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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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
Commission File No. 1-10760
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MUTUAL RISK MANAGEMENT LTD.
(Exact name of registrant as specified in its charter)
Bermuda Not Applicable
(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
44 Church Street
Hamilton HM 12 Bermuda
(441) 295-5688
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices).
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Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class Name of Each Exchange on Which Registered
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Common Shares, $.01 par value............. New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K.
At March 17, 2000 registrant had outstanding 41,209,500 Common Shares, the
only class of registrant's common stock outstanding, and the aggregate market
value of voting stock held by non-affiliates at such date was $620,718,093
(based on the closing price of such Common Shares of $15 1/16 on March 17,
2000, as reported on the New York Stock Exchange, Inc., composite listings).
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of registrant's Proxy Circular relating to its Annual
General Meeting of Shareholders scheduled to be held on May 16, 2000, are
incorporated by reference into Part III of this report.
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MUTUAL RISK MANAGEMENT LTD
TABLE OF CONTENTS
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Item Page
---- ----
PART I
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1. Business.......................................................... 3
2. Properties........................................................ 16
3. Legal Proceedings................................................. 16
4. Submission of Matters to Security Holders......................... 16
PART II
5. Market for Common Shares.......................................... 18
6. Selected Consolidated Financial Data.............................. 19
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 20
7A. Quantitative and Qualitative Disclosures about Market Risk........ 28
8. Financial Statements and Supplementary Data....................... 29
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................................. 29
PART III
10. Management........................................................
11. Executive Compensation............................................ 30
12. Security Ownership of Certain Beneficial Owners and Management.... 30
13. Certain Relationships and Related Transactions.................... 30
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8K.... 31
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PART I
ITEM 1. BUSINESS
The Company
Mutual Risk Management Ltd., also known as MRM, is a Bermuda company
incorporated in 1977. Our principal business is the provision of risk
management services to clients seeking an alternative to traditional
commercial insurance for certain of their risk exposures. Risk management
involves a process of analyzing loss exposures and developing risk financing
methods to reduce exposure to loss and to control associated costs. The use of
such loss financing methods in place of traditional insurance has become known
as the alternative market and involves clients participating in a significant
amount of their loss exposure and transferring only the unpredictable excess
risk to insurers. The benefits of such alternative market techniques typically
include lower and more stable costs, greater control over the client's risk
management program and an increase in the emphasis within the client's
organization on loss prevention and loss control.
Our insurance business can be divided into three segments:
Program The fastest growing of our business segments, Program
Business: Business involves us replacing traditional insurers as
the conduit between producers of specialty books of
business and reinsurers wishing to write that business.
We provide a wide range of services for a fee and the
underwriting profit is shared between the producer and
the reinsurers.
Corporate Risk Our original business segment, Corporate Risk Management
Management: involves providing services to businesses and
associations seeking to insure a portion of their risk in
a loss sensitive alternative market structure.
Specialty This business segment provides access to alternative risk
Brokerage: transfer insurers and reinsurers in Bermuda and Europe.
The two components of this segment are MRM Hancock
Limited, which provides access to London and European
reinsurers, and H&H Park International Limited, which
brokers to the Bermuda market.
In addition to its insurance industry services, in 1996, we entered the
financial services business through its acquisition of The Hemisphere Group
Limited. Hemisphere, which is based in Bermuda, provides administrative and
other services to offshore mutual funds and other companies. Financial
Services is our fourth business segment.
Insurance Services
Our principal source of profits is fees received for the various insurance
and other services provided to clients in connection with our programs. The
structure of our programs places most of the underwriting risk with our
clients or reinsurers. For regulatory and other reasons, however, we are
required to assume a limited amount of risk. We seek to limit this risk to the
minimum level feasible. This approach to risk distinguishes us from typical
property/casualty companies, which assume significant levels of underwriting
risk as part of their business. We do not seek to earn income from
underwriting risk but rather from fees for services provided. We market our
services exclusively to retail insurance brokers and consultants representing
clients. The services offered to clients in connection with our products
typically include the following:
[_]design and implementation of a risk financing program;
[_]issuance of an insurance policy by one of our wholly-owned, licensed
insurance companies, Legion Insurance Company, Legion Indemnity Ltd.,
also referred to as Legion Indemnity, and Villanova Insurance Company,
also referred to as Villanova . These companies are collectively
referred to as the Legion Companies. In December 1997, A.M. Best Company
extended the Legion Insurance group rating of "A ," excellent, to
include Villanova;
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[_]use of our Insurance Profit Center Program, also known as the IPC
Program, as the vehicle within which to fund a chosen portion of the
client's risk or, alternatively, the management by us of the client's
captive insurance company.
[_]brokering to unaffiliated reinsurers the excess risk which the client
chooses not to fund and, in some cases, arranging for insurers, other
than Legion Insurance, to issue the original insurance policy; and
[_]coordinating the purchase, on behalf of the client, of loss prevention,
loss control and claims administration services from unaffiliated
providers.
Our major product is the IPC Program. This program allows the client to
retain a significant portion of its own loss exposure without the
administrative costs and capital commitment necessary to establish and operate
its own captive insurance company. The actual amount of underwriting profit
and investment income produced by the client's IPC Program is returned to the
client creating a direct incentive for it to engage in loss prevention and
loss control in order to reduce the overall cost of financing its loss
exposures.
In recent years, the fastest growing segment of our insurance business is
its Program Business, in which third-parties other than the insured, typically
the broker and reinsurers, finance a portion of the insured's risk and
participate in any underwriting profit or loss. For a discussion of our
Corporate Risk Management and Program Business segments, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Lines of Business
Our programs can be utilized by clients for many lines of insurance. In
1999, approximately 53% of our fee income was derived from workers'
compensation insurance. During the 1980's and through 1993, workers'
compensation presented many employers with substantial problems due to cost
increases and the limited availability of commercial coverage in certain
states. Workers' compensation costs accelerated rapidly because of: (i) the
general level of medical cost inflation, as medical costs generally amount to
40% or more of all workers' compensation costs; (ii) an increase in the number
of workers' compensation claims which resulted in litigation; (iii) a
broadening of injuries which are considered to be work-related; and (iv) an
increase in state mandated benefit levels. Since 1993, workers' compensation
reforms have been occurring in a number of states, most notably in California,
which have addressed many of these issues in the last five years. A number of
markets have seen a significant decline in premium rates due to new capacity,
entering the market subsequent to these reforms. These lower premium rates
have reduced the fees we earn on our programs as fees are based on premiums.
Notwithstanding the changes in the market, workers' compensation continues to
be suitable for the alternative market because many states set rates or
enforce minimum rate laws which prohibit the commercial insurance market from
offering premium discounts to insureds with favorable loss experience. This
causes these clients to seek an alternative method of funding their workers'
compensation exposure, which rewards their status as a preferred risk. In
addition, workers' compensation involves relatively frequent, predictable
levels of loss, which are the type favored by clients for alternative market
insurance programs.
In addition to workers' compensation, our programs have been utilized for
other casualty insurance lines such as medical malpractice, general liability,
commercial auto liability and auto physical damage.
At December 31, 1999, we had a total of 1,143 employees.
Marketing--Commonwealth Risk Services, L.P.
Our wholly owned subsidiary, Commonwealth Risk Services, L.P., also referred
to as CRS, markets our services in the United States, Canada and Europe to
insurance brokers and consultants representing clients. CRS also designs risk
financing programs for potential clients in conjunction with their insurance
brokers and consultants. Through offices in Philadelphia, California and
London, CRS markets these services using direct mail, advertising, seminars
and trade and industry conventions.
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CRS seeks to become actively involved with the insurance broker in the
presentation of our services to potential clients and maintains a direct
relationship with the client after the sale. CRS assists brokers in the design
and implementation of risk financing programs, although the extent of this
involvement depends on the size, experience and resources of the particular
broker. Members of the CRS staff frequently provide supporting promotional
materials and assist in the preparation of financial analyses comparing the
net present value, after-tax cost of an IPC Program with alternative
approaches. Representatives of CRS seek to be present at meetings with
potential clients to explain how the IPC Program works, including how
reinsurance is handled, how funds are invested and how underwriting profits
and investment income are returned.
The Insurance Profit Center Program and Program Business
In 1980, we developed a program which provides clients with a facility for
managing their insurance exposures. This type of structure is frequently
referred to as a "rent-a-captive," although the facility has many significant
differences from a captive insurance company. The facility was designed to
provide certain of the benefits available through captive insurance companies
without the administrative cost and capital commitment necessary to establish
and operate a captive insurance company. Since the IPC Program involves a
retention of risk by the client, it encourages the implementation of risk
management and risk reduction programs to lower the losses incurred.
The IPC Program is appropriate for corporations and associations which
generate $.75 million or more in annual premiums. Typically, clients which use
an IPC Program are profitable and have adequate working capital but generate
insufficient premium to consider, or are otherwise unsuitable for, a wholly-
owned captive. During 1999, the Company increased the number of agency IPC
Programs in which an insurance agent or broker, rather than the insured,
becomes the preferred shareholder and participates in the profit or loss on
the program. These types of programs are referred to as "Program Business" and
are discussed below,
Return on the IPC program is a function of the loss experience of the
insured. The principal benefits of the IPC Program to the client are:
[_]a reduction of the net present value, after-tax cost of financing the
client's risks;
[_]a lower commitment of funds than would be necessary to capitalize and
maintain a captive insurance company;
[_]access to commercial reinsurance markets for the client's excess risk;
and
[_]program structure that is customized, flexible and relatively easily
implemented.
We operate the IPC Program from offices in Bermuda. The Bermuda office is
involved in designing, negotiating and administering IPC Programs and reviews
each prospective client, negotiates the shareholder's agreement with the
client and the reinsurance agreement with Legion Insurance or another policy-
issuing company. One of the Company's foreign insurance companies, also
referred to as the IPC Companies, receives and invests premiums, administers
policy claims, establishes reserves, provides quarterly financial reports to
clients and, ultimately, returns the underwriting profit and investment income
to the client as preferred share dividends.
The funds of each IPC Program are invested by our subsidiary, Mutual Finance
Ltd. The funds are invested using the services of professional investment
advisors.
Neither Legion Insurance nor the IPC Companies underwrite risk in the
traditional sense. Rather, their function is to ensure that substantially all
of the underwriting risk of the client is either retained by the client in the
IPC Program or its captive insurance company, as the case may be, or
transferred to unaffiliated reinsurers. In the event that the IPC Company
sustains an underwriting loss on a program which exceeds that program's
investment income, the IPC Company recovers this loss from the client. Since
the client has generally
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collateralized the IPC Company for at least the difference between the funds
available in that client's IPC Program and the level of currently expected
losses by cash or a letter of credit, the IPC Company should not be affected
by the bankruptcy of a client. In the event, however, that the IPC Company is
unable to recover the full amount of its loss from the cash collateral or the
letter of credit, the IPC Company would seek to recover from the client
pursuant to the indemnity provisions of the shareholder's agreement. As of
December 31, 1999, we maintained a provision of $10.0 million against losses
which may occur on programs where we may be forced to rely solely on the
clients indemnity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
In addition to programs for corporate clients, we also offer an association
IPC Program, which allows smaller insureds to collectively take advantage of
the financial benefits available to larger corporate insureds individually.
The Legion Companies
Legion Insurance is domiciled in Pennsylvania and is admitted to write
primary insurance, often called being admitted or writing insurance on an
admitted basis, in all 50 states of the United States, the District of
Columbia and Puerto Rico. Legion Indemnity is domiciled in Illinois, is an
admitted insurer in Illinois and is an authorized surplus lines insurer in 42
states, the District of Columbia, Guam and the Virgin Islands. An authorized
surplus lines insurer writes specialty property and liability coverage when
the specific specialty coverage is unavailable from admitted insurers.
Villanova is domiciled in Pennsylvania and is admitted to write primary
insurance in 43 states.
In our Corporate Risk Management business segment, one of the Legion
Companies issues an insurance policy to the client, which either fulfills a
legal requirement that the client have a policy from a licensed insurer or
satisfies a business need the client may have for an admitted policy. The
client and the Legion Company determine the level of exposure the client
wishes to retain and the Legion Company transfers the specific excess risk and
the aggregate excess risk beyond that retention to unaffiliated reinsurers.
The Legion Company then reinsures the client's chosen retention to one of the
IPC Companies or to the client's captive insurance company. In certain cases
the Legion Company may issue a large deductible type policy through which the
client pays claims up to its chosen retention directly. Payments within the
deductible are covered by a deductible reimbursement policy issued by one of
the IPC Companies. In either type of policy, the Legion Company retains only a
relatively small portion of the risk on each program for its own account.
In Program Business, the Legion Company replaces traditional insurers as the
conduit between producers of specialty books of business and reinsurers
wishing to write that business. In this line of business, the reinsurer
replaces the insured as the risk-bearing entity. As with the Corporate Risk
Management line of business, the Legion Company negotiates the reinsurance and
performs certain administrative services in connection with the program.
Program Business differs from the Corporate Risk Management line of business
in that policy underwriting, issuance and premium collection are usually
provided by the general agent, rather than the Legion Company. The Legion
Company analyzes each program prior to inception, arranges for quota share or
specific and aggregate excess reinsurance coverage through its reinsurance
treaties, collects the premium from the client, prepares accounting cessions
for the reinsurers, audits the final premium, supervises the independent
claims adjuster, collects claim reimbursements from reinsurers and performs
certain other related services for each account.
For the Corporate Risk Management business, the Legion Companies have
established a reinsurance treaty with an unaffiliated reinsurer to transfer
the specific and aggregate excess risk above the client's retention. The
client's retention is negotiated separately for each program and reflects the
amount of risk the client wishes to retain for its program on both a specific
and aggregate basis. For the Program Business, each Legion Company purchases a
separate reinsurance treaty, both on a quota share and a specific and
aggregate excess of loss basis.
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The Legion Companies currently place substantially all reinsurance with
unaffiliated commercial reinsurers whose ratings from A.M. Best Company are A-
or higher. At December 31, 1999, the largest reinsurance recoverables from
unaffiliated commercial reinsurers were $172.6 million from Transatlantic
Reinsurance Company, a participant on several layers of specific and aggregate
reinsurance with respect to various of our Program and Corporate Risk
Management business and substantially all of our American Psychiatric
Association program, $161.3 million from First Excess and Reinsurance Corp.
and $145.4 million from American Re-insurance Company, which are both
reinsurers on several current treaties. Transatlantic is rated "A++," First
Excess, now GE Reinsurance Corporation and part of the Employers Re US Group,
is rated "A++" and American Re-insurance is rated "A++" by A.M. Best Company.
Through its reinsurance arrangements, each Legion Company places significant
amounts of reinsurance with a variety of unaffiliated reinsurance companies.
In order to maintain an acceptable level of net written premium for regulatory
purposes, each Legion Company seeks to develop a level of net written premium
which will not involve a significant degree of underwriting risk. In most
Legion programs, the Legion Company retains liability for a specified amount
of losses equal to at least 10% of the gross written premium. The level of
losses retained by the Legion Company are set at a level such that no
significant underwriting profit or loss should occur.
In order to take regulatory credit for reinsurance ceded to one of the IPC
Companies or to a captive insurance company, the Legion Company must receive a
letter of credit for the amount of the insurance reserves ceded since the
companies to which the reinsurance is ceded are not licensed reinsurers in any
state of the United States. The letter of credit must be issued or confirmed
by a bank which is a member of the U.S. Federal Reserve System. At December
31, 1999, the Legion Companies had $371 million of such letters of credit, of
which $257 million was supplied by the IPC Companies. Legion Insurance, Legion
Indemnity and Villanova are also subject to other regulation by the insurance
departments of Pennsylvania, Illinois and other states where they are
licensed. See "Regulatory Considerations."
