Premises or any part thereof by any
of the Insured Risks so as to render the same unfit for occupation or use, (if
reasonably required by the Landlord) to remove all tenant's fixtures and
fittings and other property of the Tenant within one month of such damage
6.6.7 Decennial Insurance
The Landlord has effected and shall maintain or procure the maintenance of, at
its safe cost, a decennial insurance policy providing ten (10) years' building
defects insurance from 31st May 1991 in respect of the development of the Estate
such policy to be on the terms and conditions set out in the form of policy
previously submitted to and approved by the Landlord and produced to the Tenant
prior to the date of this Lease and the Landlord shall procure that the interest
of the Tenant be endorsed upon the Policy so far as the Tenant's interest is
affected thereby
6.6.8 Self Insurance
If at any time and fir so long as the Landlord is an insurance company and
carries all or part of the risks referred to in this Clause 6 itself (or if it
is deemed to be carrying all or part of such risks notwithstanding any insurance
policy actually taken out by it) then in both such events and to the extent to
which it carries or is deemed to carry all or part of such risks:
a) the Landlord shall nevertheless be taken to have effected an
insurance policy on the terms herein set out and subject to such exclusions,
conditions and uninsured excesses then equivalent to those quoted by it from
time to time when underwriting similar business (or equivalent to any actual
policy which has been taken out) Provided such exclusions conditions and
excesses are reasonably common in the insurance market at each date of renewal
or upon each anniversary of the commencement date of the Term (as appropriate);
b) the Landlord shall be deemed to have expended from time to time such
premiums as it would have charged for insuring and keeping insured the Building,
the rent and other risks in accordance with the terms of this Lease (or shall
nevertheless be deemed to have expended from time to time such premiums as it
has, in fact, incurred in effecting such insurance); and
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c) all the provisions of this Lease which relate to the occurrence of damage or
destruction to or reinstatement of the Building or the Demised Premises or to
insurance (including without limitation all the provisions of this Clause 6)
shall apply mutatis mutandis as if the Landlord had effected a policy with an
independent insurer
7 ESTATE SERVICE CHARGE
7.1 Landlord's liability
THE provisions of this Clause 7 shall apply for so long as the Landlord is the
freeholder of the Estate Common Parts and thereafter the Landlord shall use all
reasonable endeavours to enforce the covenants in relation to the provision of
Estate Services and the operation of the Estate Service Charge on the part of
any Superior Landlord or any other person obliged to provide Estate Services
(including the commencement of legal proceedings where there is a reasonable
prospect of success)
7.2 Tenant to pay Estate Service Charge
To the intent that the Landlord shall be fully and effectively indemnified in
respect of all the Estate Expenditure, the Tenant shall pay to the Landlord by
way of additional rent the Estate Service Charge
7.3 Estate Expenditure
The Estate Expenditure shall be calculated after the end of each Estate
Accounting Year (as hereinafter defined) and shall comprise the aggregate for
such year of the following:
7.3.1 All costs fees expenses outgoings and other expenditure (whether or not of
a recurring nature) reasonably and properly incurred from time to time by the
Landlord in connection with or incidental to the provision, management and
operation of and payment for all or any of the Estate Services and the matters
referred to in Section II of the Sixth Schedule and (when any expenditure is
incurred in relation to the Estate and other premises) the proportion of such
expenditure which is reasonably attributable to the Estate as properly
determined by the Landlord
7.3.2 The reasonable and proper fees charges and expenses and commissions
payable to any Solicitor, Accountant, Surveyor, Valuer, Architect or Engineer or
any other person whom the Landlord may from time to time employ in connection
with the management of the Estate and the provision of the Estate Services
including (but without prejudice to the generality of the foregoing) the
reasonable and proper cost of causing to be prepared the Estate Expenditure
Certificate (as hereinafter defined) and causing to be calculated the Estate
Service Charge (PROVIDED that there shall not be included hereunder any fees,
charges
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or expenses whatsoever incurred in connection with the enforcement of covenants
of the tenants or occupiers of the Estate or in connection with the letting or
re-letting or disposal of other parts of the Estate or the negotiation or
agreement or submission to an arbitrator or expert valuer or to any Court of any
rent review affecting tenants or occupiers of the Estate)
7.3.3 Value Added Tax (if any) at the applicable rate in respect of the fees and
other items of Estate Expenditure, save to the extent that such Value Added Tax
is recoverable by the Landlord in its accounting with H.M. Customs and Excise in
respect of the Estate
7.3.4 Such sums as the Landlord shall reasonably consider desirable to set aside
from time to time (which setting aside shall be deemed to be an item of
expenditure actually incurred) but so that such sums shall only be used for the
purposes of meeting Estate Expenditure for the purpose of providing for
periodically recurring items of expenditure whether or not of a capital nature
and whether recurring at regular or irregular intervals and for anticipated
expenditure in respect of any of the Estate Services to be provided (the "Estate
Reserve Fund")
7.3.5 The cost of replacement of any item where such replacement is reasonably
necessary whether or not the replacement item is of a superior quality, design
or utility to the item being replaced
7.4 Estate Expenditure Certificate
7.4.1 The amount of the Estate Expenditure shall be ascertained and certified
annually by a certificate (the "Estate Expenditure Certificate") signed by the
Landlord or the Landlord's Surveyor or managing agents (at the discretion of the
Landlord) and by a chartered accountant as soon after the end of the Estate
Accounting Year (as hereinafter defined) as may be practicable and shall relate
to such year in manner hereinafter mentioned
7.4.2 A copy of the Estate Expenditure Certificate for each Estate Accounting
Year shall be supplied by the Landlord to the Tenant without charge to the
Tenant
7.4.3 The Estate Expenditure Certificate shall contain a breakdown of the items
of expenditure comprised in the Estate Expenditure in respect of the Estate
Accounting Year to which it relates
7.5 Estate Accounting Year
The expression the "Estate Accounting Year" shall mean the period from 1 January
of every year to 31 December of that year or such other annual period as the
Landlord may in its
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discretion from time to time determine as being that in which the accounts of
the Landlord either generally or relating to the Estate shall be made up
7.6 Estate Service Charge Advance Payment
On each of the usual quarter days in every year during the Term the Tenant shah
pay to the Landlord in advance such sum (the "Estate Service Charge Advance
Payment") on account of the Estate Service Charge for the Estate Accounting Year
then current (the "Relevant Estate Year") as the Landlord shall from time to
time reasonably specify as being in its opinion a fair and reasonable assessment
of one quarter of the likely Estate Service Charge for the Relevant Estate Year
PROVIDED THAT
7.6.1 if during the Relevant Estate Year the Landlord shah reasonably consider
that the Estate Service Charge for the Relevant Estate Year is likely to exceed
the aggregate of the Estate Service Charge Advance Payment for the Relevant
Estate Year, the Landlord may (provided it acts reasonably) re-assess the Estate
Service Charge Advance Payment for the whole of the Relevant Estate Year (the
"Revised Estate Charge Advance Payment") and the Tenant shall pay to the
Landlord the Revised Estate Charge Advance Payment on each of the next following
quarter days during the remainder of the Relevant Estate Year and the Tenant
shall pay to the Landlord within fourteen (14) days of demand the aggregate of
the amounts by which the Estate Service Charge Advance Payment already made in
respect of the Relevant Estate Year fall short of the sum which would have been
payable if the Revised Estate Charge Advance Payment had been assessed before
the commencement of the Relevant Estate Year;
7.6.2 if the Landlord shah not assess the amount of the Estate Service Charge
Advance Payment payable hereunder in respect of any Estate Accounting Year
before the beginning of such year, the Estate Service Charge Advance Payment
shah continue to be payable at the rate specified for the previous year until
such time as the Landlord shall make such assessment whereupon the Tenant shah
immediately pay to the Landlord on demand the aggregate of the amounts by which
the Estate Service Charge Advance Payment already made in respect of the
Relevant Estate Year fall short of the sum which would have been payable if the
amount of the Estate Service Charge Advance Payment for the Relevant Estate Year
had been assessed before the commencement thereof and on each of the quarter
days during the remainder of the Relevant Estate Year the Tenant shall pay to
the Landlord the Estate Service Charge Advance Payment at the new rate; and
7.6.3 subject to and without prejudice to the Estate Service Charge Advance
Payment for each quarter day between 2 January 1994 and 31 December 1994 shall
be pounds 2,690 whereof the first payment or a due proportion thereof in respect
of the
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period commencing on 2 January 1994 expiring on 24 March 1994 is to be made on
the execution hereof
7.7 Tenant to pay balance of Estate Service Charge
7.7.1 As soon as practicable after the end of each Estate Accounting Year the
Landlord shall furnish to the Tenant the Estate Expenditure Certificate and an
account (the "Estate Service Charge Account") specifying the Estate Service
Charge payable by the Tenant for that year, due credit being given therein for
the aggregate of the Estate Service Charge Advance Payment and any Revised
Estate Service Charge Advance Payment made by the Tenant in respect of the said
year and upon the furnishing of the Estate Expenditure Certificate and the
Estate Service Charge Account there shall be paid by the Tenant to the Landlord
the balance (if any) of the Estate Service Charge in respect of the said year or
there shall be credited against the Tenant's liability for Estate Service Charge
for the next Estate Accounting Year or (at the option of the Landlord) repaid by
the Landlord to the Tenant any amount which shall have been overpaid by the
Tenant by way of Estate Service Charge Advance Payment and Revised Estate
Service Charge Advance Payment (as the case may require) PROVIDED ALWAYS that
the provisions of this Clause shall continue to apply notwithstanding the
expiration or sooner determination of the Term but only in respect of the period
down to such expiration or sooner determination as aforesaid the Estate Service
Charge for the Estate Accounting Year then current being apportioned for the
said period on a daily basis and any amount found to be overpaid by the Tenant
after the expiry or determination of the Term being forthwith repaid by the
Landlord to the Tenant
7.7.2 The Estate Expenditure Certificate and the Estate Service Charge Account
shall be final and binding upon the parties hereto (save in the case of manifest
error)
7.8. Omission by Landlord to include item in Estate Expenditure Any omission by
the Landlord to include in Estate Expenditure in any Estate Accounting Year a
sum expended in that Estate Accounting Year shall not preclude the Landlord from
including such sum in Estate Expenditure in any subsequent Estate Accounting
Year as the Landlord shall determine
7.9 Estate Reserve Fund
The Landlord shall be entitled (but not obliged) to establish an Estate Reserve
Fund (as hereinbefore defined) which shall be held upon trust for the Tenant and
any other tenants or occupiers of the Estate and shall be held in a separately
designated interest bearing trustee bank account and the Landlord shall utilise
the same with interest accruing thereon but after deducting tax payable thereon
and on such interest in defraying expenditure of the nature referred to in
Clause 7.3.4
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7.10 Variation of Estate Service Charge
If at any time or times during the Term the Landlord considers that
circumstances have arisen making the Estate Service Charge unreasonable or
inequitable, the Landlord may give written notice to the Tenant requiring a
variation to the Estate Service Charge which is fair and reasonable in all the
circumstances and in the event of there being any dispute regarding such
variation the matter shall be referred to a single Arbitrator to be appointed in
default of agreement upon the application of the Landlord or the Tenant by or on
behalf of the President for the time being of the Royal Institution of Chartered
Surveyors in accordance with the provisions of the Arbitration Acts 1950 to 1979
7.11 Estate Services provided to the Tenant
7.11.1 (Without prejudice to the provisions of Clause 7.10) the calculation of
the Estate Service Charge hereunder may be varied and adjusted in such manner as
shall in the Landlord's Surveyor's reasonable opinion (such opinion to be final
and binding on all parties) reflect the extent to which the Estate Services (or
any particular one or more of the Estate Services) shall have been provided for
or enjoyed by the Tenant and/or by any other tenant or occupier of other parts
of the Estate to a materially greater or lesser degree than any other such
tenant or occupier
7.11.2 The Tenant covenants with the Landlord that the Tenant will pay to the
Landlord within fourteen (14) days of demand such charge as may be properly
incurred by the Landlord in respect of any service (whether or not constituting
one of the Estate Services) provided at the express request of the Tenant to or
for the benefit of the Tenant (whether or not exclusively) at a time or in
circumstances when or in which such service would not have been provided but for
such request
7.12 Variation of Estate Services
The Landlord may withhold, add to, commence, extend, vary or make any
alterations to any of the Estate Services or any of the items referred to in
Section II of the Sixth Schedule from time to time if the Landlord's Surveyor
shall reasonably consider it appropriate to do so in the interests of the owners
and tenants on the Estate or for the more efficient management, security and
operation of the Estate or for the comfort of the owners and tenants on the
Estate or for any other reason (including the assumption of responsibility for
any such Estate Services or other items by any local or public authority)
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7.13 Major works
Where the Landlord carries out major works of repair or maintenance or replaces
major items of plant or machinery the Landlord may elect to apportion the cost
so incurred over such longer period than the Estate Accounting Year or Years in
which such cost is incurred as it may reasonably consider appropriate and to
include interest on such part of such cost as shall not have been included in
the Estate Service Charge Account for the Estate Accounting Year in question or
in any previous Estate Service Charge Account at two per cent. (2%) above the
base rate of Midland Bank public limited company from time to time calculated on
a day-today basis either from the date on which the cost is incurred down to the
end of the Estate Accounting Year (in relation to the Estate Accounting Year in
which such cost is incurred) or the period of the Estate Accounting Year (in
relation to each of the subsequent Estate Accounting Years over which the cost
is apportioned)
7.14 Raising Money by Loan or Overdraft
The Landlord may at its reasonable discretion raise money by way of loan or
overdraft for the purposes of financing expenditure incurred or to be incurred
in providing the Estate Services or any of them and any interest or other
charges payable by the Landlord in respect thereof shall be included in the
Estate Expenditure
7.15 Interest
All interest earned on any account or accounts into which the Estate Service
Charge Advance Payment or other sums payable under this Clause by the Tenant are
made or similar payments made by other tenants on the Estate shall (after
deduction of any tax payable thereon) be utilised by the Landlord in reducing
Estate Expenditure
7.16 Dunster Court
Any contributions made to the maintenance of any part of the Estate pursuant to
the Dunster Court Documents shall be utilised by the Landlord in reducing Estate
Expenditure
7.17 Notwithstanding Clause 7.1 this Clause 7 shall continue to apply
notwithstanding that the Landlord transfer or assigns its reversion to this
Lease to a Group Company of the Landlord
8. BUILDING SERVICE CHARGE
8.1 Tenant to pay Building Service Charge
TO the intent that the Landlord shall be fully and effectively indemnified in
respect of all the Building Expenditure the Tenant shall pay to the Landlord by
way of additional rent the Building Service Charge provided that in providing
the Building Services the Landlord shall act in accordance with the principles
of good estate management so as to provide such
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services in as reasonably an economic manner as is consistent with the quality
of the Building and the Estate
8.2 Building Expenditure
The Building Expenditure shall be calculated after the end of each Building
Accounting Year (as hereafter defined) and shall comprise the aggregate for such
year of the following:
8.2.1 All proper costs fees expenses outgoings and other expenditure (whether or
not of a recurring nature) reasonably and properly incurred from time to time by
the Landlord in connection with or incidental to the provision management and
operation of and payment for all or any of the Building Services and the matters
referred to in Section II of the Seventh Schedule and (when any expenditure is
incurred in relation to the Building and other premises) the proportion of such
expenditure which is reasonably attributable to the Building as reasonably and
properly determined by the Landlord Provided That there shall be excluded from
Building Expenditure any costs of electricity or of inspection maintenance and
repair of Landlord's Apparatus (as defined in the Eleventh Schedule in respect
of the Retained Parts to the extent the same would be recoverable from occupiers
of the Building as their Electricity Charge were all Lettable Areas of the
Building let upon terms that the tenants thereof paid an Electricity Charge in
substantially the same terms as the Eleventh Schedule
8.2.2 The proper fees charges and expenses and commissions payable to any
Solicitor, Accountant, Surveyor, Valuer Architect or Engineer or any other
person whom the Landlord may from time to time employ in connection with the
management of the Building and the provision of the Building Services including
(hut without prejudice to the generality of the foregoing) the reasonable and
proper cost of causing to be prepared the Building Expenditure Certificate and
causing to be calculated the Building Service Charge (PROVIDED that there shall
not be included hereunder any fees, charges or expenses whatsoever incurred in
connection with the enforcement of covenants of the tenants or occupiers of the
Building or in connection with the letting or re-letting or disposal of other
parts of the Building or the negotiation or agreement or submission to an
arbitrator or expert valuer or to any Court of any rent review affecting tenants
or occupiers of the Building)
8.2.3 Value Added Tax (if any) at the applicable rate in respect of the fees and
other items of Building Expenditure save to the extent that such Value Added Tax
is recoverable by the Landlord in its accounting with H.M. Customs and Excise in
respect of the Building
8.2.4 Such sums as the Landlord shall reasonably consider desirable to set aside
from time to time (which setting aside shall be deemed to be an item of
expenditure actually incurred) but so
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that such sums shall only be used for the purposes of meeting Building
Expenditure for the purpose of providing for periodically recurring items of
expenditure whether or not of a capital nature and whether recurring at regular
or irregular intervals and for anticipated expenditure in respect of any of the
Building Services to be provided (the "Building Reserve Fund")
8.2.5 The cost of replacement of any item where such replacement is necessary
whether or not the replacement is of a superior quality, design or utility to
the item being replaced
8.3 Building Expenditure Certificate
8.3.1 The amount of the Building Expenditure shall be ascertained and certified
annually by a certificate (the "Building Expenditure Certificate") signed by the
Landlord or the Landlord's Surveyor or managing agents (at the discretion of the
Landlord) and by `a chartered accountant as soon after the end of the Building
Accounting Year as may be practicable and shall relate to such year in manner
hereinafter mentioned
8.3.2 A copy of the Building Expenditure Certificate for each Building
Accounting Year shall be supplied by the Landlord to the Tenant without charge
to the Tenant
8.3.3 The Building Expenditure Certificate shall contain a breakdown of the
items of expenditure comprised in the Building Expenditure in respect of the
Building Accounting Year to which it relates
8.4 Building Accounting Year
The expression the "Building Accounting Year" shall mean the period from 1
January of every year to 31 December of that year or such other annual period as
the Landlord may in its discretion from time to time determine as being that in
which the accounts of the Landlord either generally or relating to the Building
shall be made up
8.5 Building Service Charge Advance Payment
On each of the usual quarter days in every year during the Term the Tenant shall
pay to the Landlord in advance such sum (the "Building Service Charge Advance
Payment") on account of the Building Service Charge for the Building Accounting
Year then current (the "Relevant Building Year") as the Landlord shall from time
to time reasonably specify as being in its opinion a fair and reasonable
assessment of one quarter of the likely Building Service Charge for the Relevant
Building Year PROVIDED THAT
8.5.1 if during the Relevant Building Year the Landlord shall reasonably
consider that the Building Service Charge for the Relevant Building Year is
likely to exceed the aggregate of
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the Building Service Charge Advance Payment for the Relevant Building Year the
Landlord may (provided he acts reasonably) re-assess the Building Service Charge
Advance Payment for the whole of the Relevant Building Year (the "Revised
Building Service Charge Advance Payment") and the Tenant shall pay to the
Landlord the Revised Building Service Charge Advance Payment on each of the next
following quarter days during the remainder of the Relevant Building Year and
the Tenant shall pay to the Landlord within fourteen (14) days of demand the
aggregate of the amounts by which the Building Service Charge Advance Payment
already made in respect of the Relevant Building Year fall short of the sum
which would have been payable if the Revised Building Service Charge Advance
Payment had been assessed before the commencement of the Relevant Building Year;
8.5.2 if the Landlord shall not assess the amount of the Building Service Charge
Advance Payment payable hereunder in respect of any Building Accounting Year
before the beginning of such year, the Building Service Charge Advance Payment
shall continue to be payable at the rate specified for the previous year until
such time as the Landlord shall make such assessment whereupon the Tenant shall
immediately pay to the Landlord on demand the aggregate of the amounts by which
Building Service Charge Advance Payment already made in respect of the Relevant
Building Year fall short of the sum which would have been payable if the amount
of the Building Service Charge Advance Payment for the Relevant Building Year
had been assessed before the commencement thereof and on each of the quarter
days during the remainder of the Relevant Building Year the Tenant shall pay to
the Landlord the Building Service Charge Advance Payment at the new rate; and
8.5.3 subject and without prejudice to the foregoing provisions, the Building
Service Charge Advance Payment for each quarter day between 2 January 1994 and
31 December 1994
shall be pounds 22,423 whereof the first payment or a due proportion thereof in
respect of the period commencing on 2 January 1994 and expiring on 24 March 1994
is to be made on the execution hereof
8.6 Tenant to pay balance of Building Service Charge
8.6.1 As soon as practicable after the end of each Building Accounting Year the
Landlord shah furnish to the Tenant the Building Expenditure Certificate and an
account (the "Building Service Charge Account") specifying the Building Service
Charge payable by the Tenant for that year due credit being given therein for
the aggregate of the Building Service Charge Advance Payment and any Revised
Building Service Charge Advance Payment made by the Tenant in respect of the
said year and upon the furnishing of the Building Expenditure Certificate and
the Building Service Charge Account there shall be paid by the Tenant to the
Landlord the balance (if any) of the Building Service Charge in respect of the
said year or there shall be credited against the Tenant's liability for Building
Service Charge for the next
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Building Accounting Year or (at the option of the Landlord) repaid by the
Landlord to the Tenant any amount which shall have been overpaid by the Tenant
by way of Building Service Charge Advance Payment and Revised Building Service
Charge Advance Payment (as the case may require) PROVIDED ALWAYS that the
provisions of this Clause shall continue to apply notwithstanding the expiration
or sooner determination of the Term but only in respect of the period down to
such expiration or sooner determination as aforesaid the Building Service Charge
for the Building Accounting Year then current being apportioned for the said
period on a daily basis and any amount found to be overpaid at the expiration or
sooner termination of the Term by the Tenant being forthwith repaid by the
Landlord to the Tenant;
8.6.2 The Building Expenditure Certificate and the Building Service Charge
Account shall be final and binding upon the parties hereto (save in the case of
manifest error)
8.7 Omission by Landlord to include item in Building Expenditure Any omission by
the Landlord to include in Building Expenditure in any Building Accounting Year
a sum expended in that Building Accounting Year shall not preclude the Landlord
from including such sum in Building Expenditure in any subsequent Building
Accounting Year as the Landlord shall determine
8.8 Building Reserve Fund
The Landlord shall be entitled (but not obliged) to establish a Building Reserve
Fund (as hereinbefore defined) which shall be held upon trust for the Tenant and
any other tenants or occupiers of the Building and shall be held in a separately
designated interest bearing trustee bank account and the Landlord shall utilise
the same with interest accruing thereon but after deducting tax payable thereon
and on such interest in defraying expenditure of the nature referred to in
Clause 8.2.4
8.9 Variation of the Building Service Charge
If at any time or times during the Term the Landlord's Surveyor reasonably
considers that circumstances have arisen making the Building Service Charge
unreasonable or inequitable, the Landlord may give written notice to the Tenant
requiring a variation to the Building Service Charge which is fair and
reasonable in all the circumstances and in the event of there being any dispute
regarding such variation the matter shall be referred to a single Arbitrator to
be appointed in default of agreement upon the application of the Landlord or the
Tenant by or on behalf of the President for the time being of the Royal
Institution of Chartered Surveyors in accordance with the provisions of the
Arbitration Acts 1950 to 1979
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8.10 Building-Services provided to the Tenant
8.10.1 (Without prejudice to the provisions of Clause 8.9) the calculation of
the Building Service Charge hereunder may be varied and adjusted in such manner
as shall in the Landlord's Surveyor's reasonable opinion (such opinion to be
final and binding on all parties) reflect the extent to which the Building
Services (or any particular one or more of the Building Services) shall have
been provided for or enjoyed by the Tenant and/or by any other tenant or
occupier of other parts of the Building to a materially greater or lesser degree
than any other such tenant or occupier
8.10.2 The Tenant covenants with the Landlord that the Tenant will pay to the
Landlord within fourteen (14) days of demand such charge as may reasonably be
determined and allocated by the Landlord's Surveyor in respect of any service
(whether or not constituting a Building Service) provided at the express request
of the Tenant to or for the benefit of the Tenant (whether or not exclusively)
at a time or in circumstances when or in which such service would not have been
provided but for such request
8.11 Variation of Building Services
The Landlord may withhold, add to, commence, extend, vary or make any
alterations to any of the Building Services or any of the items referred to in
Section II of the Seventh Schedule from time to time if the Landlord's Surveyor
shall reasonably deem it appropriate to do so in the interests of the owners and
tenants of the Building or for the more efficient management, security and
operation of the Building or f6r the comfort of the owners and tenants of the
Building or for any other reason (including the assumption of responsibility for
any such Building Services or other items by any local or public authority)
8.12 Major Works
Where the Landlord carries out major works of repair or maintenance or replaces
major items of plant or machinery the Landlord may elect to apportion the cost
so incurred over such longer period than the Building Accounting Year or Years
in which such cost is incurred as it may reasonably consider appropriate and to
include interest on such part of such cost as shall not have been included in
the Building Service Charge Account for the Building Accounting Year in question
or in any previous Building Service Charge Account at two per cent (2%) above
the base rate of Midland Bank public limited company from time to time
calculated on a day-today basis either from the date on which the cost is
incurred down to the end of the Building Accounting Year (in relation to the
Building Accounting Year in which such cost is incurred) or the period of the
Building Accounting Year (in relation to each of the subsequent Building
Accounting Years over which the cost is apportioned)
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8.13 Raising Money by Loan or Overdraft
The Landlord may at its reasonable discretion raise money by way of loan or
overdraft for the purposes of financing expenditure incurred or to be incurred
in providing the Building Services or any of them and any interest or other
charges payable by the Landlord in respect thereof shall be included in the
Building Expenditure
8.14 Interest
All interest earned on any account or accounts into which the Building Service
Charge Advance Payment or other sums payable under this Clause by the Tenant are
paid or similar payments made by other tenants in the Building shall (after
deduction of any tax payable thereon) be utilised by the Landlord in reducing
Building Expenditure
OPTION TO BREAK
If the Tenant wishes to determine this Lease on 25 December 2003 and gives to
the Landlord twelve (12) months and one day prior notice in writing of such
desire then provided the Tenant has as at 25 December 2003 paid the rents
reserved by and observed and performed the covenants and obligations on its part
contained in this Lease in all material respects the Term of this Lease shall
cease and determine on 25 December 2003 but without prejudice to the respective
rights of either party against the other in respect of any antecedent breach of
covenant
10. GUARANTOR'S COVENANT
IN consideration of this demise having been made at its request the Guarantor
hereby covenants as a primary obligation with the Landlord in the terms
contained in the Eighth Schedule
I N WITNESS whereof this Deed has been executed by the parties hereto and is
intended to be and is hereby delivered on the day and year first above written
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FIRST SCHEDULE
The Demised Premises
The Demised Premises means the property briefly described in Clause 1 and shown
for identification purposes only edged red on Plan 5 including:
a) the internal plaster surfaces and finishes of all structural or load-
bearing walls and columns therein or which enclose the same but not any other
part of such walls and columns;
(b) the entirety of all non-structural or non-load bearing walls and
columns therein;
(c) the floor finishes thereof and all carpets, save that the lower limit of the
Demised Premises shall not extend to anything below the floor finishes except
that raised floors and the cavity below them shall be included;
(d) the ceiling finishes thereof including all suspended ceilings (if any) and
light fittings and sprinkler systems and the cavity above any suspended ceilings
and all plant in the void above the suspended ceilings but excluding the
Excluded Plant;
(e) all window frames and window furniture and all glass in the windows and all
doors, door furniture and door frames;
(f) all sanitary and hot and cold water apparatus and equipment and the
radiators (if any) therein and all fire fighting equipment and hoses therein
including the fire boxes and hoses to the point of connection to the risers;
(g) all Conducting Media therein and exclusively serving the same, save those of
statutory undertakers;
(h) all Fixtures;
(i) all mechanical and electrical plant within the Demised Premises and
exclusively serving the same to the point where it meets the supply risers but
excluding the Excluded Plant;
(j) the lavatory accommodation situated on the same floor as the Demised
Premises and all plumbing and pipework within the Demised Premises exclusively
serving the same; and
(k) all additions, alterations and improvements thereto
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SECOND SCHEDULE
Rights Granted
1. Subject to compliance by the Tenant with its obligations contained in Clauses
3.30 and 3.3 1 and subject to the Third Schedule and in common with the Landlord
and all others having a like right, the right for the Tenant and those
authorised by it:
1.1. to use Minster Court for the purposes of gaining access to, and egress
from, the Building on foot at all reasonable times during the Minster Court
Access Hours and to use the Pedestrian Mall for like purposes at such times as
the Pedestrian Mall is available for use;
1.2 to use the part of the Dunster Court Access coloured yellow and not hatched
black on Plan 3 for the purposes of delivering people by vehicle and to use the
area coloured yellow. and hatched black thereon for the purposes of pedestrian
access to and from the Estate Common Parts in both cases at the times specified
in and subject to the provisions of the Dunster Court Documents;
1.3 to pass and repass over those parts of the Estate at street level lying
between the Building and the boundary of the Estate at the northern and eastern
sides thereof at all times and for all purposes in connection with the use and
enjoyment of the Demised Premises
2. Subject to compliance by the Tenant with its obligations in Clause 3.31 and
subject to the Third Schedule, the right for the Tenant and all persons
expressly or by implication authorised by the Tenant (in common with the
Landlord and all persons having a like right) at all times and for all purposes
connected with the lawful use of the Demised Premises in compliance With the
terms of this Lease but subject to any existing or future regulations reasonably
made by the Landlord:
2.1 to use the Building Common Parts for all proper purposes in connection with
the use and enjoyment of the Demised Premises and the exercise of the rights
granted by this Schedule;
2.2 to use such of the passenger lifts in the Building as shall be reasonably
necessary for the Tenant's use for the purpose only of obtaining access to, and
egress from, the Demised Premises;
2.3 to use the Loading Bay for the purposes of loading and unloading goods or
materials and the right to gain access thereto and egress therefrom from and to
the Demised Premises and to deliver goods or materials thereto by way of the
Access Ramp; and
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2.4 to use the goods lifts in the Building for the purposes of carrying
goods and materials to and from the Demised Premises
3. The free and uninterrupted passage of air, water, soil, gas and electricity
and telecommunications through the Service Systems which are now or may at any
time hereafter be within the Building (subject to the Tenant not overloading or
damaging the same), in common with the Landlord and all other persons having the
like right, with power, where such works cannot otherwise be reasonably and
practicably carried out, for the Tenant, its servants and workpeople and any
others authorised by it at all reasonable times on reasonable prior written
notice (save in emergency but subject to the terms of any existing leases) to
enter other parts of the Building for the purpose only of cleansing,
maintaining, repairing, replacing or altering the Conducting Media serving the
Demised Premises PROVIDED THAT such inspections, cleansing, maintenance,
repairs, replacements or alterations shall be done with as little inconvenience
as reasonably possible and as quickly as reasonably possible and that the Tenant
shall immediately make good, or cause to be made good, to the reasonable
satisfaction of the Landlord all damage thereby occasioned
4. Support and protection from the adjoining parts of the Building
5. Subject to compliance by the Tenant with its obligations contained in Clauses
3.30 and 3.31 and subject to Paragraph 8 of the Third Schedule, the right (where
such works cannot otherwise be reasonably and practicably carried out) for the
Tenant, its servants and workpeople and any others authorised by it at all
reasonable times on reasonable prior written notice (save in emergency but
subject to the terms of any existing leases) to enter other parts of the
Building for the purpose only of cleansing, maintaining, replacing, repairing or
altering the Demised Premises PROVIDED THAT such cleansing, maintenance,
replacements, repairs or alterations shall be done with as little inconvenience
as reasonably possible and as quickly as reasonably possible and that the Tenant
shall make, or cause to be made good, to the reasonable satisfaction of the
Landlord all damage thereby occasioned
6. The right to display on the entrance door to the Demised Premises a sign
stating the Tenant's name and business or profession the size, type and position
of such sign to be first approved in writing by the Landlord (such approval not
to be unreasonably withheld or delayed)
7. The right to display the name of the Tenant on the ground floor door entry
signage system supplied by the Landlord
8. Subject to compliance by the Tenant with its obligations contained in Clauses
3.30 and 3.31, the right to park 2 private motor cars in the Car Park within the
spaces shown coloured red on
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Plan 1 or such other spaces not being less than 2 in number as may be allocated
by the Landlord to the Tenant from time to time and the right to the means of
access thereto and egress therefrom over the Access Ramp and those parts of the
Car Park leading to such spaces and the right to use the lifts serving the Car
Park
9. The right at all reasonable times to use the rubbish compactor in the
Basement for the disposal of rubbish from the Demised Premises arising from the
lawful and normal use for the purposes herein provided
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THIRD SCHEDULE
Exceptions and Reservations
There are excepted and reserved unto the Landlord and the Superior Landlord and
its tenants or occupiers of any part of the Estate and all others having like
rights or authorised by the Landlord:
1. The free and uninterrupted passage of air, water, soil, gas and electricity
through the Service Systems which are now or may at any time hereafter be within
the Demised Premises, with power for the Landlord, its tenants, occupiers or its
or their servants and workpeople and any others authorised by the Landlord at
all reasonable times on reasonable prior written notice (except in emergency) to
enter the Demised Premises for the purpose of any matter or thing connected with
the Estate Services and/or the Building Services and/or adding to inspecting,
cleansing, maintaining, modernizing, repairing, replacing or altering the
Service Systems and so that such adding to, inspections; cleansing, maintenance,
modernisation, repairs, replacements or alterations shall be done with as little
inconvenience and disturbance to the Tenant. as reasonably possible and as
quickly as reasonably possible and in a good and workmanlike manner and that the
Landlord shall forthwith make good or cause to be made good, all damage thereby
occasioned
2. The right, where it is not reasonably practicable to avoid doing so, at all
reasonable times upon reasonable prior written notice, except in cases of
emergency, to enter the Demised Premises (and if reasonably required to erect
scaffolding on or against the Demised Premises) in order to
2.1 execute repairs, decorations, alterations and any other works and to make
installations to any part of the Estate or the Building or neighbouring or
adjoining property or to do anything whatsoever which the Landlord may do under
this Lease in respect of the Glazed Roof;
2.2 carry out the Estate Services;
2.3 carry out the Building Services;
2.4 execute repairs and renewals to the lighting and cleaning equipment situated
on or to the balconies situated on the same floor as the Demised Premises
PROVIDED THAT the Landlord or the person exercising the foregoing rights shall
cause as little inconvenience and disturbance to the Tenant as reasonably
possible and shall carry out all work as expeditiously as reasonably possible
and in a good and workmanlike manner and shall make good forthwith any damage
thereby caused
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3. The rights of light, air and all other easements and rights now or hereafter
belonging to or enjoyed by the Estate or any neighbouring or adjoining property
4. The right of support, protection and shelter for the benefit of the Building
or the Estate or any adjoining or neighbouring property from the Demised
Premises
5. The right for the Landlord or its agents or by any person appointed by it for
the purpose at any time or times by day or night to enter the Demised Premises
or any part thereof if it or they reasonably consider it to be necessary so to
do in connection with the security of the Estate and/or the Building
6. Full right and liberty at any time hereafter to build on or otherwise develop
or make any alterations or additions or execute any other works to any other
part of the Estate and/or the Building or adjoining property or any buildings
thereon or to erect any new buildings thereon in such manner as the Landlord or
the person exercising the right shall reasonably think fit, notwithstanding the
fact that the same may affect or interfere with the amenity of the Demised
Premises or the passage of light and air to the Demised Premises (subject to the
proviso to paragraph 2.4 hereof and provided further that nothing shall prevent
physical occupation of or access to the whole of the Demised Premises)
7. The right to alter, add, to extend, vary, stop-up, reposition or make any
alterations to Minster Court, the Dunster Court Access, the Pedestrian Mall, the
Access Ramp or any other of the Estate Common Parts or the Building Common Parts
or any part or parts thereof from time to time and the right to substitute any
alternative thereto from time to time if the Landlord shall reasonably deem it
desirable to do so for the more efficient management, security and operation of
the Estate and/or the Building or for the comfort of the owners and tenants on
the Estate and/or the Building (but not so that the Tenant's use and occupation
of the Demised Premises or the means of access thereto or egress therefrom or to
or from the Car Park the Loading Bay and the compactor is thereby materially
adversely affected) and the right to suspend temporarily use of any of the same
during the carrying out of any work whether of repair, maintenance, renewal,
improvement, rebuilding, reinstatement, construction, reconstruction,
development, redevelopment or otherwise howsoever
8. The right, so long as the same shall not be contrary to the principles of
good estate management, to regulate and control the use of Minster Court, the
Dunster Court Access, the Pedestrian Mall, the Access Ramp (and the access and
egress thereto to and from Mark Lane) and all other Estate Common Parts and the
Building Common Parts and in particular (but not by way of limitation) to:
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8.1 make reasonable regulations for the control, regulation and limitation of
pedestrians or traffic thereon or on any part thereof and to erect such signs as
may be appropriate (including regulations providing for the removal or
immobilisation of vehicles parked or left unattended in areas where the same is
prohibited);
8.2 use those parts of the Estate Common Parts and/or the Building Common Parts
suitable for such purposes for displays, exhibitions or other forms of
promotional and other activity so long as the same shall not be contrary to the
principles of good estate management; and
8.3 to maintain on the Estate Common Parts and/or the Building Common Parts such
sculptures, statues, garden features, landscaping, appurtenances and fittings of
ornament or utility in all cases as the Superior Landlord or the Landlord may
from time to time think fit 9. The right to enter the Demised Premises (m times
of emergency or during fire-drills) for the purpose of obtaining access to or
using any of the fire escapes or routes of escape in the Building whether or not
in existence at the date hereof
10. The right from time to time, in case of default by the Tenant in performing
its obligations under Clause 3.3.5, to carry out, at the cost of the Tenant,
window cleaning of all interior surfaces of all exterior glass to the Demised
Premises and the right on reasonable prior written notice of access at all
reasonable times to gain access to the exterior windows within the Demised
Premises for such purposes
11. The rights excepted and reserved out of the Head lease
PROVIDED THAT any rights or easements excepted and reserved in this Schedule
over anything which is not in being at the date hereof shall be effective only
in relation to any such thing which comes into being before the expiry of eighty
(80) years from the date hereof (which shall be the perpetuity period applicable
hereto)
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FOURTH SCHEDULE
Matters to which the Demised Premises are subject
The provisions set out in entry numbers 1 and 2 of the Charges Register of Title
Number NGL120519 regarding payment of annual rent charges so far as the same is
applicable and still enforceable
The provisions set out in entry number 3 of the Charges Register of Title Number
NGL120519 regarding payment of a fee farm rent so far as the same is applicable
and still enforceable
12 March 1990 Deed (1) The City of London Real Property
Company Limited
(2) The Prudential Assurance Company
Limited
27 June 1990 Licence (1) Plantation House Limited
(2) Actiontrain Limited
(3) The Prudential Assurance Company
Limited
(4) Bovis Construction Limited
12 March 1991 Agreement (1) The Drapers' Company
(2) The Prudential Assurance Company
Limited
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FIFTH SCHEDULE
Rent and Rent Review
1. Definitions
In this Schedule, the following expressions shall have the following meanings:
1.1 "Review Date" means 25 December 1998 and every fifth anniversary thereof and
the last day of the contractual term and "Relevant Review Date" shall be
construed accordingly
1.2 "Open Market Rent" means the full clear yearly rent at which the Demised
Premises might reasonably be expected to be let in the open market with vacant
possession at the Relevant Review Date by a willing landlord to a willing tenant
and without any premium or any other consideration for the grant thereof for a
term equal to the greater of (a) the residue of the Term remaining unexpired on
the Relevant Review Date and (b) ten (10) years and otherwise on the terms and
conditions and subject to the covenants and provisions contained in this Lease
(other than the amount of the rent hereby reserved but including the provisions
for review contained in this Schedule) on the following assumptions at the
Relevant Review Date that:
(a) the covenants herein contained have been fully performed and
observed;
(b) the Demised Premises have been constructed in accordance with
the Landlord's Specification;
(c) that the Demised Premises are fit and available for immediate
occupation and use and may lawfully be used by any person for
any of the uses permitted by this Lease or by any licence
granted pursuant thereto;
(d) no work has been carried out by the Tenant during the Term, or
during any period of occupation prior thereto arising out of
an agreement to grant such term, which has diminished the
rental value of the Demised Premises;
(e) in case the Demised Premises and/or the Building and/or the
Estate have been destroyed or damaged they have respectively
been fully restored;
(f) the Demised Premises are fully fitted with heavy contract
carpets for high quality office space and have a suitable
number and layout of electrical junction boxes for the use
permitted by this Lease;
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(g) any rent free period, concessionary rent or other inducement
(whether by way of a capital payment or otherwise) which would or might
be given to an incoming tenant to enable Premises on a grant of a lease
of the Demised Premises at the Relevant Review Date has been made
and any such rent free period concessionary rent or inducement has
expired or been paid prior to the Relevant Review date
but disregarding:
(i) any effect on rental value of the fact that the Tenant or any sub-tenants
has, or the Tenant's or any sub-tenant's predecessors in title have, been in
occupation of the Demised Premises;
(ii) any goodwill attached to the Demised Premises by reason of the carrying on
thereat of the business of the Tenant or any sub-tenant or the Tenant's or any
sub-tenant's predecessors in title in that business;
(iii) any effect on the rental value of the Demised Premises attributable to the
existence at the commencement of the relevant period of any alterations and
additions to the Demised Premises or any part thereof carried out by the Tenant
or any sub-tenant or the Tenant's or any sub-tenant's predecessors in title
during the Term or during any period of occupation prior thereto arising out of
an agreement to grant such term otherwise than in pursuance of an obligation to
the Tenant's or any sub-tenant's immediate Landlord;
(iv) any capital or other incentive given or provided by the Landlord to the
Tenant to enter into this Lease (or any agreement for the grant of this Lease);
Provided that if the Landlord has exercised its option to waive the exempt
status of all supplies made or to be made by it as Landlord of the Demised
Premises arising under paragraph 2 of Schedule 6A of the Value Added Tax Act
1983 so as to result in Value Added Tax on the rent first hereby reserved then
it shall be assumed that the willing landlord has so elected as at the Relevant
Review Date and that Value Added Tax is charged on such rent but if the Landlord
has not exercised any such option and no Value Added Tax is charged in respect
of the rent then it shall be assumed that the willing landlord has not so
elected as at the Relevant Review Date and that Value Added Tax is not charged
on such rent
1.3 "Surveyor" means an independent chartered surveyor of not less than ten (10)
years standing, who is experienced in the valuation and leasing of property
similar to the Demised Premises and is acquainted with the market in the area in
which the Demised Premises are located, appointed
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from time to-time to determine the Open Market Rent pursuant to the provisions \
of this Schedule
1.4 "President" means the President for the time being of the Royal Institution
of Chartered Surveyors and includes the duly appointed deputy of the President
or any person authorised by the President to make appointments on his behalf
2. Upwards only review
The rent first reserved by this Lease shall be reviewed at each Review Date in
accordance with the provisions of this Schedule and,
(a) from and including the first Review Date at 25 December 1998, the
rent shall equal the higher of (i) the sum of eight hundred and thirteen
thousand two hundred and twenty-eight pounds (813,228) and (ii) the 0pen Market
Rent on such Review Date, as agreed or determined pursuant to the provisions of
this Schedule and
(b) from and including each subsequent Review Date the rent shall equal
the higher of (i) the rent contractually payable immediately before the Relevant
Review Date and (ii) the Open Market Rent on the Relevant Review Date as agreed
or determined pursuant to the provisions of this Schedule
3. Agreement or determination of the reviewed rent
The Open Market Rent at any Review Date may be agreed in writing at any time
between the Landlord and the Tenant but if, for any reason, they have not so
agreed before the Relevant Review Date either party may, after the Relevant
Review Date, by notice in writing to the other require the 0pen Market Rent to
be determined by a Surveyor agreed between the Landlord and the Tenant or, in
default of agreement, nominated by the President on the written application of
the Landlord or the Tenant
4. Functions of the Surveyor
The Surveyor shall:
4.1 at the option of the Landlord, act either as an arbitrator in accordance
with the Arbitration Acts 1950 to 1979 or as an expert;
4.2 if acting as an expert, afford to the Landlord and the Tenant an opportunity
to make to him or her written representations which may contain any rental
evidence and a rental valuation of the Demised Premises and, in the event that
such representations are made by both the Landlord and the Tenant, the Surveyor
shall simultaneously pass details of each party's representations
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thereon, such cross-representation to contain solely comments in reply to
matters raised in the other party's initial representations and to be forwarded
to the Surveyor within ten (10) working days of receipt by the respective
parties of details of the other party's initial representations Provided always
that the parties shall not submit without prejudice correspondence or records of
without prejudice negotiations as representations or cross-representations
5. Appointment of new Surveyor
If the Surveyor shall die, fail to publish his or her determination within three
(3) months of the date of his or her appointment or become unwilling or
incapable of acting, the President shah, on the application of the Landlord in
writing, discharge him or her and appoint another Surveyor in his or her place
to act in the same capacity, such procedure being repeated as often as necessary
Parties able to Agree
Any reference to a Surveyor shah not impair the ability of the Landlord and the
Tenant to agree the Open Market Rent and to withdraw such reference subject to
payment of the Surveyor's proper charges up to the date of notification to him
or her of such withdrawal
7. Fees of Surveyor
The fees and expenses of the Surveyor, including the cost of his or her
nomination, shall be in the award of the Surveyor but, failing such award, the
same shah be payable by the Landlord and the Tenant in equal shares, who shall
each bear their own costs, fees and expenses
8. Memoranda of revised rent
In the event that the revised rent shall be agreed between the Landlord and the
Tenant (and not determined by a Surveyor) memoranda of the revised rent shall
thereupon be signed by or on behalf of the Landlord and the Tenant and annexed
to this Lease and the Counterpart of this Lease and the parties shah bear their
own costs in respect thereof
9. Interim payments pending determination
9.1 If and so often as the revised rent has not been ascertained or agreed
pursuant to the foregoing provisions before the Relevant Review Date, the rent
first hereby reserved shah continue to be payable on and from the Relevant
Review Date to the quarter day following the date of ascertainment or agreement
of the revised rent or (save in the case of the rent review on the last day of
the contractual term) the next Relevant Review Date or the last day of the
contractual term (whichever is first) (the "Interim Period") at the rate equal
to the rent payable immediately before the Relevant Review Date
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9.2 On the first day for payment of the rent first hereby reserved after the
revised rent has been ascertained or agreed, there shall be payable by the
Tenant to the Landlord by way of rent (ii addition to the amount of rent
otherwise due on that day) the aggregate of the amounts by which the
installments of rent payable in respect of the Interim Period fall short of the
sums which would have been payable if the revised rent had been ascertained or
agreed before the Relevant Review Date together with interest on such amounts at
the Interest Rate from time to time, such interest to be calculated on the
amount of each quarterly shortfall on a day-m-day basis from the date on which
it would have been payable if the revised rent had then been ascertained or
agreed to the date of actual payment of the shortfall and the aggregate of the
interest so payable shall be recoverable in the same manner as provided in
Clause 3.25 hereof f8r the recovery of interest payable thereunder
10. Costs awarded against the Tenant
If the Tenant shall fail to pay any costs awarded against the Tenant or, as
appropriate, the moiety of the fees and expenses of the survey payable by the
Tenant under the provisions hereof within twenty-one (21) days of the same being
demanded by the Surveyor, the Landlord shall be entitled to pay the same and the
amount so paid and all incidental expenses shall be repaid by the Tenant to the
Landlord on demand together with interest thereon at 4% above the Interest Rate
from the date of demand to the date of payment by the Tenant.
11. Rent Restrictions
On each and every occasion during the Term that any restrictions shall be
imposed by statute for the control of rent in force at any Review Date or the
date on which a revised rent is agreed or determined in accordance with these
provisions and which operate to impose any limitations whether in time or amount
in the collection of an increase in the rent first reserved by this Lease or any
part thereof and which shall prevent or prohibit either wholly or partially the
operation of the above provisions for review of the rent or the normal
collection and retention by the Landlord of any increase in the rent or any
installment or part thereof, then and in each such case respectively the
operation of such provisions for review of the rent shall be postponed to take
effect on the first date or dates thereafter upon which such operation may occur
and/or the collection of any increase or increases in the rent shall be
postponed to take effect on the first date or dates thereafter that such
increase or increases may be collected and/or retained in whole or in part and
on as many occasions as shall be required to ensure the collection of the whole
increase and until the said restrictions shall be relaxed either partially or
wholly the amount of any revised rent shall be the maximum sum from time to time
permitted by the said restrictions
12. Time not of the essence
For the avoidance of doubt, for the purposes of this Schedule, time shall not be
of the essence
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SIXTH SCHEDULE
Estate Services
Section I
1.1 In this part of this Schedule reference to "maintain" shall mean maintain,
inspect, test, service, repair, overhaul, amend and (where the Landlord
reasonably so requires in order to ensure that the Estate Common Parts are kept
in a first class state appropriate to the quality, size, nature and prestige of
the Estate as a whole) rebuild, renew, reinstate and replace and shall include,
where appropriate, treat, wash down, cleanse, paint, decorate, empty and drain
and the expression "maintenance" shall be construed accordingly Provided that
there shall be excepted any maintenance consequent upon damage or destruction by
any of the Insured Risks (save where any of the insurance monies are refused as
a result of any act or default of the Tenant or any person deriving title from
it or its or their agents or licensees)
1.2 In deciding the extent nature and quality of the relevant service or
services from time to time, the Landlord shall at all times act reasonably
1.3 In performing the Estate Services and any other services hereunder the
Landlord shall be entitled in its discretion to employ or procure or permit the
employment of managers, agents, contractors or any other persons
2. Subject to paragraphs 1.2 and 1.3 above, the following services to be carried
out in accordance with the principles of good estate management shall constitute
the Estate Services:
2.1 Estate Common Parts
To maintain the Estate Common Parts and each and every part thereof
2.2 Apparatus plant machinery etc
To maintain and operate all apparatus, plant, machinery and equipment comprised
in, or otherwise serving, the Estate Common Parts from time to time and the
buildings housing them, including (without prejudice to the generality of the
foregoing and so far as for the time being comprised in or otherwise serving the
Estate Common Parts as aforesaid) escalators, travelators, stand-by generators
and items relating to mechanical ventilation, heating, cooling, air conditioning
and humidification
2.3 Conducting Media
To maintain all Conducting Media within the Estate Common Parts or the use of
which is shared by the occupiers of more than one building on the Estate
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2.4 Fire alarms etc.
To maintain any fire alarms and ancillary apparatus and 6re prevention and fire
fighting equipment and apparatus and other safety equipment and systems
comprised in the Estate Common Parts and in any event to maintain fire and smoke
detection fire preventive and fire fighting equipment including sprinklers,
hydrants, hosereels, extinguishers, fire alarms, fire escapes and fire escape
routes and general means of escape to the extent required to comply in relation
to the Estate Common Parts with statutory requirements and the requirements of
responsible authorities or underwriters or insurance companies
2.5 Lighting
To keep lit at such times as the Landlord may reasonably think fit all
appropriate parts of the Estate Common parts and to keep floodlit such
elevations of the buildings comprised in the Estate (including the Building) as
it may think fit
2.6 Roads Malls etc open
(Without prejudice to any right of the Landlord hereunder) to keep open and
unobstructed the roadways, streets, plazas, malls and other vehicular and
pedestrian ways and similar areas comprised in the Estate Common Parts (subject
only to any unavoidable temporary closure from time to time or closure at
certain hours for reasons of security or operational purposes)
2.7 Security surveillance and visitor control
To provide security services and personnel including where appropriate in the
Landlord's judgement closed circuit television and/or other plant and equipment
for the purpose of surveillance and supervision of users of the Estate Common
Parts (both vehicular and pedestrian)
2.8 Provision of signs and general amenities
In the Landlord's discretion, to provide, erect, place and maintain direction
signs and notices, seats and other fixtures, fittings, chattels and amenities
for the convenience of tenants and their visitors and for the enjoyment or
better enjoyment of such parts of the Estate Common Parts as are available from
time to time for use by the occupiers of, and visitors to, the Estate and/or
members of the public as the Landlord may determine
2.9 Ornamental features gardens etc.
To provide and maintain hard and soft landscaping and planting in and on such
areas of the Estate Common Parts as the Landlord may consider appropriate or
desirable including, without limitation, plants, shrubs, trees or gardens or
grassed areas and, at the absolute discretion of the Landlord, fountains
sculptures, architectural, artistic or ornamental features or murals and to keep
all such parts of the Estate Common Parts as may from time to time be laid out
as
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landscaping (including water features) neat, clean, planted (where appropriate),
properly tended and free from weeds and the grass cut
2.10 Fixtures fittings etc.
To provide and maintain fixtures, fittings, furnishings, finishes, bins,
receptacles, tools, appliances, materials, equipment and other things for the
maintenance, appearance, upkeep or cleanliness of the Estate Common Parts and
the provision of the services set out in this part of this Schedule
2.11 Windows
As often as the Landlord may consider desirable, to clean the exterior and
interior of and all glazed atria, covered walkways, courtyards or Estate Common
Parts (including Minster Court) and all windows and window frames in any
building included in the Estate Common parts and to provide and maintain
cradles, runways and carriages in connection with such cleaning
2.12 Refuse
To provide and operate, or procure the provision and operation of, means of
collection, compaction and disposal of refuse and rubbish (including litter
within the Estate Common Parts and if necessary pest control) from the Estate
Common Parts and other parts of the Estate (to the extent that the same is not
provided to a standard considered adequate by the Landlord or at all by the
appropriate public or similar authority) and to provide and maintain plant and
equipment for the collection, compaction, treatment, packaging or disposal of
the same
2.13 Energy and Supply Services
To arrange the provision of water, fuel, oil, gas, heating, cooling, air
conditioning, ventilation, electricity and other energy and supply services to
the Estate Common Parts as may be required for use in running or operating any
service to the Estate Common Parts or distributed to occupiers of the Estate,
including, so far as appropriate, standby power generators and plants
2.14 Other Services
To provide such other services for the benefit of the Estate or the convenience
of the occupiers thereof as the Landlord may in accordance with the principles
of good estate management reasonably consider desirable or appropriate
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Section II
1. Staff
The cost of staff (including such direct or indirect labour as the Landlord
deems appropriate) for the provision of the Estate Services (including traffic
control and policing) and all other incidental expenditure including but not
limited to:
1.1. salaries, insurance, health, pension, welfare, severance and other
payments, contributions and premiums;
1.2 the cost of uniforms, working clothes, tools, appliances, materials and
furniture, furnishings, stationery items and equipment (including telephones)
for the proper performance of the duties of any such staff;
1.3 providing, maintaining, repairing, decorating and lighting the Management
Premises and all rates, gas, electricity and other utility charges (other than
telephones and line rentals for private purposes) in respect of the Management
Premises and any reasonable actual or reasonable notional rent for such
accommodation
2. Common Facilities
The amount which shall reasonably require to be paid for, or as a contribution
towards, the costs, charges, fees and expenses in making, laying, repairing,
maintaining, rebuilding, decorating, cleansing and lighting (as the case may be)
any roads, ways, forecourt& passage% pavements, party walls or fences, party
structures, pipes or other conveniences and easements whatsoever which may
belong to, or be capable of being used or enjoyed by, the Estate in common with
any adjoining property
3. Outgoings
All existing and future rates (including water rates), taxes, duties, charges,
assessments, impositions and outgoings whatsoever (whether parliamentary,
parochial, local or of any other description and whether or not of a capital or
non-recurring nature or of a wholly novel character) payable in respect of the
Estate Common Parts or any part thereof
4. Statutory requirements
The cost of carrying out any works to the Estate Common Parts required to comply
with any
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Represenatations
The cost of taking any steps reasonably deemed desirable or expedient by the
Landlord for complying with, making representations against, or otherwise
contesting the incidence of the provisions of any statute concerning town
planning, rating, public health, highways, streets, drainage and all other
matters relating or alleged to relate to the Estate Common Parts or the Estate
as a whole or in which occupiers within the Estate have a common interest
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6. Estate Services and Estate Regulations
The cost of compliance with the Estate Regulations and any other ~0vt5nant.s or
regulations referred to so far as the same relate to the provision of the
services and other items referred to in this Schedule
7. Fees of the Landlord's Surveyor
The proper and reasonable fees, costs, charges, expenses and disbursements of
the Landlord's Surveyor for, or in connection with, the performance of the
duties ascribed to the Landlord's Surveyor under the provisions of this Lease
8. Management
8.1 The reasonable and proper fees of a firm of managing agents employed or
retained by the Landlord for or in connection with the general overall
management and administration and supervision of the Estate (excluding rent
collection)
8.2 A reasonable fee to the Landlord or a Group Company of the Landlord in
connection with the management of the Estate but so that, if a firm of managing
agents is appointed to manage the Estate, the fee chargeable by the Landlord or
a Group Company of the Landlord in any Estate Accounting Year under this
paragraph 8.2 shah be reduced (but not below zero) by an amount equivalent to
the fees (before Value Added Tax) charged by such managing agents and included
in Estate Expenditure for that Estate Accounting Year pursuant to paragraph 8.1
above
9. Insurance 9.1 The cost of insuring:
a) the Estate Common Parts against loss or damage by the Insured Risks
in such sum and shall in the Landlord's reasonable opinion be the full
reinstatement cost thereof (together with Value Added Tax thereon) and including
architects', surveyors' and other professional fees (and Value Added Tax
thereon) and expenses incidental thereto, the cost of shoring up, demolition and
site clearance and similar expenses;
b) any engineering and electrical plant and machinery being part of the
Estate Common Parts against explosion (to the extent that the same is not
covered by sub-paragraph 9.1(a));
c) property owner's liability and public liability or such other
insurances as the Landlord may from time to time deem necessary to effect
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9.2 The cost of periodic valuations for insurance purposes (but no more than one
such valuation shall be carried out in each two (2) year period unless the
Landlord reasonably requires at any time a more frequent valuation)
9.3 Works required to the Estate Common Parts in order to satisfy the insurers
of the Estate
Common Parts
9.4 Any amount which may be deducted or disallowed by the insurers pursuant to
the excess provision in the Landlord's insurance policy upon settlement or
adjudication of any claim by the Landlord
10. Miscellaneous items
10.1 Leasing or hiring any of the items referred to in this Schedule
10.2 Interest, commission and fees at normal commercial rates in respect of any
moneys included in Estate Expenditure borrowed to finance the provision of
services and any of the items referred to in this Schedule
11. Exhibitions etc.
The cost of any displays, concerts, exhibitions or other forms of public
entertainment or activity undertaken within the Estate Common Parts or for the
benefit or enjoyment of the Estate and its occupiers
12. As to Covenants
The cost of compliance by the Landlord with its obligations in relation to the
Estate Services and the cost of enforcing the covenants of any other parties in
relation to the Estate Services for the general benefit of the tenants of the
Estate as reasonably determined by the Landlord (save to the extent recovered
from such parties which the Landlord shall use all reasonable endeavours to do
and save fix the cost of enforcing covenants for the payment of money)
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SEVENTH SCHEDULE
Building Services
Section I
1.1 In this part of this Schedule, reference to "maintain" shall mean maintain,
inspect test, service, repair, overhaul, amend and (where the Landlord
reasonably SO requires in order to ensure that the Building Common Parts are
kept in a first class state appropriate to the quality size nature and prestige
of the Building as a whole) rebuild, renew, reinstate and replace and shall
include, where appropriate treat, wash down, cleanse, paint, decorate, empty and
drain and the expression "maintenance" shall be construed accordingly
1.2 In deciding the extent nature and quality of the relevant service or
services the Landlord shall at all times act reasonably
1.3 In performing the Building Services and any other services hereunder the
Landlord shall be entitled in its discretion to employ or procure or permit the
employment of managers, agents, contractors or any other persons
2. Subject to paragraphs 1.2 and 1.3 above, the following services to be carried
out in accordance with the principles of good estate management shall constitute
the Building Services:
2.1 The Retained Parts
To maintain the Retained Parts and each and every part thereof
2.2 Building Common parts
To keep clean and maintained the Building Common Parts including the windows
thereof and to keep the same adequately lighted carpeted and furnished where
appropriate
2.3 Lifts
To provide a lift service by the operation of the lifts now installed or by such
substituted lifts as the Landlord in its reasonable discretion may from time to
time decide to install and to provide such a lift service as the Landlord
reasonably considers necessary or desirable and to maintain and insure all
equipment, plant and machinery used in connection therewith
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2.4 Hot and cold water
To provide an adequate supply of hot and cold water to the wash basins in the
Building and cold water to the lavatories and fire sprinklers therein
2.5 Air conditioning and heating
To provide air conditioning and heating to the Building including the Building
Common Parts intended to be air conditioned to such temperatures and standards
as the Landlord may from time to time reasonably consider appropriate and to
maintain all equipment plant and machinery used in connection therewith
2.6 Name boards
To provide and install name boards of such size and design as the Landlord may
in its absolute discretion determine in the main entrance to the Building and at
such other locations the Landlord may consider desirable
2.7 To provide reception and security facilities at the ground floor
entrances of the Building
Section II
1. Retained Parts
The cost of maintaining, lighting, heating, furnishing, carpeting and equipping
and (if the Landlord reasonably considers necessary) altering the Retained Parts
including, but not limited to, the provision in the main entrance halls and lift
lobby areas of floral decorations, desks, tables, chairs and other fixtures and
fittings
2. Apparatus plant machinery etc
The cost of maintaining and operating all apparatus, plant, machinery and
equipment serving the Building from time to time including (without prejudice to
the generality of the foregoing and so far as for the time being serving the
Building as aforesaid) lifts, lift shafts, escalators, travelators, stand-by
generators and boilers and items relating to mechanical ventilation, heating,
cooling, air conditioning and humidification
3. Fire alarms etc.
The cost of maintaining any fire alarms and ancillary apparatus and fire
prevention and fire fighting equipment and apparatus and other safety equipment
comprised in the Retained Parts or serving the Building and in any event of
maintaining fire and smoke detection fire preventive and fire fighting equipment
including sprinklers, hydrants, hosereels, extinguishers, fire alarms, fire
escapes and fire escape routes and general means of escape to the extent
required to comply
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in relation to the Retained Parts with statutory requirements and the
requirements of responsible authorities or underwriters or insurance companies
4. Security and surveillance
The cost of providing security services and personnel including where
appropriate in the Landlord's judgement closed circuit television and/or other
plant and equipment for the purpose of surveillance and supervision of users of
or visitors to the Building (both vehicular and pedestrian) and for the purpose
of monitoring, organising and supervising the use of any loading bays, delivery
areas and goods lifts within the Building Provided that, for the avoidance of
doubt, such services and personnel shall not extend to the Demised Premises
5. Provision of signs and general amenities
The cost of providing, erecting, placing and maintaining direction signs and
notices, seats and other fixtures, fittings, chattels and amenities for the
convenience of tenants and their visitors and for the enjoyment or better
enjoyment of such parts of the Building Common Parts as are available from time
to time for use by the occupiers of and visitors to the Building and/or members
of the public as the Landlord may determine
6. Ornamental features gardens etc.
The cost of providing and maintaining hard and soft landscaping and planting in
and on such areas of the Retained Parts as the Landlord may consider appropriate
or desirable including, without limitation, plants, shrubs, trees or gardens or
grassed areas and appropriate fountains, sculptures, architectural, artistic or
ornamental features or murals and of keeping all such parts of the Retained
Parts as may from time to time be laid out as landscaping (including water
features) neat, clean, planted (where appropriate) properly tended and free from
weeds and the grass cut
7. Fixtures fittings etc.
The cost of providing and maintaining fixtures, fittings, furnishings, finishes,
bins, receptacles, tools, appliances, materials, equipment and other things for
the maintenance, appearance, upkeep or cleanliness of the Retained Parts and the
provision of any services for the Building
8. Windows
The cost of cleaning the exterior and (save where the same is the responsibility
of a tenant) interior of all windows and window frames in the Building and of
providing and maintaining cradles, runways and carriages in connection with such
cleaning
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9. Refuse
The cost of providing and operating or procuring the provision and operation of
means of collection, compaction and disposal of refuse and rubbish (including
litter within the Building Common Parts and if necessary pest control) from the
Building and of providing and maintaining plant and equipment for the
collection, compaction, treatment, packaging or disposal of the same
10. Energy and supply services
The cost of the provision of water, fuel, oil, gas, heating, cooling, air
conditioning, ventilation, electricity and other energy and supply services to
the Building as may be required for use in running or operating any service to
the Building or distributed to occupiers of the Building including, so far as
appropriate, standby power generators and plant
11. Other services
The cost of providing such other services for the benefit of the Building or the
convenience of the occupiers thereof (including, without limitation, a receipt
and dispatch centre for items delivered by courier) as the Landlord may in
accordance with the principles of good estate management reasonably consider
desirable or appropriate
12. Staff
The cost of staff (including such direct or indirect labour as the Landlord
deems appropriate) employed for the provision of the Building Services or in
respect of the matters referred to in this Seventh Schedule, including but not
limited to:
12.1 salaries, insurance, health, pension, welfare, severance and other
payments, contributions and premiums;
12.2 the cost of uniforms, working clothes, tools, appliances, materials and
furniture, furnishings, stationery items and equipment (including telephones)
for the proper performance of the duties of any such staff,
12.3 providing, maintaining, repairing, decorating and lighting the Management
Premises and/or any accommodation and facilities for staff including any
reasonable residential accommodation for staff employed in the Building and all
rates, gas, electricity and other utility charges (other than telephones and
line rentals for private purposes) in respect thereof and any reasonable actual
or notional rent for such accommodation
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13. Common Facilities
The amount which the Landlord shall reasonably require to be paid or contributed
towards the costs, charges, fees and expenses in making, laying, repairing,
maintaining, rebuilding decorating, cleansing and lighting (as the case may be)
any roads, ways, forecourts, passages, pavements, party walls or fences, party
structures, the Conducting Media or other conveniences and easements whatsoever
which may belong to, or be capable of being used or enjoyed by, the Building in
common with any adjoining or neighbouring property
14. Outgoings
All existing and future rates (including water rates), taxes, duties, charges,
assessments, impositions and outgoings whatsoever (whether parliamentary,
parochial, local or of any other description and whether or not of a capital or
non-recurring nature or of a wholly novel character) payable in respect of the
Retained Parts or any part thereof
15. Statutory requirements
The cost of carrying out any works to the Retained Parts required to comply with
any statute
16. Representations
The cost of taking any steps reasonably deemed desirable or expedient by the
Landlord for complying with, making representations against or otherwise
contesting the incidence of the provisions of any statute concerning town
planning, rating, public health, highways, streets, drainage and all other
matters relating or alleged to relate to the Retained Parts or the Building as a
whole or in which occupiers within the Building have a common interest
17. Building Services and Building Regulations
The cost of compliance with the Building Regulations and any other covenants or
regulations referred to so far as the same relate to the provision of the
services and other items referred to in this Schedule
18. Enforcement of covenants etc,
The cost of enforcing the covenants (other than covenants to pay money) in any
other 1ea.W of Lettable Areas in the Building for the general benefit of the
tenants thereof as reasonably determined by the Landlord (save to the extent
recovered from such parties which the Landlord shah use all reasonable
endeavours to do)
19. Fees of the Landlord's Surveyor
The proper and reasonable fees, costs, charges, expenses and disbursements of
the Landlord's Surveyor for or in connection with the performance of the duties
ascribed to the Landlord's Surveyor under the provisions of this Lease
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20. Management
20.1 The proper and reasonable fees of a firm of managing agents employed or
retained by the Landlord or a Group Company of the Landlord for, or in
connection with, the general overall management and administration and
supervision of the Building (excluding rent collection)
20.2 A reasonable fee to the Landlord or to a Group Company of the Landlord in
connection with the management of the Building but so that, if a firm of
managing agents is appointed to manage the Building, the fee chargeable by the
Landlord or a Group Company of the Landlord in any Building Accounting Year
under this paragraph 20.2 shall be reduced (but not below zero) by an amount
equivalent to the fees (net of Value Added Tax) charged by such managing agents
and included in Building Expenditure for that Building Accounting Year pursuant
to paragraph 20.1 above
21. Miscellaneous items
21.1 Leasing or hiring any of the items referred to in Section I or Section
II of this Schedule
21.2 Interest, commission and fees at normal commercial rates in respect of any
moneys borrowed to finance the provision of services and any of the items
referred to in Section I or Section II of this Schedule
21.3 Operating and managing the operation of the Electricity Charge referred
to in the Eleventh Schedule throughout the Building
22. Insurance
22.1 Works required to the Building in order to satisfy the insurers of the
Building
22.2 Any amount which may be deducted or disallowed by the insurers pursuant to
any excess provision in the Landlord's insurance policy upon settlement or
adjudication of any claim by the Landlord
23. Decorations
Providing and maintaining Christmas and other special decorations for the
Building
24. As to Covenants
The cost of compliance by the Landlord with its obligations in relation to the
Building Services and the reasonable and proper cost of enforcing the covenants
of any other parties in relation to the Building Services for the general
benefit of the tenants of the Building as reasonably determined by the Landlord
(save to the extent recovered from such parties which the Landlord
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shall use all reasonable endeavours to do and save for the cost of enforcing
covenants for the payment of money)
25. Generally
Any reasonable and proper costs and expenses (not referred to above) which the
Landlord may reasonably and properly incur in providing such other services and
in carrying out such other works as the Landlord in its reasonable discretion
may deem desirable or necessary for the benefit of the Building or any part of
it or the tenants or occupiers thereof or for securing or enhancing any
amenities of or within the Building or in the interest of good estate management
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EIGHTH SCHEDULE
Guarantee Provisions
Covenant and indemnity by Guarantor
The Guarantor hereby covenants with the Landlord as a primary obligation that
the Tenant or the Guarantor shall at all times during the contractual term duly
perform and observe all the covenants on the part of the Tenant contained in
this Lease including the payment of the rents and all other sums payable under
this Lease in the manner and at the times herein specified and the Guarantor
hereby indemnifies the Landlord against all claims, demands, losses, damages,
liability, costs, fees and expenses whatsoever sustained by the Landlord by
reason of, or arising in any way directly or indirectly out of, any default by
the Tenant in the performance and observance of any of its obligations or the
payment of any rent and other sums
Waiver by Guarantor
The Guarantor hereby waives any right to require the Landlord to make demands
of, or to proceed against, the Tenant or to pursue any other remedy whatsoever
which may be available to the Landlord before proceeding against the Guarantor
Postponement of claims by Guarantor against Tenant
Whilst any liability of the Tenant or the Guarantor to the Landlord remain
outstanding, the Guarantor hereby further covenants with the Landlord that the
Guarantor shall not claim in any liquidation, bankruptcy, composition or
arrangement of the Tenant in competition with the Landlord and shah remit to the
Landlord the proceeds of all judgments and all distributions it may receive from
any liquidator, trustee in bankruptcy or supervisor of the Tenant and shall hold
for the benefit of the Landlord all security and rights the Guarantor may have
over assets of the Tenant
Postponement of participation by Guarantor in security
The Guarantor shall not be entitled to participate in any security held by the
Landlord in respect of the Tenant's obligations to the Landlord under this Lease
or to stand in the place of the Landlord in respect of any such security until
all the obligations of the Tenant or the Guarantor to the Landlord under this
Lease have been performed or discharged
No release of Guarantor
None of the following or any combination thereof shall release, determine,
discharge or in any way lessen or affect the liability of the Guarantor under
this Lease or otherwise prejudice or affect the right of the Landlord to recover
from the Guarantor to the full extent of this guarantee:
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5.1 any neglect, -delay or forberance of the Landlord in endeavouring to obtain
payment of the rents or the amounts required to be paid by the Tenant or in
enforcing the performance or observance of any of the obligations of the Tenant
under this Lease;
5.2 any refusal by the Landlord to accept rent tendered by or on behalf of the
Tenant at a time when the Landlord was entitled (or would after the service of a
notice under Section 146 of the Law of Property Act 1925 have been entitled) to
reenter the Demised Premises;
5.3 any extension of time given by the Landlord to the Tenant;
5.4 any variation of the terms of this Lease (including any reviews of the rent
payable under this Lease) or the transfer of the Landlord's reversion or the
assignment of this Lease;
5.5 any change in the constitution, structure or powers of either the Tenant,
the Guarantor or the Landlord or the liquidation, administration or bankruptcy
(as the case may be) of either the Tenant or the Guarantor;
5.6 any legal limitation or any immunity, disability or incapacity of the Tenant
(whether or not known to the Landlord) or the fact that any dealings with the
Landlord by the Tenant may be outside or in excess of the powers of the Tenant;
and
5.7 any other act, omission, matter or thing whatsoever whereby but for this
provision the Guarantor would be exonerated either wholly or in part (other than
a release under seal given by the Landlord)
6. Disclaimer or forfeiture of Lease
6.1 The Guarantor hereby further covenants with the Landlord that:
(a) if a liquidator or trustee in bankruptcy shah disclaim or
surrender this Lease; or
(b) if this Lease shall be forfeited; or
(c) if the Tenant shall cease to exist
THEN the Guarantor shall, if the Landlord by notice in writing given to the
Guarantor within four and a half months after such disclaimer or other event so
requires, accept from, and execute and deliver to, the Landlord a counterpart of
a new lease of the Demised Premises for a term commencing on the date of the
disclaimer or other event and continuing for the residue then remaining
unexpired of the Term, such new lease to be at the reasonable and proper cost
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of the Guarantor and to be at the same rents and subject to the same covenants,
conditions and provisions as are contained in this Lease (hut omitting this
Schedule)
6.2 If the Landlord shall not require the Guarantor to take a new lease, the
Guarantor shall nevertheless within 28 days of demand pay to the Landlord a sum
equal to the rents and other sums that would have been payable under this Lease
but for the disclaimer or other event in respect of the period from and
including the date of such disclaimer or other event until the expiration of six
(6) months therefrom or until the Landlord shall have granted a lease of the
Demised Premises to a third party (whichever shall first occur)