As of December 31, 1999, the Legion Companies had 355 accounts, they wrote
gross statutory premiums of $1.2 billion during 1999 and had statutory capital
of $349.9 million. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations."
Specialty Brokerage
In 1991, we acquired a 51% interest in a newly-formed London reinsurance
brokerage firm, MRM Hancock Limited. MRM Hancock specializes in the placement
of reinsurance for captive insurance companies in the London market, including
Lloyds of London. In 1996, we acquired the remaining 49% of MRM Hancock from
the management of MRM Hancock and General International Ltd., a Bermuda
insurance subsidiary of General Motors Corporation. MRM Hancock is now a
wholly owned subsidiary. In July 1992, we acquired 100% of Park International
Limited, a Bermuda broker specializing in placing coverage with Bermuda-based
excess liability and corporate officers' and directors' liability carriers. In
1998, we acquired H&H Reinsurance Brokers, Ltd., a Bermuda-based specialty
reinsurance broker that was part of the IAS Group. During 1999, all of our
brokerage business was combined into one unit to better coordinate the
specialty brokerage activities and to improve customer service.
Segment information relating to our Specialty Brokerage operations is
contained in footnote 16 of the Notes to the Consolidated Financial Statements
set forth herein.
Financial Services
In July 1996, we acquired The Hemisphere Group Limited, a Bermuda financial
services company. Hemisphere, which has been in business since 1980, has three
active subsidiary operations in Bermuda providing company management,
corporate secretarial, fund administration and trust management services. It
also has a
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wholly-owned Cayman Islands subsidiary. With a total staff of 158, Hemisphere
had approximately 279 mutual fund clients as of December 31, 1999. In
addition, Hemisphere administers investment holding companies, trading
companies and trusts. Hemisphere has formed a network of professional
relationships in the major financial centers of the world and this network is
the source for significant ongoing referrals of business. During 1997,
Hemisphere expanded its trust operations by the acquisition of Hugo Trust
Company based in Jersey in the Channel Islands. Hemisphere Trust (Jersey)
Limited, which is comprised of Hugo Trust Company and Augres Trust Company,
provides a base to develop European based trust business and had revenues of
$2.8 million in 1999.
In January 1997, we incorporated MRM Life Ltd. in Bermuda to provide life
insurance and related products, including annuities and variable annuities. We
began marketing these products in the fourth quarter of 1997.
In 1998, Hemisphere expanded its operations to Dublin, Ireland and Boston,
Massachusetts in order to service the European offshore and US hedge fund
industries, respectively.
Competition
Our insurance services compete with self-insurance plans, captive insurance
companies managed by others and a variety of risk financing insurance
policies. We believe that the IPC Program is the largest independent
alternative market facility that is not affiliated with either a major retail
insurance broker or a major insurance company. We face significant competition
in marketing the IPC Program from other risk management programs offered by
U.S. insurance companies, from captive insurance companies for large insureds
and from rent-a-captives organized by large insurance companies and brokers.
The primary basis for competition among these alternative risk management
vehicles varies with the financial and insurance needs and resources of each
potential insurance buyer. The principal factors that are considered include
an analysis of the net present-value, after-tax cost of financing the client's
expected level of losses, the amount of premium and collateral required, the
attachment point of excess coverage provided in the event losses exceed
expected levels as well as cash flow and tax planning considerations and the
expected quality and consistency of the services to be provided. We believe
that for insureds with financial characteristics and loss experience lending
themselves to an IPC Program, the IPC Companies compete effectively with other
risk financing alternatives.
In the present soft insurance market characterized by excess capital and
competitive pricing, it is generally easier for us to structure programs
because of the availability and pricing of reinsurance but more difficult to
attract potential participants and sell programs because of competition. In a
hard market, such as that experienced during 1985-1987, it is more difficult
to structure programs due to the high price and unavailability of reinsurance
but we experience less competition in attracting clients and selling programs.
Regulatory Considerations
The Bermuda-based IPC Companies, Mutual Indemnity Ltd., Mutual Indemnity
(Bermuda) Ltd. and Mutual Indemnity (US) Ltd., are subject to regulation under
the Bermuda Companies Act of 1981 and as insurers under the Bermuda Insurance
Act of 1978, as amended by the Insurance Amendment Act 1995, and the
regulations promulgated thereunder. They are required, among other things, to
meet and maintain certain standards of solvency, to file periodic reports in
accordance with Bermuda statutory accounting rules, to produce annual audited
financial statements and to maintain a minimum level of statutory capital and
surplus. In general, the regulation of insurers in Bermuda relies heavily upon
the auditors, directors and managers of the Bermuda insurer, each of which
must certify that the insurer meets the solvency and capital requirements of
the Bermuda Insurance Act of 1978. Mutual Indemnity (Barbados) Ltd. and Mutual
Indemnity (Dublin) Ltd. are subject to similar regulation in Barbados and
Ireland, respectively.
The Legion Companies are subject to regulation and supervision by the
insurance regulatory authorities of the various states of the United States in
which they conduct business. This regulation is intended primarily for
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the benefit of policyholders. Legion Insurance is admitted in 50 states, the
District of Columbia and Puerto Rico, and is subject to regulation in each
jurisdiction. Legion Indemnity is admitted in Illinois and is authorized as a
surplus lines insurer in 42 states, the District of Columbia, Guam and the
Virgin Islands. Legion Indemnity is regulated in Illinois but is generally not
subject to regulation in those states where it acts as a surplus lines
insurer. Villanova is admitted in 43 states and is subject to regulation in
each jurisdiction. State insurance departments have broad regulatory,
supervisory and administrative powers. These powers relate primarily to the
standards of solvency which must be met and maintained, the licensing of
insurers and their agents, the approval of rates and forms and policies used,
the nature of, and limitations on, insurers investments, the form and content
of periodic and other reports required to be filed, and the establishment of
reserves required to be maintained for unearned premiums, losses and loss
expenses or other purposes.
The Legion Companies are also subject to state laws regulating insurance
holding companies. Under these laws, state insurance departments may examine
the Legion Companies at any time, require disclosure of material transactions
by the holding company and require prior approval of certain "extraordinary"
transactions, such as dividends from the insurance subsidiary to the holding
company and purchases of certain amounts of the insurance subsidiary's capital
stock. These laws also generally require approval of changes of control, which
are usually triggered by the direct or indirect acquisition of 10% or more of
the insurer.
Most states require all admitted insurance companies to participate in their
respective guaranty funds, which cover certain claims against insolvent
insurers. Solvent insurers licensed in these states are required to cover the
losses paid on behalf of insolvent insurers by the guaranty funds and are
generally subject to annual assessments in the state by its guaranty fund to
cover these losses. Some states also require licensed insurance companies to
participate in assigned risk plans which provide coverage for workers'
compensation, automobile insurance and other lines for insureds which, for
various reasons, cannot otherwise obtain insurance in the open market. This
participation may take the form of reinsuring a portion of a pool of policies
or the direct issuance of policies to insureds. Generally, the Legion
Companies participates as a pool reinsurer or assigns to other companies the
direct policy issuance obligations. The calculation of an insurer's
participation in these plans is usually based on the amount of premium for
that type of coverage that was written by the insurer on a voluntary basis in
a prior year. Assigned risk pools tend to produce losses which result in
assessments to insurers writing the same lines on a voluntary basis. The
Legion Companies also pay a fee to carriers assuming their direct policy
issuance obligations. For each program a Legion Company writes, it estimates
the amount of assigned risk and guaranty fund assessments that it will incur
as a result of having written that program. If that estimate proves to be
inadequate, the Legion Company is entitled under its reinsurance agreements
with the IPC Companies to recover from the reinsurer the amount of any
assessments in excess of the estimate. The IPC Companies are then entitled
under the terms of each shareholder's agreement to recover this excess from
the client. However, the IPC Companies are generally only able to
collateralize this obligation up to the amount of the estimated assessments.
The National Association of Insurance Commissioners, ("NAIC") has
established the Insurance Regulatory Information System, ("IRIS") to assist
state insurance departments in their regulation and oversight of insurance
companies domiciled or operating in their respective states. IRIS has
established a set of twelve financial ratios with specified "unusual values"
for each ratio. Companies reporting four or more unusual values on the IRIS
ratios may expect inquiries from individual state insurance departments
concerning specific aspects of the insurer's financial position. As of
December 31, 1999, Legion Insurance Company, Villanova Insurance Company and
Legion Indemnity Company, had six, four and three unusual values,
respectively. Four of the Legion Insurance Company's ratios,: Change in Net
Writings, Surplus Aid to Surplus, Agent's Balance to Surplus and Estimated
Current Reserve Deficiency to Surplus are directly related to premium growth.
Change in Surplus was unusual due to the $143.0 million of additional capital
contributed during 1999. The final ratio, Liabilities to Liquid Assets, was
unusual on account of receiving $35 million in premium prior to receiving
policy level detail to record the written premium. This inflates the ratio as
it represents funds awaiting application to actual policies.
Villanova had two unusual values related to premium growth, Change in Net
Writings and Estimated Current Reserve Deficiency to Surplus. It also has an
unusual value for a low investment yield. The low value for investment yield
is the result of actual investments made late in the year while the ratio is
calculated assuming
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investments were made evenly throughout the year. The last unusual value for
Villanova was a decrease in surplus. This was the result of the dividends to
its parent and the sharing of receivables write-offs under the Company's
pooling arrangement.
Legion Indemnity had three unusual values, all premium growth related. They
were Change in Net Writings, Surplus Aid to Surplus and Agent's Balance to
Surplus.
The NAIC has also adopted a Risk Based Capital for Insurers Model Act. The
Risk Based Capital Model Act sets forth a risk based capital formula for
property and casualty insurers. The formula measures minimum capital and
surplus needs based on the risk characteristics of a company's products and
investment portfolio. The formula is part of each company's annual financial
statement filings and is to be used as a tool to identify weakly capitalized
companies. In those states having enacted the Risk Based Capital Model Act,
companies having capital and surplus greater than the minimum required by the
formula but less than a specified multiple of the minimum may be subject to
additional regulatory scrutiny from domiciliary state insurance departments. To
date, nearly all states have adopted the Risk Based Capital Model Act. At
December 31, 1999, the Legion Companies combined risk-based capital was $347.4
million. Under the risk-based capital tests, the threshold that constitutes the
authorized control level which authorizes the commissioner to take whatever
regulatory action considered necessary to protect the best interest of the
policyholders and creditors of the Legion Companies, was $121 million.
Therefore, the Legion Companies capital exceeds all requirements of the Risk
Based Capital Model Act.
In reaction to increasing rates for and decreasing availability of workers'
compensation insurance starting in the early 1990's, many states began to enact
reforms designed to reduce the cost of workers' compensation insurance,
principally through a reduction in benefits or an increase in efficiencies in
the system. In California, a reform package was enacted in 1993 providing for,
in part, a reduction of premium rates, an increase in the standard necessary to
prove "stress-related" work injuries, group-self insurance for employers and
the repeal of the minimum rate law effective January 1, 1995. In Florida, the
assigned risk plan was abolished and replaced by a joint underwriting
authority. Other states have enacted or are considering similar reforms.
Workers' compensation reform, together with the effects of competition and
other factors, has led to reduced premiums in many states. This has reduced the
appeal of alternative market products such as those offered by us. This is
apparent in California where workers' compensation rates have declined by more
than 50% since mid-1993 while benefit levels have increased. This will
inevitably lead to significant losses for those traditional carriers who are
writing this business. A number of these carriers have recently filed for
significant rate increases.
The Legion Companies are permitted to pay dividends only from statutory
earned surplus. Subject to this limitation, the maximum amount of dividends
that it is able to pay in any twelve-month period will be the greater of
statutory net income in the preceding year or 10% of statutory surplus. Based
on 1999 results, the maximum dividend the Legion Companies would be permitted
to pay in 2000 is $35.0 million.
Losses and Loss Reserves
We establish reserves for losses and loss adjustment expenses related to
claims which have been reported on the basis of the evaluations of independent
claims adjusters under the supervision of each Legion Company's claims staff.
In addition, reserves are established for losses which have occurred but have
not yet been reported and for adverse development of reserves on reported
losses by us on a quarterly basis. The estimate of claims arising for accidents
which have not yet been reported is based upon our's and the insurance
industry's experiences together with statistical information with respect to
the probable number and nature of these claims.
Gross loss reserves of $136.0 million and $121.0 million at December 31, 1999
and 1998 have been discounted by $39.5 million and $36.2 million, respectively,
assuming interest rates of 6% for medical malpractice reserves and 4% for
excess workers' compensation reserves based on the recommended rate under
Pennsylvania law. These reserves are also discounted in our regulatory filings.
In 1993, we adopted SFAS 113 and reclassified substantially all of our net
retained medical malpractice reserves as claims deposit liabilities. On
10
<PAGE>
a net basis, therefore, the only discounted reserves are those relating to the
Company's share of the excess reinsurance coverage provided in connection with
each program. This discounting reduced net loss reserves on our consolidated
balance sheets by $3.8 million and $4.7 million at December 31, 1999 and 1998,
respectively.
Prior to 1995 loss development has been generally favorable. The adverse
development in recent years has principally been a result of losses on
terminated programs.
The following table sets forth a reconciliation of beginning and ending
reserves for losses and loss adjustment expenses in accordance with generally
accepted accounting principles, also referred to as GAAP:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- --------
(In thousands)
<S> <C> <C> <C>
Gross reserves for losses and loss
adjustment expenses,
beginning of year.......................... $1,190,426 $ 716,461 $419,737
Recoverable from reinsurers................. 1,079,562 630,697 350,318
---------- ---------- --------
Net reserves for losses and loss adjustment
expenses,
beginning of year.......................... 110,864 85,764 69,419
Less: Other net reserves(1)................. (10,184) (3,542) (1,008)
---------- ---------- --------
100,680 82,222 68,411
Provision for losses and loss adjustment
expenses for claims occurring in:
Current year.............................. 140,574 74,476 50,301
Prior years............................... 7,131 3,782 (444)
---------- ---------- --------
Total losses and loss adjustment expenses
incurred................................... 147,705 78,258 49,857
---------- ---------- --------
Payments for losses and loss adjustment
expenses for claims occurring in:
Current year.............................. (61,697) (15,039) (10,850)
Prior years............................... (64,562) (44,761) (25,196)
---------- ---------- --------
Total payments.............................. (126,259) (59,800) (36,046)
---------- ---------- --------
Net reserves for losses and loss adjustment
expenses, end of year...................... 122,126 100,680 82,222
Other net reserves(1)....................... 8,058 10,184 3,542
---------- ---------- --------
130,184 110,863 85,764
---------- ---------- --------
Recoverable from reinsurers................. 1,729,936 1,079,563 630,697
---------- ---------- --------
Gross reserves for losses and loss
adjustment expenses,
end of year................................ $1,860,120 $1,190,426 $716,461
========== ========== ========
</TABLE>
- --------
(1) Other reserves represent reinsurance contracts which are being run-off and
which were written in subsidiaries other than Legion, plus reserves for
other run-off business.
11
<PAGE>
The following table reconciles the difference between the Legion Companies'
portion of the GAAP reserves and those contained in regulatory filings made by
the Legion Companies' in accordance with statutory accounting practices, also
referred to as SAP.