7. Benefit of Guarantee
This guarantee shall enure for the benefit of the successors and assigns of the
Landlord under this Lease without the necessity for any assignment thereof
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NINTH SCHEDULE
Estate Regulations
1. Refuse and litter
No refuse or garbage shall be placed anywhere other than in proper containers
provided for the purpose or as may reasonably be designated by the Superior
Landlord or the Landlord or other the person responsible for providing the
Estate Services (the "Estate Landlord") and no litter shall be dropped in any of
the Estate Common Parts
2. Entrances, Corridors, Fire Exits etc.
2.1 Fire corridors, fire exits and escape stairways within the Estate Common
Parts shall (unless the Estate Landlord shall otherwise specify) be for
emergency use only and they shall not be used for any other purpose
2.2 The Tenant shall not obstruct any such fire corridors, fire exits and escape
stairways nor any other pavements, roads, streets, walkways, plazas, malls,
entrances, fire corridors, escalators or elevators within the Estate Common
Parts
3. Parking and Loading
3.1 No parking of any motor vehicles shall take place within the Estate save as
may be expressly permitted by this Lease or other legal right or permission
granted in writing from time to time by the Estate Landlord to the Tenant
3.2 Not to load or unload vehicles in the highways adjoining the Estate
4. Loudspeakers etc
No music or other sounds or noise is to be permitted to be played, broadcast,
transmitted or otherwise produced so as to be audible outside the Demised
Premises
5. Use of the Estate Common Parts
5.1 Not to obstruct the roads, streets, malls and other areas of the Estate
Common Parts
5.2 Not to do anything in the use of the Estate Common Parts which may be or
become a nuisance to the Estate Landlord or any occupier of or visitor to the
Estate
5.3 Not to cause any unnecessary noise, vibration or exhaust fumes Common Parts
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5.4 Not knowingly to do any act or thing which may render void or voidable any
policy of insurance effected in respect of the Estate Common Parts
5.5 Forthwith to make good or procure to be made good, to the reasonable
satisfaction of the Landlord, any damage caused to the Estate Common Parts by
the Tenant or by persons authorised by the Tenant to use the same and to pay to
the Landlord on demand the cost incurred by the Estate Landlord in making good
such damage
5.6 Without prejudice to any express right which may be granted in writing to
the Tenant by the Landlord, not to park or leave unattended any vehicle or other
thing anywhere on the Estate except in the Basement and such place (if any) as
may from time to time be designated by the Landlord for such parking or leaving
and to remove (and to permit the Landlord in its discretion without notice to
the Tenant or user thereof to remove or immobilise) any such vehicle or thing
parked or left in contravention of this regulation, in particular, but without
limitation, if it shall be, or threaten to become, an obstruction or hazard to
safety or health or is otherwise offensive or injurious to the amenities of the
Estate and to pay to the Estate Landlord the cost of any such removal or
immobilisation borne by the Estate Landlord
5.7 To give all reasonable co-operation to facilitate the temporary closure of,
or changes to, the layout of the Estate Common Parts or any part thereof
consistent with the Terms of this Lease
5.8 To comply with, and to procure that those authorised by the Tenant comply
with, all directions and requests of the Estate Landlord for regulating the flow
of traffic and controlling the positioning of vehicles within the Estate Common
Parts
5.9 To comply with, and to procure that those authorised by the Tenant comply
with, all reasonable directions made by the Estate Landlord relating to security
or fire precautions in respect of the Estate Common Parts
5.10 Not to deposit any refuse, debris or other material in, or cause to be
polluted, any water areas forming part of the Estate
6. Use of the Car Park
6.1 6.1.1 Not to obstruct any access or circulation areas within the Car
Park;
6.1.2 Not to do anything in the use of the Car Park which may be or
become a nuisance or annoyance or inconvenience to the Estate Landlord or the
Landlord or to any occupier of or visitor to the Estate;
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6.1.3 Not to cause any unnecessary noise, vibration or exhaust fumes
within the Car Park
6.1.4 Not to do any act or thing which may render void or voidable any
policy of insurance effected in respect of the Car Park;
6.1.5 To make good to the reasonable satisfaction of the Estate
Landlord or the Landlord any damage caused to the Car Park by the Tenant or by
persons authorized by the Tenant to use the same and to pay to the Landlord on
demand the cost incurred b the Landlord in making good such damage;
6.1.6 To ensure that any motor car parked in the Car Park is parked
in an orderly manner
6.2 To park only in the spaces or in the area designated for the use of the
Tenant from. time to time by the Estate Landlord or the Landlord
6.3 Not to deposit in the Car Park any rubbish, litter or refuse of any kind,
other than in proper receptacles provided for that purpose
6.4 Not to do or permit any of the following to be done within the Car
Park:
(a) the washing or cleaning of any car;
(b) works of repair or maintenance to any car;
(c) the pouring or other transfer of petrol or other fuel into or
out of the fuel tank of any car; (d) the loading or unloading
of any goods;
(e) the storage of fuel (other than that contained in the petrol
tank of any motor car); (f) the carrying on of any trade or
business
6.5 To observe such reasonable directions as shall from time to time be made by
the Estate Landlord the Landlord in respect of the temporary closure of the Car
Park and removal of cars parked therein for the purposes of maintenance or
repairs
6.6 To comply with, and to procure that those authorised by the Tenant exercise
the rights granted by Paragraph 8 of the Second Schedule comply with, all
directions and signs from time to time posted by the Estate Landlord or the
Landlord in the Car Park and all instructions or requests
94
<PAGE>
given or made from time to time by any employee or agent of the Estate Landlord
or the Landlord for regulating traffic and controlling the positioning of
vehicles within the Car Park
6.7 If so required from time to time by the Estate Landlord or the Landlord, to
instruct the drivers of cars using the Car Park with the Tenant's authority to
leave their car keys with an authorised representative of the Estate Landlord or
the Landlord upon such terms as shall be reasonably prescribed by the Estate
Landlord, or the Landlord
95
<PAGE>
TENTH SCHEDULE
Building Regulations
1. Refuse
1.1 To deposit all rubbish and refuse generated by or from the Demised Premises
in such receptacles as may be designated by the Landlord from time to time
1.2 Not to deposit in the Building Common Parts any rubbish, litter or refuse of
any kind other than in proper receptacles provided for the purposes or as may be
designated by the Landlord and not to bum any rubbish or refuse on the Demised
Premises
1.3 Not to discharge into any Conducting Media any oil or grease or any noxious
or deleterious effluent or substance whatsoever which may cause an obstruction
or might be or become a source of danger or which might injure the Conducting
Media or the drainage system of the Demised Premises or the Estate
2. Obstruction of the Building Common Parts
Not to do anything whereby the Building Common Parts or any other areas over
which the Tenant may have rights of access or use may be damaged or the fair use
thereof by others may be obstructed in any manner whatsoever
3. Entry to the Building
To comply with all reasonable regulations made from time to time by the Landlord
and notified to the Tenant in respect of security arrangements made in respect
of the Building
4. Damage to the Building Common Parts
To make good to the reasonable satisfaction of the Landlord any damage caused to
the Building Common Parts by the Tenant or by persons authorised by the Tenant
to use the same and to pay to the Landlord on demand the cost incurred by the
Landlord in making good such damage
5. Delivery areas etc.
To comply with all reasonable and proper directions and requests of the Landlord
issued from time to time for the reasonable regulation of the use of the Loading
Bay 6. Goods lifts 6.1 To procure that the carrying in or out of any safes,
furniture, packages, boxes, crates or other similar objects or matter to or from
the Demised Premises shah take place by prior arrangement with the Landlord only
during such hours and in such goods lifts and in such manner as the Landlord may
from time to time reasonably determine
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5.16 To ensure that all hand trucks used within the Building shall be equipped
with rubber tires side guards
6.3 To procure that all persons using or visiting the Demised Premises shall not
use the goods lifts in the Building except by prior arrangement with the
Landlord
7. Packages etc.
For the purpose of enquiring whether the same pose any hazard, to permit the
Landlord to inspect any parcel, package, case or other thing being or proposed
to be brought into the Building if the Landlord or any employee or agent of the
Landlord shall in its or his discretion require td inspect the same and to
comply with all reasonable directions given in such circumstances
8. Courier service
If such centre is provided, to procure that all messenger services delivering to
or collecting from the Tenant or any undertenant use the receipt and dispatch
centre provided by the Landlord for courier delivery services
9. Canvassing soliciting etc
Not to permit or suffer any canvassing, busking, soliciting or peddling within
the Building
10. Instructions to staff
Not to give instructions to any staff of the Landlord whether in respect of
their regular duties or otherwise
11. Entrance doors and windows
When the Demised Premises are not in use, all entrance doors to the Demised
Premises shall be left locked and all windows left closed; entrance doors shall
not be left open at any time and all lights in the Demised Premises shall be
extinguished before the Demised Premises are closed
12. Office Cleaning
The cleaning of the Demised Premises is to be carried out before 8.00 am and
after 6.00 pm each day
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ELEVENTH SCHEDULE
Electricity Supply
1. Definitions
In this Schedule, unless the context otherwise requires:
1.1 "Board" means London Electricity plc or other the authority or company
supplying electricity to the Building
1.2 "Principal Intake Meter" means the metering equipment installed by the Board
for the purpose of measuring the Principal Supply
1.3 "Electricity Charge" means the cost to the Landlord of supplying electricity
to the Demised Premises to be calculated in accordance with paragraph 10 of this
Schedule
1.4 "Landlord's Apparatus" means all electric cables, meters, switchgear and
other apparatus necessary for the supply of electricity from the Principal
Supply to each of the Lettable Areas and the Building Common Parts including the
Demised Premises and also all stand-by generators, the cost allocation
hardware/software/apparatus and other equipment within the Building intended to
provide the Tenant's Supply at such time or times as the Principal Supply shall
fail
1.5 "Principal Supply" means the supply of electricity to the Building by
the Board to the Principal Intake Meter
1.6 "Lessee's Meters" means the measuring equipment forming part of the
Landlord's Apparatus for the purpose of measuring the Tenant's Supply
1.7 "Tenant's Meter" means the measuring equipment installed as part of the
Landlord's Apparatus for the purposes of measuring the supply of electricity to
the Demised Premises
1.8 "Tenant's Supply" means the supply of electricity to each of the Lettable
Areas in the Building including the Demised Premises through the Landlord's
Apparatus
2. Recital
The Landlord has installed at the point of delivery of the Tenant's Supply to
and within the Demised Premises the Tenant's Meter which shall, so far as
practicable, be accurate within the limits of error reasonably allowed for
commercial grade meters
98
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3. Maintain Landlord's Apparatus
The Landlord shall maintain the Landlord's Apparatus in the Building in good and
substantial repair and condition so as to permit the free flow of electricity
from the Principal Supply to the Demised Premises but shall be at liberty if
necessary and on giving to the Tenant not less than five (5) working days notice
in writing temporarily to take the Landlord's Apparatus or any part thereof out
of service for maintenance, repair, replacement or modernization causing as
little inconvenience to the Tenant as reasonably practicable and doing such work
outside normal business hours (except in case of emergency) and, subject
thereto, the Landlord shall not be liable to the Tenant or the Tenant's
employees or those claiming through or under the Tenant for such taking out of
service or for the failure, interruption or breakdown of the Landlord's
Apparatus or of the Principal Supply or the Tenant's Supply which is not
attributable to the willful default or negligence of the Landlord Provided
Always that the Landlord will carry out such maintenance, repair, replacement or
modernization with all due expedition and in a good and workmanlike manner
4. Capacity of Supply
The Tenant shall not, without the consent in writing of the Landlord (such
consent not to be unreasonably withheld), take or be entitled to take a supply
from the Landlord's Apparatus in excess of its existing service capacity
5. Legislation
The Landlord and the Tenant shall at all times comply with any regulations made
or having effect as if made by the appropriate authority under Section 36 of the
Electricity Act 1983 or any statutory reenactment from time to time of such
provisions
6. Tenant's Meters
The Landlord agrees to install and maintain in the Building (subject to the
provisions of paragraph 3 of this Schedule) Lessee's Meters sufficient for the
measurement and calculation of electricity supplied to all occupiers and other
consumers in the Building (including the supply to the Landlord for the purpose
of performing its obligations in respect of the Building) and will not
disconnect the Tenant's Supply to the Demised Premises without simultaneously
providing an alternative supply
7. Disputes
7.1 If either party shall by notice in writing to the other at any time,
question the accuracy of the Tenant's Meter the Principal Intake Meter the
Lessee's Meters and/or the Landlord's Apparatus the same shall be tested in such
manner as may be agreed between the parties or in default of agreement by an
expert nominated on the application of either party by the President for the
time being of the Institution of Electrical Engineers who shall determine
whether or not the
99
<PAGE>
Tenant's Meter shall have failed to or register accurately and the period during
the Tenant's Meter failed to register or registered inaccurately and the amount
of error (such determination to be final and binding on the parties) and the
amount payable by the Tenant during the period determined by the expert shall be
adjusted, SO far as is necessary, to give effect to his determination and the
fees and expenses of the expert shall be borne by such of the parties and in
such proportions as he shall determine
7.2 Pending the determination of the expert in accordance with the provisions Of
paragraph 7.1 of this Schedule, the Landlord shall be entitled to make a
reasonable estimate of the electricity consumed by the Tenant and the amount
payable by the Tenant in accordance with this Schedule shall be calculated
accordingly
7.3 Any adjustment shall be made forthwith following the determination by the
expert in accordance with paragraph 7.1 of this Schedule by payment by either
party to the Other, as the case may be
8. Reading Tenant's Meters
The Landlord shall procure that readings are taken (which shall not be for
periods of less than one month) and recorded from all Lessee's Meters in the
Building and the readings taken and recorded shall (subject to manifest error
and to the provision of paragraph 7 of this Schedule) be accepted by the
Landlord and the Tenant
9. Accounts
As soon as practicable after the readings are taken, the Landlord shah deliver
to the Tenant an account with sufficient and proper details showing the amount
of Electricity Charge and details as to how the Electricity Charge has been
calculated
10. The Electricity Charge
The Electricity Charge payable by the Tenant to the Landlord shall be the
aggregate of:
a) an amount calculated in accordance with the following formula:
A = B x C
-----
D
where:
A = the amount payable by the Tenant to the Landlord;
100
<PAGE>
B = the number of units of electricity shown by the reading on the Tenant's
Meter for the Demised Premises over a given period of time;
C = the aggregate cost of all units of electricity comprising the Principal
Supply over the same given period of time for which the Landlord is
contractually liable to pay and which is shown on the Principal Intake Meter;
and
D = the aggregate of the readings of units of electricity on all Lessee's Meters
in the Building over that same period of time;
(b) a proper proportion attributable to the Demised Premises of the actual
cost of taking readings of all consumer's meters in the Building; and
(c) a proper proportion attributable to the Demised Premises of the cost to the
Landlord of inspecting, maintaining, repairing and renewing the Landlord's
Apparatus, including operating any stand-by generators in the Building
11. The Tenant shall pay to the Landlord within fourteen days of demand (but not
more frequently than every one calendar month) in advance to the Landlord such
sum ("the Electricity Charge Advance Payment") on account of the Electricity
Charge for the period until the next readings are taken pursuant to paragraph 8
of this Schedule as the Landlord shall from time to time reasonably specify as
being in its opinion a fair and reasonable assessment of the Electricity Charge
likely to be due from the Tenant for such period provided that if following
issue of the account referred to in paragraph 9 of this Schedule the Electricity
Charge Advance Payment is less than the Electricity Charge then the Tenant shall
within fourteen (14) days of demand pay to the Landlord the balance of the
Electricity Charge in respect of the period in question; or (as the case may be)
there shall be credited against the Tenant's liability for Electricity Charge
for the next period any amount which shah have been overpaid by the Tenant by
way of Electricity Charge Advance Payment, and if such overpayments occur on a
regular basis the Landlord shah revise its estimate of the Electricity Charge
Advance Payment appropriately; and provided that the Landlord will credit to any
sums held by it in respect of Electricity Charge Advance Payments all interest
accrued thereon and the Landlord will utilise any such interest towards the
payment of the Electricity Charge
12. The Landlord shall bear the cost of supplying electricity and the proportion
of all meter rents which relate to any Lettable Areas in the Building which are
at any time unlet and shall make such adjustments to the calculation of the
Electricity Charge under paragraph 10 above as shall be reasonably necessary to
give effect to this paragraph 12.
101
EXHIBIT 10.39
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as "Contract")
to the
COINSURED
AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
(hereinafter referred to as the "Reinsured")
and
CENTRE INSURANCE COMPANY
(hereinafter referred to as "Subscribing Reinsurer")
It is mutually agreed by and between the Reinsured on the one part, and the
Subscribing Reinsurer on the other part that the Subscribing Reinsurer's share
in the Interests and Liabilities of the Reinsurer as set forth in the COINSURED
AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT, effective 12:01 am., Eastern
Standard Time, January 1, 1999 attached hereto and forming a part of this
Contract shall be for 80%.
The share of the Subscribing Reinsurer signed hereon in the Interests and
Liabilities of all 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 Subscribing Reinsurer signed hereon shall be
several and not joint with those of the other reinsurers and in no event shall
the Subscribing Reinsurer signed hereon participate in the Interests and
Liabilities of the other reinsurers.
This Contract shall be effective for the period commencing 12:01 a.m., Eastern
Standard Time, January 1, 1999 and ending 11:59 p.m., Eastern Standard Time,
December 31, 1999.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed,
in triplicate, Executed this 5th day of March, 1999
TRENWICK AMERICA REINSURANCE CORPORATION
By: /s/ Robert Giambo By: /s/ R. Thomas
----------------- -------------
Name: Robert A. Giambo Name: Richard R. Thomas, III
Title: Executive Vice President Title: Assistant Vice President
Executed this 23rd day of September, 1999
<PAGE>
CENTRE INSURANCE COMPANY
By: /s/ Joel D. Klaassen By: /s/ Ann B. Encinas
-------------------- -------------------
Name: Joel D. Klaassen Name: Ann B. Encinas
Title: Senior Vice President Title: Vice President
<PAGE>
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as "Contract")
to the
COINSURED
AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
(hereinafter referred to as the "Reinsured")
and
NATIONAL UNION FIIRE INSURANCE COMPANY OF PITTSBURGH, PA
(hereinafter referred to as "Subscribing Reinsurer")
It is mutually agreed by and between the Reinsured on the one part, and the
Subscribing Reinsurer on the other part that the Subscribing Reinsurer's share
in the Interests and Liabilities of the Reinsurer as set forth in the COINSURED
AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT, effective 12:01 am.7 Eastern
Standard Time, January 1, 1999 attached hereto and forming a part of this
Contract shall be for 20%.
The share of the Subscribing Reinsurer signed hereon in the Interests and
Liabilities of all 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 Subscribing Reinsurer signed hereon shall be
several and not joint with those of the other reinsurers and in no event shall
the Subscribing Reinsurer signed hereon participate in the Interests and
Liabilities of the other reinsurers.
This Contract shall be effective for the period commencing 12:01 a.m., Eastern
Standard Time, January 1, 1999 and ending 11:59 p.m., Eastern Standard Time,
December 31, 1999.
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed,
in triplicate, Executed this _______________day of __________, 1999
TRENWICK AMERICA REINSURANCE CORPORATION
By: /s/ Robert Giambo By: /s/ R. Thomas
----------------- -------------
Name: Robert A. Giambo Name: Richard R. Thomas, III
Title: Executive Vice President Title: Assistant Vice President
Executed this 29th day of March, 1999
<PAGE>
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA
By: /s/ Robert J. Coords By: /s/ Joseph Umansky
-------------------- ------------------
Name: Robert J. Coords Name: Joseph Umansky
Title: Attorney-In-Fact Title: Attorney-In-Fact
<PAGE>
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,
TRENWCK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "Reinsured")
<PAGE>
Page 2
ARTICLE and PAGE NUMBER
1. BUSINESS COVERED 3
2. TERM 4
3. TERRITORY 4
4. RETENTION, REINSURER'S SHARE, AND LIMIT 5
5. LOSS SETTLEMENTS 6
6. REINSURANCE PREMIUM 7
7. ADDITIONAL PREMIUM 7
8. EXPERIENCE ACCOUNT 8
9. REINSURER'S MARGIN 9
10. FUNDS WITHHELD 9
11. COMMUTATION 11
12. REPORTS AND REMITTANCES 11
13. TAXES 12
14. COVENANTS OF THE REINSURED 13
15. DEFINITIONS 13
16. ULTIMATE NET LOSS 14
17. NET RETAINED LINES 15
18. RIGHT OF OFFSET 15
19. ERRORS AND OMISSIONS 16
20. CURRENCY 16
21. EXTRA CONTRACTUAL OBLIGATIONS 16
22. EXCESS OF ORIGINAL POLICY LIMITS LOSS 16
23. ARBITRATION 17
24. ACCESS TO RECORDS 18
25. INSOLVENCY 18
26. GOVERNING LAW 19
27. SERVICE OF SUIT 19
28. AMENDMENTS AND ALTERATIONS 20
29. ASSIGNMENT 20
30. NO THIRD PARTY RIGHTS 20
31. NO IMPLIED WAIVER 20
32. MERGERS AND ACQUISITIONS 20
33. INTERMEDIARY 21
34. SECURITY 21
<PAGE>
Page 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.
<PAGE>
Page 4
ARTICLE 2 -TERM
The term (the "Term") of this Agreement shall be the period commencing at 12:01
am., Eastern Standard Time, January 1, 1999 (the "Effective Date") through to
and including the earlier of l :59 p.m., Eastern Standard Time, December 31 1999
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 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.
<PAGE>
Page 5
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 a
Retention equal to 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 Subjec 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 (l) "A" divided
by "B" or (2) 100%,
Where:
"A" is equal to 32.0% of Subject Earned Premium; 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 32.0% of Subject Earned Premium.
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 a
Retention equal to 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 (l) "C"
divided by "D" or (2) "E",
Where:
"C" is equal to 3.5% of Subject Earned Premium; 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.
<PAGE>
Page 6
Under no circumstances shall the Reinsurer's aggregate limit of liability for
Ultimate Net Loss under this Limit B exceed 3.5% of Subject Earned Premium. For
the purpose of calculating the Reinsurer's Share under Limit A and Limit B
above, Ultimate Net Loss shall not be subject to the sub-limits set forth in
Article 16 Ultimate Net Loss."
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 (the "Total Aggregate Limit") shall be equal to the lesser of:
(1) 35.5% of Subject Earned Premium; or
(2) $55 million; or
(3) The greater of: (a) the aggregate amount of ceded Ultimate
Net Loss as reported in the Reinsured's 1999 Statutory
Financial Statement, or (b) 32% of Subject Earned Premium.
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 - 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
as set forth in the article entitled "REPORTS AND REMITTANCES."
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.
Appropriate adjustments shall be made to the Reinsurer's Share and the Ultimate
Net Loss paid by the Reinsurer to the Reinsured based on ceded paid Ultimate Net
Loss reported to the Reinsurer (and agreed to by the Reinsurer) pursuant to
Article 12 - "REPORTS AND REMITTANCES" and Article 16 - "ULTIMATE NET LOSS."
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>
Page 7
ARTICLE 6 - REINSURANCE PREMIUM
Subject to the article entitled "FUNDS WITHHELD," the Reinsured shall pay to the
Reinsurer a premium (the "Reinsurance Premium") equal to 10.0% 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 $20,000,000.
Within thirty (30) days following the end of each calendar quarter the Reinsured
shall make appropriate adjustments for the amount by which 10.0% 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 7 - ADDITIONAL PREMIUM
Subject to the article entitled "FUNDS WITHELD," the Reinsured shall pay to the
Reinsurer an additional premium (the "Additional Premium") in an amount equal
to:
1) 50% of the excess of Ultimate Net Loss over 73% of Subject Earned Premium,
but such Additional Premium not to exceed the lesser of 2% of Subject Earned
Premium, or $3,250,000, plus.
2) 55% of the excess of Ultimate Net Loss over 77% of Subject Earned Premium,
but such Additional Premium not to exceed 2.2% of Subject Earned Premium or
$3,550,000.
3) 67.5% of the excess of Ultimate Net Loss over 81% of Subject Earned Premium,
but such Additional Premium not to exceed 2.7% of Subject Earned Premium or
$4,350,000.
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 50% of the Ultimate
Net Loss covered under Limit A between 73% and 77% of Subject Earned Premium and
55% of the Ultimate Net Loss covered under Limit A between 77% and 81% of
Subject Earned Premium and 67.5% of the Ultimate Net Loss covered under Limit A
between 81% and 85% of Subject Earned Premium, exceeds or is less than the
amounts of Additional Premiums previously paid by the Reinsured.
<PAGE>
Page 8
ARTICLE 8 - 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) Cumulative Reinsurance Premium plus Additional Premium, if any,
received by the Reinsurer (or Funds Withheld in accordance with the
article entitled "FUNDS WITHHELD"), less
(2) the Cumulative Reinsurer's Margin paid to the Reinsurer, less
(3) Cumulative Ultimate Net Loss paid (or offset) by the Reinsurer, plus
(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, 1999, multiplied by 8.75% (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.
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ARTICLE 9 - REINSURER'S MARGIN
The Reinsurer's margin (the "Reinsurer's Margin") shall be equal to 12.0% of the
Reinsurance Premium payable under this Agreement, payable in equal quarterly
installments in advance on the first day of each calendar quarter.
Within thirty (30) days following the end of each calendar quarter the Reinsured
or the Reinsurer shall make appropriate adjustments for the amount by which
12.0% of the Reinsurance Premium for that calendar quarter exceeds or is less
than the amounts previously paid by the Reinsured as Reinsurer's Margin for that
calendar quarter. Any such balance due either party shall be due and payable
within thirty (30) days.
ARTICLE 10 - 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 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) Cumulative Reinsurance Premium plus Additional Premium, if any, due
hereunder, less
(2) the Cumulative Reinsurer's Margin paid to the Reinsurer, less
(3) Cumulative 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."
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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, 1999, 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 shall pay to the Reinsurer the Funds
Withheld Balance immediately upon request or upon the happening of any of the
following events 1) commutation of this Agreement, 2) an Event of Default, 3) a
downgrade of the Reinsured by AM Best to B+ or lower, or 4) December 31, 2014.
If the Reinsured pays the Reinsurer the Funds Withheld Balance the Reinsured
will no longer be required to credit the Funds Withheld Balance with investment
income and the Experience Account Investment Credit, as defined in Article 8 -
Experience Account, shall, from the time of payment of the Funds Withheld
Balance, equal the One-Year Treasury Note rate as posted in the Wall Street
Journal on the first business day following such payment. Such rate shall be
reset each 12 months to equal the One-Year Treasury Note prevailing at that
time. 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
(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
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Page 11
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 11 - COMMUTATION
Subject to the terms of this article, and provided the Experience Account
balance is positive, the Reinsured may, at its sole option, commute this
Agreement at any December 31, beginning on December 31, 2003 and on or before
December 31, 2014, 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, January 1, 1996, January 1,1997, and January 1, 1998.
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 positive balance, if any, in the Experience Account as
of the date of commutation within sixty (60) business days of the date of
commutation:
Payment of the Experience Account balance 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 31,2004,
the Reinsured shall pay to the Reinsurer in cash each January 1, beginning
January 1,2005, an annual fee (the "Non-Commute Fee") of $200,000 until such
time as this Agreement is commuted or until such time as all losses due under
this Agreement are paid, whichever comes first.
The Non-Commute Fee shall not be included in the calculation of the Experience
Account balance or the Funds Withheld Account balance and shall be retained 100%
by the Reinsurer.
ARTICLE 12 - 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 broken out between loss and Allocated Loss Adjustment Expense.
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Page 12
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) and
broken out between Y2K Loss and non-Y2K loss (loss, Allocated Loss
Adjustment Expense, ECO and XPL).
(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 broken out between Y2K Loss and non-Y2K
loss (loss, Allocated Loss Adjustment Expense, ECO and XPL) 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, broken out between Y2K Loss and non-Y2K loss (loss,
Allocated Loss Adjustment Expense, ECO and XPL), and 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 13 - 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.
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ARTICLE 14 - 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
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
until the Reinsurer is called upon to pay Ultimate Net Loss under this Agreement
which is in excess of the Funds Withheld Balance.
ARTICLE 15 - 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 $140 million
for the Term of this Agreement.
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"Y2K Loss" shall mean all Ultimate Net Loss (including ALAE, ECO and XPL) on
Business Covered howsoever arising and regardless of any other cause or
occurrence contributing concurrently or in any sequence with: 1) the rendering
of date or time sensitive data, including but not limited to the recording,
storing, processing, calculating, comparing, sequencing or presenting by
electronic means of calendar dates or spans of time from, into and between the
twentieth and twenty-first centuries (including 1999 to 2000 and leap year
calculations); and 2) the generation, transmission, delivery, receipt of and any
use or reliance on information or calculations dependent on or relating to
calendar dates or spans of time from, into and between the twentieth and
twenty-first centuries (including 1999 to 2000 and leap year calculations).
ARTICLE 16 - 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 ("ECO") and 80% of the amounts of any Excess of
Original Policy Limits Loss ("XPL") after making deductions for all recoveries,
salvages, subrogations and all claims on inuring reinsurance, whether
collectible or riot.
ALAE shall mean all legal expenses and other expenses (including interest
accruing before and/or after entry of judgment, excluding Declaratory Judgement
Expense) 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.
The foregoing definition of ALAE shall apply notwithstanding how such expenses
may be classified by the Reinsured for statutory accounting purposes.
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 and its components (loss (including Y2K Losses) and
Allocated Loss Adjustment Expense, and ECO and XPL) 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.
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For the purposes of this Agreement, the maximum amount that any one-loss
occurrence from business underwritten by the Reinsured on behalf of Duncanson &
Molt (a subsidiary of UNUM Corp., Portland, Maine) may contribute to the
Ultimate Net Loss shall be equal to $10 million.
For the purposes of this Agreement, the maximum amount that Y2K losses (loss,
ALAE, ECO and XPL combined) may contribute to the Ultimate Net Loss shall be
equal to the lessor of: (i) 5% of Subject Earned Premium, or (ii) $7.5 million,
provided however, that no such sub-limit shall apply to Y2K Losses if the ratio
of: [Ultimate Net Loss prior to the application of the sub-limits set forth in
this Article 16 divided by Subject Earned Premium] is less than or equal to 81%
ARTICLE 17 - 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 18 - 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,
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Page 16
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 19 - 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 20 - 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 21 - EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall indemnify the Reinsured within the limits hereof, where the
Ultimate Net Loss includes 80% of any Extra Contractual 0bigations.
"Extra Contractual Obligations" (ECO), are defined as those liabilities not
covered under any other provision of this Agreement and which arise from the
handling of any claim on Business Covered hereunder, such liabilities arising
because of, but not limited to the 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 22 - 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.
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"Excess of Original Policy Limits Loss" (XPL), 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 23 -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 determine timely periods for notice of appointment
of all arbitrators, the panel shall meet and briefs, discovery procedures and
schedules for hearings.
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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 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 24 - 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 25 - 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 so 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.
<PAGE>
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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 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 26 -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 27- 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 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, 787 Seventh Avenue, New York, New York, 10019, 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
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.
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Page 20
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 28 - 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 29 - 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 30 - 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 31 - 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 32 - MERGERS AND ACQUISITIONS
It is understood and agreed that if Reinsured acquires (by acquisition,
reinsurance, 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.
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Page 21
If Reinsured is acquired by or merges with another company, this Agreement shall
survive such acquisition or 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.
Notwithstanding any other provisions of this Agreement, in the event that the
reinsured acquires another company or is acquired by or merges with another
company, this Agreement shall survive such acquisition and/or merger and the
book of business which was covered by this Agreement prior to such merger and/or
acquisition shall be covered hereunder.
ARTICLE 33 -INTERMEDIARY
Guy Carpenter & Company, Inc. and Balis & Co., Inc. are 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 either Guy
Carpenter & Company, Inc. or 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.
ARTICLE 34 - 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.
EXHIBIT 10.40
AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT
THIS AGREEMENT is made and entered into as of the Effective Date, by
and between Chartwell Reinsurance Company, Dakota Specialty Insurance Company,
The Insurance Corporation of New York, and Drayton Company Limited, inclusive of
corporate capital support of London underwriting operations (collectively known
as "Company") and London Life and Casualty Reinsurance Corporation and
Scandinavian Reinsurance Company, Ltd. (the "Reinsurers"). This Agreement shall
only be effective upon the closing of a merger of Chartwell Re Corporation with
and into Trenwick Group, Inc. This Agreement is contemporaneous with this
closing and shall be considered null and void should such closing not occur.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and full commutation of the Stop Loss Reinsurance Protections,
as defined in Article I hereon, on or before the Effective Date and for other
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following respective
meanings:
"Agreement" shall mean this Aggregate Excess of Loss Reinsurance
Agreement.
"Aggregate Limit" shall mean U.S. One-Hundred Million Dollars
($100,000,000).
"Commutation" shall mean a commutation, release of liability, loss
portfolio transfer or other similar transaction which is consummated or is
effective after the Effective Date with respect to any assumed or ceded
reinsurance.
"Effective Date" shall mean at the date of the closing of the merger of
Chartwell Re Corporation with and into Trenwick Group, Inc.
"Extra Contractual Obligations" shall mean liabilities which arise from
(i) the failure by the Company to settle any claim on the Subject Business
within the applicable policy limit or (ii) the negligence, fraud or bad faith of
the Company in the defense, trial or appeal of any action against its insured or
reinsured arising out of the Subject Business. It is expressly understood
between the parties that Extra Contractual Obligations shall not include
liabilities of a strictly corporate nature (i.e., tort actions, actions not
arising directly out of and attaching to the insurance written or reinsurance
assumed, etc.) arising out of the Subject Business.
"Intermediary Commission" shall mean 20% of the amount stipulated in
Article XIII, section (d), 2).
"Losses Incurred" shall mean losses and allocated loss adjustment
expenses paid by the Company plus loss and allocated loss adjustment expense
reserves (including IBNR) maintained on the Company's GAAP Consolidated
Financials, inclusive of the London underwriting operations.
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"Net Losses" shall mean: 1) all losses and allocated loss adjustment
expenses gross of Stop Loss Reinsurance Protections, as defined herein, paid and
outstanding after the Valuation Date by the Company, including Extra Contractual
Obligations and obligations in Excess of Original Policy Limits covered by the
Company's contracts and certificates arising out of the Subject Business as
defined herein, net of (a) all Unresolved Reinsurance excluding Stop Loss
Reinsurance Protections provided such reinsurance does not become Resolved
Reinsurance as hereinafter defined; (b) all salvage, subrogation and other
recoverables (other than in respect of reinsurance procured after the Effective
Date which inures to the benefit of the Company) received by, offset for the
account of, or otherwise made available to or for the benefit of the Company in
respect therefore; 2) all losses and allocated loss adjustment expenses which
are paid and outstanding by the Company, arising out of the Subject Business and
which are protected by Unresolved Reinsurance which becomes Resolved
Reinsurance; 3) Extra Contractual Obligations arising out of the Subject
Business and Obligations in Excess of Original Policy Limits arising out of the
Subject Business after the Valuation Date, except to the extent such obligations
are excluded by Article XII of this Agreement and 4) the ultimate amount of all
premium collections/payments, net commission and net profit commission
collections/payments and policyholder dividends all settled after the Valuation
Date reflected on the Company's GAAP Consolidated Financials with respect to
reinsurance and insurance policies or contracts inclusive of any retrospectively
rated or other similar loss sensitive policy or contract, whether assumed or
ceded after the Effective Date in respect of the Subject Business earned only as
of the Valuation Date.
Net Losses shall include all loss and allocated loss adjustment
expenses incurred by the Company, including Excess of Policy Limits/Excess of
Contractual Obligations losses arising out of Inscorp's Subject Business which
are incurred by the Company after the Valuation Date net of: a) all inuring
reinsurances, all salvage, subrogation and other recoverables (other than in
respect of reinsurance procured after the Effective Date which inures to the
benefit of the Company) received by, offset for the account of, or otherwise
made available to or for the benefit of the Company in respect therefor; and b)
reduction, if any, of interest due and payable under the Contingent Interest
Notes assumed by the Company in connection with the Piedmont merger. The
reduction in interest shall be determined at each calculation date based upon
the difference between what the interest amount would be at June 30, 2006,
assuming no adverse loss and allocated loss adjustment expense development and
what the contractual interest amount would be at June 30, 2006, based upon the
loss and allocated loss adjustment expense development at the calculation date,
both as present valued to the respective calculation date for which such
determination is being made.
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Net Losses does not include the following, in each case as determined
in accordance with the Company's standard practices; (i) all losses or allocated
loss adjustment expenses paid by the Company on or before the Valuation Date;
(ii) all losses or allocated loss adjustment expenses under insurance or
reinsurance contracts written or assumed by the Company after the Effective
Date; (iii) losses or allocated loss adjustment expenses under policies written
by the Company before the Effective Date but amended, effective on or after the
Effective Date, but only to the extent that such losses would not have been
covered prior to the Effective Date of such amendments; (iv) all losses or
allocated loss adjustment expenses which the Company becomes obligated to pay as
a result of a merger with or acquisition of any other insurance or reinsurance
company; (v) all unallocated loss adjustment expenses of the Company; (vi) all
losses and allocated loss adjustment expense emanating from the London
underwriting operations that are in excess of the sum of the held loss and
allocated loss adjustment expense reserves at the Valuation Date in respect of
the London underwriting operations plus all Subject Business earned after the
Valuation Date in respect of the London underwriting operations x 72.6% plus
U.S. One-Hundred Million Dollars (U.S. $100,000,000); (vii) all losses and
allocated loss adjustment expense emanating from Asbestos and Environmental
exposures that are in excess of the held loss and loss adjustment reserves at
the Valuation Date in respect of Asbestos and Environmental exposures plus U.S.
Fifty Million Dollars (U.S. $50,000,000) in respect of the U.S. underwriting
operations; and (viii) all losses and allocated loss adjustment expense
emanating from combined Property Catastrophe Losses and Y2K Losses that are in
excess of the held loss and loss adjustment reserves at the Valuation Date in
respect of combined Property Catastrophe Losses and Y2K Losses plus U.S.
Twenty-Five Million Dollars (U.S. $25,000,000) in respect of the U.S.
underwriting operations.
"Notice of Disagreement" shall have the meaning set forth in Article
VII hereof.
"Notice of Objection" shall have meaning set forth in Article IV hereof.
"Novation" shall mean a full replacement of the respective Reinsurers
with a Novatee Reinsurer or Insurer in accordance with section (d) of Article
XIII, Novation. This applies to a novation being consummated after the Effective
Date with respect to this Agreement.
"Obligations in Excess of Original Policy Limits" shall mean any losses
in excess of the limits of any original policy to the extent such losses are
incurred because of (i) the failure by the Company to settle within the
applicable original policy limit or (ii) the negligence, fraud or bad faith of
the Company in the defense, trial or appeal of any action against its insured or
reinsured. For the purposes of this definition, 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.
"Prime Rate" shall mean, at any time, the annual rate of interest which
[The Chase Manhattan Bank] establishes at its principal office in [New York] as
the reference rate of interest to determine interest rates it will charge at
such time for demand loans in U.S. dollars made to its Customers in the United
States and which it refers to as its "prime rate of interest".
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"Property Catastrophe Losses" shall mean any Net Losses emanating from
any loss event worldwide which is assigned a catastrophe designation by the
organization responsible for assigning such designation for the geographic area
in which the loss event occurred and for which the Company receives a specific
identification via report(s) from their underlying clients of such Property
Catastrophe Losses.
"Retention Amount" shall mean the sum of (i) total outstanding loss and
allocated loss adjustment expense reserves including the Company's share of its
Lloyd's corporate capital vehicles' loss reserves, gross of Stop Loss
Reinsurance Protections, as defined herein, in respect of Subject Business
earned as of the Valuation Date, net of all Unresolved Reinsurances and salvage,
subrogation and other recoverables received by, offset for the account of, or
otherwise made available to or for the benefit of the Company, as reflected in
the GAAP Consolidated Financials of the Company as of the Valuation Date, (ii)
all loss and allocated loss adjustment expense including the Company's share of
its Lloyd's corporate capital vehicles' loss reserves, gross of Stop Loss
Reinsurance Protections, as defined herein, to be paid after the Valuation Date,
net of all Unresolved Reinsurances and salvage, subrogation and other
recoverables received by, offset for the amount of, or otherwise made available
to or for the benefit of the Company in respect of Subject Business that is
written on or before the Effective Date in respect of the Subject Business
earned after the Valuation Date equal to the sum of the following formulas: (a)
1997 Subject Business earned after the Valuation Date x 72%; plus (b) 1998
Subject Business earned after the Valuation Date x 72.0%; plus (c) 1999 Subject
Business earned after the Valuation Date x 72.0%, (iii) total reserves for
Resolved Reinsurance and commuted reinsurance as reflected in the GAAP
Consolidated Financials of the Company as of the Valuation Date, and (iv) Extra
Contractual Obligations and Excess Policy Limit Reserves as reflected in the
GAAP Consolidated Financials of the Company as of the Valuation Date, and (v)
reserves for policyholder dividends and for uncollected agent balances/premiums,
net of reserves for uncollectible agent balances/premium receivables/payables,
reduced by (vi) retrospective premium reserves net of commissions and such
reserves ceded to reinsurers of the Company as of the Valuation Date, and (b)
contingent and sliding scale commission accruals net of such accruals ceded to
reinsurers of the Company as of the Valuation Date.
"Resolved Reinsurance" shall mean reinsurance with unaffiliated
reinsurance companies which inures to the benefit of the Company, covers the
Subject Business and which was procured prior to the Effective Date and: a)
under which the liability of the Reinsurers is fully discharged via commutation,
release or rescission after the Effective Date; or b) which is ceded to a
reinsurer or retrocessionaire which voluntarily or involuntarily enters
insolvency, liquidation, conservation, rehabilitation or has appointed a
conservator, receiver, liquidator or statutory successor under the laws of any
state, federal or foreign government having competent jurisdiction after the
Effective Date. Resolved Reinsurance shall also mean reinsurance with
unaffiliated reinsurance companies that become ultimately uncollectible due to a
dispute after the Effective Date.
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<PAGE>
"Stop Loss Reinsurance Protections" shall mean the Whole Account
Corporate Aggregate Excess of Loss afforded to the Company in 1997, 1998 and
1999 that were placed and commuted by the Intermediary defined in Article XIX.
Stop Loss Reinsurance Protections shall not include Aggregate Excess of Loss
reinsurance purchased separately for the London underwriting operations.
"Subject Business" shall mean all reinsurance assumed or insurances
written by the Company on or before the Effective Date for claims made, losses
occurring, losses discovered as per the underlying coverage in respect of
contracts underwritten on or before the Effective Date. Subject Business shall
include all reinsurance assumed or insurances written by the Company whether or
not such business has been reflected in the Company's GAAP Consolidated
Financials on the Effective Date. For these purposes, the accident date of any
Net Losses shall be determined in accordance with the standard practices of the
Company and its reinsureds and insureds.
"Subject Business Earned" shall mean, for any inception to date period
applicable to this Agreement, the Net Written Premium Income in respect of the
Company's Subject Business less the respective Net Written Premium Income
Unearned as of the end of the calculation period.
(i) "Net Written Premium Income" shall mean gross written premium of
the Company's Subject Business less cancellations and returns and less premium
paid for all other specific or aggregate excess reinsurance inuring to this
Agreement. As respects Lloyds', it is hereby understood and agreed that Lloyds'
Net Premium Income as reported in accordance with Lloyds' practices shall be
grossed up by dividing Net Premium Income by 80% to calculate Net Written
Premium Income.
(ii) "Net Written Premium Income Unearned" shall mean the portion of
Net Written Premium Income unearned of the Company following its standard
practices and calculations in respect of GAAP as respects the Subject Business.
"Ultimate Net Losses" shall mean all Net Losses as defined, which are
actually paid by the Company on or after the Valuation Date; provided, however,
that in the event of insolvency of the Company, "Ultimate Net Losses" shall mean
the amount of loss which the insolvent Company has incurred or is liable for and
payment by the Reinsurers shall be made to the receiver or statutory successor
of the Company in accordance with the provisions of Article XI.
Ultimate Net Losses shall be reduced by the reduction of interest due
and payable under the Contingent Interest Notes assumed by the Company in
connection with the Piedmont merger. Such reduction of Ultimate Net Losses shall
be deemed to be collected at the time when a determination of loss and allocated
loss adjustment expense in respect of Inscorp is made that results in such
reduction of Contingent Interest Notes. Adjustments shall be deemed collected or
returned when changes to respective loss and allocated loss adjustment expenses
are recognized by the Company. Final determination and collection or return
shall be made no later than June 30, 2006.
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"Unresolved Reinsurance" shall mean reinsurance with unaffiliated
reinsurance companies which inures to the benefit of the Company covering the
Subject Business which was procured prior to the Effective Date and is not
Resolved Reinsurance as defined herein.
"Y2K Losses" shall mean all losses, costs, or expenses incurred by the
Company which directly or indirectly arise out of, are based upon, result as a
consequence of, or are in any manner related to a Year 2000 event, shall be
defined as:
(i) an actual or alleged failure, malfunction, inadequacy, loss or
interruption of a "system" because it is unable to recognize, distinguish,
correctly interpret or process any date-related information or data, including
but not limited to, the inability to recognize, distinguish, correctly interpret
or process the years 1999 and prior from the years 2000 and beyond; or
(ii) an actual or alleged failure, malfunction, inadequacy, loss or
interruption of any equipment, machine, product, inventory, property, service,
data or function that directly or indirectly utilizes or relies upon a "system"
which has become unable to recognize, distinguish, correctly interpret or
process any date-related information or data, including but not limited to the
inability to recognize, distinguish, correctly interpret or process the years
1999 and prior from the years 2000 and beyond; or
(iii) any actual or alleged advice, consultation, design, evaluation,
inspection, installation, maintenance, repair, replacement, supervision or any
other actual or alleged act, error or omission, involving the termination,
disclosure, prevention, testing for or remediation of the potential of actual
losses described in paragraphs (i) and (ii).
"System" as used herein shall include computers, data processing
systems, computer software or hardware, computer databases, microprocessors
(microchips), computer networks, computer operating systems or computer or
electronic equipment or components.
The above definition shall apply regardless of any other alleged cause,
occurrence or event that contributes concurrently or any sequence to a "Y2K
Loss" as defined herein.
"Valuation Date" shall mean:
(i) for corporate capital support of London Underwriting Operations,
the date utilized by the Company will be the Effective Date of this Agreement.
(ii) for all other business October 1, 1999.
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ARTICLE II
REINSURANCE COVERAGE
The Reinsurers hereby agree to reimburse the Company for their
respective percentage share ("Participation Percentage") of one hundred percent
(100%) as defined below of any and all Ultimate Net Losses, if any, in excess of
the Retention Amount until the Reinsurers have paid their Participation
Percentage of U.S. One-Hundred Million Dollars (U.S. $100,000,000) to the
Company for Ultimate Net Losses.
UNDER NO CIRCUMSTANCES WILL THE INDEMNITY OBLIGATION OF ANY OF THE
REINSURERS HEREUNDER EXCEED SUCH REINSURER'S PARTICIPATION PERCENTAGE OF AN
AGGREGATE LIMIT OF U.S. ONE-HUNDRED MILLION DOLLARS (U.S. $100,000,000)
INCLUSIVE OF ALL NET LOSSES, ALLOCATED LOSS ADJUSTMENT EXPENSES,
EXTRACONTRACTUAL OBLIGATIONS AND LOSSES IN EXCESS OF POLICY LIMITS, BY REASON OF
ENTERING INTO THIS AGREEMENT. THE AGGREGATE LIMIT STATED HEREIN IS ABSOLUTE AND
IS INCLUSIVE OF ALL PAYMENTS FOR WHICH THE REINSURERS ARE LIABLE UNDER THIS
AGREEMENT. THE LIABILITY OF EACH REINSURER TO THE COMPANY UNDER THIS AGREEMENT
IS SEVERAL AND NOT JOINT.
ARTICLE III
REPORTS
(a) Yearly Reports. During the term of this Agreement, the Company
shall deliver to the Reinsurers, within seventy-five (75) days after the end of
each calendar year, a report (a "Yearly Report") setting forth (i) Net Losses
and Ultimate Net Losses cumulative to date, (ii) the annual convention
statements of the Company as filed hereafter with the appropriate insurance
regulatory authority, (iii) GAAP Consolidated Financials including footnotes and
(iv) if applicable, a statement of any amount payable by the Reinsurers pursuant
to Articles II and IV hereof and a demand for payment of such amount.
(b) Quarterly Reports. During the term of this Agreement, the Company
shall deliver to the Reinsurers, within sixty (60) days after the end of each
quarter, a report (a "Quarterly Report") setting forth (i) Net Losses and
Ultimate Net Losses cumulative to date and (ii) if applicable, a statement of
any amount payable by the Reinsurers pursuant to Articles II and IV hereof and a
demand for payment of such amount.
(c) Additions to Reports. In addition, the Company shall include in
Quarterly Reports (after a Yearly Report shows that Ultimate Net Losses is equal
to or greater than the Retention Amount) or any Yearly Reports during the term
of this Agreement such additional information and documentation as the
Reinsurers may reasonably request and specify including, but not limited to,
data supporting reserve reviews (to the extent available in the ordinary course
of business of the Company), commutations, retrocessional monitoring, loss
activity on asbestos, pollution and other categories with respect to IBNR
calculations, and all adjustments to Net Losses.
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(d) Confidentiality of Reports. Except as otherwise required by law, by
governmental or regulatory authorities, or in response to court order, or upon
the prior written consent of the Company, all nonpublic information included in
all Yearly Reports, Quarterly Reports and amendments thereto shall be kept
confidential by the Reinsurers and their directors, officers, employees, agents
and representatives, shall not be disclosed to any other person or entity, and
shall only be used for the purposes provided herein. Notwithstanding the
foregoing, nonpublic information included in a Yearly Report, Quarterly Report
or amendment thereto may be disclosed to any retrocessionaire of the Reinsurers
to the extent such disclosure is necessary for the Reinsurers to retrocede any
of their liabilities hereunder to such retrocessionaire; provided, however,
that, prior to any such disclosure to such a retrocessionaire, the Company shall
receive a written agreement of such retrocessionaire that all such nonpublic
information shall be kept confidential by such retrocessionaire and its
directors, officers, employees, agents and representatives, shall not be
disclosed to any other person or entity (except as otherwise required by law, by
governmental or regulatory authorities, or in response to court order, or upon
the prior written consent of the Company), and shall only be used for purposes
of providing such retrocessional coverage. For greater certainty, this clause
shall not apply so as to prevent the Reinsurers from disclosing information
relating to this Agreement to one another.
ARTICLE IV
REMITTANCES
(a) Coverage Payments. Except as provided in Section (f) of this
Article IV and in Article VII hereof, the Reinsurers shall each pay to the
Company their Participation Percentage of any and all amounts payable hereunder,
as shown and demanded in each Yearly Report, Quarterly Report or amendment
thereto, within forty-five (45) calendar days following receipt by the
Reinsurers of each such Yearly Report, Quarterly Report or ninety (90) calendar
days after the end of the quarter, whichever is later.
(b) Accelerated Coverage Payments. In addition to payments under
Section (a) of this Article IV, at any time after Ultimate Net Losses is equal
to or greater than the Retention Amount, if the Company pays more than U.S. Ten
Million Dollars (U.S. $10,000,000) in Net Losses for a single loss or claim, the
Company may supply the Reinsurers with information evidencing such payment and
reasonably describing the nature of such Net Losses, and the Reinsurers shall
pay to the Company the amount of the Reinsurers' indemnity obligation under
Article II hereof with respect to such Net Losses within fifteen (15) calendar
days after receipt by the Reinsurers of such information.
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(c) Interest Payments. If and to the extent that the Reinsurers do not
make any payment when due hereunder, the Reinsurers shall pay the Company
interest on any unpaid amount due the Company hereunder, from the date on which
such amount is due until such amount is paid in full, at a rate equal to 150
basis points above the five-year U.S. Treasury rate at the date when payments
are due hereunder, in addition to all other remedies, at law or in equity,
available to the Company by reason of such non-payment.
(d) Trust Agreement Amounts. In accordance with the terms of Article
VIII and in addition to all other payments to be made by the Reinsurers, the
Reinsurers shall deposit such cash funds as are required by Article VIII within
the time constraints set forth in said Article VIII.
(e) Disputes. Other than in respect of amounts which are the subject of
an objection pursuant to Section (f) immediately below or a disagreement
pursuant to Article VII hereof, no dispute or disagreement arising out of or
relating to this Agreement shall relieve the Reinsurers of their obligation to
pay amounts due pursuant to Article IV(b) or which are shown as being payable in
any Yearly Report, Quarterly Report or amendment thereto when due hereunder and
resolution of such a dispute or agreement shall not be required prior to payment
by the Reinsurers of such amounts when due.
(f) Reinsurers Objections. The Reinsurers shall have the right to
object to any Ultimate Net Losses set forth in a Yearly Report, Quarterly Report
or amendment thereto, or any demand for an accelerated coverage payment pursuant
to Section (b) of this Article, which the Reinsurers reasonably believe was not
calculated in accordance with this Agreement or was paid after the date hereof
by the Company in Bad Faith, by delivering to the Company a written notice (a
"Notice of Objection"). For purposes of this Section (f), the term "Bad Faith"
shall mean actual knowledge or reason to know by an officer of the Company that
any Ultimate Net Losses are not required to be paid under the terms of a
contract or policy relating to the Subject Business. The Reinsurers shall
deliver a Notice of Objection to the Company, if at all, as soon as reasonably
practicable after the Reinsurers become aware of any such calculation not in
accordance with this Agreement or payment of Ultimate Net Losses after the date
hereof in Bad Faith; provided, however, that the Reinsurers may only object to
Ultimate Net Losses set forth in Reports or amendments delivered during each
consecutive three-year period during the term of this Agreement (the first such
period commencing on the date hereof and ending on December 31, 2002, and each
successive period thereafter ending on each successive third anniversary
thereafter) by delivering a Notice of Objection to the Company within one
hundred eighty (180) calendar days of the delivery of the last Report or
amendment for each such three-year period, and the Reinsurers shall not have the
right to object to any Ultimate Net Losses set forth in a Report or amendment
delivered during any such three-year period if the Reinsurers have not delivered
a Notice of Objection as aforesaid. The Notice of Objection shall be signed by
responsible officers of the Reinsurers, and shall set forth in reasonable detail
the basis for the objection and, to the extent practicable, the amount of
Ultimate Net Losses which the Reinsurers reasonably believe was not calculated
in accordance with this Agreement or was paid after the date hereof by the
Company or any of its subsidiaries in Bad Faith. The amount of Ultimate Net
Losses objected to in the Notice of Objection shall not be required to be paid
by the Reinsurers to the Company until the objection is resolved hereunder.
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If the Reinsurers deliver a Notice of Objection, and the Company and
the Reinsurers are unable to resolve the disagreement within thirty (30)
calendar days after delivery of the Notice of Objection, then the disagreement
shall be resolved by arbitration in accordance with Article XIV hereof. The
arbitrator shall determine whether the Company calculated Ultimate Net Losses in
accordance with this Agreement or paid Ultimate Net Losses after the date hereof
in Bad Faith, in each case as described in the Notice of Objection, and render a
decision solely as to such issue, which decision shall be final and binding in
all respects upon all parties hereto. If the arbitrator agrees, in whole or in
part, with an objection of the Reinsurers under this Section (f), amounts of
Ultimate Net Losses determined by the arbitrator to have not been calculated in
accordance with this Agreement or to have been paid after the date hereof in Bad
Faith shall be deemed not to be Ultimate Net Losses, and all prior Reports or
amendments shall be deemed amended to not include such amounts in Ultimate Net
Losses; the Company shall repay to the Reinsurers any amounts previously paid by
the Reinsurers to the Company but later deemed not to be Ultimate Net Losses as
aforesaid, together with interest on such previously paid amounts from the date
on which they were previously paid until they are repaid in full to the
Reinsurers at a rate equal to 150 basis points above the five-year U.S. Treasury
rate at the date when payments are due hereunder. If the arbitrator disagrees,
in whole or in part, with an objection of the Reinsurers under this Section (f),
the Reinsurers shall be required to pay any amounts of Ultimate Net Losses
determined by the arbitrator to have been calculated in accordance with this
Agreement or to have not been paid after the date hereof in Bad Faith, which the
Reinsurers withheld payment of pursuant to this Section (f), together with
interest on such amounts from the date on which such amounts were due hereunder
(being fifteen (15) days after delivery of the first Report or amendment
containing the disputed Ultimate Net Losses) until such amounts are paid to the
Company in full at a rate equal to 150 basis points above the five-year U.S.
Treasury rate at the date when payments are due hereunder. The costs, fees,
disbursements and other expenses of the arbitrator shall be borne solely by the
Company if the arbitrator agrees with the Reinsurers' objection, or solely by
the Reinsurers if the arbitrator does not agree with the objection. If the
arbitrator agrees with the Reinsurers' objection only in part, the costs, fees,
disbursements and other expenses of the arbitrator shall be borne by the Company
and the Reinsurers pro rata in the same respective proportions as the amounts of
disputed Ultimate Net Losses awarded or not awarded to the Reinsurers,
respectively, bear to all of the Ultimate Net Losses objected to in the Notice
of Objection.
ARTICLE V
CONSIDERATION
Consideration in the amount of U.S. Fifty-Six Million Dollars (U.S.
$56,000,000) shall be paid by the Company to the Reinsurers (to each in
proportion to such Reinsurer's Participation Percentage) as payment for the risk
assumed by the Reinsurers under this Agreement. Said Consideration shall be paid
within thirty (30) days after all necessary regulatory approvals for the
transactions contemplated by this Agreement are obtained.
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The Reinsurers shall allow a deduction for Intermediary Commission and
Federal Excise Tax, if applicable, hereon from the above Consideration so that
the Company may wire the net result of consideration above less the Intermediary
Commission and Federal Excise Tax, if applicable, directly to the Reinsurers.
ARTICLE VI
ACCOUNTING FOR RESERVES
For insurance regulatory accounting purposes, (i) the Company shall
determine the amount of its reserves and those of its subsidiaries on the
Subject Business and may change those reserves from time to time as it, in its
sole discretion, deems necessary or appropriate; and (ii) the Reinsurers shall
determine the amount of their reserves on their liability hereunder and may
change those reserves from time to time as they, in their sole discretion, deem
necessary or appropriate.
ARTICLE VII
COMMUTATIONS OF UNDERLYING CONTRACTS
The determination of Ultimate Net Losses associated with any
commutation of reinsurance ceded by the Company shall be effected as described
in this Article, it being understood that individual commutation transactions
resulting in U.S. Ten Million Dollars (U.S. $10,000,000) or less consideration
paid to the Company, shall be excluded from such requirement. The Company shall
determine, in accordance with sound actuarial principles, the amounts and dates
that Net Losses affected by any Commutation, as defined, are expected to be
paid. Commutation proceeds, increased by imputed interest calculated at
one-hundred and fifty (150) basis points above the five-year U.S. Treasury rate
at the date when payments are due hereunder for the period beginning with the
payment of Commutation proceeds and ending at the date the applicable Net Losses
are expected to be paid, will be added to the Retention Amount. It is understood
that the aggregate of such imputed interest and the commutation proceeds cannot
exceed the reassumed ceded losses outstanding at the time of the commutation. As
soon as reasonably practicable following a Commutation, the Company shall
deliver together with a Yearly or Quarterly Report a report scheduling the
amounts and times of the payments of Net Losses determined as aforesaid and
documentation supporting its calculation of such amounts and dates of payments.
If the Reinsurers do not agree with the Company's calculation of the amounts and
dates of the payments of Net Losses as scheduled in the report accompanying a
Yearly or Quarterly Report, the Reinsurers may deliver to the Company a written
notice (a "Notice of Disagreement") within ninety (90) calendar days after
receipt of such Yearly or Quarterly Report. The Notice of Disagreement shall be
signed by responsible officers of the Reinsurers, and shall set forth in
reasonable detail the basis for the Reinsurers' disagreement, including the
Reinsurers' own calculation of the amounts and dates of payments of the Net
Losses and documentation supporting its calculation. The Reinsurers shall not be
required to pay to the Company any amounts of Net Losses affected by the
Commutation which would not be paid by the Reinsurers based on the Reinsurers'
calculation as set forth in the Notice of Disagreement, until the disagreement
set forth in the Notice of Disagreement is resolved hereunder. If the Reinsurers
deliver a Notice of Disagreement to the Company as aforesaid, the Company and
the Reinsurers are unable to resolve the disagreement within fifteen (15)
calendar days after delivery of the Notice of Disagreement, both sets of
calculations, the documentation supporting the Company's calculation and the
Notice of Disagreement shall be submitted to an independent actuarial firm (the
"Independent Firm"), mutually agreed to and jointly retained by the Reinsurers
and the Company, and paid for by the Reinsurers, for resolution. If the
Reinsurers and the Company are unable to mutually agree upon the selection of
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the Independent Firm within twenty-five (25) calendar days after the Notice of
Disagreement is delivered to the Company, the Reinsurers and the Company shall
each nominate two independent actuarial firms of national standing and
reputation and decline one of the two firms nominated by the other, and the
Independent Firm shall be selected from the two remaining nominee firms randomly
by drawing lots. Within ninety (90) calendar days after such submission, the
Independent Firm shall independently estimate the amounts and times of payments
of Net Losses affected by such Commutation; the Net Losses shall be deemed paid
for purposes hereof, and shall be included in Ultimate Net Losses, in the
amounts and at the dates so determined by the Independent Firm.
Yearly and Quarterly Reports delivered prior thereto shall be deemed
amended to include such Net Losses in Ultimate Net Losses in the amounts and at
the dates so determined by the Independent Firm, and the Reinsurers shall pay to
the Company the amounts which are included in such prior Reports as aforesaid,
together with interest on such amounts from the date on which such amounts were
due hereunder (being fifteen (15) calendar days after delivery of the Report
which is amended as aforesaid to include such amounts) until such amounts are
paid to the Company in full at a rate equal to one-hundred and fifty (150) basis
points above the five-year U.S. Treasury rate at the date when payments are due
hereunder. The determination of the Independent Firm shall be final and binding
in all respects upon all parties hereto. If the Reinsurers do not deliver a
Notice of Disagreement within ninety (90) calendar days of receiving a Yearly or
Quarterly Report containing the Company's determination of the amounts and dates
of payments of Net Losses associated with a Commutation, the Net Losses shall be
deemed paid for purposes hereof, and shall be included in Ultimate Net Losses,
in the amounts and at the times so determined by the Company. In addition to
being reflected in prior Yearly and Quarterly Reports as provided above in this
Section (b), the Ultimate Net Losses associated with a Commutation, as
determined in accordance with this Section (b), shall be reflected in subsequent
Yearly and Quarterly Reports.
ARTICLE VIII
SECURITY
So that the Company may receive credit in its statutory financial
statements for the reinsurance provided by the Reinsurers pursuant to this
Agreement and to secure the Consideration for a potential Novation payment in
Article XIII, section (d), the Reinsurers shall, to the extent required by this
Article and in the manner hereinafter set forth, each deposit and maintain cash
funds and/or qualified Trust Account investments (as described below) with a
trustee for the benefit of the Company in an amount equal to such Reinsurer's
Participation Percentage of the greater of: a) the amount of Net Losses ceded to
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this Agreement which have not been paid by the Reinsurers ("Outstanding portion
of Losses Incurred") or b) the Novation amount in accordance with items 1)
through 8) only (excluding items 9) and 10)) pursuant to Article XIII, section
(d). Accordingly, the Reinsurers and the Company agree to establish a trust
account for the benefit of the Company and to enter into a trust agreement with
a bank which is a member of the Federal Reserve System which is not a parent,
affiliate or subsidiary of the Company or the Reinsurers (the "Trustee"), which
trust agreement shall be in strict compliance with the terms of the Regulation
114 promulgated pursuant to the New York Insurance Laws. Assets deposited in the
trust account shall be valued, according to their current fair market value, and
shall consist only of cash (United States legal tender), certificates of deposit
(issued by a United States bank and payable in United States legal tender), and
investments of the types specified in subsection (a), paragraphs (1), (2), (3),
(8) and (10) of Section 1404 of the New York Insurance Law, provided that such
investments are issued by an institution that is not the parent, subsidiary, or
affiliate of either the Reinsurer maintaining the trust account or the Company.
Notwithstanding any other provision of this Agreement, at no time shall the
total amount of security required under this agreement from any Reinsurer exceed
that Reinsurer's Participation Percentage of One Hundred Million U.S. dollars
(U.S. $100,000,000) minus all amounts paid by such Reinsurer under this
Agreement up to such time.
The Reinsurers, prior to depositing assets with the Trustee, shall
execute assignments, endorsements in blank, or transfer legal title to the
Trustee of all shares, obligations or any other assets requiring assignments, in
order that the Company or the Trustee upon the direction of the Company, may
whenever necessary negotiate any such assets without consent or signature from
the Reinsurers or any other entity. Further, all settlements of account between
the Company and the Reinsurers shall be made in cash or its equivalent.
Finally, the Reinsurers and the Company agree that the Trust Agreement
will provide that the assets in the trust account, established by any Reinsurer
pursuant to the provisions of this Agreement, may be withdrawn by the Company at
any time, notwithstanding any other provisions in this Agreement, and shall be
utilized and applied by the Company or its successors in interest, without
diminution because of insolvency on the part of the Company or the Reinsurers,
only for the following purposes:
(i) to reimburse the Company for that Reinsurer's Participation
Percentage of the Ultimate Net Losses paid by the Company under the terms and
provisions of the Subject Business reinsured under this Agreement;
(ii) to fund an account with the Company in an amount at least equal to
that Reinsurer's Participation Percentage times the deduction, for reinsurance
ceded, from the Company's liabilities for Subject Business ceded under this
Agreement. Such amount shall include, but not be limited to, all case reserves
and losses incurred but not reported plus any reasonable allocated loss
adjustment expense but as yet unrecovered from the Reinsurers hereunder;
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(iii) to pay any other amounts the Company claims are due from such
Reinsurer under this Agreement.
The Company shall provide prompt written notice to the Reinsurers of
any withdrawals from the Trust Accounts. In the event that any amount is
withdrawn from the Trust Accounts pursuant to this Article VIII, the Company
shall promptly return to the Trust Accounts any amount withdrawn in excess of
the actual amounts required for sub-paragraph's (i), (ii) and (iii) above as
soon as such determination can reasonably be made. Any such amounts withdrawn
from the trust account by the Company shall be kept separate and apart from any
and all of the other funds of the Company and shall continue to be held in trust
by the Company until they are applied as provided in this Article VIII and the
excess funds, if any, withdrawn are returned to the Trust Accounts. Interest
shall accrue at the Prime Rate on any amount withdrawn from the Trust Accounts
until such amount is applied for the purposes set out in subparagraphs (i), (ii)
and (iii) above when such payments are due and payable under the terms of the
Reinsurance Agreement or until such amount that is in excess of the amount
required for these purposes has been returned to the Trust Accounts. The Company
shall pay all such accrued interest into the Trust Accounts to the credit of the
Reinsurers.
Within forty-five (45) days of the end of each calendar quarter, the
Company shall notify the Reinsurers in writing of (a) the amount of Ultimate Net
Losses paid during said calendar quarter and (b) the amount of Outstanding
Losses Incurred. If the funds in the trust account are less than the actual
amounts required in (i), (ii) and (iii) above, then the Reinsurers shall, within
fifteen (15) days of receipt of said notice, deposit such additional funds as
are necessary to cause the funds in the trust account to equal the required
amount.
The Reinsurers may, at their option, satisfy the requirements of this
Article VIII by providing a clean and unconditional Letter of Credit for the
benefit of and to the Company to supplement the amounts held in the Trust
pursuant to Article XIII, section (d), which Letter of Credit shall be drawn in
compliance with requirements of Regulation 133 of the New York Department of
Insurance, both as to substance and form, as such Regulation may be modified,
supplemented or replaced from time to time. If any such Letter of Credit shall
ever be drawn upon, the proceeds shall be subject to all of the provisions of
this Article VIII in the same manner as if such proceeds were assets withdrawn
from the Trust Accounts.
ARTICLE IX
RIGHT OF INSPECTION AND PARTICIPATION: CLAIMS MANAGEMENT
(a) Right of Inspection. At all reasonable times during the term of
this Agreement, the Reinsurers shall have the right to inspect and copy, through
their duly authorized representatives, the books, records and accounts of the
Company pertaining to the Subject Business and payments of Ultimate Net Losses
and Company shall fully cooperate and shall make disclosure to the Reinsurers of
all information, documentation and other materials relevant to this Agreement as
may be requested.
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(b) Company Claims Management. The Company shall manage the payment of
losses and allocated loss adjustment expenses and the defense of pending or
threatened claims, suits or proceedings relating to the Subject Business in
accordance with its standard practices and consistent with the Company's payment
of its losses and allocated loss adjustment expenses in general and its defense
of claims, suits or proceedings in general.
(c) Certain Rights of Participation in Extraordinary Claims. During the
term of this Agreement, the Company shall advise the Reinsurers promptly of any
claim relating to the Subject Business which exceeds or is reasonably likely to
exceed U.S. Five Million Dollars (U.S. $5,000,000) on a net basis, and any
material subsequent developments pertaining thereto. Upon the written request of
the Reinsurers, the Company will afford the Reinsurers an opportunity to
participate with the Company, at the sole expense of the Reinsurers, in the
settlement or other resolution of such claim. The Company and the Reinsurers
shall cooperate in every respect in such settlement or resolution.
Notwithstanding the foregoing, all final determinations as to the handling,
defense, settlement or any other matter relating to any such claim shall be made
by the Company, in its sole discretion.
ARTICLE X
ERRORS AND OMISSIONS
(a) Delays, Errors and Omissions. Any delays or inadvertent errors or
omissions made in connection with this Agreement or any transaction hereunder
shall not relieve any party from any liability which would have attached had
such delay, error or omission not occurred, provided that such error or omission
is rectified as soon as reasonably practicable after discovery thereof and both
parties are thereafter promptly restored to the position they would have been in
had no such delay, error or omission occurred. If either party becomes aware of
the occurrence of an error or omission on their part, they shall promptly notify
the other parties.
(b) Amendments to Reports. Notwithstanding anything herein to the
contrary, the Company may amend any Yearly Report or Quarterly Report at any
time to rectify any errors or omissions in a previous Yearly Report, Quarterly
Report or amendment thereto (and shall do so if it becomes aware of any such
error or omission that would operate to the benefit of the Reinsurers). . If the
Reinsurers disagree with any such amendment, the Reinsurers' sole remedy for
such disagreement shall be to object pursuant to Section (f) of Article IV
hereof. An error or omission in a Yearly Report, Quarterly Report or amendment
thereto, or the failure by the Company to rectify such an error omission by
means of such an amendment, shall not prejudice in any fashion the Company's
right to rectify such an error or omission in a subsequent Report or amendment
or to be paid for any amounts payable hereunder which are the subject of such an
error or omission.
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ARTICLE XI
INSOLVENCY
In the event of the insolvency, liquidation or rehabilitation of the
Company or the appointment of a conservator, receiver, liquidator or statutory
successor of the Company, the reinsurance coverage provided hereunder shall be
payable by the Reinsurers directly to the Company or to its conservator,
receiver, liquidator or statutory successor, on the basis of the liability of
the Company without diminution because of such insolvency, liquidation,
rehabilitation or appointment or because such conservator, liquidator or
statutory successor has failed to pay all or a portion of any claims. In any
such event, such reinsurance coverage shall be payable immediately upon demand,
with reasonable provision for verification, on the basis of claims allowed
against the Company by any court of competent jurisdiction or by any
conservator, receiver, liquidator or statutory successor. In any such event, the
conservator, receiver, liquidator or statutory successor of the Company shall
give written notice to the Reinsurers of the pendency of each claim against the
Company on the Subject Business within a reasonable time after each such claim
is filed in the insolvency, liquidation or rehabilitation proceeding. During the
pendency of any such claim, the Reinsurers may, at their own expense,
investigate such claim and interpose the proceeding in which such claim is to be
adjudicated any defense or defenses which the Reinsurers may reasonably deem
available to the Company or its conservator, receiver, liquidator or statutory
successor. The expenses incurred in connection therewith by the Reinsurers shall
be chargeable, subject to court approval, against the Company as part of the
expense of such insolvency, liquidation or rehabilitation to the extent of any
benefit which accrues to the Company solely as a result of the defense or
defenses undertaken by the Reinsurers.