Reconciliation of SAP and GAAP Reserves
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- --------
(in thousands)
<S> <C> <C> <C>
Reserves for Legion losses and loss
adjustment expenses,
end of year SAP............................. $ 141,709 $ 109,506 $114,211
Gross-up for ceded reinsurance reserves...... 1,728,988 1,077,349 629,227
Provision for reinsurance uncollectible on a
GAAP basis reported as a provision for
unauthorized reinsurance on a SAP basis..... -- 302 924
Reclassification of loss reserves to claims
deposit liabilities......................... (13,853) (19,163) (29,011)
Reclassification of retroactive reinsurance
reserve to receivable from affiliate........ 2,777 8,598 --
Elimination of statutory increase in assigned
risk reserves............................... (15,000) (15,000) (15,000)
Reserves for audit premium estimates not
included on SAP basis....................... 4,260 2,745 730
---------- ---------- --------
Reserves for Legion losses and loss
adjustment expenses......................... 1,840,361 1,164,337 701,081
Other non-US Reserves........................ 11,567 13,813 10,489
---------- ---------- --------
Liabilities for unpaid losses and loss
adjustment expenses......................... 1,851,928 1,178,150 711,570
Reserves on run-off business................. 8,192 12,276 4,891
---------- ---------- --------
Total Reserves for Losses and Loss adjustment
expenses,
end of year GAAP............................ $1,860,120 $1,190,426 $716,461
========== ========== ========
</TABLE>
The following table presents the development of the Company's ongoing net
reserves for 1989 through 1999. The top line of the table shows the estimated
reserve for unpaid losses and loss adjustment expenses recorded at the balance
sheet date for each of the indicated years. This amount represents the
estimated amount of losses and loss adjustment expenses for claims that are
unpaid at the balance sheet date, including losses that have been incurred but
not yet reported to the Company. The table also shows the re-estimated amount
of the previously recorded reserve based on experience as of the end of each
succeeding year. The estimate changes as more information becomes known about
the frequency and severity of claims for individual years. The "cumulative
redundancy (deficiency)" represents the aggregate change in the estimates over
all prior years. It should be noted that the following table presents a "run-
off" of balance sheet reserves, rather than accident or policy year loss
development. Therefore, each amount in the table includes the effects of
changes in reserves for all prior years.
12
<PAGE>
ANALYSIS OF LOSS AND LOSS EXPENSE DEVELOPMENT
(Net of Reinsurance Recoverable)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
------- ------- -------- -------- -------- -------- -------- -------- --------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross reserve
for losses and
loss adjustment
expenses (1) $43,339 $88,437 $142,605 $191,775 $205,272 $242,189 $315,689 $419,737 $ 716,461 $1,190,426 $1,860,120
Reinsurance
reserves (22,221) (52,321) (89,295) (113,075) (148,637) (178,002) (256,678) (350,318) (630,697) (1,079,562) (1,729,936)
------- ------- -------- -------- -------- -------- -------- -------- --------- ---------- ----------
Net reserve for
losses and loss
adjustment
expenses 21,118 36,116 53,310 78,700 56,635 64,187 59,011 69,419 85,764 110,864 130,184
Other reserves
(3) (2,540) (1,357) (1,464) (1,531) (1,118) (1,006) (1,008) (1,008) (3,542) (10,184) (8,058)
------- ------- -------- -------- -------- -------- -------- -------- --------- ---------- ----------
18,578 34,759 51,846 77,169 55,517 63,181 58,003 68,411 82,222 100,680 122,126
Reclassification
of reserves to
claim deposit
liabilities (2) (12,560) (20,796) (28,322) (36,078) -- -- -- -- -- -- --
------- ------- -------- -------- -------- -------- -------- -------- --------- ---------- ----------
Reserve for
losses and loss
adjustment
expenses
restated for
the effects of
SFAS 113 : 6,018 13,963 23,524 41,091 55,517 63,181 58,003 68,411 82,222 100,680 122,126
Reserve re-
estimated as of
:
One year later 20,220 35,453 53,193 40,443 55,131 60,917 54,982 67,966 86,002 107,811
Two years later 20,476 34,953 24,269 41,433 52,381 56,767 54,328 70,502 91,809
Three years
later 20,434 13,131 23,298 39,351 47,657 56,291 56,576 74,294
Four years later 6,328 12,132 22,010 36,330 47,740 57,760 59,198
Five years later 6,397 12,268 20,390 36,424 48,162 60,762
Six years later 5,993 10,649 20,500 36,652 51,532
Seven years
later 4,737 10,700 20,689 37,515
Eight years
later 4,768 10,750 23,472
Nine years later 4,672 10,757
Ten years later 4,522
Cumulative
Redundancy
(Deficiency) 1,496 3,206 52 3,576 3,985 2,419 (1,195) (5,883) (9,587) (7,131)
Percentage 25% 23% 0% 9% 7% 4% -2% -9% -12% -7%
Reserve for Losses
and Loss Adjustment
Expenses without
the effect of
Discounting :
Discounted
reserve $18,578 $34,759 $ 51,846 $ 77,169 $ 55,517 $ 63,181 $ 58,003 $ 68,411 $ 82,222 $ 100,680 $ 122,126
Total Discount 4,144 6,091 8,345 10,785 1,387 2,905 3,291 3,547 3,671 4,667 3,745
------- ------- -------- -------- -------- -------- -------- -------- --------- ---------- ----------
Ultimate Reserve
Liability 22,722 40,850 60,191 87,954 56,904 66,086 61,294 71,958 85,893 105,347 125,871
Reclassification
of reserves to
claim deposit
liabilities (2) (16,704) (26,889) (36,667) (46,862) -- -- -- -- -- -- --
------- ------- -------- -------- -------- -------- -------- -------- --------- ---------- ----------
Ultimate reserve
liability
restated for
the effects of
SFAS 113 6,018 13,961 23,524 41,092 56,904 66,086 61,294 71,958 85,893 105,347 125,871
Reserve re-
estimated as of
:
One year later 23,493 41,084 60,820 40,443 56,272 63,480 57,866 71,008 89,347 111,972
Two years later 23,760 39,668 24,269 41,433 53,410 59,186 57,097 73,790 95,584
Three years
later 23,025 13,131 23,298 39,351 48,499 58,558 59,456 77,490
Four years later 6,328 12,132 22,010 36,330 48,400 60,096 61,943
Five years later 6,397 12,268 20,390 36,424 48,854 62,919
Six years later 5,993 10,649 20,500 36,652 52,031
Seven years
later 4,737 10,700 20,689 37,515
Eight years
later 4,768 10,750 23,472
Nine years later 4,672 10,757
Ten years later 4,522
Cumulative
Redundancy
(Deficiency)
without
discount effect 1,346 3,211 2,835 4,440 8,050 5,990 1,838 (1,832) (3,454) (6,625)
Percentage 22% 23% 12% 11% 14% 9% 3% -3% -4% -6%
Cumulative
Amount of
Reserve Paid
through :
One year later $ 1,768 $ 4,705 $ 9,647 $ 15,972 $ 17,909 $ 19,720 $ 10,955 $ 25,196 $ 44,761 $ 65,931
Two years later 2,590 4,986 13,158 21,121 25,306 21,054 22,422 43,068 62,781
Three years
later 3,541 6,077 15,104 24,991 27,134 28,547 31,925 49,571
Four years later 3,857 6,859 16,897 25,510 31,972 34,398 41,684
Five years later 4,093 7,533 17,311 28,110 35,967 45,706
Six years later 4,322 7,381 17,943 30,793 41,392
Seven years
later 3,842 7,484 19,494 33,432
Eight years
later 3,662 8,304 20,920
Nine years later 4,010 8,845
Ten years later 4,279
</TABLE>
(1) Medical malpractice reserves have been discounted at 8.25% in 1989 and
1990, and 6% in 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998 and 1999.
(2) The re-classification of reserves to claims deposit liablilties is a
result of the adoption of SFAS 113.
(3) Other reserves represent reinsurance contracts which are being run-off and
which were written in subsidiaries other than Legion, plus reserves on
other run-off business.
13
<PAGE>
Investments and Investment Results
For a complete description of our investments and investment results, see
note 5 to the consolidated financial statements.
Risk Factors
You should carefully consider the risks described below regarding us and our
common shares. The risks and uncertainties described below are not the only
ones we face. There may be additional risks and uncertainties. If any of the
following risks actually occur, our business, financial condition or results
of operations could materially be affected and the trading price of our common
shares could decline significantly.
New insurance legislation in some states has increased competition, which
has reduced our fee revenues and made sales and renewals more difficult.
Beginning in 1993, legislative reforms designed to reduce the cost of
workers' compensation insurance in some important workers' compensation
markets caused competition to increase significantly. This heightened level of
competition has persisted. Increased competition has lowered the premium rates
that we may charge, which has reduced our fee revenue. Increased competition
also has made sales and renewals of our programs more difficult. Workers'
compensation reform, to the extent it reduces premiums and introduces relative
stability in the traditional workers' compensation market, may reduce the
appeal of alternative market products such as those offered by us.
If we are unable to purchase reinsurance and transfer risk to reinsurers,
our net income would be reduced or we could incur a loss.
A significant feature of our risk management programs is the utilization of
reinsurance to transfer all or a portion of risk not retained by the insured.
The availability and cost of reinsurance is subject to market conditions,
which are outside of our control. As a result, we may not be able to
successfully purchase reinsurance and transfer risk through reinsurance
arrangements. A lack of available reinsurance would adversely affect the
marketing of our programs and force us to retain all or a part of the risk
that cannot be reinsured. If we were required to retain these risks and
ultimately pay claims with respect to these risks, our net income would be
reduced or we could incur a loss. In addition, we are subject to credit risk
with respect to our reinsurers because the transfer of risk to a reinsurer
does not relieve us of our liability to the insured. The failure of a
reinsurer to honor its obligations would reduce our net income or could cause
us to incur a loss.
If the issuers of letters of credit and clients fail to honor their
obligations, our net income would be reduced or we could incur a loss.
Each of our clients chooses a level of risk retention, which is reinsured
either by one of our foreign reinsurance subsidiaries or by the client's
captive insurance company. Letters of credit generally also supports this
retention. In addition, we rely extensively on letters of credit issued or
confirmed by a bank in order to secure a portion of the client's obligation to
reimburse us for losses on a program. The failure of a bank to honor its
letter of credit or the inability of a client to honor its uncollateralized
reimbursement obligation would reduce our net income or could cause us to
incur a loss.
If tax laws prevent our IPC Program participants from deducting premiums
paid to us, we would be unable to competitively market this program.
The tax treatment of the IPC Program is not clear and varies significantly
with the circumstances of each IPC Program participant. However, some
participants deduct the premiums paid to us for federal income tax purposes. A
determination that a significant portion of the IPC Program participants are
not entitled to deduct the premiums paid to us, without a similar
determination as to competing products, would adversely affect the
marketability of the IPC Program.
14
<PAGE>
If our loss reserves are inadequate to meet our actual losses, our net
income would be reduced or we could incur a loss.
We are required to maintain reserves to cover our estimated ultimate
liability losses and loss adjustment expenses for both reported and unreported
claims incurred. These reserves are only estimates of what we think the
settlement and administration of claims will cost based on facts and
circumstances then known to us. Because of the uncertainties that surround
estimating loss reserves and loss adjustment expenses, we cannot be certain
that ultimate losses will not exceed these estimates of loss and loss
adjustment reserves. If our reserves are insufficient to cover our actual
losses and loss adjustment expenses, we would have to increase our reserves
and our net income would be reduced or we could incur a loss.
Insurance laws and regulations restrict our ability to operate.
We are subject to extensive regulation under state and foreign insurance
laws. These laws limit the amount of dividends that can be paid by our
operating subsidiaries, impose restrictions on the amount and type of
investments that they can hold, prescribe solvency standards that must be met
and maintained by them and require them to maintain reserves. These laws also
require disclosure of material transactions by MRM and require prior approval
of certain "extraordinary" transactions. These "extraordinary" transactions
include declaring dividends that exceed statutory maximums from operating
subsidiaries to MRM or purchases of an operating subsidiary's capital stock.
These laws also generally require approval of changes of control. Our failure
to comply with these laws could subject us to fines and penalties and restrict
us from conducting business. The application of these laws could affect our
liquidity and could restrict our ability to expand our business operations
through acquisitions involving our insurance subsidiaries.
Our investment objectives may not be realized.
The success of our investment objectives is affected by general economic
conditions that are outside of our control. General economic conditions can
adversely affect the markets for interest-rate-sensitive securities, including
the extent and timing of investor participation in those markets, the level
and volatility of interest rates and, consequently, the value of fixed income
securities. We may not be able to realize our investment objectives, which
could reduce our net income or cause us to incur a loss.
Our industry is highly competitive and we may not be able to compete
successfully in the future.
Our industry is highly competitive and has experienced severe price
competition over the last several years. We compete in the United States and
international markets with domestic and international insurance companies.
Some of these competitors have greater financial resources than we do, have
been operating for longer than we have and have established long-term and
continuing business relationships throughout the industry, which can be a
significant competitive advantage. In addition, we expect to face further
competition in the future. We may not be able to compete successfully in the
future.
We are dependent on our key personnel.
Our success has been, and will continue to be, dependent on our ability to
retain the services of our existing key executive officers and to attract and
retain additional qualified personnel in the future. The loss of the services
of any of our key executive officers or the inability to hire and retain other
highly qualified personnel in the future could adversely affect our ability to
conduct our business.
If U.S. tax law changes, our net income may be reduced.
Certain members of Congress have recently expressed concern over an alleged
competitive advantage that foreign-controlled insurers and reinsurers may have
over U.S.-controlled insurers and reinsurers due to the purchase of
reinsurance by U.S. insurers from affiliates operating in certain foreign
jurisdictions, including Bermuda. In this connection, it is possible that
legislation will be proposed which would increase the U.S. tax
15
<PAGE>
burden on such transactions. No prediction can be made as to whether such
legislation will ever be enacted into law. Were such legislation to be
implemented, the U.S. tax burden on any business ceded from our licensed U.S.
insurance subsidiaries to certain offshore reinsurers could be increased which
could adversely affect our net income.
ITEM 2. PROPERTIES
We and our subsidiaries operate out of leased premises, the most significant
of which are in Philadelphia and Bermuda.
ITEM 3. LEGAL PROCEEDINGS
At December 31st 1999, the Company was engaged in three separate arbitration
proceedings against reinsurers who have withheld payment under reinsurance
agreements with Legion. These proceedings are being conducted in accordance
with the arbitration provisions contained in the relevant reinsurance
agreements and will be held before arbitration panels in Philadelphia. At
December 31st, 1999, the amount currently owing from these reinsurers for paid
losses was approximately $6 million although this amount will increase if the
reinsurers continue to withhold payment of reinsurance recoveries on future
paid losses. These arbitrations are in the preliminary stages and, to date,
none of the reinsurers has produced any evidence that causes the Company to
believe it will not recover all amounts owing to it under the relevant
agreements.
In 1997 The United States Internal Revenue Service (the "IRS") commenced an
examination of the Company's calculation of "Related Party Insurance Income"
("RPII") for 1993 and 1994. We calculate RPII on behalf of certain of our
clients participating in its Insurance Profit Center Program in order to
provide those clients with information used in preparing their United States
income tax returns. We believe that our calculation of RPII was materially
correct in both years. As a part of this examination, the IRS also questioned
whether certain clients of the Insurance Profit Center Program properly
deducted all or a portion of the premium paid in connection with their
program. We believe that the IRS has completed its examination. No adjustments
were required as a result of the examination either to the Company's RPII
calculations or generally to client's tax returns with regard to the
deductibility of premiums paid to the IPC Program.