ARTICLE XII
EXCLUSIONS:
EXTRA CONTRACTUAL OBLIGATIONS
AND
EXCESS OF ORIGINAL POLICY LIMITS
(a) Extra Contractual Obligations. This Agreement shall exclude
liabilities from Ultimate Net Losses to the extent such liabilities arise where
the loss has been incurred due to fraud by 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. In no event shall coverage be provided to the extent such coverage
for Extra Contractual Obligations is not permitted under New York law.
(b) Obligations in Excess of Original Policy Limits. This Agreement
shall exclude from Ultimate Net Losses any losses where the loss has been
incurred due to fraud by 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. In no event
shall coverage be provided to the extent such coverage for Obligations in Excess
of Original Policy Limits is not permitted under New York law.
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ARTICLE XIII
TERM, TERMINATION, COMMUTATION AND NOVATION
(a) Term. This Agreement shall be effective as of the date hereof and
shall remain in effect until the natural expiry of all liabilities on the
Subject Business, or until termination, commutation, or novation in accordance
with Sections (b), (c) or (d) of this Article XIII.
(b) Termination. Except as provided for in Sections (c) and (d) of this
Article, this Agreement shall be noncancellable, except at the discretion of the
Superintendent acting as rehabilitator, liquidator or receiver of the Company.
(c) Commutation. Commutation of this Agreement shall occur only by
mutual agreement between the Company and the Reinsurers.
(d) Novation. The Reinsurers agree to allow the Company the unilateral
right to novate this Agreement at any calendar quarter end with another
Reinsurer (the Novatee Reinsurer or Insurer), as selected by the Company. If the
Company wishes to novate, the Reinsurers shall agree to consent to the novation.
Upon novation, the Reinsurers shall transfer all of their obligations and
rights, including payment of consideration, as determined below, to the Novatee
Reinsurer or Insurer. The Novatee Reinsurer or Insurer cannot be an affiliate of
the Company and/or its successors. The Novation amount to be paid by the
Reinsurers to the Novatee Reinsurer or Insurer at such time shall equal the
calculation below. The Reinsurers shall maintain the cumulative net balance for
items 1) through 8) only below in an acceptable Trust as per Article VIII.
The cumulative amounts from inception to the date of the Novation:
1) 100% of the Consideration as defined in Article V; less
2) U.S. $3,125,000 due and payable at the Effective Date; less
3) Federal Excise Taxes paid by the Company; less
4) Expenses when actually paid by the Reinsurers in respect of the
formation and operation of the Trust inclusive of legal expenses for
the Trust and Trust Agreements; less
5) U.S. $200,000 annual expense paid to the Reinsurers beginning January
1, 2005; less
6) Letter of Credit costs when actually paid by the Reinsurers subject to
an annual fifty (50) basis points maximum, if applicable; less
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7) Ultimate Net Losses paid by the Reinsurers, if applicable; plus
8) Investment Credit equal to the actual investment income earned on
the cumulative net result of items 1) through 8) only in this section;
actual investment income earned excludes realized capital gains and
capital losses (items 9) and 10) below) due to liquidation of assets
for payment of Novation Consideration; plus
9) Realized capital gains due to liquidation of assets for payment of
Novation Consideration; less
10) Realized capital losses due to liquidation of assets for payment of
Novation Consideration.
The sum of items 3), 4), and 6) above shall be the actual paid expenses
subject to a maximum total amount of U.S. Two Million, Five-Hundred Thousand
Dollars (U.S. $2,500,000).
Upon payment of consideration to the Novatee Reinsurer or Insurer, the
Reinsurers hereon shall be released from all current and future liability under
this Agreement. The Company shall return, upon novation, any and all original
Letters of Credit to the Reinsurers which the Reinsurers have provided under
this Agreement and shall release all Trust Funds which the Reinsurers have
provided under this Agreement.
(e) Due and Unpaid Obligations. Notwithstanding anything herein to the
contrary, any unpaid or outstanding obligations of the Reinsurers due or overdue
the Company at the time of the termination, commutation, expiration or novation
of this Agreement shall survive the termination, commutation, novation or
expiration of this Agreement.
ARTICLE XIV
ARBITRATION
Except as provided in Article VII hereof, any and all disputes and
disagreements arising out of or relating to this Agreement (including an
objection pursuant to Section (f) of Article IV hereof) shall be submitted for
resolution to an independent arbitrator, mutually agreed to by the Reinsurers
and the Company, upon the written request of the Reinsurers or the Company. If
the parties are unable to mutually agree upon an arbitrator within ten (10)
calendar days after delivery of a written request for arbitration (or, in the
case of arbitration an objection pursuant to Section (e) of Article IV hereof,
within twenty-five (25) calendar days after a Notice of Objection is delivered
to the Company), the Reinsurers and the Company shall each nominate three
individuals who have never been affiliated with the Reinsurers or the Company,
respectively, and who are present or former executive officers of an insurance
or reinsurance company, and decline two of the three individuals nominated by
the other, and the list of the remaining two nominees shall be submitted to a
court of competent jurisdiction and the court shall select the arbitrator from
among the names submitted. Each party shall submit its case to the arbitrator
within thirty (30) calendar days after the date of appointment of the
arbitrator. The arbitrator shall make its determination and render a written
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decision solely as to the issue presented in the notice of arbitration within
sixty (60) calendar days after such submission, which decision shall be final
and binding in all respects upon all parties hereto. Judgment upon any award may
only be entered in a Federal court of competent jurisdiction located in the
City, County and State of New York; provided, however, that if such judgment
cannot be entered in such a Federal court expeditiously, such judgment only then
may be entered in a state court of competent jurisdiction located in the City,
County and State of New York. Arbitration hereunder shall take place in New York
unless the Reinsurers and the Company shall jointly and equally bear the costs,
fees, disbursements and other expenses of the arbitrator.
ARTICLE XV
NOTICES
Any notice or other communication hereunder shall be in writing and
delivered in person or by courier, telegraphed, telexed or by facsimile
transmission or mailed by certified mail, postage prepaid, return receipt
requested, as follows:
If to the Company: Chartwell Reinsurance Company
4 Stamford Plaza, 107 Elm Street
P.O. Box 120043
Stamford, CT 06912-0043
If to the Reinsurers: London Life and Casualty Reinsurance Corp.
Life of Barbados Building
Wildey, St. Michael, Barbados, W.I.
Scandinavian Reinsurance Company, Ltd.
P.O. Box HM 2275 (Hamilton HM 2275, Bermuda)
Colombia House
32 Reid Street
Hamilton HM 11, Bermuda
or to such other place as the Reinsurers or the Company may designate as to the
Reinsurers or the Company, respectively, by written notice to the other.
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ARTICLE XVI
ASSIGNMENTS AND SURVIVAL
(a) Assignments and Delegations. Except as otherwise provided herein,
this Agreement is not intended to confer any rights upon any person or persons
other than the parties hereto and their respective successors and assigns. This
Agreement may not be assigned or delegated, in whole or in part, by the
Reinsurers without the prior written consent of the Company. Notwithstanding
anything herein to the contrary, no delegation by the Reinsurers of any of their
duties, obligations or liabilities hereunder shall relieve the Reinsurers from
performing any of their duties, obligations or liabilities hereunder. Subject to
the foregoing, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
(b) Survival. Notwithstanding anything herein to the contrary, the
provisions of this Agreement shall survive any direct or indirect sale or
exchange of capital stock, merger, consolidation, sale or transfer of assets,
business combination or other change in control of, or change in the form of
business conducted by, the Company or the Reinsurers.
ARTICLE XVII
COMPLIANCE RESCISSION
This Agreement shall be effective as of the Effective Date, subject to
all necessary regulatory approvals. In the event that the necessary regulatory
approvals are not obtained, this Agreement shall be void.
ARTICLE XVIII
MISCELLANEOUS
(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts of laws.
(b) Entire Agreement: Amendments and Waivers. This Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, between the parties hereto. No
supplement, modification or waiver of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
(c) Incontestability. Each party hereto, in consideration of the
agreements contained herein, does hereby agree that this Agreement and each and
every provision thereof shall be incontestable after it has been in force for a
period of sixty days from the Effective Date.
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(d) Waiver of Jury Trial; Consent to Jurisdiction and Venue. BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO UNCONDITIONALLY
ACCEPTS THE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION, AS THE CASE MAY BE, LOCATED IN THE CITY, COUNTY AND STATE OF NEW
YORK FOR PURPOSES OF ENTRY OR JUDGMENT UPON AN AWARD PURSUANT TO ARTICLE XIV
HEREOF, AND IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL JUDGMENT RENDERED
THEREBY UPON SUCH AN AWARD. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY
OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF AN INCONVENIENT FORUM) WHICH ANY SUCH PARTY MAY NOW
OR HEREAFTER HAVE TO THE BRINGING OF SUCH ACTION OR PROCEEDING WITH RESPECT TO
ENTRY OF JUDGMENT UPON SUCH AN AWARD IN ANY SUCH JURISDICTION AS PROVIDED IN
ARTICLE XIV HEREOF, AND HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING BROUGHT TO ENTER JUDGMENT UPON SUCH AN AWARD.
(e) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
(f) Headings. The headings of the Articles and the Sections herein are
inserted for convenience of reference only, and are not intended
to be part of or affect the meaning or interpretation of this
Agreement.
ARTICLE XIX
INTERMEDIARY
Pegasus Advisors, Inc. is hereby recognized as the Intermediary
negotiating this Contract for all business hereunder. All communications
(including but not limited to notices, statements, Net Losses, Ultimate Net
Losses, Retention Amount, coverage payments and taxes relating thereto) shall be
transmitted to the Company or the Reinsurers through Pegasus Advisors, Inc., 35
Tower Lane, Avon, Connecticut 06001. Payments by the company to the Intermediary
shall be deemed to constitute payment to the Reinsurers only to the extent that
such payments are actually received by the Reinsurers. Payments by the
Reinsurers to the Intermediary shall be deemed to constitute payment to the
Company only to the extent that such payments are actually received by the
Company.
Notwithstanding the above, the parties agree to pay respective amounts
due each other by direct wire transfer to each other.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their respective officers, thereunto duly authorized
as of the date first written above.
On behalf of the Company hereon:
CHARTWELL REINSURANCE COMPANY
By: /s/ Steven J. Bensinger
-----------------------
Name: Steven J. Bensinger
Title: President
THE INSURANCE CORPORATION OF NEW YORK
By: /s/ Steven J. Bensinger
-----------------------
Name: Steven J. Bensinger
Title: President
DAKOTA SPECIALTY COMPANY
By: /s/ Steven J. Bensinger
-----------------------
Name: Steven J. Bensinger
Title: President
DRAYTON COMPANY LIMITED
By: /s/ Steven J. Bensinger
-----------------------
Name: Steven J. Bensinger
Title: President
For its 70% share of Interests and Liabilities:
LONDON LIFE AND CASUALTY REINSURANCE CORP.
By: /s/ Marie-Ann Gonsalves
------------------------
Name: Marie-Ann Gonsalves
Title: President
For its 30% share of Interests and Liabilities
SCANDINAVIAN REINSURANCE COMPANY, LTD.
By: /s/ Barton W. Hedges
------------------------
Name: Barton W. Hedges
Title: Senior Vice President
22
Exhibit 12.1
TRENWICK GROUP INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Earnings
Net Income (loss) $(11,048) $ 34,792 $ 35,252 $ 33,848 $ 29,841
Extraordinary loss on debt redemption,
net of $558 income tax benefit -- -- 1,037 -- --
Income taxes (10,172) 8,245 11,241 9,980 8,572
-------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item (21,220) 43,037 47,530 43,828 38,413
Fixed charges (as below) 19,906 14,492 10,140 6,826 6,805
-------- -------- -------- -------- --------
Earnings (loss) (for ratio calculation) $ (1,314) $ 57,529 $ 57,670 $ 50,654 $ 45,218
======== ======== ======== ======== ========
Fixed charges:
Interest expense $ 9,176 $ 3,954 $ 894 $ 6,503 $ 6,496
Minority interest 9,702 9,702 8,920 -- --
Portion of rental expense which
approximates the interest factor 1,028 836 326 323 309
-------- -------- -------- -------- --------
Total fixed charges $ 19,906 $ 14,492 $ 10,140 $ 6,826 $ 6,805
======== ======== ======== ======== ========
Ratio of earnings of fixed charges (.07) 4.0 5.7 7.4 6.6
======== ======== ======== ======== ========
</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.
EXHIBIT 13.1
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 operations and comprehensive 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, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States of America.
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
auditing standards generally accepted in the United States of America 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.
PricewaterhouseCoopers LLP
New York, New York
February 29, 2000, except as to Note 19,
which is as of March 1, 2000
-1-
<PAGE>
TRENWICK GROUP INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
----------- -----------
(dollars in thousands)
<S> <C> <C>
Assets
Securities available for sale at fair value:
Debt securities (amortized cost: $1,325,438 and $867,552) $ 1,311,361 $ 893,020
Equity securities (cost: $107,946 and $44,342) 110,666 49,188
Other investments 19,446 --
Investments held by managed syndicates 137,745 --
----------- -----------
Total investments 1,579,218 942,208
Cash and cash equivalents 125,954 63,003
Cash and cash equivalents held by managed syndicates 44,687 --
Accrued investment income 26,122 15,974
Premiums in process of collection 270,455 138,550
Reinsurance recoverable balances, net 644,578 140,173
Prepaid reinsurance premiums 100,000 22,632
Goodwill 153,824 1,605
Deferred policy acquisition costs 78,896 35,261
Net deferred income taxes 97,442 14,101
Current income taxes receivable 27,292 2,544
Deposits 20,227 --
Other assets 71,904 16,210
----------- -----------
Total assets $ 3,240,599 $ 1,392,261
=========== ===========
Liabilities and Common Stockholders' Equity
Liabilities:
Unpaid claims and claims expenses $ 1,964,139 $ 682,428
Unearned premium income 379,684 152,051
Senior credit facilities 94,501 --
6.70% senior notes due 2003 75,000 75,000
10.25% senior notes due 2004 39,831 --
Contingent interest notes 34,699 --
Other long term debt 4,874 --
Other liabilities 75,541 24,753
----------- -----------
Total liabilities 2,668,269 934,232
----------- -----------
Company-obligated mandatorily redeemable preferred
capital securities of subsidiary trust holding solely junior
subordinated debentures of Trenwick Group Inc. 110,000 110,000
----------- -----------
Minority interest 81 --
----------- -----------
Common stockholders' equity:
Common stock, $.10 par value, 30,000,000 shares
authorized, 16,888,981 and 11,051,394 shares outstanding 1,689 1,105
Additional paid-in-capital 291,361 124,180
Deferred compensation under stock award plan (3,553) (2,905)
Retained earnings 182,477 206,312
Accumulated other comprehensive income (9,725) 19,337
----------- -----------
Total common stockholders' equity 462,249 348,029
----------- -----------
Total liabilities and common stockholders' equity $ 3,240,599 $ 1,392,261
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
<PAGE>
TRENWICK GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands except per share data)
<S> <C> <C> <C>
Revenues:
Net premiums earned $ 325,114 $ 245,561 $ 190,156
Net investment income 66,394 56,316 48,402
Equity in net earnings of investees 188 -- --
Net realized investment gains 1,916 9,016 2,304
Other income 673 421 10
--------- --------- ---------
Total revenues 394,285 311,314 240,872
--------- --------- ---------
Expenses:
Claims and claims expenses incurred 254,538 153,135 109,554
Policy acquisition costs 96,095 74,197 58,549
Underwriting expenses 37,389 23,795 15,425
General and administrative expenses 7,182 3,461 --
Interest expense 9,176 3,954 894
Amortization expense 1,423 33 --
Minority interest in subsidiary trust 9,702 9,702 8,920
--------- --------- ---------
Total expenses 415,505 268,277 193,342
--------- --------- ---------
Income (loss) before income taxes and
extraordinary item (21,220) 43,037 47,530
Income tax (benefit) expense (10,172) 8,245 11,241
--------- --------- ---------
Income (loss) before extraordinary item (11,048) 34,792 36,289
Extraordinary loss on debt redemption,
net of $558 income tax benefit -- -- (1,037)
--------- --------- ---------
Net income (loss) $ (11,048) $ 34,792 $ 35,252
========= ========= =========
Basic earnings per share:
Income (loss) before extraordinary item $ (.94) $ 2.99 $ 3.12
========= ========= =========
Net income (loss) $ (.94) $ 2.99 $ 3.03
========= ========= =========
Diluted earnings per share:
Income (loss) before extraordinary item $ (.94) $ 2.95 $ 3.01
========= ========= =========
Net income (loss) $ (.94) $ 2.95 $ 3.01
========= ========= =========
Comprehensive income:
Net income (loss) $ (11,048) $ 34,792 $ 35,252
Other comprehensive income (loss):
Unrealized investment gains (losses) (39,779) 8,183 15,316
Realized investment gains included in
net income (1,916) (9,016) (2,304)
Foreign currency translation adjustment (3,302) (553) --
Income tax benefit (expense) applicable to other
comprehensive income 15,935 478 (4,556)
--------- --------- ---------
Total other comprehensive income (loss) (29,062) (908) 8,456
--------- --------- ---------
Comprehensive income (loss) $ (40,110) $ 33,884 $ 43,708
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
TRENWICK GROUP INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1999 1998 1997
--------- --------- ---------
(dollars in thousands except per share data)
<S> <C> <C> <C>
Common stockholders' equity, beginning of year $ 348,029 $ 357,649 $ 265,753
Common stock, $.10 par value, and additional
paid-in-capital:
Common shares issued in exchange for
Chartwell shares (7,964,998 shares) 209,400 -- --
Fair value of stock options issued in exchange
for Chartwell options 3,632 -- --
Exercise of employer stock options
(122,195 and 76,750 shares) -- 1,536 956
Restricted common stock awarded
(65,985, 82,889, and 9,782 shares) 1,914 2,952 327
Restricted common stock awards cancelled
(8,827 and 2,133 shares) (284) -- (42)
Income tax benefit (expense) from additional
compensation deductions allowable
for income tax purposes (28) 1,321 626
Conversion of debentures (1,783,926 shares) -- -- 57,780
Common stock purchased and retired
(2,184,569, 1,104,750 and 5,091 shares) (46,869) (35,433) (171)
Deferred compensation under stock award plans:
Restricted common stock awarded (1,914) (2,952) (327)
Restricted common stock awards cancelled 284 -- 42
Compensation expense recognized 982 770 543
Retained earnings:
Net income (loss) (11,048) 34,792 35,252
Cash dividends ($1.04, $1.00 and $.97 per share) (12,787) (11,698) (11,546)
Accumulated other comprehensive income:
Other comprehensive income (loss) (29,062) (908) 8,456
--------- --------- ---------
Common stockholders' equity, end of year $ 462,249 $ 348,029 $ 357,649
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
TRENWICK GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Cash flows for operating activities:
Premiums collected $ 386,087 $ 242,620 $ 149,351
Ceded premiums paid (138,622) (53,643) (10,026)
Claims and claims expenses paid (369,033) (184,386) (117,916)
Claims and claims expenses recovered 56,897 25,815 2,841
Underwriting expenses paid (30,579) (27,378) (13,753)
--------- --------- ---------
Cash provided by (used for) underwriting activities (95,250) 3,028 10,497
Net investment income received 71,858 59,443 50,469
Service and other income received, net of expenses 18 91 --
General and administrative expenses paid (7,182) (3,461) --
Interest expense and subsidiary trust dividends paid (19,946) (12,276) (5,364)
Income taxes paid (1,796) (8,956) (8,592)
Cash provided by (used for) operating activities (52,298) 37,869 47,010
--------- --------- ---------
Cash flows for investing activities:
Purchases of debt securities (647,670) (537,787) (203,554)
Sales of debt securities 372,225 116,895 33,980
Maturities of debt securities 397,165 445,800 78,770
Purchases of equity securities (29,656) (11,538) (12,967)
Sales of equity securities 21,560 15,088 5,009
Acquisition of subsidiary, net of cash acquired 74,229 (39,799) --
Additions to premises and equipment (1,783) (4,596) (227)
Other, net (55) -- --
--------- --------- ---------
Cash provided by (used for) investing activities 186,015 (15,937) (98,989)
--------- --------- ---------
Cash flows for financing activities:
Issuance of other long term debt 94,473 -- --
Issuance of senior notes -- 75,000 --
Issuance of mandatorily redeemable preferred
capital securities -- -- 110,000
Repayment of other long term debt (48,417) -- --
Issuance costs of senior notes and capital securities -- (922) (1,669)
Issuance costs of long term debt (4,055) -- --
Redemption of convertible debentures -- -- (46,997)
Issuance of common stock -- 1,536 956
Repurchase of common stock (44,604) (34,880) (171)
Dividends paid (12,787) (11,698) (11,546)
Other, net (9,056) -- --
--------- --------- ---------
Cash provided by (used for) financing activities (24,446) 29,036 50,573
--------- --------- ---------
Effect of exchange rate on cash (1,633) (812) --
--------- --------- ---------
Change in cash and cash equivalents 107,638 50,156 (1,406)
Cash and cash equivalents, beginning of year 63,003 12,847 14,253
--------- --------- ---------
Cash and cash equivalents, end of year $ 170,641 $ 63,003 $ 12,847
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
TRENWICK GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Organization
and Summary
of Significant
Accounting
Policies
Organization
Trenwick Group Inc. (Trenwick or the Company) is a holding company whose
principal subsidiaries underwrite specialty insurance and reinsurance.
Trenwick's principal operating subsidiaries include Trenwick America Reinsurance
Corporation (Trenwick America Re), Chartwell Reinsurance Company (Chartwell
Reinsurance), The Insurance Corporation of New York (INSCORP), Dakota Specialty
Insurance Company (Dakota), Trenwick International Limited (Trenwick
International) and Chartwell Managing Agents Limited (CMA), a managing agency in
the Lloyd's marketplace.
Trenwick America Re, located in Stamford, Connecticut, reinsures property and
casualty risks primarily written by U.S. insurance companies. Trenwick America
Re underwrites treaty reinsurance. Trenwick America Re is domiciled in
Connecticut and is licensed, authorized or approved to write reinsurance in all
50 states and the District of Columbia.
Chartwell Reinsurance, located in Stamford, Connecticut, underwrote treaty
reinsurance for casualty, property, marine and aviation risks prior to its
acquisition by the Company. Chartwell Reinsurance is currently domiciled in
Minnesota and is licensed, authorized or approved to write reinsurance in 49
states and the District of Columbia. Chartwell Reinsurance is in the process of
re-domesticating to Connecticut and changing its name to Chartwell Insurance
Company. It will be used by the Company to underwrite primary insurance in the
future.
INSCORP, located in Jericho, New York, is a primary insurance company that
develops property and casualty insurance programs through specialty production
sources focusing on a specific line of business and geographic region. INSCORP
is domiciled in New York and is licensed, authorized or approved to transact
business in all 50 states, the District of Columbia and Canada.
Trenwick International, headquartered in London, England, underwrites specialty
insurance and reinsurance of risks primarily located outside the U.S. Trenwick
International's business principally consists of insurance and facultative
reinsurance of specialty classes. Trenwick International also underwrites
property and casualty treaty reinsurance. A branch office in Paris specializes
in facultative reinsurance of large, technically complex property risks.
Trenwick International is domiciled in England and is authorized to write
insurance in over 30 countries and participates in the London market for
worldwide reinsurance.
Trenwick, through corporate subsidiaries, participates in the underwriting of
Lloyd's syndicates managed by Chartwell Managing Agents Limited (CMA) by
providing funds at Lloyd's, primarily in the form of letters of credit
supporting underwriting capacity. The syndicates in which the Company
participates underwrite aviation, marine and non-marine risks.
CMA is the eighteenth largest managing agency at Lloyd's, managing three Lloyd's
syndicates for the 2000 year of account. CMA is domiciled in England and, as a
Lloyd's managing general agent, is subject to regulation and supervision by the
Council of Lloyd's.
Basis of Presentation
The consolidated financial statements include the accounts of the company and
all subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation. Certain items in the financial statements have been
reclassified to conform with the 1999 presentation.
-6-
<PAGE>
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles (GAAP) in the U.S.,
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 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.
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 other comprehensive income, 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.
Investments in companies in which the Company has the ability to exercise
significant influence over the operating and financial policies of the investees
are accounted for under the equity method. In addition, limited partnerships in
which the Company holds greater than 3% interest are accounted for under the
equity method.
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. The effective yield
utilized in the interest method is adjusted when sufficient information exists
to estimate the probability and timing of prepayments on mortgage-backed and
asset-backed securities. 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.
The Company has included in the consolidated balance sheet its pro-rata share of
the investments and cash and cash equivalents held by CMA's managed syndicates.
Such pro-rata share is determined based on the Company's percentage of capacity
owned through its dedicated corporate capital vehicles.
Revenues
Insurance and reinsurance premiums are earned (net of reinsurance ceded) on a
pro-rata basis over the related contract period. Unearned premium income
represents the portion of premiums applicable to the unexpired portion of
premium coverage with renewal dates later than year-end. Such reserves are
computed by pro-rata methods for direct business and are established based on
reports received from ceding companies for reinsurance. Premiums on contracts
are accrued on an estimated basis throughout the term of such contracts. These
estimates may change in the near term. Retrospectively rated and other
experience rated reinsurance contracts are estimated and accrued for based on
the difference between total costs before and after the experience under the
contract (the with-and-without method). These estimates of experience-to-date
are based on statistical data with subsequent adjustments recorded in the period
in which they become known.
Deposits
Reinsurance contracts that do not meet insurance accounting risk transfer
requirements are classified as deposits. These deposits are treated as financing
transactions and are credited or charged with interest income or expense
according to contract terms. Cash flows from these
-7-
<PAGE>
deposit transactions are included in "cash flows for financing activities" in
the consolidated statement of cash flow.
Policy Acquisition Costs
Policy acquisition costs are stated net of policy acquisition costs ceded and
primarily 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 the Company'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.
Provision for U.S. income taxes on undistributed earnings of foreign
subsidiaries is made only on those amounts in excess of the funds considered to
be permanently reinvested. Repatriation of undistributed earnings of non-U.S.
subsidiaries is done only when it is tax efficient to do so.
Goodwill and Other Acquired Intangible Assets
Goodwill represents the unamortized excess of purchase price over the fair value
of net assets of acquired entities. Other acquired intangible assets represent
Trenwick's acquisition of its prospective participation of $9,485,000 on
syndicate 839, which entitled one of its UK subsidiaries to increase its
syndicate premium limit for the 2000 year of account to $344,000,000. The
Company amortizes goodwill and other acquired intangible assets on a
straight-line basis over 25 years and 5 years, respectively. On a periodic
basis, the Company estimates the future undiscounted cash flows of the business
to which it relates in order to ensure that the carrying value of goodwill and
other acquired intangible assets has not been impaired. Amortization charged to
operations for each of the years ended December 31, 1999 and 1998 was $1,423,000
and $33,000, respectively. Accumulated amortization of goodwill at December 31,
1999 and 1998 was $1,456,000 and $33,000 respectively.
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
Accounting Principles Board Opinion, "Accounting for Stock Issued to Employees",
and make pro forma disclosures of net income and earnings per share, as if the
fair market value-based
-8-
<PAGE>
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 10.
Earnings Per Share
Trenwick adopted the 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.
Minority Interest
Minority interest represents the minority stockholders' proportionate share of
the equity of certain subsidiaries of Chartwell UK.
Premises and Equipment
Premises and equipment, including leasehold improvements are included in other
assets in the accompanying Consolidated Balance Sheet and are recorded at cost
and are amortized or depreciated using the straight-line method over their
useful lives. Accumulated amortization and depreciation was $6,863,000 and
$5,703,000 as of December 31, 1999 and 1998, respectively.
Issuance Costs of Capital Securities and Other Debt
The issuance costs of the capital securities, senior notes and senior credit
facilities are being amortized over the term of the related financial instrument
using the interest method. Accumulated amortization was $421,000 and $129,000 as
of December 31, 1999 and 1998, respectively.
Insurance Brokerage Assets and Liabilities
The following fiduciary assets and liabilities maintained by the Company's
insurance agency subsidiaries on behalf of the insureds are presented net in the
consolidated financial statements at December 31, 1999 (in thousands).
Cash $ 3,000
Accounts receivable $ 31,603
Accounts payable $ (34,603)
Comprehensive Income
Trenwick adopted the accounting standard, "Reporting Comprehensive Income,"
which establishes standards for reporting and presentation of comprehensive
income and its components. Comprehensive income comprises net income and other
comprehensive income. Other comprehensive income consists of the change in the
net unrealized appreciation of investments and the change in foreign currency
translation adjustments, both net of income taxes.
Foreign Exchange
The assets and liabilities of foreign operations whose functional currency is
other than the U.S. dollar are translated at the rate of exchange in effect at
the balance sheet date. Revenues and expenses of foreign operations are
translated at the average exchange rates during the year. The
-9-
<PAGE>
effect of the translation adjustments for foreign operations, net of applicable
deferred income taxes, is recorded as a cumulative translation adjustment in
accumulated other comprehensive income within stockholders' equity. Investments
denominated in foreign currencies are translated into the U.S. dollar using the
rate of exchange at the balance sheet date and unrealized gains and losses on
translation, net of applicable deferred income taxes, are recorded to other
comprehensive income. Foreign currency transaction gains and losses are included
in other income.
Accounting For Derivative Instruments and Hedging Activities
Effective January 1, 2001, Trenwick expects to adopt the new accounting
standard, "Accounting for Derivative Instruments and Hedging Activities," which
requires all derivatives to be recognized on the balance sheet at fair value.
The Company is currently reviewing the impact of the implementation of the
standard on its financial statements.
Note 2
Acquisitions
Chartwell Re Corporation
On October 27, 1999, Trenwick completed the merger of Chartwell Re Corporation
(Chartwell) with and into Trenwick. Under the terms of the merger, stockholders
of Chartwell received 0.825 Trenwick shares for each Chartwell share in a
tax-free transaction. Described below are the adjustments to record the assets
and liabilities at fair value and allocate the purchase price over fair value of
net assets acquired. All amounts are in thousands, except per share amounts.
Chartwell's outstanding common shares 9,655
Exchange ratio for the conversion of shares 0.825
Trenwick common shares issued in exchange for Chartwell common shares 7,965
Trenwick's average price per common share $ 26.29
--------
Total consideration for Chartwell's common shares $209,400
Total consideration for Chartwell's common stock options 3,632
Acquisition costs 18,294
--------
Total purchase price $231,326
Less:
Fair value of Chartwell's net assets 78,011
--------
Goodwill $153,315
========
The acquisition has been accounted for using the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets purchased
and the liabilities assumed based on the estimated fair values at the date of
acquisition. As a condition to the merger, Chartwell purchased, at the time of
the closing of the transaction, a reinsurance policy providing for up to
$100,000,000 in order to indemnify Trenwick against unanticipated increases in
Chartwell's reserves for business written on or before the date the merger was
completed. See Note 5-Reinsurance. In connection with the acquisition of
Chartwell, the Company recognized a liability of approximately $4,700,000 for
anticipated severance costs of former Chartwell employees. The total amount paid
under the severance plan as of December 31, 1999 was approximately $4,300,000.
The excess of the purchase price over the estimated fair value of the net assets
of approximately $153,315,000 has been recorded as goodwill, which is being
amortized on a straight-line basis over 25 years. The purchase price has been
allocated based on a preliminary estimate of the fair value of net assets
acquired. All assets and liabilities of Chartwell are consolidated in the
balance sheet as of December 31, 1999 and its operating results are consolidated
in Trenwick's results commencing with the period from October 28, 1999 through
December 31, 1999.
-10-
<PAGE>
The following unaudited pro forma consolidated results of operations for the
years ended December 31 assume the acquisition had occurred on January 1 of each
year:
(in thousands, except per share data) 1999 1998
--------- ---------
Net premiums earned $ 478,226 $ 475,065
Total revenue 573,660 609,118
Net income (loss) (124,331) 59,697
Basic net income (loss) per share $ (6.76) $ 3.04
Diluted net income (loss) per share $ (6.76) $ 2.99
The above unaudited pro forma financial information is not necessarily
indicative either of the results of operations that would have occurred had this
transaction been consummated at the beginning of the periods presented or of
future results of operations.
LaSalle Re Holdings Limited
On December 19, 1999, Trenwick and LaSalle Re Holdings Limited (LaSalle Re)
signed a definitive agreement for Trenwick and LaSalle Re to combine, with
shareholders of both companies receiving shares in a new Bermuda holding company
to be named Trenwick Group Ltd. Under the terms of the business combination
agreement, shareholders of Trenwick and LaSalle Re will each receive shares in
the newly formed Trenwick on a one-for-one basis. The acquisition will be
accounted for as a purchase. Trenwick expects to close the transaction in the
second quarter of 2000, subject to shareholder and regulatory approvals and
other customary conditions.
On March 20, 2000, Trenwick and LaSalle Re amended and restated the business
combination agreement in order to revise the portion of the business combination
agreement related to the restructuring of Trenwick immediately prior to the
combination with LaSalle Re.
-11-
<PAGE>
Note 3
Investments
The following tables reconcile amortized cost to the estimated fair value of
debt and equity securities:
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(in thousands)
U.S. Treasury securities
and obligations of
U.S. government
corporations and agencies $ 114,839 $ 379 $ (681) $ 114,537
Obligations of states and
political subdivisions 460,176 2,221 (7,404) 454,993
Mortgage-backed and
asset-backed securities 290,801 1,263 (3,529) 288,535
Debt securities issued by
British government 117,165 110 (2,252) 115,023
Debt securities issued by other
foreign governments 55,436 44 (484) 54,996
Public utilities 21,229 43 (381) 20,891
Corporate securities 262,855 443 (3,852) 259,446
Certificates of deposit 2,937 3 -- 2,940
---------- ---------- ---------- ----------
Total debt securities $1,325,438 $ 4,506 $ (18,583) $1,311,361
========== ========== ========== ==========
Equity securities $ 107,946 $ 7,752 $ (5,032) $ 110,666
========== ========== ========== ==========
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(in thousands)
U.S. Treasury securities
and obligations of
U.S. government
corporations and agencies $ 64,831 $ 3,851 $ (14) $ 68,668
Obligations of states and
political subdivisions 380,593 13,544 (120) 394,017
Mortgage-backed and
asset-backed securities 206,790 8,648 (3,322) 212,116
Debt securities issued by
British government 45,949 587 -- 46,536
Debt securities issued by other
foreign governments 8,163 78 -- 8,241
Public utilities 2,864 222 -- 3,086
Corporate securities 55,364 2,011 (65) 57,310
Redeemable preferred stock 2,000 48 -- 2,048
Certificates of deposit 100,998 -- -- 100,998
---------- ---------- ---------- ----------
Total debt securities $ 867,552 $ 28,989 $ (3,521) $ 893,020
========== ========== ========== ==========
Equity securities $ 44,342 $ 6,514 $ (1,668) $ 49,188
========== ========== ========== ==========
</TABLE>
-12-
<PAGE>
The fair value and amortized cost at December 31, 1999 are shown below by
contractual maturity periods for all debt securities except mortgage-backed and
asset-backed securities. 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 included in the table based on expected maturity dates.
Fair Amortized
(in thousands) Value Cost
---------- ----------
Due in one year or less $ 94,546 $ 93,913
Due after one year through five years 544,077 545,161
Due after five years through ten years 482,652 490,465
Due after ten years 190,086 195,899
---------- ----------
Total debt securities $1,311,361 $1,325,438
========== ==========
Net Investment Income and Net Realized Investment Gains
During the twelve months ended December 31, 1999, all investments were income
producing. The sources of net investment income for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Debt securities $ 61,964 $ 53,752 $ 47,400
Equity securities 2,442 1,744 1,257
Investments held by managed syndicates 1,843 -- --
Cash and cash equivalents 1,666 2,470 1,228
Cash and cash equivalents held by managed syndicates 644 -- --
Other investments 177 -- --
-------- -------- --------
Gross investment income 68,736 57,966 49,885
Investment expenses (2,342) (1,650) (1,483)
-------- -------- --------
Net investment income $ 66,394 $ 56,316 $ 48,402
======== ======== ========
</TABLE>
Net realized gains (losses) on sales of investments are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Debt securities
Gross realized gains $ 3,147 $ 2,250 $ 151
Gross realized losses (6,797) (201) (146)
Equity securities
Gross realized gains 6,009 7,012 2,299
Gross realized losses (443) (45) --
-------- -------- --------
Net realized investment gains $ 1,916 $ 9,016 $ 2,304
======== ======== ========
</TABLE>
Trenwick generally limits its investments in debt securities that are rated
below investment grade, as these investments are subject to a higher degree of
credit risk than investment grade securities. Trenwick closely monitors its
below investment grade securities as well as the creditworthiness of the
portfolio as a whole. When fair values decline for reasons other than changes in
interest rates or other perceived temporary conditions, the security is written
down to its net realizable value. In the twelve months ended December 31, 1999,
Trenwick wrote down the value of certain securities by $5,179,000.