ITEM 4. SUBMISSION OF MATTERS TO SECURITY HOLDERS
None
16
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Officer Principal Occupation
Name Age Since & Business Experience
---- --- ------- ---------------------
<S> <C> <C> <C>
Robert A. Mulderig...... 47 1982 Chief Executive Officer of MRM since 1982; Chairman
of Legion Insurance Co.; Director of The Galtney
Group, Inc., and The Bank of N.T. Butterfield & Sons
Ltd. Also serves as a director or officer of a
number of unaffiliated captive insurance companies
to which we provide management services.
John Kessock, Jr. ...... 51 1979 President of the MRM, Mutual Group Ltd. and Legion
Insurance; primarily responsible for marketing the
Company's programs since 1979; Chairman of
Commonwealth Risk Services L.P. and the IPC
Companies. Director of Ward North America, Inc.
Richard G. Turner....... 49 1984 Executive Vice President of MRM; President of CRS
since 1984; Vice President of Marketpac
International, a subsidiary of American
International Group, from 1979 to 1984. Director of
Colonial Penn Insurance Company,
Glenn R. Partridge...... 46 1983 Executive Vice President of MRM; Senior Vice
President of Legion Insurance; primarily responsible
for Legion Insurance's underwriting function since
1987; Vice President of CRS from 1983 to 1987.
James C. Kelly.......... 45 1985 Senior Vice President and Chief Financial Officer of
MRM; Vice President and Chief Financial Officer
since March 1991; Vice President & Controller since
1985.
Paul D. Watson.......... 41 1986 Senior Vice President and Chief Operating Officer of
MRM; Vice President of MRM since March 1991;
President of the IPC Companies from July 1992 until
December 1998; held various management and
accounting positions since joining MRM in 1986.
Richard E. O'Brien...... 42 1995 Senior Vice President and General Counsel of MRM
since March 1995. Prior thereto partner in the law
firm of Dunnington, Bartholow & Miller, New York.
</TABLE>
All Executive Officers are appointed by MRM's Board of Directors and serve
until the next annual general meeting of the shareholders or until their
successors are appointed.
Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16 (a) of the Exchange Act requires our directors and executive
officers, and persons who own more than ten percent of a registered class of
our equity securities, to file with the United States Securities and Exchange
Commission, also known as the SEC, initial reports of ownership and reports of
changes in ownership of Common Stock and other of our equity securities .
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on review of the copies of the reports
furnished to us and written representations that no other reports were
required, during the year ended December 31, 1999, all Section 16(a) filing
requirements applicable to our officers, directors and greater than ten-
percent beneficial owners were complied with, except that Mrs. Patrick filed a
Form 4 late with respect to the sale of common stock, and Mr. Galtney filed a
Form 4 late with respect to the purchase of common stock.
17
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON SHARES AND RELATED STOCKHOLDER MATTERS
Our common shares have been listed on the New York Stock Exchange under the
symbol MM since June 25, 1991. Our common shares were listed in connection
with our initial public offering completed in July 1991. There were 411
holders of record of our common shares as of February 25, 2000.
The following table sets forth the high and low closing sale prices for the
shares during 1998 and 1999 for the calendar quarters indicated as reported by
the New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
High Low
-------- -------
<S> <C> <C>
Year Ended December 31, 1998
First Quarter............................................. 34 7/16 28 3/16
Second Quarter............................................ 36 31 1/2
Third Quarter............................................. 38 15/16 30
Fourth Quarter............................................ 39 7/8 27 1/2
Year Ended December 31, 1999
First Quarter............................................. 42 5/8 32 7/8
Second Quarter............................................ 40 3/8 33 3/8
Third Quarter............................................. 35 12 1/4
Fourth Quarter............................................ 16 15/16 10 3/8
Year Ended December 31, 2000
First Quarter (through March 17, 2000).................... 17 12 5/8
</TABLE>
The last reported closing price per share of our common shares on the New
York Stock Exchange Composite Tape on March 17, 2000 was $15 1/16.
During 1999 and 1998 we paid dividends of $.25 and $.21 per common share,
respectively. Dividends are paid quarterly.
Our ability to pay dividends is restricted due to certain insurance
regulations. See "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" and Note 12 to the consolidated financial
statements.
18
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
INCOME STATEMENT DATA:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1999 1998(3) 1997(3) 1996(3) 1995(3)
---------- ---------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 387,626 $ 287,914 $ 230,498 $ 171,426 $ 138,659
---------- ---------- ---------- ---------- ----------
Income before income
taxes and minority
interest............... 50,307 72,970 60,109 46,465 40,368
---------- ---------- ---------- ---------- ----------
Income before minority
interest............... 50,672 64,434 49,477 38,322 31,502
---------- ---------- ---------- ---------- ----------
Income before
extraordinary loss..... 50,620 64,527 49,477 38,067 31,027
---------- ---------- ---------- ---------- ----------
Net income.............. 50,438 64,527 49,477 38,067 31,027
---------- ---------- ---------- ---------- ----------
Net income available to
common shareholders.... 50,438 64,527 49,372 37,900 30,837
---------- ---------- ---------- ---------- ----------
Net income available to
common shareholders
--Basic................ $ 1.18 $ 1.56 $ 1.25 $ 99 $ .82
--Diluted.............. $ 1.14 $ 1.42 $ 1.15 $ .93 $ .79
---------- ---------- ---------- ---------- ----------
Weighted average number
of common shares
outstanding(1)
--Basic................ 42,797 41,275 39,379 38,369 37,442
--Diluted.............. 49,607 50,233 48,785 47,281 40,313
---------- ---------- ---------- ---------- ----------
Dividends per common
share.................. $ .25 $ .21 $ .19 $ .16 $ .13
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
<CAPTION>
As at December 31,
------------------------------------------------------
1999 1998(3) 1997(3) 1996(3) 1995(3)
---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total assets............ $4,033,174 $3,074,257 $2,206,050 $1,690,428 $1,425,411
---------- ---------- ---------- ---------- ----------
Reserve for losses and
loss expenses.......... 1,860,120 1,190,426 716,461 419,737 315,689
---------- ---------- ---------- ---------- ----------
Debt(2)................. 227,898 125,485 128,711 122,211 116,039
---------- ---------- ---------- ---------- ----------
Redeemable preferred and
common shares.......... -- -- 1,929 4,462 4,026
---------- ---------- ---------- ---------- ----------
Shareholders' equity.... 358,144 343,166 263,575 211,343 169,207
---------- ---------- ---------- ---------- ----------
</TABLE>
- --------
(1) See Note 14 of Notes to Consolidated Financial Statements for an
explanation of the method used to determine the number of shares used to
compute per share amounts.
(2) See Note 6 and 7 of Notes to Consolidated Financial Statements.
(3) All prior period results have been restated to reflect the pooling of
interests following the acquisition of Captive Resources, Inc.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations
CONSOLIDATED RESULTS OF OPERATIONS
For the Years Ended December 31, 1999, 1998 and 1997
Consolidated Net income decreased by 22% to $50.4 million in 1999 from $64.5
million in 1998 which was in turn a 30% increase over the $49.5 million earned
in 1997. The decline in earnings in 1999 is due to slower growth in the
Program Business segment and a decline in Corporate Risk Management offset, in
part, by growth in Specialty Brokerage and Financial Services. 1999 earnings
were also adversely affected by the third quarter provisions related to net
losses incurred on terminated programs of $8 million, net of tax. The increase
in 1998 earnings was primarily attributable to the growth experienced in the
Program Business and Financial Services segments.
All prior period results have been restated to reflect a pooling of
interests following the acquisition of Captive Resources, Inc.
Set forth in Table I is an analysis of the components of the Company's
revenues for each of the last three years.
TABLE I--REVENUES
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1999 Growth 1998 Growth 1997
-------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Fee income.......................... $177,711 13% $157,271 30% $121,258
Premiums earned..................... 181,798 78 101,913 21 84,200
Net investment income............... 33,616 14 29,590 11 26,592
Realized capital losses............. (5,199) 418 (1,003) (38) (1,608)
Other income........................ (300) (310) 143 155 56
-------- -------- --------
Total........................... $387,626 35% $287,914 25% $230,498
======== ======== ========
</TABLE>
The growth of Fee income and Premiums earned over the past three years has
been primarily due to the strong growth in Program Business, which has
compensated for the decline in Corporate Risk Management business.
Overall, pre-tax profit margins on Fee income fell in 1999 to 28% compared
to 35% in 1998 and 37% in 1997.
SEGMENT ANALYSIS
The components of Fee income by business segment are illustrated in Table
II.
TABLE II--FEE INCOME BY BUSINESS SEGMENT
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1999 Growth 1998 Growth 1997
-------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Program Business fees.................. $ 95,132 16% $ 82,267 67% $ 49,363
Corporate Risk
Management fees...................... 49,365 (4) 51,640 (6) 54,800
Specialty Brokerage fees............. 13,692 52 9,021 8 8,351
Financial Services fees.............. 19,522 36 14,343 64 8,744
-------- -------- --------
Total.............................. $177,711 13% $157,271 30% $121,258
======== ======== ========
</TABLE>
20
<PAGE>
Program Business
Program Business involves replacing traditional insurers and acting as the
conduit between producers of specialty books of business and reinsurers wishing
to write that business. Program Business accounted for 53% of total Fees for
1999 compared to 52% in 1998 and 41% in 1997. This growth has resulted from the
continued expansion of this business as a result of reinsurers' increased
appetite for premium volume in the current soft market. Fees earned on
individual Program accounts are more likely to grow compared to Corporate
accounts because new policy holders are constantly being added in each program.
Program Business also has historically had a higher retention rate than
Corporate Risk Management. Pre-tax margins in this segment were 28% for 1999
compared to 40% in 1998 and 39% in 1997. The second half of 1999 saw a decline
in the growth rate and margins in this segment as a result of a decline in
premium rates, especially at the Company's underwriting management subsidiary,
Small Business Underwriters.
Corporate Risk Management
Corporate Risk Management, the Company's original business segment, involves
providing services to businesses and associations seeking to insure a portion
of their risk in a loss sensitive Alternative Market structure. This segment,
which accounted for 28% of total Fee income for 1999 compared to 33% in 1998
and 45% in 1997, has been the most affected by the extremely soft insurance
market cycle for commercial risks. Corporate Risk Management Fees decreased in
both 1998 and 1999 due to these soft market conditions. The number of Corporate
Risk Management accounts decreased in 1999 to 103 from 118 in 1998 which was in
turn down from 154 in 1997. Profit margins fell in 1999 to 32% compared to 39%
in 1998 and 37% in 1997. The 1999 profit margin was negatively impacted by the
decrease in Fees on Program Business because certain Operating expenses are not
separately identified by segment, but rather are apportioned by Fee income.
Historically, workers' compensation has been the major line of business
written by the Company in both its Corporate Risk and Program Business
segments. Generally, competition for workers' compensation business has
increased in recent years and the resulting under-pricing of workers'
compensation risks by traditional insurers has reduced the incentive for
insureds to enter "Alternative Market" vehicles such as those offered by the
Company in its Corporate Risk Management segment. However, the Company is
beginning to see price increases in a number of lines, particularly in
California workers' compensation and in accident and health across the U.S.,
resulting in increased submission activity.
Despite these competitive forces, the Company was successful in increasing
its business as a result of the attractiveness of Program Business in this soft
reinsurance market. The Company continued to diversify its business to reduce
its reliance on the workers' compensation market and was successful in doing
so. As a percentage of Total Fee income, workers' compensation accounts
decreased from over 80% at December 31, 1994 to 53% at December 31, 1999 as a
result of the Company writing accounts comprising other lines of coverage such
as accident and health, commercial, auto liability, auto physical damage and
other liability coverages as well as the expansion of the Company's Financial
Services segment.
Specialty Brokerage
The Company's Specialty Brokerage business segment provides access to
Alternative Risk Transfer insurers and reinsurers in Bermuda and Europe. Fees
in this segment grew by 52% in the year as a result of increased business
placed in Bermuda and London. Profit margins improved to 38% from 25% in 1998
and 31% in 1997 primarily as a result of the increased revenues.
Financial Services
Financial Services, the Company's newest business segment, provides
administrative services to offshore mutual funds and other companies. This
segment also includes the Company's family of proprietary mutual funds as well
as asset accumulation life insurance products for the high net worth market.
Financial Services accounted for 11% of total Fee income for 1999, up from 9%
for 1998 and 7% in 1997. Fees from Financial Services
21
<PAGE>
increased primarily as a result of an increase in the number of mutual funds
under management from 129 in 1997 and 195 in 1998, to 279 in 1999. Profit
margins decreased from 26% in 1997 to 4% in 1998, and improved to 7% in 1999.
Margins in the Financial Services segment were adversely affected in both 1998
and 1999 by the previously announced revised Executive Incentive Plan
implemented in 1998. The effect of this revised Executive Incentive Plan will
continue through 2000. Excluding the effect of the revised Executive Incentive
Plan, the profit margins in this segment would have been 17% and 18% for the
years ended December 31, 1999 and 1998 respectively.
UNDERWRITING
The Company generally requires each Corporate Risk Management client to
indemnify it against an underwriting loss and the client normally provides
collateral for at least the difference between the funds available in that
client's account and the level of expected losses as actuarially determined by
the Company, although in certain circumstances the collateral level is below
the level of expected losses. This is also the case for Program Business
clients who participate in the IPC Programs. For Program Business clients that
do not participate in the IPC Programs, reinsurance protection is purchased by
the Company to minimize its underwriting risk.
The Company faces a credit exposure in the event that losses exceed their
expected level and the client is unable or unwilling to honor its indemnity to
the Company. The Company also faces credit exposure on both Program and
Corporate Risk Business if its clients or brokers fail to pay the premium due,
through failure of the program manager or broker to properly administer the
program and through failure of reinsurers to honor their obligations. Lastly,
the Company is exposed to underwriting risk if losses incurred under programs
exceed their reinsurance limits or where there is a gap in purchased
reinsurance cover.
The Company has established provisions for losses as a result of these
exposures for certain clients.These provisions, which totaled $18.0 million at
December 31, 1999, $7.3 million in 1998 and $5.6 million in 1997, reduced the
level of Fee income in each year by $3.1 million, $.9 million and $1.1 million
respectively. These provisions also adversely impacted the underwriting
results in each year by $7.6 million, $.8 million and $0 in 1999, 1998, and
1997 due to programs where losses exceeded reinsurance limits and uncollected
premiums. The increase in provisions from 1998 to 1999 relates primarily to
provisions established in the third quarter on a number of terminated
programs. The 1999 provisions are net of a reinsurance recovery of $14.7
million under a contingency excess of loss policy. The increase in the number
of accounts and their inherent growth in premium volume, the increase in the
clients' aggregate retentions since 1991, the amounts recoverable from
reinsurers, which amounted to $2.0 billion at December 31, 1999 and $1.3
billion at December 31, 1998, in addition to competitive factors which have
limited the amount of collateral that clients are willing to provide, have
significantly increased the Company's exposure to such losses. The Company
evaluates the financial condition of its clients, brokers and reinsurers to
minimize its exposure to losses from insolvencies.
During 1999, the Company initiated binding arbitration proceedings for the
payment of reinsurance recoverables from a number of reinsurers who have
withheld payment due to the Company. The amounts due to the Company relate
primarily to reinsurance on workers' compensation coverage. The Company
believes it will ultimately prevail in such arbitrations and any related
actions that may arise.