Unrealized Appreciation of Investments Available for Sale
The components of the net unrealized appreciation (depreciation) of investments
available for sale at December 31 are as follows:
-13-
<PAGE>
<TABLE>
<CAPTION>
(in thousands) 1999 1998
-------- --------
<S> <C> <C>
Net unrealized appreciation (depreciation) of debt securities $(14,077) $ 25,468
Net unrealized appreciation of equity securities 2,720 4,846
-------- --------
Net unrealized appreciation (depreciation) of investments $(11,357) 30,314
Deferred tax benefit (expense) 3,907 (10,622)
-------- --------
Net unrealized appreciation (depreciation)
of investments available for sale,
net of income taxes $ (7,450) $ 19,692
======== ========
</TABLE>
Investments and Cash Held as Collateral or on Deposit
Debt securities and cash with a carrying value of $127,026,000 are being held in
trust as collateral for certain reinsurance obligations. In addition, debt
securities and cash with a carrying value of $41,104,000 at December 31, 1999
were on deposit with various state or governmental insurance departments in
order to comply with insurance laws. Cash in the amount of $4,954,000 has also
been pledged as collateral for letters of credit for reinsurance obligations.
At December 31, 1999, the Company had cash of $5,040,000 held in a collateral
account in conjunction with a loan guarantee.
At December 31, 1999, the Company had loaned securities with carrying value of
approximately $16,155,000 at fair market value under a security lending
agreement administered through U.S. Bank. In connection with these transactions,
the Company holds as collateral cash or securities with a fair value equal to
102% of the fair value of the securities lent to others. Such collateral
securities are marked to market on a daily basis and borrowers are required to
supply additional collateral to prevent any collateral from falling below 102%
of the fair value of the loaned securities.
Note 4
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. The gross unpaid claims and claims expense balances
at December 31, 1999 and 1998 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.
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Gross unpaid claims and claims expenses,
beginning of year $ 682,428 $ 518,387 $ 467,177
Reinsurance recoverable on unpaid claims and claims
expenses, beginning of year 233,164 139,036 80,290
Unpaid claims and claims expenses, net of
reinsurance recoverable, beginning of year 449,264 379,351 386,887
----------- ----------- -----------
Unpaid claims and claims expenses, net of
reinsurance recoverable, of companies acquired 808,466 81,299 --
----------- ----------- -----------
Provision for claims and claims expenses, net of reinsurance
recoverable:
For claims incurred in the current year 239,910 165,691 114,920
For claims incurred prior to the current year 14,628 (12,556) (5,366)
----------- ----------- -----------
Subtotal 254,538 153,135 109,554
----------- ----------- -----------
Payments for claims and claims expenses, net of reinsurance:
For claims incurred in the current year (65,856) (42,883) (22,893)
For claims incurred prior to the current year (230,493) (122,145) (94,197)
----------- ----------- -----------
Subtotal (296,349) (165,028) (117,090)
----------- ----------- -----------
Effect of exchange rate changes on unpaid claims
and claims expenses (8,483) 507 --
----------- ----------- -----------
Unpaid claims and claims expenses, net of
reinsurance recoverable, end of year 1,207,436 449,264 379,351
----------- ----------- -----------
Reinsurance recoverable on unpaid claims and
claims expenses, end of year 756,703 233,164 139,036
----------- ----------- -----------
Gross unpaid claims and claims expenses,
end of year $ 1,964,139 $ 682,428 $ 518,387
=========== =========== ===========
</TABLE>
-14-
<PAGE>
In 1999, Trenwick America Re and Trenwick International recorded a gross
increase of $36,715,000 and a net increase of $14,628,000 in estimates for
claims occurring in prior accident years. In 1998 and 1997, Trenwick recorded
net decreases of $12,556,000 and $5,366,000, respectively, in estimates for
claims occurring in prior accident years. The increase in 1999 is due to
unfavorable development of prior year reserves in Trenwick America Re. In 1999,
Trenwick America Re's estimates of prior accident year claims increased by
approximately $25,402,000 on a gross basis and $16,189,000 on a net basis. In
1998 and 1997, estimates of prior accident year claims were reduced by
approximately $7,175,000 and $5,366,000, respectively. Trenwick America Re's
increase in 1999 reflects a deterioration in market conditions since 1997. In
1999 estimates of Trenwick International's prior year claims increased by
$11,313,000 on a gross basis and decreased by $1,561,000 on a net basis. In
1998, Trenwick International's prior year claims were reduced by approximately
$5,381,000 on a net basis. The gross increase in 1999 was offset by the effect
of reinsurance and favorable development across certain lines of business.
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, 1999 are adequate. However, reserves also
include provisions for latent injury or toxic tort claims that cannot be
estimated with traditional reserving techniques. Due to inconsistent court
decisions in federal and state jurisdictions and the wide variation among
insureds with respect to underlying facts and coverage, uncertainty exists with
respect to these claims as to liabilities of ceding companies and, consequently,
reinsurance coverage. With the exception of INSCORP, the Company's exposure to
such latent losses is not expected to be significant due to its relatively
recent entry into the reinsurance business, its low historical levels of premium
volume prior to the application of exclusions for asbestos and environmental
liabilities and its retrocessional programs. To the extent that there is adverse
development in INSCORP's loss reserves, including its reserves for latent
losses, the Company's obligation under the Contingent Interest Notes due June
30, 2006 (the CI Notes) will be reduced. To the extent the CI Notes do not
provide sufficient protection against adverse development in INSCORP's loss
reserves, Trenwick may be entitled to recoveries under the $100,000,000
reinsurance policy purchased by Chartwell immediately prior to its acquisition
by Trenwick. See Note 5-Reinsurance.
Trenwick's reserves include an estimate of Trenwick's ultimate liability for
asbestos and environmental claims. The gross and net unpaid claims and claims
expenses for asbestos and environmental claims are as follows:
(in thousands) 1999 1998 1997
-------- -------- --------
Unpaid claims and claims expenses gross of
reinsurance recoverable, end of year $100,131 $ 8,476 $ 8,924
Unpaid claims and claims expenses, net of
reinsurance recoverable, end of year 72,092 8,428 8,814
Reinsurance recoverable on unpaid claims and
claims expenses, end of year 28,039 48 110
-15-
<PAGE>
The increase of the gross and net unpaid claims and claims expenses reflects the
inclusion of the reserves related to the Chartwell acquisition.
Note 5
Reinsurance
Trenwick enters into reinsurance and retrocessional agreements to reduce its net
liability on individual risks, protect against catastrophic losses and maintain
acceptable ratios.
Trenwick America Re has various retrocessional facilities, all of which are on a
treaty basis. These retrocessional facilities include one treaty for Trenwick
America Re'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 America Re's maximum retention generally does not
exceed $500,000 per occurrence on facultative business and $2,300,000 per
occurrence on property catastrophe business. From 1989 to 1999, Trenwick America
Re has purchased aggregated excess of loss ratio treaties from several
reinsurers. These facilities provided Trenwick with a layer of protection
against adverse results from its domestic casualty business in excess of
specified loss ratios. Trenwick did not purchase an aggregate excess of loss
ratio treaty for 2000.
Trenwick International, as customary with companies operating in the London
market, buys large amounts of reinsurance. Reinsurance and retrocessional
coverage is customized for each class of business. During 1998, following an
increase in its share capital, Trenwick International increased its retention of
business by reducing the amount of reinsurance it buys, principally proportional
reinsurance treaties with its former parent.
Chartwell Managing Agency, as part of its business strategy, has historically
purchased a significant amount of reinsurance for the Lloyd's syndicates it
manages. Reinsurance is generally purchased to protect the syndicates against
extraordinary loss or loss involving one or more underwriting classes. The
amount purchased is determined with reference to the syndicates' aggregate
exposure and potential loss scenarios.
INSCORP and Dakota, the primary insurance subsidiaries of Canterbury Financial
Group, each purchases reinsurance specifically tailored to each of the specialty
programs which they underwrite.
Effective October 27, 1999, Chartwell purchased, at the time of the closing of
the transaction, a reinsurance policy providing for up to $100,000,000 in order
to indemnify Trenwick against unanticipated increases in Chartwell's reserves
for business written on or before the date the merger was completed. The Company
has applied the provisions of the Financial Accounting Standards Board's
Emerging Issues Task Force Topic D-54 to account for future adverse development
covered by the agreement. In addition, as part of the merger, Chartwell commuted
several aggregate stop-loss contracts. Reinsurance agreements provide for
recovery of a portion of certain claims and claims expenses from reinsurers.
Trenwick remains liable in the event that the reinsurer is unable to meet its
obligation; however, Trenwick holds partial collateral under these agreements.
The effects of reinsurance on premiums written and premiums earned for the three
years ended December 31, are as follows:
(in thousands) 1999 1998 1997
--------- --------- ---------
Direct premiums written $ 128,224 $ 60,510 $ --
Assumed premiums written 377,317 262,854 248,662
Ceded premiums written (150,931) (73,145) (53,432)
--------- --------- ---------
Net premiums written $ 354,610 $ 250,219 $ 195,230
========= ========= =========
Direct premiums earned $ 84,542 $ 54,605 $ --
Assumed premiums earned 376,927 269,093 233,090
Ceded premiums earned (136,355) (78,137) (42,934)
--------- --------- ---------
Net premiums earned $ 325,114 $ 245,561 $ 190,156
========= ========= =========
-16-
<PAGE>
The Company recorded ceded claims and claims expenses incurred of $204,399,000,
$81,955,000 and $60,789,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
The components of reinsurance recoverable balances, net on the balance
sheet at December 31 are as follows:
(in thousands) 1999 1998
--------- ---------
Paid claims $ 66,698 $ 17,098
Unpaid claims and claims expenses 756,703 233,164
Funds held liability (126,222) (86,614)
Reinsurance balances payable (52,601) (23,475)
--------- ---------
Reinsurance recoverable balances, net $ 644,578 $ 140,173
========= =========
The funds held liability includes approximately $27,277,000 and $16,641,000 of
imputed interest as of December 31, 1999 and 1998, respectively. Approximately
$10,636,000, $7,009,000 and $4,989,000 of interest expense was incurred during
1999, 1998 and 1997, respectively, and recorded as a reduction to net earned
premiums.
Letters of credit, trust accounts and funds withheld in the aggregate amount of
$269,344,000 (including interest) have been arranged in favor of Trenwick
collateralizing reinsurance recoverables with respect to certain
retrocessionaires.
At December 31, 1999, approximately 36% of Trenwick's reinsurance recoverables
on unpaid claims and claims expenses are recoverable from five principal
retrocessionaires. These retrocessionaires are Zurich Reinsurance N.A,
Continental Casualty Company, Centre Re-Insurance Ltd., London Life and Casualty
Reinsurance Corporation and UNUM Life Insurance Company of America which had
reinsurance recoverable balances of $148,854,000, $39,209,000, $37,163,000,
$24,391,000 and $22,363,000, respectively at December 31, 1999. Such companies
are rated A or better by A.M. Best Company.
Included in Deposits on the balance sheet at December 31, 1999 are $13,310,000
deposited with European International Reinsurance Limited and $6,917,000
deposited with Centre Reinsurance (Bermuda) Limited, both of which are secured
by letters of credit.
For the years ended December 31, 1999, 1998 and 1997, Trenwick earned
commissions on cessions to retrocessionaires of $25,422,000, $10,495,000 and
$4,503,000, respectively.
-17-
<PAGE>
Note 6
Income Taxes
Income taxes are established on a consolidated basis for all domestic and
international operations of Trenwick. 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) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current expense (benefit):
Federal $(14,578) $ 4,392 $ 7,197
Foreign 1,515 2,324 --
State (44) 200 262
-------- -------- --------
Total current expense (benefit) $(13,107) $ 6,916 $ 7,459
-------- -------- --------
Deferred expense (benefit):
Federal $ 6,765 $ 1,110 $ 3,224
Foreign (3,830) 219 --
-------- -------- --------
Total deferred expense 2,935 1,329 3,224
-------- -------- --------
Total income tax expense (benefit) $(10,172) $ 8,245 $ 10,683
======== ======== ========
Due to the carryback of current year's losses to previous years taxable income
including the Chartwell companies, the company will recoup the maximum amount
refundable for taxes paid in the preceding two tax years.
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 (loss) before income taxes as a result of the following:
<CAPTION>
(in thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income (loss) before income taxes $(21,220) $ 43,037 $ 45,935
======== ======== ========
Income taxes at statutory rate $ (7,427) $ 15,063 $ 16,077
Effect of tax-exempt investment income (6,227) (5,654) (5,757)
Foreign operations 903 (256) --
Amortization of goodwill 498 -- --
Valuation allowance 770 -- --
Other, net 1,311 (908) 363
-------- -------- --------
Income tax provision (benefit) $(10,172) $ 8,245 $ 10,683
======== ======== ========
</TABLE>
As of December 31, 1999, the Company and all includible subsidiaries have U.S.
net operating loss carryforwards of $53,195,000 which will be available (subject
to the annual limitation discussed below) to offset regular taxable income
during the carryforward period (expiring 2019). Of the total net operating loss
carryforward, $15,717,000 was generated by INSCORP prior to its acquisition in
1995 and is limited by Section 382 of the Internal Revenue Code, to an annual
amount of $3,483,000 to offset future taxable income each year.
The Company provides income taxes on the undistributed earnings of non-U.S.
subsidiaries except to the extent that such earnings are considered permanently
reinvested outside the U.S. It is not practicable to determine the amount of
income or withholding tax that would be payable upon the remittance of those
earnings. However, the Company does not anticipate that the income or
withholding tax that would be payable upon remittance of the undistributed
earnings of the non-U.S. subsidiaries would aggregate to a material amount.
Deferred income tax assets (liabilities) are attributable to the following
temporary differences as of December 31:
-18-
<PAGE>
<TABLE>
<CAPTION>
(in thousands) 1999 1998
--------- ---------
<S> <C> <C>
Deferred income tax asset
Discounting and other loss reserve adjustments $ 30,647 $ 27,152
Unearned premium income 8,657 6,862
Net operating losses 18,618 --
Lloyd's loss reserve accrual 22,980 --
Contingent interest note 11,514 --
Tax basis difference on portfolio securities 3,938 --
Employee stock option and
compensation plans 1,135 651
Foreign tax credit 7,722 --
Alternative minimum taxes 3,684 1,390
Currency translation adjustments 1,603 197
Excess tax basis of foreign subsidiaries 18,305 632
Foreign operations 6,207 --
Unrealized depreciation of
investments available for sale 3,907 --
Other 2,206 --
--------- ---------
Gross deferred income tax assets 141,123 36,884
Less: Valuation allowance (23,982) --
--------- ---------
Deferred tax assets after valuation allowance 117,141 36,884
Deferred income tax liability
Policy acquisition costs deferred (13,289) (10,716)
Unrealized appreciation of
investments available for sale -- (10,622)
Earned but not reported premiums net of loss and expense (2,358) --
Accretion of market discount on debt
securities (1,416) (1,282)
Equity investment adjustments (1,102) --
Other (1,534) (163)
--------- ---------
Gross deferred income tax liabilities (19,699) (22,783)
--------- ---------
Net deferred income tax assets $ 97,442 $ 14,101
========= =========
</TABLE>
During 1999, the Company recorded a valuation allowance of $23,982,000 to reduce
its deferred tax asset in accordance with the provisions of the accounting
standard "Accounting For Income Taxes" (FASB 109). The valuation allowance is
necessary because sufficient uncertainty exists regarding the realizability of
certain foreign tax credits and other deferred tax assets related to the excess
tax basis of foreign subsidiaries. The Company will periodically review the
adequacy of the valuation allowance and will recognize benefits only as the
reassessment indicates that it is "more likely than not" that these benefits
will be realized. In accordance with the provisions of FASB 109, any reduction
in the valuation allowance will be offset against goodwill. Realization of the
related tax benefits will depend upon the recognition of future earnings from
foreign operations or a change in circumstances that cause the recognition of
these benefits to meet the "more likely than not" standard of FASB 109.
-19-
<PAGE>
Note 7
Long-Term
Debt
Senior Notes
On March 27, 1998 Trenwick completed a private offering of $75,000,000 aggregate
principal amount of its 6.70% Senior Notes due April 1, 2003 (the Senior Notes).
Interest is payable semi-annually on April 1 and October 1 of each year, which
commenced on October 1, 1998. The Senior Notes are not subject to redemption
prior to maturity. They are unsecured obligations and will rank senior in right
of payment to all existing and future subordinated indebtedness of Trenwick,
including Trenwick's obligations with respect to its 8.82% Junior Subordinated
Debentures held by Trenwick Capital Trust I in respect of the $110,000,000 in
8.82% Subordinated Capital Income Securities issued by the Trust. Under the
terms of the Senior Notes, Trenwick is not restricted from incurring
indebtedness, but is subject to limits on its ability to incur secured
indebtedness for borrowed money.
On March 17, 1994, Chartwell completed a public offering of 10.25% Senior Notes
due 2004, having a total principal amount of $75,000,000. On December 13, 1995,
the obligations were assumed by Chartwell Re Holdings Corporation (Chartwell Re
Holdings). Of the original balance, Chartwell Re Holdings redeemed $26,250,000
on April 8, 1996 and repurchased $8,675,000 on November 24, 1999.
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 semi-annually
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 greater of 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.
-20-
<PAGE>
Convertible Debentures
On February 20, 1997, Trenwick called for redemption all $103,500,000 aggregate
principal amount of Trenwick'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 $103,500,000 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 in 1997.
Senior Credit Facilities
On November 24, 1999 Trenwick entered into a $400,000,000 credit agreement with
various lending institutions, The Chase Manhattan Bank, as Administrative Agent,
First Union National Bank, as Syndication Agent, and Fleet National Bank, as
Documentation Agent. This new credit facility provides for a $170,000,000, 364
day revolving credit facility with an option to pay out outstanding borrowings
under such facility over the four years following the expiration of the 364 day
period. In addition, the credit facility provides for a $230,000,000 five year,
Lloyd's letter of credit facility, with a one year automatic renewal option. The
applicable interest rate on borrowings under the credit facility is currently
1.3% above the London Interbank Offered Rate or The Chase Manhattan Bank prime
commercial lending rate. A commitment fee is charged on the unutilized portion
of the facility and is currently at .25%. At the end of the revolving period,
all outstanding revolving loans will, at the option of Trenwick, convert to a
four-year term loan facility, subject to scheduled principal amortization over
the four-year period. As of December 31, 1999, Trenwick has approximately
$94,501,000 of revolving loans outstanding, the proceeds of which were used to
retire Chartwell Re Holdings' syndicated debt facility with First Union,
repurchase Trenwick common shares, and redeem a portion of the Chartwell Re
Holdings senior debt. The Letter of Credit Facility of $230,000,000 is available
in U.S. Dollars or Pounds Sterling and shall only be issued for the account of
Lloyd's to support Trenwick's syndicate participations. The unsecured letters of
credit are in force for five years and will automatically renew for one
additional year on the anniversary of the November closing date. The Applicable
Margin is charged on an annual basis on the utilized portion of the facility,
which is currently $208,000,000. A commitment fee, which is currently .25%, is
charged on the unused portion of the Letter of Credit Facility.
The Chase credit facility contain general covenants and restrictions as well as
financial covenants relating to, among other things, minimum interest coverage,
debt to capital leverage, minimum earned surplus and tangible net worth.
Trenwick and the banks party to the credit facility executed an amendment to the
credit facility, dated as of December 31, 1999, reducing the required minimum
consolidated tangible net worth of Trenwick from $325,000,000 to $290,000,000
until June 30, 2000. After giving effect to the amendment, as of December 31,
1999, the Company is in compliance with the covenants.
Contingent Interest Notes
In conjunction with the 1999 acquisition of Chartwell, the Company assumed all
of the obligations under the CI Notes, which were originally issued by Piedmont
Management Company Inc. (Piedmont), INSCORP's former parent, to its stockholders
just prior to its acquisition by Chartwell in 1995. The CI Notes were issued
immediately prior to Chartwell's acquisition of Piedmont to protect Chartwell
against the possibility of adverse development of INSCORP's reserves for losses
and loss adjustment expenses and long-tail casualty exposures. The CI Notes were
issued in an aggregate principal amount of $1,000,000, with principal accruing
interest at a rate of 8% per annum, compounded annually. Such interest will not
be
-21-
<PAGE>
payable until maturity or earlier redemption of the CI Notes. In addition, the
CI Notes will entitle the holders thereof to receive at maturity, in proportion
to the principal amount of the CI Notes held by them, an aggregate of from
$10,000,000 up to $55,000,000 in contingent interest. Settlement of the CI Notes
may be made by payment of cash or, under certain specified conditions, by
delivery of shares of the Company's common stock. The CI Notes mature on June
30, 2006. At December 31, 1999, the CI Notes are recorded at the present value
of the amount which is reasonably determined to be payable at maturity. The
Company believes that INSCORP's reserves for loss and loss adjustment expenses
are an appropriate estimate of projected ultimate losses and loss adjustment
expenses to be paid and therefore, at this time, the maximum amount of
contingent interest on the CI Notes is presently expected to be paid at
maturity. The CI Notes contain covenants, which relate to the maintenance of
certain records and limitations on certain indebtedness. As of December 31, 1999
the Company is in compliance with those covenants.
Future minimum payments on long term debt as of December 31, 1999 are as follows
(in thousands):
1999
--------
2000 $ 94,501
2002 4,874
2003 75,000
2004 40,075
2006 34,699
--------
$249,149
Note 8
Commitment and
Contingencies
Letters of Credit
At December 31, 1999, Trenwick has outstanding standby letters of credit
totaling $208,000,000 as part of the senior credit facilities supporting CMA
syndicate participations. Additionally, INSCORP has a $3,100,000 letter of
credit to support the participation in Riverside Underwriters, plc. Both of
these standby letters of credit are in force for five years, and provide capital
to participate in certain Lloyd's syndicates for the 1996 to 2000 underwriting
years of account.
Lloyd's syndicate 839 has a letter of credit facility for $21,400,000, which is
secured by its Sterling Premium Trust Fund. This letter of credit is deposited
in the United States Surplus Lines Trust Fund.
Letters of credit are also provided to support domestic and international
reinsurance operations, totaling approximately $2,700,000.
Lines of Credit
Trenwick International has established a line of credit under which it can
borrow up to $1,618,000 at a rate of 2 1/2% above the lending bank's base rate.
Chartwell UK also has established a line of credit under which it can borrow up
to $1,618,000 at a rate of 1% above the lending bank's base rate. These lines of
credit are available in the event that funds are required to supplement
short-term working capital. There were no material borrowings under either line
of credit during 1999.
Lloyd's syndicates 270, 741 and 2741 have separate lines of credit of
$7,000,000, $1,780,000 and $485,000 respectively. There were no material
borrowings under these lines of credit during 1999.
Limited Partnership Investment
-22-
<PAGE>
Chartwell Reinsurance has committed to invest $15,000,000 in a private equity
fund, High Ridge Capital Limited Partnership, which makes investments in the
insurance industry. The Company contributed a total of $13,300,000 to this fund
as of December 31, 1999.
Operating Lease Agreements
Trenwick leases office space under non-cancelable operating leases which expire
at various dates through 2015. Trenwick's future minimum lease commitments as of
December 31, 1999 are as follows:
2000 - $ 5,659,633
2001 - 5,250,608
2002 - 5,139,674
2003 - 5,303,349
2004 - 5,453,766
2005 and thereafter 19,870,082
Total office rent expense for the years ended December 31, 1999, 1998 and 1997
is $3,024,000, $2,042,000 and $917,000, respectively.
Litigation
The Company is party to various legal proceedings generally arising in the
normal course of its business. The Company does not believe that the eventual
outcome of any such proceeding will have a material effect on its financial
condition or results of operations or cash flows. The Company's subsidiaries are
regularly engaged in the investigation and the defense of claims arising out of
the conduct of their business. Pursuant to the Company's insurance and
reinsurance arrangements, disputes are generally required to be finally settled
by arbitration.
Note 9
Stockholders'
Equity
Preferred Stock
Trenwick has 2,000,000 shares of $.10 par value preferred stock authorized and
none outstanding.
Common Stock
During the year, Trenwick's Board of Directors approved an additional 3,000,000
shares to its stock repurchase program for a total of 4,600,000 shares. The
program was originally adopted on May 21, 1997. During 1999, 2,176,200 shares
were repurchased at an average price of $21.42 per share.
Between January 1, 2000 and March 30, 2000, Trenwick has purchased 829,300
shares under its buyback plan, at an average price of $16.56 per share. Trenwick
has an authorization of 494,000 shares remaining under the plan.
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.
-23-
<PAGE>
In the event that an acquirer accumulates 15% or more of Trenwick's common
stock, all rights holders except the acquirer 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 acquirer may purchase the acquirer'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.
Note 10
Employee
Benefits and
Compensation
Arrangements
Retirement Plans
Trenwick has a defined contribution plan and a 401(k) savings plan for
substantially all U.S. full-time employees. Trenwick contributes 8% of an
eligible employee's total compensation to the pension plan; no employee
contributions are made to the plan. Trenwick matches 100% of employees'
contributions to the savings plan up to 6% of each eligible employee's total
compensation. Assets of both plans are administered by life insurance companies.
Trenwick's contributions to the pension plan were $429,000, $463,000 and
$503,000 for 1999, 1998 and 1997, respectively; its contributions to the savings
plan were $365,000, $351,000 and $330,000 for 1999, 1998 and 1997, respectively.
A member of management will receive a supplemental employee benefit payable at
the earlier of age 65 or employment termination. The supplement will be equal to
the aggregate contributions made with respect to the employee to a trust
established by the company. Annual contribution to the trust is 13.5% of the
employee's base salary as stated in the employment agreement. The amount
expensed in 1999 for this employee benefit obligation is not material.
Trenwick also maintains a money purchase defined contribution pension plan
covering substantially all Trenwick International employees. Contributions under
this plan are determined on the basis of salary and age. Trenwick's contribution
to this plan in 1999 and 1998 was $1,427,000 and $997,000, respectively.
Chartwell U.K. operates contributory defined contribution plans for its U.K.
employees. The level of the contribution varies between 5% and 20% dependent
upon the age of each participant at the beginning of each calendar year. The
amount expensed in 1999 for the obligation under these plans amounted to
$435,000.
The defined contribution plan for Chartwell's U.S. employees was terminated
immediately prior to the consummation of the merger of Chartwell into Trenwick.
As a result, certain former Chartwell employees became members of the Company's
plan and, in certain instances, the assets held by those employees in
Chartwell's plan were transferred to the Company's plan.
Stock Options and Common Stock Warrants
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 future issuance
under all stock benefit plans at December 31, 1999 is 1,827,527 shares.
Transactions under the stock option plans during 1999, 1998 and 1997 are
summarized as follows:
-24-
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Number of options
Outstanding, beginning of year 907,210 911,195 981,195
Issued in exchange for Chartwell options 1,160,182 -- --
Granted 175,960 124,210 8,250
Cancelled (46,029) (6,000) (1,500)
Exercised -- (122,195) (76,750)
---------- ---------- ----------
Outstanding, end of year 2,197,323 907,210 911,195
========== ========== ==========
Exercisable, end of year 1,387,789 210,112 312,807
========== ========== ==========
Average exercise price
Issued in exchange for Chartwell options $ 30.57 -- --
Granted 28.34 $ 36.72 $ 32.88
Cancelled 29.41 29.70 30.92
Exercised -- 12.57 12.46
Outstanding, end of year 29.80 29.07 25.82
Exercisable, end of year 30.30 27.87 21.81
</TABLE>
Included in the table above 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.
At the time of Trenwick's acquisition of Chartwell, all of the options issued
under Chartwell's stock option plans became fully vested.
At December 31, 1999, there were warrants outstanding which were issued in
exchange for Chartwell warrants upon consummation of the acquisition for the
purchase of 275,989 shares of common stock at an average price of $25.45 per
share.
Pro Forma Information
Trenwick applies the provisions of Accounting Principles Board Opinion
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans. Since stock options and
warrants 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 or
warrants. Had Trenwick applied the fair value based method, net income and net
income per share would have been the pro forma amounts indicated below (in
thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss)
As reported $ (11,048) $ 34,792 $ 35,252
Pro forma (11,412) 34,554 35,056
Basic earnings (loss) per share
As reported $ (.94) $ 2.99 $ 3.03
Pro forma $ (.97) $ 2.96 $ 3.01
</TABLE>
The pro forma adjustments relate to options and warrants granted from 1995 to
1999 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 and
warrants granted prior to 1995. Valuation and related assumption information are
presented below:
-25-
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Valuation Assumptions:
Expected volatility
Employees 28% 23% --
Non-employee directors 49% 28% 18%
Non-employee directors (former Chartwell) 27% -- --
Stock warrants 37% -- --
Risk-free interest rate
Employees 6.1% 5.6% --
Non-employee directors 5.4% 5.2% 5.8%
Non-employee directors (former Chartwell) 6.1% -- --
Stock warrants 6.4% -- --
Dividend Yield 3.0% 3.1% 2.6%
</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, under the terms of the
1989 and 1993 Stock Plans. In 1999, 65,985 shares were awarded at an average
price of $29.00 per share (approximately $1,914,000), which vest over five
years. Shares awarded in 1998 and 1997 vest over five years. Shares were
repurchased in 1999, 1998 and 1997 in connection with the satisfaction of
employees' withholding taxes payable upon the vesting of previously awarded
shares. During 1999, 8,369 shares were repurchased at an average price of $31.54
per share (approximately $264,000). Trenwick has recognized compensation expense
of $982,000, $770,000 and $543,000 for 1999, 1998 and 1997, respectively,
determined by the award value of the shares amortized over the applicable
vesting period.
Note 11
Comprehensive
Income
The components of accumulated other comprehensive income at December 31 are as
follows:
(in thousands) 1999 1998
-------- --------
Unrealized investment gains (losses) $ (9,464) $ 39,330
Realized investment gains included
in net income (1,916) (9,016)
Foreign currency translation adjustment (3,854) (552)
Deferred income tax (benefit) expense 5,509 (10,425)
-------- --------
Accumulated other comprehensive income (loss) $ (9,725) $ 19,337
======== ========
The income tax benefit (expense) applicable to each component of other
comprehensive income are as follows:
(in thousands) 1999 1998 1997
------- ------- -------
Unrealized investment gains (losses) $13,880 $(2,810) $(3,750)
Realized investment gains (losses) included
in net income 649 3,091 (806)
Foreign currency translation adjustment 1,406 197 --
------- ------- -------
Income tax benefit (expense) applicable to other
comprehensive income (loss) $15,935 $ 478 $(4,556)
======= ======= =======
-26-
<PAGE>
Note 12
Insurance
Regulation
Trenwick America Re, Chartwell Reinsurance, INSCORP, ReCor Insurance Company
(ReCor) and Dakota Specialty Insurance Company (Dakota) are subject to the
insurance laws and regulations of their respective domiciliary state insurance
departments which were, as of December 31, 1999, Connecticut, Minnesota, New
York, New York and North Dakota, respectively. Effective January 1, 2001, the
Connecticut, Minnesota, New York and North Dakota Insurance Departments will
adopt the Codification of Statutory Accounting Principles (the Codification).
The Codification provides guidance for areas where statutory accounting has been
silent and changes current statutory accounting in some areas. The Company has
not finalized the quantification of the effects of Codification on its statutory
financial statements.
Under the holding company structure, Trenwick is dependent upon the ability of
its operating subsidiaries for the transfer of funds principally in the form of
cash dividends and tax reimbursements.
Under the applicable provisions of the insurance holding company laws of
Connecticut, Minnesota and North Dakota, insurance companies may only pay
dividends without the approval of the applicable state insurance regulator, if
such dividends, together with other dividends paid within the preceding twelve
months, are less than the greater of (i) 10% of the insurer's policyholders'
surplus as of the end of the prior calendar year or (ii) the insurer's statutory
net income, excluding realized capital gains, for the prior calendar year. As a
further restriction, the maximum amount of dividends insurers may pay is limited
to its earned surplus, also known as its unassigned funds. Any dividend in
excess of the amount determined pursuant to the foregoing formula would be
characterized as an "extraordinary dividend" requiring the prior approval of the
state insurance regulator.
Under New York law, which is applicable to INSCORP and ReCor, the maximum
ordinary dividend payable in any twelve month period without the approval of the
New York Insurance Department is the lesser of (i) 10% of policyholders surplus
as shown on the company's last annual statement or any more recent quarterly
statement or (ii) the company's adjusted net investment income. Adjusted net
investment income is defined as net investment income for the twelve months
preceding the declaration of the dividend plus the excess, if any, of net
investment income over dividends declared or distributed during the period
commencing thirty-six months prior to the declaration or distribution of the
current dividend and ending twelve months prior thereto. In any case, New York
law permits the payment of an ordinary dividend by an insurer or reinsurer only
out of earned surplus.
In addition to the foregoing limitations, the New York Insurance Department, as
is its practice in any change of control situation, required Trenwick to commit
to preclude the acquired New York-domiciled insurers, INSCORP and ReCor, from
paying any dividends for two years after the merger with Chartwell without prior
regulatory approval. The foregoing restriction will expire on October 27, 2001.
Neither INSCORP nor ReCor paid any dividends in 1997, 1998 or 1999.
In 2000, of Trenwick's U.S. insurance subsidiaries, only Dakota Specialty
Insurance Company could pay a dividend or other distribution without prior
approval of the applicable insurance regulatory authority. In 2000, Dakota
Specialty could pay a dividend of $2,800,000 without prior approval. During
1999, 1998 and 1997, Trenwick America Re paid dividends of $53,400,000,
$30,100,000 and $8,300,000, respectively. Chartwell Reinsurance paid dividends
of $30,300,000 in 1999 and $3,000,000 in 1997. Chartwell Reinsurance did not pay
any dividends in 1998. None of Trenwick's other U.S. insurance subsidiaries paid
any dividends in 1999, 1998 or 1997.
Under the applicable laws of the United Kingdom, Trenwick's U.K. subsidiaries
may make distributions only from accumulated realized profits, net of
accumulated realized losses. In addition, under the UK Insurance Companies Act,
Trenwick International is not permitted to make any distribution that would
reduce its net assets below the required minimum margin of solvency which, as
determined under the U.K. Financial Services Authority's rules, is approximately
$16.7 million as of December 31, 1999. In addition, Trenwick International must
also notify the U.K. Financial
-27-
<PAGE>
Services Authority of any proposal to declare or pay a dividend on any of its
share capital. Under Lloyd's regulations, Chartwell Managing Agents is not
permitted to make any distribution that would cause its assets to fall below any
of Chartwell Managing Agents' share capital, minimum net current asset margin or
minimum net asset margin. As of December 31, 1999, the highest of the three
tests required Chartwell Managing Agents to maintain approximately $1.1 million
of capital.
Trenwick Group Inc.'s reinsurance and insurance subsidiaries file financial
statements prepared in accordance with statutory accounting practices prescribed
or permitted by insurance regulators of their respective state of domicile.
Combined net income and statutory surplus of Trenwick Group Inc. were as
follows:
(in thousands) 1999 1998 1997
--------- --------- ---------
Net income (loss) $ (53,270) $ 40,930 $ 42,797
Statutory surplus 458,824 330,496
The NAIC's model risk-based capital regulation (the RBC Model Act) require
insurance companies to calculate and report information under a risk-based
capital formula which measures statutory capital and surplus needs based on
the risks in a company's mix of business and investment portfolio. Based on
its calculation as of December 31, 1999, Trenwick America Re, Chartwell
Reinsurance, INSCORP, ReCor and Dakota each exceeds all of the capital
levels prescribed in the RBC Model Act.
Note 13
Supplemental
Cash Flows
Information
A reconciliation of cash provided by (used for) operations for the three
years ended December 31 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) $(11,048) $ 34,792 $ 35,252
Adjustments to reconcile net income (loss)
to net cash provided by (used for) operating
activities:
Equity in net earnings of investees (188) -- --
Contingent interest 642 -- --
Amortization of premiums on
investments, net 1,832 4,219 2,557
Deferred income taxes 2,935 1,329 3,224
Net realized investment gains (1,916) (9,016) (2,304)
Depreciation expense 1,942 998 371
Amortization of debt issuance costs 292 124 32
Extraordinary loss on debt redemption -- -- 1,595
Amortization expense 1,423 -- --
Other 1,013 908 558
Change in assets and liabilities, net of effects from purchase of
subsidiary:
Premiums in process of collection 8,906 2,543 (29,178)
Deferred policy acquisition costs (6,655) (679) (719)
Current income taxes receivable/payable (24,748) 1,865 (1,759)
Other assets 109 (1,270) (5,268)
Unpaid claims and claims expenses,
net of reinsurance recoverable balances (10,142) (3,638) 32,621
Unearned premium income, net of
prepaid reinsurance premiums 27,393 3,552 5,073
Other liabilities (44,088) 2,142 4,955
-------- -------- --------
Net cash provided by (used for) operating activities $(52,298) $ 37,869 $ 47,010
======== ======== ========
</TABLE>
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<PAGE>
Note 14
Fair Value of
Financial
Instruments
The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
In the event that quoted market prices were not available, fair values were
based on estimates using discounted cash 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.
Accrued premiums have estimated payment dates ranging from 1999 to 2003. 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 is
estimated using cash flows discounted at an interest rate of 5%. 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>
(in thousands) 1999 1998
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Debt securities $1,311,361 $1,311,361 $ 893,020 $ 893,020
Equity securities 110,666 110,666 49,188 49,188
Other investments 19,446 19,446 -- --
Investments held by managed syndicates 137,745 137,745 -- --
Cash and cash equivalents 125,954 125,954 63,003 63,003
Cash and cash equivalents held by
managed syndicates 44,687 44,687 -- --
Accrued premiums 279,480 276,474 126,758 124,832
Deposits 20,227 20,227 -- --
Liabilities:
6.70% senior notes due 2003 $ 75,000 $ 74,153 $ 75,000 $ 78,750
10.25% senior notes due 2004 39,831 42,778 -- --
7.67% senior credit facility due 2000 80,000 81,801 -- --
6.94% senior credit facility due 2000 14,501 14,723 -- --
Contingent interest notes 34,699 34,699 -- --
Other long term debt 4,874 4,638 -- --
Company-obligated
mandatorily redeemable
preferred capital securities
of subsidiary trust holding
solely junior subordinated
debentures of Trenwick Group Inc. $ 110,000 $ 91,982 $ 110,000 $ 110,150
</TABLE>
Note 15
Related-Party
Transactions
The Company holds an equity investment in certain managing general agents (MGAs)
through which it writes primary insurance business. Such investments are
accounted for under the equity method. At December 31, 1999, the carrying value
of the investments in Florida Intracoastal Underwriters (25% owned), HDR
Insurance Services (20% owned) Cambridge Alliance (35% owned), and Inter-Reco,
Inc. (49% owned) were $1,148,000, $654,000, $211,000 and $204,000 respectively.
For the year ended December 31, 1999, the Company incurred $6,238,000 of
commission expense payable to these MGAs. At December 31, 1999, the Company's
balance sheet includes $28,740,000 of agents' balances receivable from these
MGAs including installment premiums deferred and not yet due. The current
portion of balances due from these MGAs are settled on a monthly basis.
-29-
<PAGE>
Note 16
Earnings
Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
(in thousands, except per share data) 1999 1998 1997
----------- ------- -------
<S> <C> <C> <C>
Income (loss) available to common stockholders:
Income (loss) before extraordinary item (basic) $ (11,048) $34,792 $36,289
Add interest on convertible debentures,
net of income taxes -- -- 578
----------- ------- -------
Income (loss) before extraordinary item (diluted) $ (11,048) $34,792 $36,867
=========== ======= =======
Net income (loss) (basic) $ (11,048) $34,792 $35,252
Add interest on convertible debentures and
loss on debt redemption, net of income taxes -- -- 1,615
----------- ------- -------
Net income (loss) (diluted) $ (11,048) $34,792 $36,867
=========== ======= =======
Weighted average shares of common
stock outstanding:
Weighted average shares outstanding (basic) 11,762 11,657 11,645
Weighted average shares issuable on exercise of
employee stock options and stock warrants net of
assumed repurchases -- 122 173
Weighted average shares issuable on
conversion of debt -- -- 447
----------- ------- -------
Weighted average shares outstanding (diluted) 11,762 11,779 12,265
=========== ======= =======
Basic earnings (loss) per share:
Income (loss) before extraordinary item $ (.94) $ 2.99 $ 3.12
=========== ======= =======
Net income (loss) $ (.94) $ 2.99 $ 3.03
=========== ======= =======
Diluted earnings (loss) per share:
Income (loss) before extraordinary item $ (.94) $ 2.95 $ 3.01
=========== ======= =======
Net income (loss) $ (.94) $ 2.95 $ 3.01
=========== ======= =======
</TABLE>
Note 17
Segment
Information
In 1998, Trenwick adopted the accounting standard "Disclosures about Segments of
an Enterprise and Related Information." This statement requires reporting of
information utilizing a management approach. This approach designates the
internal organization that is used by management for making operating decisions
and assessing performance as the source of the Company's reportable segments.
This statement also requires disclosures about products and services, geographic
areas and major customers. The adoption of this statement did not affect the
results of operations or financial position.
Trenwick has determined that its reportable segments are those that are based on
the Company's method of internal reporting, which segregates its business by
geographic location. Trenwick has four reportable business segments: (1)
Trenwick America Re, (2) Canterbury Financial Group Inc (3) Trenwick
International and (4) CMA. Trenwick America Re underwrites treaty reinsurance of
property and casualty risks primarily written by U.S. insurance companies.
Trenwick America Re includes reinsurance business of Chartwell Reinsurance and
its subsidiaries since its acquisition on October 27, 1999. Canterbury Financial
Group underwrites specialty insurance in the United States. Trenwick
International provides specialty insurance and treaty and facultative
reinsurance on a world-wide basis. CMA manages Trenwick's participation in the
Lloyd's market.
-30-
<PAGE>
The summary financial results for Trenwick's operating segments for the year
ended December 31, are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C> <C>
Net premiums earned Trenwick America Re 166,906 $ 174,443 $ 190,156
Canterbury Financial Group 10,343 -- --
Trenwick International 107,911 71,118 --
Chartwell Managing Agents 39,954 -- --
---------- --------- ---------
325,114 245,561 190,156
Net investment income Trenwick America Re 49,315 44,490 43,692
Canterbury Financial Group 1,722 -- --
Trenwick International 11,253 10,614 --
Chartwell Managing Agents 3,845 -- --
Unallocated 259 1,212 4,710
---------- --------- ---------
66,394 56,316 48,402
Net realized investment Trenwick America Re 962 6,444 2,304
gains (losses) Canterbury Financial Group 8 -- --
Trenwick International 1,098 1,794 --
Chartwell Managing Agents (152) -- --
Unallocated -- 778 --
---------- --------- ---------
1,916 9,016 2,304
Total revenues Trenwick America Re 217,322 225,351 236,162
Canterbury Financial Group 12,234 -- --
Trenwick International 120,028 83,961 --
Chartwell Managing Agents 44,233 -- --
Unallocated 468 2,002 4,710
---------- --------- ---------
394,285 311,314 240,872
Underwriting profit (loss) Trenwick America Re (39,118) (3,167) 6,628
Canterbury Financial Group 974 -- --
Trenwick International (10,946) (2,432) --
Chartwell Managing Agents (13,817) -- --
Unallocated
-- -- --
---------- --------- ---------
(62,907) (5,599) 6,628
Interest expense and Trenwick America Re 112 6 --
minority interest Canterbury Financial Group 76 -- --
Trenwick International 4,513 3,434 --
Chartwell Managing Agents
Unallocated 14,177 10,216 9,814
---------- --------- ---------
18,878 13,656 9,814
4,369 44,320 52,644
2,659 -- --
Income (loss) before income Trenwick America Re 1,171 6,977 --
taxes and extraordinary Canterbury Financial Group (9,537) -- --
item Trenwick International (19,882) (8,260) (5,114)
---------- --------- ---------
Chartwell Managing Agents (21,220) 43,037 47,530
Unallocated
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Income tax (benefit) expense Trenwick America Re (3,104) 9,644 12,514
Canterbury Financial Group 979 -- --
Trenwick International 204 1,341 --
Chartwell Managing Agents (2,519) -- --
Unallocated (5,732) (2,740) (1,273)
---------- ---------- ----------
(10,172) 8,245 11,241
Income (loss) before Trenwick America Re 7,473 34,676 40,130
extraordinary item Canterbury Financial Group 1,680 -- --
Trenwick International 967 5,636 --
Chartwell Managing Agents (7,018) -- --
Unallocated (14,150) (5,520) (3,841)
---------- ---------- ----------
(11,048) 34,792 36,289
Total investments Trenwick America Re 1,209,923 792,868
and cash Canterbury Financial Group 104,216 --
Trenwick International 215,846 211,599
Chartwell Managing Agents 196,313 --
Unallocated 23,561 744
---------- ----------
1,749,859 1,005,211
Total assets Trenwick America Re 1,837,261 1,028,569
Canterbury Financial Group 262,233 --
Trenwick International 406,430 353,079
Chartwell Managing Agents 533,455 --
Unallocated 201,220 10,613
---------- ----------
3,240,599 1,392,261
</TABLE>
Brokers and Ceding Companies
During the year ended December 31, 1999, Trenwick America Re
received approximately 61% of its gross written premiums from three reinsurance
brokers of which AON Reinsurance Agency accounted for approximately 37%, Guy
Carpenter accounted for approximately 16% and E.W. Blanch accounted for
approximately 8%. In 1998, Trenwick America Re produced approximately 37%, 10%
and 10% of its gross written premiums from three reinsurance brokers; AON
Reinsurance Agency, Peglar and Associates, Inc. and Willis Faber, respectively.
In 1997, Trenwick America Re produced approximately 41%, 14% and 10% of its
gross written premiums from three reinsurance brokers; AON Reinsurance Agency,
Willis Faber, N.A. and G.J. Sullivan, respectively.
Two reinsurance brokers accounted for approximately 13% of Trenwick
International's 1999 gross written premiums of which AON Reinsurance Agency
accounted for approximately 8% and Alexander Forbes accounted for 5%. In 1998,
Nelson Hurst and AON Reinsurance Agency accounted for approximately 15% and 12%
of gross written premiums, respectively.
Trenwick's concentration of business in the U.S. reinsurance market 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.
Contrary to Trenwick America Re's concentration, Trenwick International's
business is produced from a variety of sources including insurance and
reinsurance brokers.
-32-
<PAGE>
During the year ended December 31, 1999, Trenwick America Re received
approximately 26% of its gross written premiums from three ceding companies of
which Duncanson and Holt accounted for approximately 12%, American International
Group accounted for approximately 7% and CNA Insurance Companies accounted for
approximately 7%. In 1998, Trenwick America Re produced approximately 16%, 12%
and 10% of its gross written premiums from three ceding companies; Duncanson and
Holt, American International Group and Fort Washington Holdings, respectively.
In 1997, Trenwick America Re produced approximately 11%, 11% and 10% of its
gross written premiums from three ceding companies; American International
Group, Canal Insurance Company and Travelers Group. No one ceding company
accounted for more than 3% of Trenwick International's gross written premium in
1999 and 1998.
Loss of all or a substantial portion of the business provided by these brokers
and ceding companies 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 reinsurance market and the availability of
business from other brokers and ceding companies.
Managing General Agencies
In 1999, Canterbury Financial Group wrote approximately 66% of its gross written
premiums through four managing general agents as follows: HDR Insurance Services
(23%), Florida Intracoastal Underwriters, Ltd. (19%), Inter-Reco, Inc. (13%),
and Professional Insurance Underwriters, Inc. (11%). Loss of all or a
substantial portion of the business provided by these managing general agencies
could have a material adverse effect on the business and operations of Trenwick.
Note 18
Unaudited
Quarterly
Financial Data
Summarized unaudited quarterly financial data is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- ------
<S> <C> <C> <C> <C>
Earned premiums December 31 $141,467 $63,612 $45,414
September 30 58,608 65,161 43,723
June 30 66,071 70,964 47,105
March 31 58,968 45,824 53,914
Net investment income December 31 26,207 14,639 12,372
September 30 13,047 14,317 12,178
June 30 13,317 14,976 12,123
March 31 13,823 12,384 11,729
Net realized investment December 31 (1,075) 7,572 388
gains (losses) September 30 (38) 184 -
June 30 523 540 1
March 31 2,506 720 1,915
Income (loss) before December 31 (2,392) 11,329 9,122
extraordinary item September 30 (22,426) 5,243 8,773
June 30 5,665 8,975 8,593
March 31 8,105 9,245 9,801
<CAPTION>
(in thousands except per share data)
1999 1998 1997
------ ------ ------
<S> <C> <C> <C> <C>
Basic income (loss) December 31 (.16) 1.03 .77
before extraordinary item September 30 (2.15) .45 .74
per share June 30 .54 .75 .72
March 31 .75 .78 .90
Diluted income (loss) December 31 (.16) 1.02 .75
before extraordinary item September 30 (2.15) .44 .73
per share June 30 .53 .74 .71
March 31 .74 .77 .81
</TABLE>
-33-
<PAGE>
Amounts for 1999 reflect the results of Chartwell, accounted for as a purchase,
from October 27, 1999, the date of acquisition. Amounts for 1998 reflect the
results of Trenwick International, accounted for as a purchase, from February
27, 1998, the date of acquisition. In the quarter ended March 31, 1997, Trenwick
had an extraordinary loss on debt redemption of $1,037,000, or $0.09 per basic
share, which was net of a $558,000 income tax benefit.
Note 19
Subsequent
Event
On March 1, 2000, Chartwell Re Holdings fully redeemed its 10.25% Senior Notes
due 2004 at a redemption price of 102.56% of par value. The net balance of these
notes as of December 31, 1999 was $40,075,000.
-34-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Industry Overview
The trends experienced by the property and casualty insurance and reinsurance
industry during the past five years continued in 1999. The industry's
underwriting margins continued to experience pressure due to highly competitive
conditions. While the number of industry participants declined further,
principally because of industry consolidation, the remaining insurance and
reinsurance industry participants are larger and better capitalized. Insurers'
and reinsurers' investment portfolios, which consist principally of fixed income
securities, continued to underperform principally due to low interest rates
experienced in recent years. Operating cash flow declined as a result of lower
underwriting margins and continued deterioration in prior years' claim reserves.
There have recently been indications of increases in insurance and reinsurance
rates primarily associated with international property business; however, at
this time the increases reported are isolated and sporadic, and as such, no
significant improvement in general market conditions is expected in the near
term.
Several years ago, in response to ongoing industry conditions, Trenwick embarked
on a strategy of increasing its size and the diversity of its insurance and
reinsurance businesses in order to compete more effectively in the insurance and
reinsurance marketplace.
On October 27, 1999 Trenwick, upon its merger with Chartwell Re Corporation,
became the second-largest independent reinsurer in the United States on the
basis of surplus. The acquisition of Chartwell provided Trenwick with additional
cost-effective means of augmenting capital, accelerating premium growth and
added structural platforms for further expansion. The addition of Chartwell's
U.S. reinsurance business, its admitted and non-admitted U.S. insurance
companies and its operations at Lloyd's continued Trenwick's strategy of
entering new markets and product lines that began with Trenwick's acquisition of
Trenwick International (formerly Sorema U.K. Limited) in 1998. Trenwick
International, a London market company, underwrites specialty insurance and
treaty and facultative reinsurance on a worldwide basis. Trenwick expects that
the merger with Chartwell will produce between $15 million and $25 million in
annual expense synergies in 2000 and 2001, respectively.
Trenwick's plan to diversify and broaden its markets continued with the December
19, 1999 announcement by Trenwick and LaSalle Re Holdings Limited of a
definitive agreement to combine the two companies, with shareholders of both
companies receiving shares in a new Bermuda holding company to be named Trenwick
Group Ltd. This transaction will create a new Bermuda-based global insurance and
reinsurance underwriting organization with an anticipated total capitalization
of approximately $1.1 billion. The new Trenwick is expected to have larger scale
and stronger competitive capabilities in a consolidating global
insurance/reinsurance market, add higher margin business to Trenwick's existing
mix, establish a stronger platform to enhance shareholder returns, and expand
Trenwick's management depth. Trenwick anticipates that the combined enterprise
will have a strong presence in the three most significant insurance markets in
the world: the United States, London and Bermuda.
1
<PAGE>
On a pro forma basis, Trenwick would have had assets of approximately $4.0
billion and shareholders' equity, including minority interest, of approximately
$800 million as of December 31, 1999 and combined 1999 gross written premiums
for Trenwick, Chartwell and LaSalle of approximately $1.0 billion. Premium
Trenwick's gross and net premium writings for its domestic and international
operations were as follows:
1999 1998 1997
------------ ------------- -------------
Gross Premiums Written
Trenwick America Re $210,9211 $218,249 $248,662
Trenwick International 171,698 105,114 -
Chartwell Managing Agents 84,8343 - -
Canterbury Financial 38,0884 - -
============= ============= =============
Total $505,541 $323,363 $248,662
============= ============= =============
Net Premiums Written
Trenwick America Re $155,108(1) $169,112 $195,230
Trenwick International 129,399 81,107(2) -
Chartwell Managing Agents 64,462(3) - -
Canterbury Financial 5,641(4) - -
============== ============= =============
Total $354,610 $250,219 $195,230
============== ============= =============
(1) Includes reinsurance business of Chartwell Reinsurance and its subsidiaries
since its acquisition on October 27, 1999.
(2) Includes Trenwick International business since its acquisition on February
27, 1998.
(3) Includes Chartwell Managing Agents business since its acquisition on October
27, 1999.
(4) Includes Canterbury Financial business since its acquisition on October 27,
1999.
In 1999, Trenwick reported net premiums written of $354.6 million, a 42%
increase compared to $250.2 million in 1998. Net premiums written in 1998
increased 28% compared to 1997. Trenwick's domestic net reinsurance premiums
written decreased 8% in 1999 over 1998 compared to a 13% decrease in 1998 over
1997.
2
<PAGE>
The decline in Trenwick's domestic reinsurance premium volume in 1999 and 1998
is primarily attributable to a decline in net casualty premium writings of 2%.
This decline reflects Trenwick America Re's withdrawal from accounts when
pricing fell below what it believed to be acceptable rate levels. The decline in
net premiums written was magnified by Trenwick's decision to buy increased
reinsurance protection in 1999, 1998 and 1997 at more favorable terms than in
prior years. Competition among primary companies also 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.
Trenwick International reported net premiums written of $129.4 million for the
year ended December 31, 1999 compared to net premiums written of $81.1 for the
post-acquisition period ended December 31, 1998. Trenwick International's net
premium writings for the full year 1998 were $100.8 million. While the
international business is also highly competitive, growth in this business has
occurred as a result of emerging pockets of opportunity and as a result of
Trenwick International's expansion into new geographic markets previously
limited by its former parent.
During the period from October 28, 1999 to December 31, 1999, Chartwell Managing
Agents' syndicates reported net premiums written of $64.5 million. Including the
period prior to Chartwell Managing Agents' acquisition by Trenwick, Chartwell
Managing Agents' syndicates reported net premiums written of $190.4 million for
the year ended December 31, 1999 compared to net premiums written of $64.9
million for the prior year. Prior to its acquisition by Trenwick, Chartwell had
increased significantly the amount of capacity it supplied to the syndicates
managed by Chartwell Managing Agents, resulting in the aforementioned increase
in premium writings. During 1999, Trenwick supplied 45.8% of the overall
syndicate capacity for Chartwell Managing Agents.
3
<PAGE>
From October 28, 1999 to December 31, 1999, Canterbury Financial reported net
premiums written of $5.6 million. For the year ended December 31, 1999, which
includes the period before Canterbury Financial was acquired by Trenwick,
Canterbury Financial reported net premiums of $43.8 million, a 7% decrease over
the year ended December 31, 1998. The decrease in net premium writings resulted
principally from changes in certain reinsurance programs, increasing the amount
of reinsurance purchased in 1999.
Operating Ratios
The following table sets forth Trenwick's combined ratios and its components
calculated on a GAAP basis for the periods indicated:
Claims
and Policy Under-
Claims Acquisition writing Total
Expense Expense Expense Expense
Ratio Ratio Ratio Ratio Combined
-------- ------------ -------- -------- ---------
1999
Trenwick America Re1 78.3% 36.9% 8.3% 45.2% 123.5%
Trenwick International 74.9% 21.0% 14.2% 35.2% 110.1%
Canterbury Financial2 55.7% 8.9% 26.0% 34.9% 90.6%
Chartwell Managing Agents(3) 93.4% 27.3% 13.9% 41.2% 134.6%
Trenwick Group 78.3% 29.6% 11.5% 41.1% 119.4%
1998
Trenwick America Re 60.5% 33.4% 7.9% 41.3% 101.8%
Trenwick International 67.0% 22.3% 14.1% 36.4% 103.4%
Trenwick Group 62.4% 30.2% 9.7% 39.9% 102.3%
1997
Trenwick America Re 57.6% 30.8% 8.1% 38.9% 96.5%
Trenwick Group 57.6% 30.8% 8.1% 38.9% 96.5%
- - ----------------------------------------
(1) Includes reinsurance business of Chartwell Reinsurance and its subsidiaries
since its acquisition on October 27, 1999
(2) Includes Canterbury Financial business since its acquisition on October 27,
1999 3 Includes Chartwell Managing Agents business since its acquisition on
October 27, 1999
4
<PAGE>
The combined ratio is one means of measuring the profitability of a property and
casualty insurance or 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 an insurer or reinsurer may have unprofitable
underwriting results, the reinsurer may still be profitable because of
investment income earned on its accumulated invested assets.
The most significant underwriting cost affecting an insurance or 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.
Trenwick's claims and claims expense ratio increased from 62.4% in 1998 to 78.3%
in 1999. Trenwick's claims and claims expense ratio deteriorated in 1999 due to
the effects of property catastrophe claims of approximately $12.9 million and
adverse development of prior year reserves for claims and claims expense of
approximately $14.6 million.
Trenwick America Re's claims and claims expense ratio was 78.3% in 1999 compared
to 60.5% in 1998 and 57.6% in 1997. The increase in Trenwick America Re's claims
and claims expense ratio in 1999 is primarily due to the reasons described in
the paragraph above.
5
<PAGE>
Trenwick International's claims and claims expense ratio was 74.9% in 1999
compared to 67.0% in 1998. The increase was due primarily to catastrophe losses
associated with the European winter storms that occurred in the fourth quarter
of 1999.
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 1999 to 41.1% compared to 39.9% in 1998 and 38.9% in 1997. As
was the case in 1998, the overall increase in the expense ratio reflected the
continued increase in costs associated with Trenwick America Re. During 1999 and
1998, insurance companies continued to increase commissions on business ceded to
reinsurers. The increase associated with domestic reinsurance business was
partially offset by a reduction in Trenwick International's expense ratio and
the inclusion of Canterbury Financial and Chartwell Managing Agents in the
fourth quarter of 1999 whose underwriting results, in aggregate, carry a lower
expense ratio. Trenwick's domestic reinsurance expense ratio in 1999 was 45.2%
compared to 41.3% in 1998 and 38.9% in 1997.
Trenwick International's expense ratio was 35.2% in 1999 compared to 36.4% in
1998.
Trenwick America Re's statutory combined ratios for 1999, 1998 and 1997 were
165.5%, 102.3% and 95.9% respectively. Trenwick America Re's 1999 statutory
combined ratio includes the results of Chartwell Reinsurance Company, both
before and after its acquisition by Trenwick. Trenwick America Re's statutory
combined ratios were 50.9 percentage points worse, 2.2 percentage points better
and 6.8 percentage points better, respectively, than the weighted average
statutory combined ratios for all reinsurance companies which reported their
results to the Reinsurance Association of America ("RAA") in those periods. The
statutory combined ratios for this group of reinsurance companies in 1999, 1998
and 1997 were 114.6%, 104.5% and 102.7%, respectively. The statutory combined
ratios as reported to the RAA by those companies, including Trenwick America Re,
which primarily accept business from brokers, for 1999, 1998 and 1997 were
112.3%, 106.2% 104.6%, respectively.
6
<PAGE>
Consolidated Results of Operations
Year Ended December 31, 1999 Compared With Year Ended December 31, 1998
Revenues
Total revenues for the year ended December 31, 1999 increased 26.7% to $394.3
million, compared to $311.3 million for the comparable period in 1998. Included
in Trenwick's consolidated results of operations for 1999 are Chartwell's
operating results since its merger with Trenwick on October 27, 1999.
Net Premiums Earned
Net Premiums earned for the year ended December 31, 1999 were $325.1 million,
compared to $245.6 million in 1998, a 32.4% increase compared to the same period
in 1998. This increase reflects the inclusion of Chartwell's business since its
acquisition on October 27, 1999 and an increase in business underwritten by
Trenwick International, offset in part by a decline in business underwritten by
Trenwick America Re.
Net Investment Income
Trenwick's net investment income was $66.4 million in 1999 compared to $56.3
million in 1998. The overall increase in investment income in 1999 is due to the
continued growth in Trenwick's invested asset base resulting primarily from the
acquisition of Chartwell's business, offset by decreases resulting from funding
requirements for the repurchase of Trenwick's common stock, reduced business
written by Trenwick America Re and lower interest rates on the reinvestment of
securities at maturity. Pre-tax yields on Trenwick's invested assets, excluding
equity securities, were 6.2% in 1999 compared to 6.4% in 1998. This decline in
1999 resulted primarily from the reinvestment of approximately $397.2 million of
maturing securities at lower yields. In 1999, maturing securities included $24.6
million of principal repayments associated with Trenwick's portfolio of
mortgage-backed and asset-backed securities, compared to $32.0 million in 1998.
Principal repayments decreased in 1999 due to the increase in interest rates
from 1998.
7
<PAGE>
Net Realized Investment Gains
Trenwick realized net investment gains of $1.9 million or $.16 per basic and
diluted share for 1999 compared to $9.0 million or $.77 per basic and diluted
share for the same period in 1998. Included in 1999 net realized investment
gains were $5.2 million of losses related to the write-down to net realizable
value of certain debt securities in Trenwick's portfolio.
Other Income and Equity Earnings of Investees
For the years ended December 31, 1999 and 1998 other income was $.7 million and
$.4 million, respectively, which consisted of foreign transaction gains. Equity
earnings of investees was $.2 million in 1999.
Claims and Claims Expenses Incurred
Trenwick's principal expense, claims and claims expenses incurred, was $254.5
million for the year ended December 31, 1999, a 66.2% increase compared to
$153.1 million for the comparable period in 1998. The increase is principally
attributable to an increase in premium volume following the inclusion of
Chartwell's business since its acquisition on October 27, 1999. In addition,
claims and claims expense increased as a result of increases in estimates of
prior accident year claims of $14.6 million in 1999 and claims arising from
catastrophe losses in 1999 of $12.9 million.
8
<PAGE>
Policy Acquisition Costs
Policy acquisition costs, which vary directly with premium volume and consist
primarily of commissions paid to ceding companies and agents and brokerage fees
paid to intermediaries, less commissions received on business ceded to other
reinsurers, were $96.1 million for the year ended December 31, 1999, compared to
$74.2 million for the same period in 1998. Policy acquisition costs expressed as
a percentage of net earned premiums (the acquisition ratio) decreased slightly
to 29.6% in 1999 from 30.2% in 1998.
Underwriting Expenses
In 1999, Trenwick recorded underwriting expenses of $37.4 million compared to
$23.8 million in 1998. The reason for the increase in underwriting expenses was
due to the inclusion of Chartwell's business since its acquisition on October
27, 1999 and certain non-recurring expenses, including severance costs
associated with the acquisition of Chartwell. As a result, Trenwick recorded an
underwriting loss, which is net earned premiums less claims and claims expenses
incurred, policy acquisition costs and underwriting expenses, of $62.9 million
in 1999 compared to an underwriting loss of $5.6 million in 1998.
Other Expenses
Other expenses, which include amortization of goodwill and other intangibles,
general and administrative expenses, interest expense and minority interest in
subsidiary trust were $27.5 million for the year ended December 31, 1999
compared to $17.2 million for the same period in 1998. The increase reflects the
addition of goodwill and increases in general and administrative expenses and
interest expense in conjunction with the acquisition of Chartwell.
9
<PAGE>
Income Before Income Taxes
Trenwick incurred a net loss before income taxes of $21.2 million for the year
ended December 31, 1999 compared to net income of $43.0 million for the same
period in 1998. The net loss occurred for the reasons described above.
Income Taxes
The income tax benefit for the year ended December 31, 1999 was $10.2 million
compared with a provision for income taxes of $8.2 million for the same period
in 1998. The effective tax rate was 48% and 19% for the years ended December
31, 1999 and 1998, respectively. The main reason for the increase in Trenwick's
effective tax rate above the statutory rate of 35% in 1999 was the loss
experienced by Trenwick in 1999, which limited the benefits recognizable on
investments in tax-exempt securities. The principal factor in the decline below
the statutory rate of 35% for 1998 results from the benefit recognized on
investments in tax-exempt securities.
As of December 31, 1999, Trenwick has U.S. net operating loss carryforwards of
$53.2 million available to offset future regular taxable income until 2019. Of
the total net operating loss carryforward, $15.7 million was generated by The
Insurance Corporation of New York prior to its acquisition by Chartwell in 1995
and is limited by Section 382 of the Internal Revenue Code to an annual amount
of $3.5 million to offset future taxable income each year.
During 1999, Trenwick recorded a valuation allowance of $24.0 million to reduce
its deferred tax asset. The valuation allowance is necessary because sufficient
uncertainty exists regarding the realizability of certain foreign tax credits
and other deferred tax assets related to the excess tax basis of foreign
subsidiaries. Any reduction in the valuation allowance will be offset against
goodwill.
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Net Income
Trenwick incurred a net loss of $11.0 million for the year ended December 31,
1999 compared with a net profit of $34.8 million for the comparable 1998 period.
The basic loss per share was $.94 for the year ended December 31, 1999 as
compared to basic net income of $2.99 per share for the same period in 1998. The
diluted loss per share was $.94 per share compared to diluted net income of
$2.95 per share for the year ended December 31, 1998.
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
Revenues
Total revenues for the year ended December 31, 1998 increased 29.2% to $311.3
million, compared to $240.9 million for the comparable period in 1997. Included
in Trenwick's consolidated results of operations for 1998 are Trenwick
International's operating results since its acquisition on February 27, 1998.
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Net Premiums Earned
Net premiums earned for the year ended December 31, 1998 were $245.6 million,
compared to $190.2 million in 1997, a 29.1% increase compared to the same period
in 1997. This increase reflects the inclusion of Trenwick International's
business since its acquisition on February 27, 1998.
Net Investment Income
Trenwick's net investment income was $56.3 million in 1998 compared to $48.4
million in 1997. The overall increase in investment income in 1998 was due to
the continued growth in Trenwick's invested asset base resulting primarily from
the acquisition of Trenwick International offset in part by the decrease in
Trenwick America Re's invested asset base resulting from sales of approximately
$88.1 million of securities to fund the acquisition of Trenwick International
and the repurchase of Trenwick's common stock. Trenwick's pre-tax yield on
invested assets, excluding equity securities, was 6.4% in 1998, unchanged from
1997.
Net Realized Investment Gains
Trenwick realized net investment gains of $9.0 million or $.77 per basic and
diluted share for 1998 compared to $2.3 million or $.20 per basic share and $.19
per diluted share for the same period in 1997.
Other Income
Other income was $.4 million for the year ended December 31, 1998 compared to
$.01 million for the same period in 1997. This increase was due to the inclusion
of Trenwick International's foreign transaction gains and losses.
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Claims and Claims Expenses Incurred
Trenwick's principal expense, claims and claims expenses incurred was $153.1
million for the year ended December 31, 1998, a 39.7% increase compared to
$109.6 million for the comparable period in 1997. The increase was principally
attributable to the increase in premiums written by Trenwick due to the
inclusion of Trenwick International's underwriting results since its acquisition
on February 27, 1998.
Policy Acquisition Costs
Policy acquisition costs, which vary directly with premium volume and consist
primarily of commissions paid to ceding companies and agents and brokerage fees
paid to intermediaries, less commissions received on business ceded to other
reinsurers, were $74.2 million for the year ended December 31, 1998, compared to
$58.5 million for the same period in 1997. Policy acquisition costs expressed as
a percentage of net earned premiums (the acquisition expense ratio) decreased
slightly to 30.2% in 1998 from 30.8% in 1997.
Underwriting Expenses
In 1998, Trenwick recorded underwriting expenses of $23.8 million compared to
underwriting expenses of $15.4 million in 1997. The reason for the increase in
underwriting expenses was due to the inclusion of higher expenses relating to
the business of Trenwick International since its acquisition on February 27,
1998. As a result, Trenwick recorded an underwriting loss, which is net earned
premiums less claims and claims expenses incurred, policy acquisition costs and
underwriting expenses, of $5.6 million in 1998 compared to an underwriting
profit of $6.6 million in 1997.
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Other Expenses
Other expenses related to underwriting operations, which include amortization of
goodwill, general and administrative expenses, interest expense and minority
interest in subsidiary trust were $17.2 million for the year ended December 31,
1998 compared to $9.8 million for the same period in 1997. The increase
reflected the addition of interest expense associated with the issuance of $75
million in Senior Notes on March 27, 1998 and a reclassification of certain
expenses as general and administrative expenses in 1998, which were reported in
underwriting in 1997.
Income Before Income Taxes and Extraordinary Item Net income before income taxes
decreased to $43.0 million for the year ended December 31, 1998 compared to
$47.5 million for the same period in 1997. The decrease resulted primarily from
after-tax charges of $5.7 million associated with catastrophe losses, including
Hurricanes Mitch and Georges. There were no material catastrophe losses included
in the results for 1997.
Income Taxes
The provision for income taxes for the year ended December 31, 1998 decreased to
$8.2 million compared with $11.2 million for the same period in 1997. The
effective tax rate was 19% and 24% for the years ended December 31, 1998 and
1997, respectively. The principal factor in the decline below the statutory rate
of 35% for both periods resulted from the benefit recognized on investments in
tax-exempt securities.
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Extraordinary Loss
Trenwick incurred an extraordinary loss, net of the related tax benefit, of $1.0
million in 1997 in connection with the redemption of outstanding debt.
Net Income
Trenwick realized a net profit of $34.8 million for the year ended December 31,
1998 compared with a net profit of $35.3 million for the comparable 1997 period.
Basic earnings per share decreased 1.3% to $2.99 per share for the year ended
December 31, 1998 from $3.03 per share for the same period in 1997. Diluted net
income per share decreased 2.0% to $2.95 per share from $3.01 per share for the
year ended December 31, 1998.
Investments
Trenwick's investment objective is to fund policyholder and other liabilities in
a manner that enhances shareholder value, subject to appropriate risk
constraints. Trenwick seeks to meet this investment objective through a mix of
investments that reflect the characteristics of the liabilities they support;
diversify the types of investment risks by interest rate, liquidity, credit and
equity price risk; and achieve asset diversification by investment type,
industry, issuer and geographic location. Trenwick regularly projects duration
and cash flow characteristics of its liabilities and makes appropriate
adjustments in its investment portfolios. At December 31, 1999, Trenwick had
investments, cash and cash equivalents of $1.7 billion, an increase of 74.0%
compared to investments, cash and cash equivalents of $1.0 billion at December
31, 1998. This increase resulted principally from the acquisition of Chartwell's
invested asset base. 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 other comprehensive income. During 1999, the market
value of Trenwick's debt and equity investments decreased by $41.7 million as a
result of an overall increase in interest rates, the effect of which was
amplified by the increase in 1999 of the size of Trenwick's asset base.
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During 1999, the proceeds from sales and maturities of taxable and tax-exempt
securities of $769.4 million were invested by Trenwick America Re primarily in
tax-exempt securities in the amount of $69.6 million and by Trenwick
International in debt securities issued by the British Government in the amount
of $138.2 million. Trenwick also purchased mortgage-backed and asset-backed
securities in the amount of $6.6 million, U.S. government and agency securities
of $31.4 million, securities of other governments of $60.6 million, investment
grade corporate bonds of $44.7 million and high yield corporate bonds of $29.2
million. In addition, Trenwick purchased and disposed of certificates of deposit
in the amount of $261.6 million during 1999. Also in 1999, $29.7 million of
equities were purchased.
Trenwick's debt securities consisted primarily of investment grade securities,
with 79% having a quality rating of Aa or better at December 31, 1999. High
yield, or non-investment grade debt securities carry a rating of below
BBB-/Baa3. These securities, along with unrated securities, represented less
than 2% of the portfolio at December 31, 1999 and .5% of the portfolio at
December 31, 1998.
The average maturity of Trenwick's debt securities at December 31, 1999 was 6.8
years compared to 5.7 years at December 31, 1998 and 6.2 years at December 31,
1997. The shortening during 1998 reflected the addition of Trenwick
International's portfolio which had a much shorter average maturity. The
lengthening during 1999 reflects the longer average maturity of the Chartwell
portfolio along with the 1999 duration extension of the Trenwick International
portfolio.