Premiums earned increased by 78% in 1999, 21% in 1998 and 49% in 1997. These
increases are attributable to the shift in business from the Corporate Risk
Management segment to the Program Business segment and the strong growth
within this segment. Program Business usually involves higher premiums than
business derived from the Corporate Risk Management segment due to new
policies constantly being added by agents. Premiums earned represent the net
premiums retained by the Company on which it bears underwriting risk. The
Company believes that both the volatility of underwriting profit or loss and
the probability of experiencing a severe underwriting loss are less than would
ordinarily be expected for a traditional property/casualty insurer, due to the
nature of the business written by the Company and the structure of its
reinsurance. In the past, the level of Premiums earned has been closely
matched by the level of Total insurance costs, resulting in small amounts of
underwriting loss as a percentage of Premiums earned. However, in 1999, Losses
incurred under certain
22
<PAGE>
programs exceeded their reinsurance limits and caused underwriting losses to
be higher than historical levels. The fact that Premiums earned have
historically matched Total insurance costs means that even a significant
fluctuation in Premiums earned should have a relatively insignificant impact
on the Company's Net income.
Included in Premiums earned are assigned risk premiums of $1.8 million in
1999 as compared to $2.5 million in 1998 and $8.4 million in 1997. The
underwriting losses associated with these assigned risk premiums, together
with other charges imposed by certain states on voluntary insurers such as
Legion to support involuntary market losses ("residual market loads"), are
passed on by Legion to clients' accounts.
Other than the risks described above, the Company's principal exposure to
underwriting loss exists in relation to the premium associated with the
Company's retention of a portion of the specific and aggregate excess risk on
each client's account. On this retained excess risk the Company may experience
volatility in underwriting results. The portion of the Company's Premiums
earned which relate to this risk was $4.1 million in 1999 as compared to $2.1
million in 1998 and $2.2 million in 1997, representing 2%, 2%, and 3% of
Premiums earned in 1999, 1998 and 1997 respectively. The Company incurred an
underwriting loss of $17.5 million in 1999, $2.4 million in 1998 and $1.5
million in 1997. The large loss in 1999 was principally due to the provisions
on terminated programs described above. These underwriting losses were also a
result of retained risk on the Company's treaties and underwriting expenses.
The Company takes 100% of the risk within the first $1.25 million layer of the
aggregate excess exposure on its main treaty up to a deductible amount equal
to 1.5% of the Company's gross premiums (as defined) and 10% of the risk over
a loss ratio of 120%, in the event that the loss ratio for the first layer
exceeds 120%. The Company takes no share of the risk in the layer $3.75
million excess of $1.25 million per account. The maximum retention for
specific excess losses is 10% of $.75 million excess of $.25 million per
occurrence.
INVESTMENT INCOME
Gross investment income increased by $.8 million in 1999 to $35.9 from $35.1
million in 1998 and $30.0 million in 1997 as a result of increases in gross
invested assets. Net investment income, after adjusting for investment income
which is payable to others, increased by 14% to $33.6 million in 1999 from
$29.6 million in 1998 and $26.6 million in 1997. The increase in Net
investment income for 1999 is due, in part, to the inclusion of investment
income from one of the Company's programs, accounted for as Claims deposit
liabilities, which added $2.8 million for the year. Net invested assets
increased $88 million or 20% to $527 million in 1999 from $439 million in 1998
and $402 million in 1997. The yield on these assets remained steady at 6.9% in
1999 and 1998, which was up slightly from 6.7% in 1997. The Company's
investment income is produced through the investment of its capital funds,
long term debt, other funds held representing amounts due others and reserves
held by the Company for unearned premiums and unpaid losses.
The breakdown of expenses for each of 1999, 1998 and 1997 is set forth in
Table III.
TABLE III--EXPENSES
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1999 Growth 1998 Growth 1997
-------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Losses incurred........................ $147,705 89% $ 78,258 57% $ 49,857
Acquisition costs...................... 51,582 98 26,061 (27) 35,816
-------- -------- --------
Total insurance costs.................. 199,287 91 104,319 22 85,673
Operating expenses..................... 128,524 26 101,687 32 76,795
Interest expense....................... 6,807 0 6,819 1 6,752
Other expenses......................... 2,701 27 2,119 81 1,169
-------- -------- --------
Total................................ $337,319 57% $214,944 26% $170,389
======== ======== ========
</TABLE>
23
<PAGE>
The increases in Total insurance costs are typically the direct result of the
increases in Premiums earned during the relevant period. However, Total
insurance costs during 1999 exceeded the increase in Premiums earned. During
the year, the Company established a provision related to net losses incurred on
a number of terminated programs of $8 million net of tax. This resulted in a
$12.3 million increase in Losses and loss expenses incurred offset by a $4.3
million reduction in Income taxes. Losses incurred also increased as a direct
result of the decreased use of large deductible policies and the increase in
Program Business. The 27% decrease in Acquisition costs from 1997 to 1998 is
due to the reduction in the number of deductible programs, which have high
expense levels; the loss of one large account that was fully retained; and
reduction in expenses charged by the assigned risk pools.
The primary factors responsible for the increases in Operating expenses were:
(a) the increased cost of administering the Company's highly regulated policy-
issuing subsidiaries, as the volume of policies issued increased; (b) increased
personnel costs in all areas, caused by an increase in the number of full time
employees from 743 in 1997 to 934 in 1998 to 1,143 in 1999, resulting from the
growth of the Company's businesses as well as the impact of the Company's
growth in revenues and profits on employee bonus plans; and (c) the
acquisitions of SBU, Hugo Trust, Avreco, Capital Management and the Hemisphere
expansions to Boston and Ireland.
The charges for Income taxes represent effective tax rates of 17.6%, 11.7%
and (.7)% in 1997 through 1999 respectively. The reduced tax rate in 1998 and
1999 is due to increased earnings outside of the United States. The tax rate in
1999 was reduced further by the provisions on terminated programs. These
factors, plus interest earned on tax-fee municipal securities and the tax
benefit derived from the exercise of employee stock options, are the major
causes of the difference between the expected federal income tax rate in the
United States of 35% plus state income taxes and the Company's effective rates
in the year. The Legion Companies, as insurance companies in the United States,
are subject to income tax on an accelerated basis and, as a result, a deferred
tax benefit was carried on the Consolidated Balance Sheets of $4.2 million in
1999 and $.9 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Investments
At December 31, 1999 the market value of the Company's Total marketable
investments was $607 million, as compared to $580 million at December 31, 1998.
In accordance with SFAS 115, Investments available for sale are reported at
fair market value with unrealized gains and losses included as a separate
component of Shareholders' equity. These Investments generally consist of
investment grade fixed-income securities that the Company believes are readily
marketable and could be liquidated to meet cash requirements, if necessary.
Cash Flow
Cash flow from operations has historically provided the Company its principal
source of liquidity. The Company has continued to produce a positive cash flow
with $20.6 million of cash provided from operations during 1999, as compared to
$62.4 million in 1998 and $56.4 million in 1997. Cash flow in 1999 was
adversely affected by delays in recovering reinsurance payments in the
Company's Program Business segment but improved in the second half of 1999 from
the first and second quarters.
The Company recently established a $250 million bridge loan facility, $117
million of which was outstanding at December 31, 1999. The Company made an
additional contribution to the policyholders' surplus of its U.S. insurance
companies in the amount of $110 million from this facility. As of December 31,
1999, the Company had repurchased $14 million face amount of its Convertible
Exchangeable Subordinated Debentures due 2015 at a cost of $6.3 million, also
from this facility. The Company expects to refinance this bridge loan facility
with permanent financing during 2000, and recently filed an S-3 Shelf
Registration Statement with the U.S. Securities and Exchange Commission for the
future issuance of $500 million of debt and preferred securities.
24
<PAGE>
The Company believes that funds generated from operations and available
credit will be sufficient to finance its current operations and to fund the
repurchase of the remaining Convertible Exchangeable Subordinated Debentures as
well as the 2.4 million remaining Common Shares of the Company's 5.0 million
share repurchase authorization.
Insurance Operations
At the end of 1999 and 1998, 61% and 56% of the Company's Total marketable
investments were held by the Company's policy-issuing subsidiaries in the
United States. These companies are restricted by regulation in the amount of
dividends they can pay without prior regulatory approval to $35.0 million in
2000 (based on 1999 results) and will continue to face these restrictions in
the future. During 1999 they paid a dividend of $7 million. They are also
required to maintain certain deposits with or supply letters of credit to
regulatory authorities which totaled $166 million at December 31, 1999 ($59
million of deposits and $107 million of letters of credit) as compared to $152
million at December 31, 1998 ($60 million of deposits and $92 million of
letters of credit).
A widely accepted factor used by regulators and rating agencies in evaluating
insurance companies is the ratio of net premiums written to policyholders'
surplus which is an indication of the degree to which an insurer is leveraged.
Because of the low level of net premiums written, they have produced a
relatively low ratio on this basis of approximately 0.6:1 in 1999, 0.5:1 in
1998 and 0.4:1 in 1997 and should continue to produce relatively low ratios in
the future. Due to the nature of the Company's operations, a more appropriate
indication of leverage is the ratio of gross premiums written to policyholders'
surplus, which amounted to 3.6:1 in 1999, 3.6:1 in 1998 and 3.0:1 in 1997. The
National Association of Insurance Commissioners ("NAIC") has established that
an "unusual value" for this ratio would be 9:1 or higher. The Company has
adopted a policy that this ratio should not exceed 4:1.
The NAIC has adopted a risk-based capital ("RBC") formula to be applied to
all property/casualty insurance companies. The formula measures capital and
surplus needs based on an insurance company's products and investment portfolio
and is to be used as a tool to identify weakly capitalized companies. An
insurance company that does not meet the threshold RBC measurement standards
could be required to reduce the scope of its operations and ultimately could
become subject to statutory receivership proceedings. At December 31, 1999 the
Company's policy-issuing subsidiaries met the RBC requirements with a combined
required risk-based capital of $121.0 million and an actual adjusted capital of
$347.4 million.
Shareholders' Equity
Shareholders' equity increased 4% to $358 million at December 31, 1999 from
$343 million at December 31, 1998. This increase was attributable to Net income
in 1999, less dividends paid, plus the value of shares issued on the exercise
of employee stock options, and the conversion of debentures. During 1999 the
total number of Common Shares outstanding decreased to 41,205,191 from the 1998
level of 42,205,596, mainly as a result of the Company repurchase of 2.6
million shares in the fourth quarter at an average price of $11.31 per share.
This decrease in Common Shares outstanding for the year was partly offset by
the conversion of debentures and the exercise of employee stock options.
Total Assets
Total assets increased to $4.0 billion at December 31, 1999, a 31% increase
from $3.1 billion at December 31, 1998. $693.4 million, or 17% of Total assets
in 1999 and $722.3 million, or 23%, in 1998 related to Assets held in separate
accounts. As detailed in Note 2A to the Consolidated Financial Statements, such
assets are principally managed assets attributable to participants in the
Company's IPC Programs. Total assets also increased due to the increase in
Reinsurance receivables from $1,079.6 million in 1998 to $1,729.9 million in
1999. This increase, which is largely offset by corresponding increases in the
Reserve for losses and loss expenses and Accounts payable, is due to the
greater amount of reinsurance utilized in connection with the Company's Program
Business segment.
25
<PAGE>
Inflation
The Company does not believe its operations have been materially affected by
inflation. The potential adverse impacts of inflation include: (a) a decline in
the market value of the Company's fixed maturity investment portfolio; (b) an
increase in the ultimate cost of settling claims which remain unresolved for a
significant period of time; and (c) an increase in the Company's Operating
expenses. However, the Company generally holds its fixed maturity investments
to maturity and currently believes that an acceptable amount is included in the
yield to compensate the Company for the risk of inflation. In addition, any
increase from inflation in the ultimate cost of settling unpaid claims will be
borne by the Company's clients and offset by investment income earned for the
benefit of the client during the period that the claim is outstanding. Finally,
the increase in Operating expenses resulting from inflation should generally be
matched by similar inflationary increases in the client's premium and the
Company's Fee income, which includes a fee based upon a percentage of the
client's premium.
Market Sensitive Instruments
Market risk generally represents the risk of loss that may result from
potential change in the value of a financial instrument due to a variety of
market conditions. The Company's exposure to market risk is generally limited
to potential losses arising from changes in the level or volatility of interest
rates on market values of investment holdings and on a bridging loan. The
Company's exposure to movements in exchange rates and equity prices is limited.
The Company does not hold or issue significant derivative financial instruments
for trading or speculative purposes.
a) Interest Rate Risk
Interest rate risk results from the Company' holdings in interest-rate-
sensitive instruments. The Company is exposed to potential losses arising
from changes in the level or volatility of interest rates on fixed rate
instruments held. The Company is also exposed to credit spread risk
resulting from possible changes in the issuer's credit rating. To manage
its exposure to interest rate risk the Company attempts to select
investments with characteristics that match the characteristics of the
related insurance and contract holder liabilities. Additionally, the
Company generally only invests in higher-grade interest bearing
instruments.
The Company is also exposed to interest rate risk on the $117 million
bridging loan, which bears interest at LIBOR plus 0.75%. $110 million of
this facility was contributed to the U.S. insurance companies and has been
invested in a variable rate debt instrument with matching terms and
maturity to cover the interest cost of the bridge loan financing.
b) Foreign Exchange Risk
When the Company invests in non-U.S. dollar denominated financial
instruments it is subject to exposure from exchange rate movements. This
risk arises from the possibility that changes in foreign exchange rates
will impact adversely upon the value of financial instruments. Due to the
Company's limited holdings of non-U.S. dollar denominated investments,
management does not believe the Company is exposed to a material risk from
exchange rate movements.
c) Equity Price Risk
Equity price risk arises from fluctuations in the value of securities
held. Changes in the level or volatility of equity prices affect the value
of equity securities held by the Company. Management does not believe the
Company is exposed to a material risk from changes in equity prices due to
its limited investment in equity securities.
26
<PAGE>
The tables below provide information about the Company's available for sale
investments that are sensitive to changes in interest rates at December 31,
1999 and 1998 respectively. The tables present expected cash flows and related
weighted-average interest rates by expected maturity dates. Separate account
assets and liabilities are not included in this analysis as gains and losses
related to these accounts generally accrue to the program holders. There were
no material quantitative changes in market risk exposure between the current
and preceding fiscal year with respect to available for sale investments.
YEAR ENDED DECEMBER 31, 1999--EXPECTED MATURITY DATE
<TABLE>
<CAPTION>
Total
2000 2001 2002 2003 2004 Thereafter Value Fair
----- ----- ----- ----- ----- ---------- ------ ------
(dollars in millions, except average interest rates)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments
Available for sale.... $29.3 $40.5 $50.1 $50.3 $52.3 $137.8 $360.3 $352.3
Average Interest
Rate................. 5.9% 6.6% 6.3% 6.7% 7.1% 6.4%
</TABLE>
YEAR ENDED DECEMBER 31, 1998--EXPECTED MATURITY DATE
<TABLE>
<CAPTION>
Total
1999 2000 2001 2002 2003 Thereafter Value Fair
----- ----- ----- ----- ----- ---------- ------ ------
(dollars in millions, except average interest rates)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments
Available for sale.... $45.4 $34.6 $45.2 $50.2 $32.4 $139.1 $346.9 $352.5
Average Interest
Rate................. 6.6% 5.8% 6.5% 6.3% 7.1% 6.4%
</TABLE>
Impact of Year 2000
The Company has not experienced any significant Year 2000 issues to date.
All systems identified for replacement before the Year 2000 were replaced.
Since the Company regularly updates its hardware and software, the pure
additional cost of Year 2000 compliance was not material.
The Company has taken steps that it believes are reasonably designed to
obtain assurances that its critical customers, reinsurance intermediaries,
managing general agents, suppliers and others have addressed their Year 2000
compliance efforts. Although the change in date to Year 2000 has occurred, it
is not possible to conclude that all aspects of the Year 2000 issue that may
affect the Company relating to other third party providers have been fully
resolved. The inability of the Company's third party providers to properly
address the Year 2000 issue could have an adverse material impact on the
Company's financial position or results of operations. Management will
continue to monitor the status of and its exposure to this issue, however, the
Company has not experienced any significant Year 2000 issues to date.