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Trenwick has not invested in derivative financial instruments such as futures,
forward contacts, swaps, options or other financial instruments with similar
characteristics such as interest rate caps or floors and fixed-rate loan
commitments. Trenwick's portfolio includes market sensitive instruments, such as
mortgage-backed and asset-backed securities, which amounted to approximately
$288.5 million at December 31, 1999 or 16.5% of cash and invested assets. These
investments are classified as available for sale and are not held for trading
purposes. There are various categories of mortgage-backed and asset-backed
securities that are subject to different degrees of risk from changes in
interest rates and, for those mortgage-backed and asset-backed securities that
are not agency-backed, defaults. Approximately 60.6% of Trenwick's
mortgage-backed and asset-backed securities holdings were backed by government
agencies, such as GNMA, FNMA and FHLMC, at December 31, 1999 and 45.8% at
December 31, 1998. The principal risks inherent in holding mortgage-backed and
asset-backed securities are prepayment and extension risks related to dramatic
decreases and increases in interest rates, resulting in the repayment of
principal from the underlying mortgages either earlier or later than originally
anticipated. At December 31, 1999, approximately .3% of Trenwick's
mortgage-backed and asset-backed securities holdings were invested in
mortgage-backed and asset-backed securities that are subject to more prepayment
and extension risk (such as interest- or principal-only strips) than traditional
mortgage-backed and asset-backed securities. At December 31, 1998, no such
securities were held.
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Liquidity and Capital Resources
Cash Flows
Trenwick is a holding company whose principal assets are its investments in the
common stock of its operating subsidiaries. As a holding company, Trenwick's
principal source of funds consists of permissible dividends, tax allocation
payments and other statutorily permissible payments from its operating
subsidiaries together with income on the holding company's fixed-income
portfolio. Trenwick's principal uses of cash are dividends to its stockholders,
servicing its debt obligations and repurchases of its own common stock when the
pricing is attractive. Trenwick's operating subsidiaries receive cash from
premiums, investment income and proceeds from sales and maturities of portfolio
investments. They utilize cash to pay claims, purchase their own reinsurance
protections, meet operating and capital expenses and purchase fixed-income and
equity securities.
Cash used in Trenwick's operating activities in 1999 was $52.3 million compared
to cash provided by Trenwick's operating activities of $37.9 million in 1998 and
$47 million in 1997. The reduction in cash flow from operations in 1999 was due
primarily to a cash payment of $56 million in premium payments for the
reinsurance policy which provides protection against adverse development of
Chartwell's reserves following its acquisition by Trenwick and an overall
increase in claims and claims expenses paid.
In 1999, cash used for financing activities was $24.4 million compared to cash
provided by financing activities of $29.0 million in 1998. Cash used by
financing activities in 1999 includes the repayment of long-term debt of $48.4
million and the repurchase of common stock of $44.6 million, offset by $94.5
million of borrowings under a credit facility established in 1999. Cash provided
by financing activities in 1998 included proceeds from the issuance of $75
million principal amount of 6.70% senior notes partially offset by repurchases
of common stock of approximately $34.9 million. Included in cash provided by
financing activities in 1997 was $110 million from the issuance of the
Subordinated Capital Income Securities, partially offset by the redemption of
convertible debt of approximately $47 million.
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Trenwick's current liquidity objectives are to maximize the use of available
cash to fund ongoing operating needs, pay shareholder dividends, strategically
invest in core businesses and meet common stock repurchase objectives. During
1999, net cash generated from investing, financing and operating activities was
used to pay $44.6 million for common stock repurchases and pay $12.8 million of
dividends to shareholders. In 1998, net cash generated by investing, financing
and operating activities was used to pay $34.9 million for common stock
repurchases and pay $11.7 million of dividends to shareholders.
Dividends
Trenwick paid a quarterly dividend of $.26 per share of common stock in 1999 and
$.25 per share of common stock in 1998. Trenwick's Board of Directors reviews
Trenwick's common stock dividend each quarter. Among the factors considered by
the Board of Directors in determining the amount of each dividend are Trenwick's
results of operations and the capital requirements, growth and other
characteristics of its businesses.
Financings, Financing Capacity and Capitalization
Substantially all of Trenwick's borrowings and financings are conducted through
Trenwick Group Inc. Trenwick continually monitors existing and alternative
financing sources to support Trenwick's capital and liquidity needs, including,
but not limited to, debt issuance, preferred or common stock issuance,
intercompany borrowings and pledging or selling of assets. Trenwick's total debt
to capital ratio (total debt divided by total debt and shareholders' equity,
adjusted for unrealized gains or losses on available-for-sale investment
securities) was 43% at the end of 1999, 36% at the end of 1998 and 25% at the
end of 1997. The increases in 1999 and 1998 primarily reflect the incurrence of
indebtedness in connection with the acquisition of Trenwick International and
the assumption of indebtedness in connection with the Chartwell acquisition.
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On November 24, 1999 Trenwick entered into a $400 million credit agreement with
various lending institutions, The Chase Manhattan Bank, as Administrative Agent,
First Union National Bank, as Syndication Agent, and Fleet National Bank, as
Documentation Agent. This new credit facility provides for a $170 million, 364
day revolving credit facility with an option to pay out outstanding borrowings
under such facility over the four years following the expiration of the 364 day
period. In addition, the credit facility provides for a $230 million five year,
Lloyd's letter of credit facility, with a one year automatic renewal option. The
applicable interest rate on borrowings under the credit facility is currently
1.3% above the London Interbank Offered Rate or The Chase Manhattan Bank prime
commercial lending rate. The credit facility's representations, warranties and
covenants are typical for transactions of this type and include limitations
based upon Trenwick's leverage ratio, interest coverage ratio, combined surplus
and risk-based capital. Trenwick and the banks party to the credit facility
executed an amendment to the credit facility, dated as of December 31, 1999,
reducing the required minimum consolidated tangible net worth of Trenwick from
$325 million to $290 million until June 30, 2000.
In addition to the credit facility, Trenwick has outstanding $75 million
aggregate principal amount of 6.70% Senior Notes, which are due April 1, 2003.
Interest is payable semi-annually on April 1 and October 1 of each year;
interest payments commenced on October 1, 1998. The notes are not subject to
redemption prior to maturity. They are unsecured obligations and rank senior in
right of payment to all existing and future subordinated indebtedness of
Trenwick.
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Trenwick's long-term debt obligations also include 8.82% Junior Subordinated
Deferable Interest Debentures held by Trenwick Capital Trust I in respect of the
$110 million in 8.82% Subordinated Capital Income Securities issued by the
Trust. Under the terms of the debentures, Trenwick is not restricted from
incurring indebtedness, but is subject to limits on its ability to incur secured
indebtedness for borrowed money.
Upon consummation of the acquisition of Chartwell in 1999, Trenwick became the
successor obligor under Chartwell's Contingent Interest Notes due June 30, 2006.
The Contingent Interest Notes were issued in an aggregate principal amount of $1
million, which accrues interest at a rate of 8% per annum, compounded annually.
The interest is not payable until the maturity or earlier redemption of the
Contingent Interest Notes. In addition, the Contingent Interest Notes entitle
their holders to receive at maturity, in proportion to the principal amount of
the Contingent Interest Notes held by them, an aggregate of from $10 million up
to $55 million in contingent interest. The amount of contingent interest payable
under the Contingent Interest Notes is dependent upon the level of loss and loss
adjustment expense reserves related to business written by INSCORP prior to
1996. Settlement of the Contingent Interest Notes may be made by payment of cash
or, under certain specified conditions, by delivery of shares of Trenwick's
common stock.
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Trenwick also assumed Chartwell's 10.25% Senior Notes due 2004 upon the closing
of the acquisition. As of December 31, 1999, $40.1 million in principal amount
of the Senior Notes were outstanding. On March 1, 2000, Trenwick redeemed the
remaining outstanding Senior Notes at a redemption price of 102.56% of the par
value of the Notes.
Common Stock Transactions
In May 1997, Trenwick's Board of Directors authorized the repurchase of one
million shares of common stock. In September 1998, August 1999, November 1999
and December 1999 the Board of Directors authorized the repurchase of additional
shares, increasing the total number of shares of common stock which Trenwick
could purchase under the stock repurchase program to 4.6 million at purchase
prices not to exceed Trenwick's book value. Under the stock repurchase plan,
Trenwick repurchased 2,176,200 shares of common stock at a cost of approximately
$46.6 million in 1999 and an additional 829,300 shares of common stock at a cost
of approximately $13.7 million in January of 2000. Since May 1997 Trenwick has
purchased an aggregate of 3,276,700 shares of common stock at a cost of
approximately $81.9 million under its stock repurchase program.
Trenwick issued 65,985 shares of common stock in 1999, 82,889 shares in 1998 and
9,782 shares in 1997 pursuant to employee benefit plans.
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Restrictions on Certain Payments within Trenwick
Because Trenwick's operations are conducted through its operating subsidiaries,
Trenwick is dependent upon the ability of its operating subsidiaries to transfer
funds, principally in the form of cash dividends, tax reimbursements and other
statutorily permissible payments. In addition to general legal restrictions on
payments of dividends and other distributions to shareholders applicable to all
corporations, Trenwick's insurance subsidiaries are subject to further
regulations that, among other things, restrict the amount of dividends and other
distributions that may be paid to their parent corporations. Management believes
that current levels of cash flow from operations and assets held at the holding
company level, together with approval of one or more extraordinary dividends
from Trenwick's operating subsidiaries, will provide Trenwick with sufficient
liquidity to meet its operating needs in the short term (over the next 12
months). Since the ability of Trenwick to meet its obligations in the long term
(beyond such 12-month period) is dependent upon such factors as market changes,
insurance regulatory changes and economic conditions, no assurance can be given
that the available net cash flow will be sufficient to meet its operating needs.
Trenwick expects that, in order to repay the principal amount of certain
currently outstanding indebtedness at maturity or otherwise, it will be required
to seek additional financing or engage in asset sales or similar transactions.
There can be no assurance that sufficient funds for any of the foregoing
purposes would be available to Trenwick at such time.
Under the applicable provisions of the insurance holding company laws of the
states of domicile of most of Trenwick's U.S. insurance companies, the insurance
companies may only pay dividends without the approval of the applicable state
insurance regulator if such dividends, together with other dividends paid within
the preceding twelve months, are less than the greater of (i) 10% of the
insurer's policyholders' surplus as of the end of the prior calendar year or
(ii) the insurer's statutory net income, excluding realized capital gains, for
the prior calendar year. As a further restriction, the maximum amount of
dividends most U.S. insurers may pay is limited to its earned surplus, also
known as its unassigned funds. Any dividend in excess of the amount determined
pursuant to the foregoing formula would be characterized as an "extraordinary
dividend" requiring the prior approval of the state insurance regulator.
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Under New York law, which is applicable to two of Trenwick's insurance company
subsidiaries, INSCORP and ReCor Insurance Company Inc., the maximum ordinary
dividend payable in any twelve month period without the approval of the New York
Insurance Department is the lesser of (i) 10% of policyholders surplus as shown
on the company's last annual statement or any more recent quarterly statement or
(ii) the company's adjusted net investment income. Adjusted net investment
income is defined as net investment income for the twelve months preceding the
declaration of the dividend plus the excess, if any, of net investment income
over dividends declared or distributed during the period commencing thirty-six
months prior to the declaration or distribution of the current dividend and
ending twelve months prior thereto. In any case, New York law permits the
payment of an ordinary dividend by an insurer or reinsurer only out of earned
surplus.
In addition to the foregoing limitations, the New York Insurance Department, as
is its practice in any change of control situation, required Trenwick to commit
to preclude the acquired New York-domiciled insurers, INSCORP and ReCor, from
paying any dividends for two years after the merger with Chartwell without prior
regulatory approval. The foregoing restriction will expire on October 27, 2001.
Neither INSCORP nor ReCor paid any dividends in 1997, 1998 or 1999.
Moreover, insurance holding company laws generally provide that, notwithstanding
the receipt of any dividend from a subsidiary insurer, an insurer may make
dividend payments to its parent only to the extent it is permitted to do so
under its applicable dividend restrictions. In other words, the ability of a
subsidiary insurer to pay dividends without restriction may be impaired if its
parent insurer cannot pay dividends without restriction.
24
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The maximum dividend permitted by law may not be indicative of an insurer's
actual ability to pay dividends, which may be constrained by business and other
regulatory considerations, such as the impact of dividends on surplus, which
could affect an insurer's ratings or competitive position, the amount of
premiums that can be written and the ability to pay future dividends.
Furthermore, beyond the limits described in the preceding paragraph, insurance
regulatory authorities often have the discretion to limit the payment of
dividends by insurance companies domiciled in their jurisdictions.
In 2000, of Trenwick's U.S. insurance subsidiaries, only Dakota Specialty
Insurance Company could pay a dividend or other distribution without prior
approval of the applicable insurance regulatory authority. In 2000, Dakota
Specialty could pay a dividend of $2.8 million without prior approval. During
1999, 1998 and 1997, Trenwick America Re paid dividends of $53.4 million, $30.1
million and $8.3 million, respectively. Chartwell Reinsurance paid dividends of
$30.3 million in 1999 and $3.0 million in 1997. Chartwell Reinsurance did not
pay any dividends in 1998. None of Trenwick's other U.S. insurance subsidiaries
paid any dividends in 1999, 1998 or 1997.
Under the applicable laws of the United Kingdom, Trenwick Holdings Limited,
Chartwell Holdings Limited and their respective subsidiaries may make
shareholder distributions only from accumulated realized profits, net of
accumulated realized losses. In addition, under the UK Insurance Companies Act,
Trenwick International is not permitted to make any distribution that would
reduce its net assets below the required minimum margin of solvency which, as
determined under the U.K. Financial Service Authority's rules, is approximately
$16.7 million as of December 31, 1999. Trenwick International must also notify
the U.K. Financial Services Authority of any proposal to declare or pay a
dividend on any of its share capital. Under Lloyd's regulations, Chartwell
Managing Agents is not permitted to make any distribution that would cause its
assets to fall below any of Chartwell Managing Agents' share capital, minimum
net current asset margin or minimum net asset margin. As of December 31, 1999,
the highest of the three tests required Chartwell Managing Agents to maintain
approximately $1.1 million of capital. Reinsurance
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Trenwick's operating subsidiaries purchase reinsurance to reduce its exposure to
catastrophe claims and the frequency and severity of claims in all lines of
business. In 1999, 1998 and 1997 Trenwick America Re's reinsurance treaties
consisted principally of an excess of loss treaty for its facultative casualty
business and property catastrophe reinsurance treaties. In addition, Trenwick
America Re purchased an annual aggregate excess of loss ratio treaty for
casualty business effective January 1, 1999. Except for property catastrophe
reinsurance treaties, these coverages were not renewed effective January 1,
2000. Trenwick International and Chartwell Managing Agents, as is customary with
companies operating in the London market, buy larger amounts of reinsurance to
protect themselves. Reinsurance and retrocessional coverage is customized for
each class of business. Canterbury purchased specific reinsurance programs for
each of the programs underwritten by its insurance companies. As part of the
merger with Trenwick, Chartwell purchased, at the time of the closing of the
transaction, a reinsurance policy providing for up to $100 million in coverage
in order to indemnify Trenwick against unanticipated increases in Chartwell's
reserves for business written on or before the date the merger was completed.
The reinsurance policy applies to all of Chartwell's business, including its
operations at Lloyd's. In addition, as part of the merger, Chartwell commuted
several aggregate stop-loss reinsurance treaties.
Reinsurance agreements provide for recovery of a portion of certain claims and
claims expenses from reinsurers. Trenwick remains liable in the event that the
reinsurer is unable to meet its obligation; however, Trenwick holds partial
collateral under these agreements.
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Regulatory Matters
Trenwick and its domestic subsidiaries are subject to regulatory oversight under
the insurance statutes and regulations of the jurisdictions in which they
conduct business, including all states of the United States and the United
Kingdom. These regulations vary from jurisdiction to jurisdiction and are
generally designed to protect ceding insurance companies and policyholders by
regulating Trenwick's financial integrity and solvency in its business
transactions and operations. Many of the insurance statutes and regulations
applicable to Trenwick's subsidiaries relate to reporting and enable regulators
to closely monitor their performance. Reports typically required the inclusion
of information concerning Trenwick's capital structure, ownership, financial
condition and general business operations. Trenwick International is subject to
the regulatory authority of the United Kingdom Financial Services Authority.
Both Chartwell Managing Agents and Trenwick's dedicated Lloyd's underwriting
entities, as a Lloyd's managing general agent and Lloyd's corporate members,
respectively, are subject to regulation and supervision by the Council of
Lloyd's. Lloyd's operates under a self-regulatory regime under the Lloyd's Act
1982 and has the power to set, interpret and change the rules which govern the
operation of the Lloyd's market, subject to regulation for solvency purposes by
the Financial Services Authority. Lloyd's prescribes, in respect of its managing
agents and corporate members, certain minimum standards relating to their
management and control, solvency and various other requirements. In addition,
Lloyd's imposes restrictions against persons becoming controllers and major
shareholders of managing agents and corporate members without the consent of
Lloyd's first having been obtained. The United Kingdom government has
established the Financial Services Authority as a single regulator to supervise
securities, banking and insurance business, including Lloyd's. When the
Financial Services and Market Bill becomes law, probably in late 2000, the
Financial Services Authority will have wide authorization and intervention
powers in relation to Lloyd's. A consultation process has commenced in relation
to Lloyd's regulatory framework.
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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 each of Trenwick's United States insurance company
subsidiaries exceeded all of the RBC trigger points at December 31, 1999, 1998
and 1997.
In March 1998, the NAIC adopted the Codification of Statutory Accounting
Principles ("Codification"). The Codification, which is intended to standardize
regulatory accounting and reporting for the insurance industry, is proposed to
be January 1, 2001. The Codification provides guidance for areas where statutory
accounting has been silent and changes current statutory accounting in some
areas. However, statutory accounting principles will continue to be established
by individual state laws and permitted practices. Effective January 1, 2001,
Connecticut, New York, Minnesota and North Dakota, the states of domicile of
Trenwick's U.S. insurance subsidiaries, are adopting the Codification. It is
uncertain what effect adoption of the Codification for the preparation of the
statutory financial statements of Trenwick's U.S. insurance subsidiaries would
have on those statutory financial statements.
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Quantitative and Qualitative Disclosure About Market Risk
The following sections address the significant market risks associated with
Trenwick's business activities as of the years ended December 31, 1999 and 1998.
The 1999 risk analysis differs from that of 1998 because it includes the assets
and liabilities of the Chartwell group. The 1998 comparative data only reflects
Trenwick information. Trenwick's primary market risk exposures are: foreign
currency exchange risk, in particular the U.S. dollar to the British pound
sterling; interest rate risk on fixed and variable rate U.S. dollar and British
pound sterling denominated short and long-term instruments; and equity price
risk. With respect to the Trenwick investment portfolio, the risk management
strategy is to place its investments with high credit quality issuers and to
limit the amount of credit exposure with respect to particular ratings
categories and any one issuer. Trenwick selects investments with characteristics
such as duration, yield, currency and liquidity to reflect the underlying
characteristics of related estimated claim liabilities.
In 1999, Trenwick allocated a portion of its bond portfolio to high yield
investments. While these investments are more susceptible to credit risk, their
total market value represents less than 2% of total investments, and therefore
management believes that the exposure to credit risk is not material. Trenwick
has no derivatives and its investments do not contain terms that may result in
potential losses due to leverage.
Limited information is available with respect to the investments held by
Chartwell Managing Agents' syndicates, and therefore, risk information provided
does not include such data. Some or all of the risks described in this section
may apply to the investments held by Chartwell Managing Agents' syndicates.
29
<PAGE>
The investment portfolio and borrowings of Trenwick are summarized in the notes
to the financial statements, and Item 1, Business.
Foreign Currency Exchange Rate Risk
Foreign currency risk is the risk that Trenwick will incur economic losses due
to adverse changes in foreign currency exchange rates. This risk arises from
Trenwick's international operations, debt obligations and securities denominated
in foreign currencies and foreign equity investments. Trenwick generally
conducts its international businesses through foreign operating entities which
generally maintain assets and liabilities in local currencies, substantially
limiting exchange rate risk to net assets denominated in the foreign currency
which is the British pound sterling. At December 31, 1999 and December 31, 1998,
Trenwick's net investment in foreign subsidiaries was approximately $24.1 and
$133.9 million, respectively. Debt obligations denominated in foreign currencies
were $19.4 million and foreign equity investments were $2.9 million at December
31, 1999. Trenwick did not hold any debt obligations denominated in foreign
currencies or foreign equity investments at December 31, 1998. Trenwick's
reinsurance, international insurance and Lloyd's operations all have exposures
to movements in various currencies around the world, (particularly the British
pound sterling, the Euro and the Canadian dollar) as such businesses are
denominated in those currencies. Therefore, changes in currency exchange rates
affect Trenwick's Balance Sheet, Statement of Operations and Statement of Cash
Flows. This exposure is somewhat mitigated by the fact that premiums received
are invested in the same currency portfolios, to partially offset related unpaid
claims and claims expense liabilities denominated in the same currency.
30
<PAGE>
Management estimates that a 10% immediate unfavorable change in each of the
foreign currency exchange rates to which Trenwick is exposed as of December 31,
1999 would decrease the fair value of Trenwick's foreign denominated net assets
by approximately $9.1 million, which is comprised of $7.4 million to the British
pound sterling, $1.5 million to the Canadian dollar and an aggregate of $.2
million to all other foreign currencies. At December 31, 1998, the same 10%
shift in currency exchange rates (primarily the British pound sterling) would
result in a potential loss in fair value of $18.2 million. Trenwick has not
experienced a 10% shift in currency exposure in either 1998 or 1999.
Interest Rate Risk
Trenwick's fixed maturity investments and indebtedness are subject to interest
rate risk. Increases and decreases in prevailing interest rates generally
translate into decreases and increases in the fair value of fixed maturity
investments and the interest payable on Trenwick's outstanding variable rate
debt. Additionally, the fair value of interest rate sensitive instruments may be
affected by the creditworthiness of the issuer, a prepayment option, relative
values of alternative investments, liquidity of the investment and other general
market conditions.
The table below summarizes the estimated effects of hypothetical increases and
decreases in interest rates. It is assumed that the changes occur immediately
and uniformly to each category of instrument containing interest rate risks. The
hypothetical changes in market interest rates reflect what could be deemed best
or worst case scenarios. Significant variations in market interest rates could
produce changes in the timing of repayments due to prepayment options available.
The fair value of such instruments could be affected and therefore actual
results might differ from those reflected in the following table:
31
<PAGE>
<TABLE>
<CAPTION>
Estimated Fair Value Estimated gain (loss)
Hypothetical Change in After Hypothetical after Hypothetical
Interest Rate Change in Change in
Fair Value at (bp=basis points) Interest Rate Interest Rate
December 31, 1999
---------------------------------------------------------------------------------------------------
Assets: (1) (dollars in thousands)
- - --------------------------
<S> <C> <C> <C> <C>
U.S Treasury Securities 1,404,248 100 bp decrease 1,467,926 63,678
and Obligations of US 100 bp increase 1,343,017 (61,231)
Government Corporation 200 bp increase 1,284,971 (119,276)
and Agencies and 300 bp increase 1,226,926 (177,322)
Other fixed maturity
investments
Liabilities: (2)
- - --------------------------
Borrowings Under 344,775 100 bp decrease 356,579 11,805
Investment Agreements 100 bp increase 334,419 (10,355)
and other debt 200 bp increase 325,231 (19,544)
300 bp increase 316,994 (27,781)
----------
Aggregate 1,059,473 100 bp decrease 1,111,347 51,874
- - --------- =========
100 bp increase 1,008,598 (50,876)
200 bp increase 959,741 (99,733)
300 bp increase 909,932 (149,541)
<FN>
(1) Excludes investments held by Chartwell Managing Agents managed syndicates,
as information is not available, but includes preferred shares, which are
grouped with equities on the face of the Balance Sheet but more closely
resemble debt instruments for risk analysis purposes.
(2) Liabilities include Trust Preferred for this analysis.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Estimated Fair Value Estimated gain (loss)
Hypothetical Change in After Hypothetical after Hypothetical
Interest Rate Change in Change in
Fair Value at (bp=basis points) Interest Rate Interest Rate
December 31, 1998
---------------------------------------------------------------------------------------------------
Assets: (1) (dollars in thousands)
- - --------------------------
<S> <C> <C> <C> <C>
U.S Treasury Securities 773,144 100 bp decrease 802,195 29,051
and Obligations of US 100 bp increase 743,831 (29,313)
Government Corporation 200 bp increase 714,351 (58,793)
and Agencies and 300 bp increase 687,113 (86,031)
Other fixed maturity
investments
Liabilities:
- - --------------------------
Borrowings Under 188,900 100 bp decrease 206,394 17,494
Investment Agreements 100 bp increase 174,233 (14,667)
and other debt 200 bp increase 161,766 (27,134)
300 bp increase 151,033 (37,867)
-------
Aggregate 584,244 100 bp decrease 595,801 11,557
=======
100 bp increase 569,598 (14,646)
200 bp increase 552,585 (31,659)
300 bp increase 536,080 (48,164)
<FN>
(1) Does not include Trenwick International assets.
</FN>
</TABLE>
Trenwick has not experienced unrealized gains or losses to the extent indicated
on the table above.
32
<PAGE>
Equity Price Risk
The carrying values of investments subject to equity price risks are based on
quoted market prices or management's estimates of fair value as of the balance
sheet date. Market prices are subject to fluctuation and, consequently, the
amount realized in the subsequent sale of an investment may significantly differ
from the reported market value. Fluctuation in the market price of a security
may result from perceived changes in the underlying economic characteristics of
the investee, the relative price of alternative investments and general market
conditions. Furthermore, amounts realized in the sale of a particular security
may be affected by the relative quantity of the security being sold.
Of Trenwick's $110.6 million equity portfolio at December 31, 1999, $56.6
million of common equity investments is subject to equity risk. The total also
includes $54.0 million of preferred shares, which are included in the interest
rate risk analysis, as their characteristics more closely resemble debt
instruments. Additionally, $19.5 million of other investments generally
represent partnership interests that more closely resemble equity investments.
Trenwick's potential exposure on equity securities of $56.6 million and
partnership interests of $19.5 million is estimated in terms of an immediate 10%
drop in equity prices across all equity securities holdings from those
prevailing at December 31, 1999 which would result in a $7.6 million loss.
Trenwick's actual loss in fair value on a quarterly basis never exceeded this
amount during 1999. Trenwick's common equity portfolio of $49.2 million at
December 31, 1998, was subject to changes in value based on changes in equity
prices. Trenwick's potential exposure from those equity securities, estimated in
terms of fair value, to an immediate 10% drop in equity prices across all equity
securities holdings from those prevailing at December 31, 1998 would have been
$4.9 million. Trenwick's actual loss in fair value on a quarterly basis never
exceeded this amount during 1998.
The fair value estimates shown are based on the composition of the equity
security portfolio at year-end and these exposures will change as a result of
ongoing portfolio activities in response to management's assessment of changing
market conditions and available investment opportunities.
The above analyses do not take into account any correlation among foreign
currency exchange rates, or any correlation among various markets (i.e., the
fixed income markets and foreign exchange and equity markets). Trenwick's actual
experience may differ from the results noted above due to the correlation
assumptions utilized, or if events occur that were not included in the
methodology, such as significant liquidity or market events. The selection of
the amount of increases or decreases in currency exchange rates, interest rates
and equity values in the above analyses should not be construed as a prediction
of future market events, but rather, to illustrate the potential impact of such
an event.
33
<PAGE>
Goodwill and Other Acquired Intangible Assets
Goodwill was $153.8 million at December 31, 1999, or approximately 33.3% of
consolidated shareholders' equity. Goodwill represents the unamortized excess of
purchase price over the fair value of net assets of acquired entities. Other
intangibles represent Trenwick's acquisition of its prospective participation of
$9.5 million on syndicate 839 which entitles one of its UK subsidiaries to
increase its syndicate premium limit for the 2000 year of account to $344.0
million. The amortization of goodwill and other acquired intangible assets was
$1.4 million in 1999, or approximately 6.7% of the pretax loss. Trenwick
amortizes goodwill and other acquired intangibles on a straight-line basis over
twenty-five years and five years, respectively. The risk associated with the
carrying value of goodwill and other acquired intangible assets is whether
future operating income (before amortization of goodwill and other acquired
intangible assets) will be sufficient on an undiscounted basis to recover the
carrying value. Trenwick regularly evaluates the recoverability of goodwill and
other acquired intangible assets and believes such amounts are currently
recoverable. However, any significant change in the useful lives of goodwill or
other acquired intangible assets, as estimated by management, could have a
material adverse effect on Trenwick's results of operations and financial
condition. Accounting Standards
Accounting for Derivative Instruments and Hedging Activities - SFAS No. 133
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which becomes effective for
Trenwick on January 1, 2001. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. Trenwick will be
required to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
accounting for a change in the fair value of a derivative in earnings or other
comprehensive income will depend on the intended use of the derivative and the
resulting designation. Derivatives can be designated as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or a
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment in foreign operations, an unrecognized firm commitment, an
available-for-sale security, or a foreign currency denominated forecasted
transaction.
34
<PAGE>
The difference between a derivative's previous carrying amount and its fair
value at the date of implementation of SFAS No. 133 shall be reported as a
transition adjustment. Such adjustment shall be reported in net income or other
comprehensive income as the effect of a change in accounting principle and
presented in a manner similar to the cumulative effect of a change in accounting
principle in accordance with APB Opinion No. 20, "Accounting Changes." Trenwick
is currently reviewing the impact of the implementation of SFAS No. 133 on its
financial statements.
The Euro
On January 1, 1999, eleven of the fifteen member countries of the European Union
established a fixed conversion ratio between their local currencies and a
newly-formed currency, the "Euro". The Euro began trading on foreign currency
exchanges on January 1, 1999. Beginning in January 2002, coins and paper
currency denominated in Euros will be issued and local currencies of the eleven
countries will be withdrawn from circulation. As Trenwick conducts a
considerable amount of business in countries participating in the Euro, work was
undertaken in 1998 to ensure that the introduction of the Euro would have no
adverse effect on Trenwick's business. Consequently, Trenwick modified its
computer systems to accommodate transactions denominated in the Euro. The total
cost for implementing these changes was not material. Trenwick believes the Euro
conversion will not have a material impact on its consolidated financial
position or results from operations.
35
<PAGE>
Safe Harbor Disclosure
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Trenwick sets forth below cautionary statements
identifying important risks and uncertainties that could cause its actual
results to differ materially from those that might be projected, forecasted or
estimated in its "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, made by or on behalf of Trenwick in this annual report and in press
releases, written statements or documents filed with the Securities and Exchange
Commission, or in its communications and discussions with investors and analysts
in the normal course of business through meetings, phone calls and conference
calls. Such statements may include, but are not limited to, projections of
premium revenue, investment income, other revenue, losses, expenses, earnings
(including earnings per share), cash flows, plans for future operations, common
shareholders' equity (including book value per share), investments, financing
needs, capital plans, dividends, plans relating to products or services of
Trenwick and estimates concerning the effects of litigation or other disputes,
as well as assumptions for any of the foregoing and generally expressed with
words such as "believes," "estimates," "expects," "anticipates," "plans,"
"projects," "forecasts," "goals," "could have," "may have," and similar
expressions. Trenwick, as a matter of policy, does not make any specific
projections as to future earnings nor does it endorse any projections regarding
future performance that may be made by others.
36
<PAGE>
Forward-looking statements involve known and unknown risks and uncertainties,
which may cause Trenwick's results to differ materially from such
forward-looking statements. These risks and uncertainties include, but are not
limited to, the following:
- - - Changes in the level of competition in the domestic and international
reinsurance or primary insurance markets that affect the volume or profitability
of Trenwick's property/casualty business. These changes include, but are not
limited to, changes in the intensity of price competition, the entry of new
competitors, existing competitors exiting the market and the development of new
products by new and existing competitors;
- - - Changes in the demand for reinsurance, including changes in ceding companies'
risk retentions and changes in the demand for excess and surplus lines insurance
coverages;
- - - The ability of Trenwick to execute its strategies in its property/casualty
operations;
- - - Catastrophe losses in Trenwick's domestic and international property/casualty
businesses;
- - - Adverse development on property/casualty claims and claims expense liabilities
related to business written in prior years, including, but not limited to,
evolving case law and its effect on environmental and other latent injury
claims, changing government regulations, newly identified toxins, newly reported
claims, new theories of liability, such as possible Year 2000 computer-related
losses, or new insurance and reinsurance contract interpretations;
37
<PAGE>
- - - Changes in inflation that affect the profitability of Trenwick's current
property/casualty business or the adequacy of its property/casualty claims and
claims expense liabilities and policy benefit liabilities related to prior
years' business;
- - - Changes in Trenwick's property/casualty retrocessional arrangements;
- - - Lower than estimated retrocessional or reinsurance recoveries on unpaid
losses, including, but not limited to, losses due to a decline in the
creditworthiness of Trenwick's retrocessionaires or reinsurers;
- - - Increases in interest rates, which may cause a reduction in the market value
of Trenwick's fixed income portfolio, and its common shareholders' equity;
- - - Decreases in interest rates which may cause a reduction of income earned on
new cash flow from operations and the reinvestment of the proceeds from sales or
maturities of existing investments;
- - - Decline in the value of Trenwick's equity investments;
- - - Changes in the composition of Trenwick's investment portfolio;
- - - Credit losses on Trenwick's investment portfolio;
- - - Adverse results in litigation matters, including, but not limited to,
litigation related to environmental, asbestos and other potential mass tort
claims;
- - - The impact of mergers and acquisitions;
- - - Gains or losses related to changes in foreign currency exchange rates; and
- - - Changes in Trenwick's capital needs.
In addition to the factors outlined above that are directly related to
Trenwick's businesses, Trenwick is also subject to general business risks,
including, but not limited to, adverse state, federal or foreign legislation and
regulation, adverse publicity or news coverage, changes in general economic
factors and the loss of key employees.
The facts set forth above should be considered in connection with any
forward-looking statement contained in this Annual Report. The important factors
that could affect such forward-looking statements are subject to change, and
Trenwick does not intend to update any forward-looking statement or the
foregoing list of important factors. By this cautionary note Trenwick intends to
avail itself of the safe harbor from liability with respect of forward-looking
statements provided by Section 27A and Section 21E referred to above.
38
EXHIBIT 21.1
SUBSIDIARIES OF TRENWICK GROUP INC.
Name of Subsidiary Jurisdiction of Incorporation
Trenwick America Corporation Delaware
Trenwick America Reinsurance Corporation Connecticut
(subsidiary of Trenwick America Corporation)
Trenwick Holdings Limited United Kingdom
Trenwick International Limited United Kingdom
(subsidiary of Trenwick Holdings Limited)
Chartwell Re Holdings Corporation Delaware
Chartwell Reinsurance Company Minnesota
The Insurance Corporation of New York New York
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-31115, No. 33-68112, No. 33-83092 and No.
33-83094) of Trenwick Group Inc. of our report dated February 29, 2000, except
as to Note 19 which is as of March 1, 2000, appearing in the 1999 Annual Report
to Stockholders of Trenwick Group Inc., which is incorporated by reference in
this Annual Report on Form 10-K for the year ended December 31, 1999. We also
consent to the incorporation by reference of our report dated February 29, 2000
on the financial statement schedules, which appears on Page S-6 of this Annual
Report on Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<DEBT-HELD-FOR-SALE> 1,311,361
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 110,666
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,579,218<F7>
<CASH> 170,641
<RECOVER-REINSURE> 644,578<F1>
<DEFERRED-ACQUISITION> 78,896
<TOTAL-ASSETS> 3,240,599
<POLICY-LOSSES> 1,964,139
<UNEARNED-PREMIUMS> 379,684
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 244,031
110,000
0
<COMMON> 1,689
<OTHER-SE> 460,560
<TOTAL-LIABILITY-AND-EQUITY> 3,240,599
325,114
<INVESTMENT-INCOME> 66,394
<INVESTMENT-GAINS> 1,916
<OTHER-INCOME> 861
<BENEFITS> 254,538
<UNDERWRITING-AMORTIZATION> 96,095
<UNDERWRITING-OTHER> 37,389
<INCOME-PRETAX> (21,220)
<INCOME-TAX> (10,172)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,048)
<EPS-BASIC> (.94)<F2>
<EPS-DILUTED> (.94)
<RESERVE-OPEN> 1,257,730<F3>
<PROVISION-CURRENT> 239,910<F4>
<PROVISION-PRIOR> 14,628
<PAYMENTS-CURRENT> (65,856)
<PAYMENTS-PRIOR> (230,493)
<RESERVE-CLOSE> 1,207,436<F5>
<CUMULATIVE-DEFICIENCY> (36,715)<F6>
<FN>
1 Represents net reinsurance recoverable balances after offset of funds held
and reinsurance balance payable.
2 Represents basic earnings per share.
3 Reflects net reserve at beginning of year for unpaid claims. Also reflects
Chartwell's net reserve in the amount of $808,466 at date of acquisition.
4 Includes effect of exchange rate in the amount of $(7121).
5 Reflects net reserve at end of year for unpaid claims.
6 Reflects gross redundancy in restated reserves.
7 Total investments include ivestments held by managed syndicates of $137,745
and other investments of $19,446.
</FN>
</TABLE>