Contingency plans are still in place should critical customers, reinsurance
intermediaries, managing general agents, suppliers and others fail to resolve
their own Year 2000 issues. To date, the Company has not been notified of any
Year 2000 related claims.
Acquisitions
On March 1, 1999, the Company acquired Captive Resources, Inc., ("CRI") a
provider of services to member owned group captive insurance companies. CRI
has long-term contracts with more than 20 well established captives.
Recent Accounting Pronouncements
In October 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-7, "Deposit Accounting: Accounting for Insurance and
Reinsurance Contracts That Do Not Transfer Insurance
27
<PAGE>
Risk". The Statement provides guidance on how to account for insurance and
reinsurance contracts that do not transfer insurance risk under deposit
accounting. The Statement is effective for fiscal years beginning after June
15, 1999 with early adoption encouraged. The Company does not expect the
Statement to have a material impact on its financial position or results of
operations.
In June 1998, the Financial Accounting Standards Board issued Statement 133,
"Accounting for Derivative Instruments and Hedging Activities" which was
amended by Statement 137 in June 1999. The Statement requires recording all
derivative instruments as assets or liabilities, measured at fair value. The
Statement is effective for fiscal years beginning after June 15, 2000. The
Company does not expect the Statement to have a material impact on its
financial position or results of operations.
Subsequent Events
During the first quarter of 2000, the Company repurchased convertible
Debentures representing a principal amount of $222 million in the open market
at a cost of $101.3 million. The repurchased debentures were convertible into
$4.8 million Common Shares and their repurchase will result in a one-time
extraordinary loss of approximately $4.3 million, net of tax.
Safe Harbor Disclosure For Forward-Looking Statements
In connection with the "safe harbor' provisions of the Private Securities
Litigation Reform Act of 1995 (the "Act"), the Company sets forth below
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those which might be
projected, forecasted, or estimated or otherwise implied in the Company's
forward-looking statements, as defined in the Act, made by or on behalf of the
Company 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,
telephone calls and conference calls. Such statements may include, but are not
limited to, projections of Fee income, Premiums earned, Net investment income,
Other income, Losses and loss expenses incurred, Acquisition costs, Operating
expenses, Other expenses, earnings (including earnings per share), cash flows,
plans for future operations, Shareholders' equity, financing needs, capital
plans, dividends, plans relating to products or services of the Company, and
estimates concerning the effects of litigation or other disputes, as well as
assumptions for any of the foregoing and are generally expressed with words
such as "believes", "estimates", "expects", "anticipates", "could have", "may
have", and similar expressions.
Forward-looking statements are inherently subject to risks and
uncertainties. The Company cautions that factors which may cause the Company's
results to differ materially from such forward-looking statements include, but
are not limited to, the following: (a) Changes in the level of competition in
the reinsurance or primary insurance markets that adversely affect the volume
or profitability of the Company's business. These changes include, but are not
limited to, the intensification of price competition, the entry of new
competitors, existing competitors exiting the market, and the development of
new products by new and existing competitors; (b) Changes in the demand for
reinsurance, including changes in ceding companies'retentions, and changes in
the demand for primary and excess and surplus lines insurance coverages; (c)
The ability of the company to execute its business strategies and its reliance
on key personnel; (d) Adverse development on claims and claims expense
liabilities related to business and the failure of clients, reinsurers or
others to meet their obligations to the Company in connection with such
losses.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements for the years ended December 31, 1999,
1998 and 1997 are filed herewith in response to Item 14.
28
<PAGE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING DISCLOSURE
None.
29
<PAGE>
PART III
ITEM 10. MANAGEMENT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instructions G(3) of Form 10-K, Items 10 to 13,
inclusive, have not been restated or answered since we intend to file within
120 days after the close of our fiscal year with the SEC a definitive proxy
statement pursuant to Regulation 14A under the Exchange Act and the
information contained in the proxy is hereby incorporated by reference. The
information included in the proxy statement pursuant to the requirements of
Sections 402(k) and (l) of Regulation S-K is not incorporated by reference in
this annual report.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
A. Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
3.1 Memorandum of Association(1)
3.2 Bye-Laws of Registrant(4)
3.3 Bye-Laws of IPC Mutual Holdings Ltd.(1)
4.1 Form of Stock Certificate(1)
4.2 Indenture dated as of October 30, 1995 relating to the Company's Zero
Coupon Convertible Exchangeable Subordinated Debentures due 2015.(5)
10.1 Share Purchase Agreements with Messrs. Partridge, Turner and
Kelly(1)(3)
10.2 Mutual Risk Management Ltd. 1988 Stock Option Plan(1)(3)
10.3 1991 Long Term Incentive Plan(2)(3)
10.4 Form of Director's Stock Option Grant Agreement(2)(3)
10.5 Form of Non-Qualified Stock Option Grant Agreement(2)(3)
10.6 Form of Shareholders Agreement relating to the IPC Program(1)
10.7 Agreement between Mutual Risk Management (Bermuda) Ltd. and Robert A.
Mulderig relating to Hemisphere Trust Company Limited.(6)
10.8 Directors Deferred Cash Compensation Plan(3)(5)
10.9 Directors Restricted Stock Plan(3)(5)
10.10 Deferred Compensation Plan(7)
10.11 1998 Long Term Incentive Plan(7)
10.12 Credit Agreement dated December 6, 1999 between Mutual Risk
Management, certain subsidiaries and Prudential Securities Credit
Corporation.
12.0 Consolidated Ratio of Earnings to Fixed Charges
21.1 List of subsidiaries
23.1 Consent and Reports of Ernst & Young
24 Powers of Attorney
27.1 Financial Data Schedule for (current) fiscal year ended Dec-31-1999
27.2 Restated FDS for quarter ended Sep-30-1999
27.3 Restated FDS for quarter ended June-30-1999
27.4 Restated FDS for quarter ended Mar-31-1999
27.5 Restated FDS for fiscal year ended Dec-31-1998
27.6 Restated FDS for quarter ended Sep-30-1998
27.7 Restated FDS for quarter ended Jun-30-1998
27.8 Restated FDS for quarter ended Mar-31-1998
27.9 Restated FDS for fiscal year ended Dec-31-1997
27.10 Restated FDS for quarter ended Sep-30-1997
27.11 Restated FDS for quarter ended Jun-30-1997
27.12 Restated FDS for quarter ended Mar-31-1997
</TABLE>
- --------
(1) Incorporated by reference to Form S-1 Registration Statement (No. 33-40152)
of Mutual Risk Management Ltd. declared effective June 25, 1991.
31
<PAGE>
(2) Incorporated by reference to the 1991 Annual Report on Form 10-K of Mutual
Risk Management Ltd.
(3) This exhibit is a management contract or compensatory plan or arrangement.
(4) Incorporated by reference to Form 10-Q of Mutual Risk Management Ltd. for
the period ended June 30, 1996.
(5) Incorporated by reference to 1995 Annual Report on Form 10-K of Mutual
Risk Management Ltd.
(6) Incorporated by reference to 1996 Annual Report on Form 10-K of Mutual
Risk Management Ltd.
(7) Incorporated by reference to 1998 Annual Report on Form 10-K of Mutual
Risk Management Ltd.
B. Financial Statements and Financial Statement Schedules
<TABLE>
<S> <C>
Consolidated Financial Statements..................................... F-1
Notes to Consolidated Financial Statements............................ F-5
Independent Auditors' Report.......................................... F-26
Schedule II Condensed Financial Information of Registrant............. S-1
Schedule VI Supplementary Insurance Information....................... S-4
</TABLE>
All other schedules required by Article 7 of Regulation S-X are not required
under the related instructions, are inapplicable or are included elsewhere in
this filing, and therefore have been omitted.
C. Reports on Form 8-K
None
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in Hamilton,
Bermuda, on March 28, 2000.
Mutual Risk Management Ltd.
/s/ Robert A. Mulderig
By: _________________________________
Robert A. Mulderig
Chairman and Chief Executive
Officer
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/ Robert A. Mulderig Chairman and Chief March 28, 2000
______________________________________ Executive Officer
Robert A. Mulderig (Principal Executive
Officer)
/s/ John Kessock, Jr. President, Director and March 28, 2000
______________________________________ Authorized U.S.
John Kessock, Jr. Representative
/s/ Richard G. Turner Executive Vice President March 28, 2000
______________________________________ and Director
Richard G. Turner
/s/ Glenn R. Partridge Executive Vice President March 28, 2000
______________________________________ and Director
Glenn R. Partridge
/s/ James C. Kelly Senior Vice President and March 28, 2000
______________________________________ Chief Financial Officer
James C. Kelly (Principal Financial and
Accounting Officer)
/s/ Roger E. Dailey Director March 28, 2000
______________________________________
Roger E. Dailey
/s/ David J. Doyle Director March 28, 2000
______________________________________
David J. Doyle
/s/ Arthur E. Engel Director March 28, 2000
______________________________________
Arthur E. Engel
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Allan W. Fulkerson Director March 28, 2000
______________________________________
Allan W. Fulkerson
/s/ William F. Galtney, Jr. Director March 28, 2000
______________________________________
William F. Galtney, Jr.
/s/ Jerry S. Rosenbloom Director March 28, 2000
______________________________________
Jerry S. Rosenbloom
/s/ Norman L. Rosenthal Director March 28, 2000
______________________________________
Norman L. Rosenthal
/s/ Joseph D. Sargent Director March 28, 2000
______________________________________
Joseph D. Sargent
</TABLE>
34
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31,
----------------------
1999 1998(1)
---------- ----------
(In thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................... $ 155,387 $ 117,423
Investments--Held in available for sale account at fair
value (Amortized cost $466,857; 1998--$455,648)........ 451,920 462,434
---------- ----------
Total marketable investments.......................... 607,307 579,857
Other investments....................................... 28,426 20,664
Investment income due and accrued....................... 5,173 5,252
Accounts receivable..................................... 564,590 353,869
Reinsurance receivables................................. 1,729,936 1,079,563
Deferred expenses....................................... 30,406 27,215
Prepaid reinsurance premiums............................ 281,078 206,487
Fixed assets............................................ 28,880 19,671
Deferred tax benefit.................................... 4,233 899
Goodwill................................................ 52,924 52,901
Other assets............................................ 6,831 5,616
Assets held in separate accounts........................ 693,390 722,263
---------- ----------
Total Assets.......................................... $4,033,174 $3,074,257
========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
LIABILITIES
Reserve for losses and loss expenses.................... $1,860,120 $1,190,426
Reserve for unearned premiums........................... 335,265 241,893
Pension fund reserves................................... 67,981 79,753
Claims deposit liabilities.............................. 27,924 37,448
Accounts payable........................................ 353,966 243,418
Accrued expenses........................................ 11,054 12,052
Taxes payable........................................... 23,181 14,850
Bridging loan........................................... 117,000 --
Other loans payable..................................... 4,049 3,538
Prepaid fees............................................ 58,026 47,126
Debentures.............................................. 110,898 125,485
Other liabilities....................................... 12,176 12,839
Liabilities related to separate accounts................ 693,390 722,263
---------- ----------
Total Liabilities..................................... 3,675,030 2,731,091
---------- ----------
SHAREHOLDERS' EQUITY
Common Shares--Authorized 180,000,000 (par value $0.01)
Issued and outstanding 41,205,191 (excluding 2,636,716
cumulative shares held in treasury) (1998--
42,205,596)............................................ 412 422
Additional paid-in capital.............................. 110,755 114,916
Accumulated other comprehensive (loss) income........... (14,937) 4,456
Retained earnings....................................... 261,914 223,372
---------- ----------
Total Shareholders' Equity............................ 358,144 343,166
---------- ----------
Total Liabilities & Shareholders' Equity.............. $4,033,174 $3,074,257
========== ==========
</TABLE>
- --------
(1) Prior periods have been restated to reflect a pooling of interests
following the acquisition of Captive Resources, Inc.
See accompanying notes to consolidated financial statements
F-1
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1999 1998(1) 1997(1)
---------- ---------- ----------
(In thousands except per share
data)
<S> <C> <C> <C>
REVENUES
Fee income............................... $ 177,711 $ 157,271 $ 121,258
Premiums earned.......................... 181,798 101,913 84,200
Net investment income.................... 33,616 29,590 26,592
Realized capital losses.................. (5,199) (1,003) (1,608)
Other (losses) income.................... (300) 143 56
---------- ---------- ----------
Total Revenues.......................... 387,626 287,914 230,498
---------- ---------- ----------
EXPENSES
Losses and loss expenses incurred........ 147,705 78,258 49,857
Acquisition costs........................ 51,582 26,061 35,816
Operating expenses....................... 128,524 101,687 76,795
Interest expense......................... 6,807 6,819 6,752
Other expenses........................... 2,701 2,119 1,169
---------- ---------- ----------
Total Expenses.......................... 337,319 214,944 170,389
---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST.................................. 50,307 72,970 60,109
Income taxes (benefit)................... (365) 8,536 10,632
---------- ---------- ----------
INCOME BEFORE MINORITY INTEREST............ 50,672 64,434 49,477
Minority interest........................ (52) 93 --
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY LOSS........... 50,620 64,527 49,477
Extraordinary loss on extinguishment of
debentures, net of tax.................. 182 -- --
---------- ---------- ----------
NET INCOME................................. 50,438 64,527 49,477
Preferred share dividends................ -- -- (105)
---------- ---------- ----------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS.............................. 50,438 64,527 49,372
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized (losses) gains on investments,
net of reclassification adjustment...... (19,393) 421 3,987
---------- ---------- ----------
COMPREHENSIVE INCOME....................... $ 31,045 $ 64,948 $ 53,359
========== ========== ==========
EARNINGS PER COMMON SHARE(2)
Net income available to Common
Shareholders:
Basic.................................... $ 1.18 $ 1.56 $ 1.25
Diluted.................................. $ 1.14 $ 1.42 $ 1.15
Dividends per Common Share............... $ 0.25 $ 0.21 $ 0.19
Weighted average number of Common Shares
outstanding--Basic...................... 42,797,133 41,275,156 39,379,122
========== ========== ==========
Weighted average number of Common Shares
outstanding--Diluted.................... 49,606,913 50,233,147 48,785,252
========== ========== ==========
</TABLE>
- --------
(1) Prior periods have been restated to reflect a pooling of interests
following the acquisition of Captive Resources, Inc.
(2) Prior periods' per share calculations have been restated to reflect the
two-for-one stock split to holders of record at September 26, 1997.
See accompanying notes to consolidated financial statements
F-2
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series B
Preferred Common Dividend
Treasury Change in Share Share of
Opening Shares Shares Unrealized Net Dividends Dividends Acquired Closing
Balance Issued Purchased Gain (Loss)(4) Income Declared(1) Declared(2) Companies(6) Balance
-------- ------- --------- -------------- ------- ----------- ----------- ------------ --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31,
1999
Common Shares.......... $ 422 $ 16 $ (26) $ -- $ -- $ -- $ -- $ -- $ 412
Additional paid-in
capital............... 114,916 25,626 (29,787) -- -- -- -- -- 110,755
Accumulated other
comprehensive income
(loss)................ 4,456 -- -- (19,393) -- -- -- -- (14,937)
Retained earnings...... 223,372 -- -- -- 50,438 -- (11,005) (891) 261,914
-------- ------- -------- -------- ------- ----- -------- ------- --------
Total Shareholders'
Equity at December 31,
1999.................. $343,166 $25,642 $(29,813) $(19,393) $50,438 $ -- $(11,005) $ (891) $358,144
======== ======= ======== ======== ======= ===== ======== ======= ========
Year Ended December 31,
1998(5)
Common Shares.......... $ 399 $ 23 $ -- $ -- $ -- $ -- $ -- $ -- $ 422
Additional paid-in
capital............... 89,339 25,577 -- -- -- -- -- -- 114,916
Accumulated other
comprehensive income.. 4,035 -- -- 421 -- -- -- -- 4,456
Retained earnings...... 169,801 -- -- -- 64,527 -- (8,826) (2,130) 223,372
-------- ------- -------- -------- ------- ----- -------- ------- --------
Total Shareholders'
Equity at December 31,
1998.................. $263,574 $25,600 $ -- $ 421 $64,527 $ -- $ (8,826) $(2,130) $343,166
======== ======= ======== ======== ======= ===== ======== ======= ========
Year Ended December 31,
1997(3)(5)(7)
Common Shares.......... $ 392 $ 7 $ -- $ -- $ -- $ -- $ -- $ -- $ 399
Additional paid-in
capital............... 82,049 7,290 -- -- -- -- -- -- 89,339
Accumulated other
comprehensive income.. 48 -- -- 3,987 -- -- -- -- 4,035
Retained earnings...... 128,854 -- -- -- 49,477 (105) (7,311) (1,114) 169,801
-------- ------- -------- -------- ------- ----- -------- ------- --------
Total Shareholders'
Equity at December 31,
1997.................. $211,343 $ 7,297 $ -- $ 3,987 $49,477 $(105) $ (7,311) $(1,114) $263,574
======== ======= ======== ======== ======= ===== ======== ======= ========
</TABLE>
- --------
(1) Dividend per share amount was $.04 for 1997.
(2) Dividend per share amounts were $.25, $.21 and $.19 for 1999, 1998 and
1997 respectively (prior periods restated for stock splits).
(3) Effective September 26, 1997 the Company effected a two-for-one stock
split recorded in the form of a stock dividend. 18,741,121 Common Shares
were issued in respect of this split. Prior periods have been restated.
(4) Net of reclassification adjustment, net of tax (see Note 8).
(5) Prior periods have been restated to reflect a pooling of interests
following the acquisition of Captive Resources, Inc.
(6) Prior to the merger, International Advisory Services paid cash dividends
of $1.51 and $1.09 in 1998 and 1997 respectively based on the equivalent
number of Common Shares that would have been outstanding on the dividend
dates after giving effect to the pooling of interests in 1998. Captive
Resources, Inc. paid cash dividends of $.51, $2.05 and $2.18 in 1999, 1998
and 1997 respectively based on the equivalent number of Common Shares that
would have been outstanding on the dividend dates after giving effect to
the pooling of interests in 1999.
(7) See Note 18.
See accompanying notes to consolidated financial statements
F-3
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1999 1998(1) 1997(1)
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
NET CASH FLOW FROM OPERATING ACTIVITIES
Net income....................................... $ 50,438 $ 64,527 $ 49,477
Items not affecting cash
Depreciation.................................... 8,306 6,021 4,372
Amortization of investments..................... (1,344) (1,907) (1,608)
Net loss on sale of investments................. 5,587 1,498 1,619
Other investment gains.......................... (361) (599) --
Amortization of convertible debentures.......... 5,997 6,605 6,500
Deferred tax benefit............................ (1,004) 3,194 (2,789)
Other items..................................... 2,254 1,570 1,002
Net changes in non-cash balances relating to
operations:
Accounts receivable............................. (210,721) (166,668) (38,469)
Reinsurance receivables......................... (650,373) (448,866) (280,379)
Investment income due and accrued............... 79 (1,452) 1,191
Deferred expenses............................... (3,191) 2,777 (9,380)
Prepaid reinsurance premiums.................... (74,591) (50,469) (82,430)
Other assets.................................... (1,215) 2,050 (1,512)
Reserve for losses and loss expenses............ 669,694 473,965 296,724
Prepaid fees.................................... 10,900 6,414 7,498
Reserve for unearned premium.................... 93,372 53,504 94,647
Accounts payable................................ 110,548 102,331 1,843
Taxes payable................................... 8,331 (161) 5,748
Accrued expenses................................ (998) 3,896 2,102
Other liabilities............................... (1,074) 4,121 196
-------- -------- --------
NET CASH FLOW FROM OPERATING ACTIVITIES.......... 20,634 62,351 56,352
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investments--Available for
sale........................................... 85,312 145,745 209,745
Proceeds from maturity of investments--Available
for sale....................................... 53,183 57,175 44,685
Fixed assets purchased.......................... (17,732) (9,890) (8,483)
Investments purchased--Available for sale....... (153,949) (268,868) (243,861)
Acquisitions and other investments.............. (10,130) (28,886) (25,792)
Proceeds from sale of other investments......... 577 2,929 --
Other items..................................... 104 9 21
-------- -------- --------
NET CASH APPLIED TO INVESTING ACTIVITIES......... (42,635) (101,786) (23,685)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan repayment and interest received............ -- 389 419
Bridging loan received.......................... 117,000 -- --
Other loans received............................ 511 1,379 --
Redemption of preferred shares.................. -- -- (2,952)
Extinguishment of convertible debentures........ (6,163) -- --
Proceeds from shares issued..................... 11,209 8,055 7,297
Purchase of Treasury shares..................... (29,813) -- --
Claims deposit liabilities...................... (9,524) (4,997) (3,244)
Pension fund reserves........................... (11,773) 79,753 --
Dividends paid.................................. (11,482) (10,427) (8,301)
-------- -------- --------
NET CASH FLOW FROM (APPLIED TO) FINANCING
ACTIVITIES...................................... 59,965 74,152 (6,781)
-------- -------- --------
Net increase in cash and cash equivalents....... 37,964 34,717 25,886
Cash and cash equivalents at beginning of year.. 117,423 82,706 56,820
-------- -------- --------
Cash and cash equivalents at end of year........ $155,387 $117,423 $ 82,706
======== ======== ========
Supplemental cash flow information:
Interest paid................................... $ 810 $ 214 $ 252
======== ======== ========
Income taxes paid, net.......................... $ 3,217 $ 5,622 $ 11,848
======== ======== ========
</TABLE>
- --------
(1) Prior periods have been restated to reflect a pooling of interests
following the acquisition of Captive Resources, Inc.
See accompanying notes to consolidated financial statements
F-4
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--DECEMBER 31, 1999
1. GENERAL
Mutual Risk Management Ltd. (the "Company") was incorporated under the laws
of Bermuda in 1977. The Company is a holding company engaged, through its
subsidiaries, in providing risk management and financial services in the
United States, Bermuda, Barbados, the Cayman Islands and Europe. The "IPC
Companies" offer the IPC Program, an alternative risk facility for insureds.
The Company also provides administrative, accounting and reinsurance services
for unaffiliated captive insurers. Legion Insurance Company, a Pennsylvania
insurance company, Legion Indemnity Company, an Illinois excess and surplus
lines insurance company and Villanova Insurance Company, a Massachusetts
insurance company (together "Legion" or the "Legion Companies") act as policy-
issuing companies on many of the IPC Programs reinsuring a portion of the
liability and premium to one of the IPC Companies. MRM Financial Services Ltd.
provides financial services to offshore mutual funds and other companies.
Other subsidiaries provide specialty brokerage, proprietary loss control
services and underwriting management.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These Consolidated Financial Statements have been prepared in accordance
with generally accepted accounting principles prevailing in the United States
("GAAP") and are presented in United States Dollars.
A. Consolidation
(i) General
The Consolidated Financial Statements include the accounts of the Company
and all of its subsidiaries. All significant intercompany transactions and
balances have been eliminated on consolidation. Prior period results have been
restated to reflect a pooling of interests following the acquisition of
Captive Resources, Inc. ("CRI") (See note 18). All of the voting common shares
of the IPC companies are owned by wholly owned subsidiaries of the Company.
All of the earnings, assets and liabilities of the IPC companies attributable
to the common shareholders are consolidated on a line by line basis. All of
the non-voting preferred shares of the IPC companies are owned by program
holders (see note 2A(ii)). Management is required to make estimates that
affect the amounts reported in the Consolidated Financial Statements and
accompanying notes. Actual results may differ from those estimates.
(ii) Assets Held in and Liabilities Related to Separate Accounts
A substantial majority of the assets and liabilities of the IPC Companies
represents assets under management and related liabilities of the IPC
Programs. The program holders, through their ownership of preferred shares in
the IPC Companies, enter into a Preferred Shareholder Agreement. The preferred
shares are redeemable after five years. The Preferred Shareholder Agreements
provide for the payment of dividends to the preferred shareholders based on
Premiums earned, investment income, expenses paid and losses and loss expenses
incurred in each separate account. The final dividend on a program is
determined when all incurred losses in all underwriting years of a program are
ultimately paid; the preferred shareholder may not terminate its indemnity
obligation under the Preferred Shareholder Agreement before this time. Under
the Preferred Shareholder Agreement the program holder assumes investment and
underwriting risk and the IPC Company receives an administrative fee for
managing the program. Accordingly, the Company treats the Premium written in
connection with these programs, whether written directly or assumed as
reinsurance, as Premiums ceded to the separate accounts of the IPC Companies
and does not include such amounts in the Company's Premiums earned on the
Consolidated Statements of Income and Comprehensive Income. This Premium ceded
amounted to $257.8 million in 1999 (1998--$251.4 million; 1997--$277.4
million) of which over 80% in each year relates to workers' compensation
risks. The assets and liabilities of the IPC Companies relating to the
preferred shareholders interest are included within "Assets held in and
Liabilities related to separate accounts" on the
F-5
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidated Balance Sheets. Included in these assets are cash and marketable
investments of $340.1 million at December 31, 1999 (1998--$381.8 million) and
other assets of $220.0 million (1998--$243.5 million).
B. Investments
Investments are comprised of bonds, redeemable preferred shares and mutual
funds. All Investments are classified as available for sale in accordance with
SFAS 115 and are reported at fair market value with unrealized gains and
losses, net of tax, included in Accumulated other comprehensive income in
Shareholders' equity.
Realized gains and losses on the sale of Investments are recognized in Net
income using the specific identification basis for Bonds and the average cost
method for Mutual Funds. Investments which incur a decline in value, which is
other than temporary, are written down to fair value as a new cost basis with
the amount of the write down included in Net income. Investment income is
accrued as earned and includes amortization of premium and discount relative
to bonds acquired at amounts other than their par value.
C. Revenue Recognition
(i) Policy issuing fees earned are recorded as the premium is written and
earned over the applicable policy period. The unearned portion is included in
Prepaid fees on the Consolidated Balance Sheets.
(ii) Underwriting fees of the IPC Companies are earned over the applicable
policy period. The unearned portion of such fees is included in Prepaid fees
on the Consolidated Balance Sheets.
(iii) Investment fees earned by the IPC Companies are accrued on a daily
basis.
(iv) Commissions and brokerage fees are recorded and earned when the
business is placed with the reinsurance carrier, at which time substantially
all of the services have been performed.
(v) Premiums written and assumed are recorded on an accrual basis. Premiums
earned are calculated on a pro-rata basis over the terms of the applicable
underlying insurance policies with the unearned portion deferred on the
Consolidated Balance Sheets as Reserve for unearned premiums. Reinsurance
premiums ceded are similarly pro-rated with the prepaid portion recorded as an
asset in the Consolidated Balance Sheets. Premiums written which are related
to the separate accounts of the IPC Companies are included in Premiums ceded
(see Note 2A(ii)).
(vi) Net investment income is included after deducting various items as
detailed in Note 5C.
(vii) Realized capital (losses) gains include gains and losses on the sale
of investments available for sale, other investments and fixed assets (see
Note 5B(ii)).
D. Losses and Loss Expenses Incurred
Losses and related loss adjustment expenses are charged to income as they
are incurred and are net of losses recovered and recoverable of $1,185.7
million in 1999 (1998--$657.8 million; 1997--$521.9 million). Amounts
recoverable from reinsurers are estimated in a manner consistent with the
claim liability associated with the reinsured policy. Included in loss
reserves are gross loss reserves of $136.0 million and $121.0 million at
December 31, 1999 and 1998 which have been discounted by $39.5 million and
$36.2 million respectively, assuming interest rates of approximately 6% for
medical malpractice reserves and 4% for specific and aggregate workers'
compensation reserves. These reserves are also discounted for regulatory
filings. After reinsurance, the net effect of this discounting was to decrease
Net income by $.8 million in 1999 and increase Net income by $.9 million and
$.1 million in 1998 and 1997. Discounting also reduced net loss reserves by
$3.8 million and $4.7 million at December 31, 1999 and 1998 respectively.
F-6
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reserves are established for losses and loss adjustment expenses relating to
claims which have been reported on the basis of evaluations of independent
claims adjusters under the supervision of the Company's claims staff. In
addition, reserves are established, in consultation with the Company's
independent actuaries, for losses which have occurred but have not yet been
reported to the Company and for adverse development of reserves on reported
losses. Reinsurance receivables are shown separately on the Consolidated
Balance Sheets. Management believes that the resulting estimate of the
liability for losses and loss adjustment expenses at December 31, 1999 and
1998 is adequate to cover the ultimate net cost of losses and loss expenses
incurred, however, such liability is necessarily an estimate and no
representation can be made that the ultimate liability will not exceed such
estimate.
E. Claims Deposit Liabilities
The Company records certain programs that do not meet the conditions for
reinsurance accounting as Claims deposit liabilities on the Consolidated
Balance Sheets. In October 1998, the Accounting Standards Executive Committee
issued Statement Of Position 98-7, "Deposit Accounting: Accounting for
Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk". The
Statement provides guidance on how to account for insurance and reinsurance
contracts that do not transfer insurance risk under deposit accounting. This
Statement is effective for fiscal years beginning after June 15, 1999 with
early adoption encouraged. The Company does not expect the Statement to have a
material impact on its financial position or results of operations.
F. Income Taxes
The Company records its income tax liability and deferred tax asset in
accordance with SFAS 109. In accordance with this statement, the Company
records deferred income taxes which reflect the net tax effect of the
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
G. Depreciation and Amortization
Depreciation of furniture and equipment is provided on a straight-line basis
over their estimated useful lives ranging from 2 to 10 years. Amortization of
leasehold improvements is computed on a straight-line basis over the terms of
the leases. Accumulated depreciation at December 31, 1999 amounted to $29
million (1998--$21.1 million). Goodwill related to the acquisition of
subsidiaries is amortized on a straight-line basis over 25 to 40 years, is
evaluated periodically for any impairment in value and is included in Other
expenses on the Consolidated Statements of Income and Comprehensive Income.
Accumulated amortization at December 31, 1999 amounted to $7.6 million (1998--
$4.9 million).
H. Deferred Expenses
Deferred expenses which consist primarily of policy acquisition costs are
deferred and charged to income on a pro-rata basis over the periods of the
related policies.
I. Earnings per Common Share
Basic earnings per share is based on weighted average common shares and
excludes any dilutive effects of options and convertible securities. Diluted
earnings per share assumes the conversion of dilutive convertible securities
and the exercise of all dilutive stock options (see Note 14). Earnings per
share for 1997 have been restated to reflect the two-for-one stock split
effective September 26, 1997 (see Note 12). All earnings per share have been
restated to reflect the pooling of interests following the acquisition of
Captive Resources, Inc.
F-7
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
J. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, money market instruments and
other debt issues purchased with an original maturity of ninety days or less.
K. Zero Coupon Convertible Exchangeable Subordinated Debentures
The Debentures are recorded at original issue price plus accrued original
issue discount. The current amortization of the original issue discount is
included in Interest expense on the Consolidated Statements of Income and
Comprehensive Income.
L. Stock-Based Compensation
The Company applies APB Opinion 25 and related interpretations in accounting
for its stock option plans and accordingly, does not recognize compensation
cost as all options are issued with an exercise price equal to the market
price of the stock on the date of issue. Note 13 contains a summary of the
pro-forma effects to reported Net income and earnings per share for 1999, 1998
and 1997 had the Company elected to recognize compensation cost based on the
fair value of the options granted at grant date as prescribed by SFAS 123.
M. Pension Fund Reserves
Pension fund reserves represent receipts from the issuance of pension
investment contracts. Such receipts are considered deposits on investment
contracts that do not have mortality or morbidity risk. Account balances in
the accumulation phase are increased by deposits received and interest
credited and are reduced by withdrawals and administrative charges.
Calculations of contract holder account balances for investment contracts
reflect interest crediting rates ranging from 2.75% to 7.25% at December 31,
1999 (1998--3.05% to 7.25%), based on contract provisions, the Company's
experience and industry standards. At December 31, 1999, the amount of pension
fund reserves related to products in the accumulation phase was $62.5 million
(1998--$74.6 million).
Upon retirement, individuals can convert their accumulated pension fund
account balances into a benefit stream by purchasing a payout annuity from the
Company. Single premium life reserves are established for the payout annuities
in amounts adequate to meet the estimated future obligations of the policies
in force. The calculation of these reserves involves the use of estimates
concerning such factors as mortality rates, interest rates averaging 5.82% at
December 31, 1999 (1998--5.90%), and future expense levels applicable to the
individual policies. Mortality assumptions are based on various actuarial
tables. These assumptions consider Company experience and industry standards.
To recognize the uncertainty in the reserve calculation, the reserves include
reasonable provisions for adverse deviations from those estimates. At December
31, 1999, the amount of pension fund reserves related to payout annuities was
$5.4 million (1998--$5.2 million).
3. REINSURANCE AND CLIENT INDEMNIFICATION
A. Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result
in losses to the Company and allowances are established for amounts deemed
uncollectible. The Company evaluates the financial condition of its reinsurers
to minimize its exposure to losses from reinsurer insolvencies.
B. At December 31, 1999, Losses recoverable and Prepaid reinsurance of
$2,011.0 million (1998--$1,286.1 million) had been ceded to reinsurers other
than the IPC Companies. $1,663.2 million of this amount (1998--$1,122.4
million) has been ceded to reinsurers licensed in the United States which are
not required to
F-8
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
provide letters of credit or other collateral to secure their obligations. One
such U.S. reinsurer accounted for $207.6 million (1998--$191.0 million). The
remaining $347.8 million of reinsurance ceded (1998--$163.7 million) was ceded
to reinsurers not licensed in the United States, including $25.2 million ceded
to companies managed by the Company (1998--$12.4 million). These non-U.S.
reinsurers have provided collateral security to the Company in the form of
letters of credit and cash at December 31, 1999 of $114.0 million (1998--$42.2
million). Letters of credit held by the Company are issued by and/or confirmed
by member banks of the U.S. Federal Reserve. The Company regularly reviews the
credit exposure which it has to each bank, together with that bank's financial
position and requires replacement of the collateral security in cases where
the exposure to the bank exceeds acceptable levels. The Company's largest
exposure to an individual bank amounted to $20.1 million at December 31, 1999
(1998--$7.5 million). The IPC Companies have a $350 million (1998--$320
million) Letter of Credit facility pursuant to which letters of credit are
issued on their behalf to the Legion Companies and certain other US insurance
companies. This facility is fully collateralized by incoming letters of credit
and funds on deposit. The facility is guaranteed by the Company. At December
31, 1999 a reserve for uncollectible reinsurance of $.2 million (1998--$.3
million) was outstanding.
C. The Company's Reserve for unearned premiums and Reserve for losses and
loss expenses exclude reserves related to Premiums ceded to the IPC Companies,
where the program holders assume the underwriting risk relating to such
premium (see Note 2A(ii)). These reserves are included in Liabilities related
to separate accounts and amounted to $495.1 million at December 31, 1999
(1998--$450.3 million). Clients of the Company's IPC Program generally agree,
as part of a Shareholder Agreement, to indemnify the Company against certain
underwriting losses on the IPC Program. Clients generally provide letters of
credit or cash deposits as collateral for this indemnification, either in the
full amount of the potential net loss or to the level of expected losses as
projected by the Company. These contractual indemnifications from clients,
whether fully or partially secured, amounted to approximately $104.7 million
at December 31, 1999 (1998--$90.6 million) of which $51.5 million (1998--$36.3
million) is uncollateralized. The uncollateralized amounts will vary based on
the underwriting results of the IPC Programs. Management reviews its
collateral security position at the inception and renewal of each IPC Program
in order to minimize the risk of loss. In order for the Company to sustain a
loss on the portion of such indemnity agreement secured by a letter of credit,
the Company would have to be unable to collect from both the client and the
bank issuing the letter of credit. The Company has a credit exposure in the
event that losses exceed their expected level and the client is unable or
unwilling to honor its indemnity to the Company or fails to pay the premium
due. For these reasons the Company has established provisions for losses on
certain of these programs. These provisions are net of a reinsurance recovery
of $14.7 million under a contingency excess of loss policy at December 31,
1999. These provisions, which totaled $18.0 million at December 31, 1999
(1998--$7.3 million), reduced the level of Risk management fees by $3.1
million, $.9 million and $1.1 million for the years ended December 31, 1999,
1998 and 1997 respectively. These provisions also adversely impacted the
underwriting results for 1999 by $7.6 million (1998--$.8 million; 1997--nil).
During 1999, the Company initiated binding arbitration proceedings for the
payment of reinsurance recoverables from reinsurers who have withheld payments
due to the Company. The amounts due to the Company relate primarily to
reinsurance on workers' compensation coverage. While such reinsurance
recoverable amounts are material to the Company's results of operations and
financial position, Company management believes it will ultimately prevail in
such arbitrations and any related actions that may arise. As such, no
provision for any adverse determinations in these pending arbitrations has
been made in the consolidated financial statements of the Company.
The Company is involved in other legal actions, arbitrations and
contingencies occurring in the normal course of business. In the opinion of
management, the outcome of these matters is not expected to have a material
adverse effect on the results of operations or financial position of the
Company.
F-9
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
D. Premiums earned are the result of the following:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------
1999 1998 1997
Premiums Premiums Premiums
---------------------- ------------------ ------------------
Written Earned Written Earned Written Earned
---------- ---------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Direct.................. $1,129,935 $1,018,761 $790,776 $753,463 $642,511 $542,907
Assumed................. 64,099 54,724 59,657 48,291 12,917 15,492
Ceded to IPC
Companies(1)........... (257,848) (233,953) (251,443) (248,335) (277,448) (195,665)
Ceded to third parties.. (735,669) (657,734) (494,042) (451,506) (281,810) (278,534)
---------- ---------- -------- -------- -------- --------
Net Premiums............ $ 200,517 $ 181,798 $104,948 $101,913 $ 96,170 $ 84,200
========== ========== ======== ======== ======== ========
</TABLE>
- --------
(1) See Note 2A (ii)
4. RESERVE FOR LOSSES AND LOSS EXPENSES
The following table sets forth a reconciliation of beginning and ending
reserves for losses and loss expenses.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- --------
(In thousands)
<S> <C> <C> <C>
Gross reserves for losses and loss
adjustment expenses, beginning of year..... $1,190,426 $ 716,461 $419,737
Recoverable from reinsurers................. 1,079,563 630,697 350,318
---------- ---------- --------
Net reserves for losses and loss adjustment
expenses, beginning of year................ 110,863 85,764 69,419
Provision for losses and loss adjustment
expenses for claims occurring in:
Current year.............................. 140,574 74,476 50,301
Prior years............................... 7,131 3,782 (444)
---------- ---------- --------
Total losses and loss adjustment
expenses incurred...................... 147,705 78,258 49,857
========== ========== ========
Payments for losses and loss adjustment
expenses for claims occurring in:
Current year.............................. (61,697) (15,039) (10,850)
Prior years............................... (66,687) (38,120) (22,662)
---------- ---------- --------
Total payments.......................... (128,384) (53,159) (33,512)
========== ========== ========
Net reserves for losses and loss adjustment
expenses, end of year...................... 130,184 110,863 85,764
Recoverable from reinsurers................. 1,729,936 1,079,563 630,697
---------- ---------- --------
Gross reserves for losses and loss
adjustment expenses, end of year........... $1,860,120 $1,190,426 $716,461
========== ========== ========
</TABLE>
5. INVESTMENTS
A. Cash and cash equivalents include amounts invested in commercial paper
and discount notes at December 31, 1999 of $64.8 million (1998--$29.1
million). Substantially all of the remaining amount is invested in money
market or interest-bearing bank accounts.
F-10
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
B. (i) All Investments are held as available for sale. The amortized cost
and fair market value are as follows:
<TABLE>
<CAPTION>
At December 31, 1999
-------------------------------------------
Amortized Unrealized Unrealized Fair Market
Cost Gain Loss Value
--------- ---------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies......... $180,747 $ 274 $ 3,532 $177,489
Corporate debt securities.......... 182,827 102 9,846 173,083
-------- ------ ------- --------
Total Bonds........................ 363,574 376 13,378 350,572
Redeemable Preferred Shares........ 2,068 -- 377 1,691
-------- ------ ------- --------
365,642 376 13,755 352,263
Mutual Funds(1).................... 101,215 1,814 3,372 99,657
-------- ------ ------- --------
Total Investments................ $466,857 $2,190 $17,127 $451,920
======== ====== ======= ========
<CAPTION>
At December 31, 1998
-------------------------------------------
Amortized Unrealized Unrealized Fair Market
Cost Gain Loss Value
--------- ---------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies......... $189,236 $4,499 $ 10 $193,725
Corporate debt securities.......... 155,613 2,519 1,457 156,675
-------- ------ ------- --------
Total Bonds........................ 344,849 7,018 1,467 350,400
Redeemable Preferred Shares........ 2,108 46 6 2,148
-------- ------ ------- --------
346,957 7,064 1,473 352,548
Mutual Funds(1).................... 108,691 2,254 1,059 109,886
-------- ------ ------- --------
Total Investments................ $455,648 $9,318 $ 2,532 $462,434
======== ====== ======= ========
</TABLE>
- --------
(1) The Company invests in Mutual Funds with fair market values of $87 million
(1998--$102 million) which are administered by MRM Financial Services
Ltd., a wholly-owned subsidiary of the Company.
The Company does not have any investment in a single corporate security
which exceeds 1.4% of total bonds at December 31, 1999 (1998--1.4%).
The following unrealized gains and losses on available for sale investments
have been recorded in Accumulated other comprehensive income in Shareholders'
equity:
<TABLE>
<CAPTION>
Gross Unrealized Net Unrealized
Gains (losses) Tax Gains (losses)
---------------- ------- --------------
(In thousands)
<S> <C> <C> <C>
January 1, 1997........................ $ 320 $ (272) $ 48
Movement............................... 5,531 (1,544) 3,987
-------- ------- --------
December 31, 1997...................... 5,851 (1,816) 4,035
Movement............................... 935 (514) 421
-------- ------- --------
December 31, 1998...................... 6,786 (2,330) 4,456
Movement............................... (21,723) 2,330 (19,393)
-------- ------- --------
December 31, 1999...................... $(14,937) $ -- $(14,937)
======== ======= ========
</TABLE>
F-11
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth certain information regarding the investment
ratings of the Company's Bond and Redeemable Preferred Share portfolio.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------- --------------------
Amortized Amortized
Cost Percentage Cost Percentage
--------- ---------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Ratings(1)
AAA................................... $173,132 47.35% $202,561 58.39%
AA.................................... 46,252 12.65% 46,567 13.42%
A..................................... 111,550 30.51% 74,448 21.46%
BBB................................... 25,164 6.88% 11,952 3.44%
BB.................................... 9,544 2.61% 10,929 3.15%
B..................................... 0 0.00% 500 0.14%
-------- ------ -------- ------
Total................................. $365,642 100.00% $346,957 100.00%
======== ====== ======== ======
</TABLE>
- --------
(1) Ratings as assigned by Standard & Poor's Corporation.
The maturity distribution of Investments in Bonds and Redeemable Preferred
Shares is as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------- ---------------------
Amortized Fair Market Amortized Fair Market
Cost Value Cost Value
--------- ----------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less........... $ 27,139 $ 26,996 $ 23,836 $ 24,035
Due in one year through five
years............................ 111,017 109,728 84,372 85,895
Due in five years through ten
years............................ 82,191 77,758 76,871 78,331
Due after ten years............... 145,295 137,781 161,878 164,287
-------- -------- -------- --------
Total............................. $365,642 $352,263 $346,957 $352,548
======== ======== ======== ========
</TABLE>
(ii) Realized gains and losses:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1999 1998 1997
------- -------- --------
(In thousands)
<S> <C> <C> <C>
Proceeds from sale of Investments
--held as available for sale..................... $85,312 $145,745 $209,745
======= ======== ========
Realized gains on Investments
--held as available for sale..................... $ 932 $ 1,703 $ 1,636
Realized losses on Investments
--held as available for sale..................... (6,519) (3,201) (3,255)
------- -------- --------
Net realized losses............................... (5,587) (1,498) (1,619)
Other gains....................................... 388 495 11
------- -------- --------
Realized capital losses........................... $(5,199) $ (1,003) $ (1,608)
======= ======== ========
</TABLE>
F-12
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
C. Details of investment income by major categories are presented below:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Cash and cash equivalents............................ $ 5,622 $ 6,054 $ 7,958
Mutual funds......................................... 9,872 9,214 4,729
Preferred stock...................................... 172 79 349
Bonds................................................ 20,502 19,866 16,875
------- ------- -------
Gross investment income.............................. 36,168 35,213 29,911
Claims deposit liabilities, net...................... (1,552) (4,314) (2,450)
Contract expense..................................... (380) (728) (396)
Investment expenses.................................. (620) (581) (473)
------- ------- -------
Net investment income................................ $33,616 $29,590 $26,592
======= ======= =======
</TABLE>
Net investment income is reported after deducting investment income earned
on assets related to Claims deposit liabilities. Contract expense represents
investment income where the Company has contracted to pay this income to the
insured. Investment expenses consisting of investment advisory fees and
custodian charges have been deducted from Net investment income.
D. Legion is required by certain states in which it operates to maintain
special deposits or provide letters of credit. This obligation amounted to
$166.4 million at December 31, 1999 (1998--$152.2 million) and included
deposits of $59.6 million (1998--$60.5 million) and letters of credit of
$106.8 million (1998--$91.7 million).
6. ZERO COUPON CONVERTIBLE EXCHANGEABLE SUBORDINATED DEBENTURES
On October 30, 1995, the Company issued $324.3 million principal amount of
Zero Coupon Convertible Exchangeable Subordinated Debentures ("Debentures")
with an aggregate issue price of $115.0 million. The issue price of each
Debenture was $354.71 and there will be no periodic payments of interest. The
Debentures will mature on October 30, 2015 at $1,000 per Debenture
representing a yield to maturity of 5.25% (computed on a semi-annual bond
equivalent basis). The Debentures are subordinated to all existing and future
senior indebtedness of the Company.
Each Debenture is convertible at the option of the holder at any time on or
prior to maturity, unless previously redeemed or otherwise purchased by the
Company, into Common Shares of the Company at a conversion rate of 21.52
shares per Debenture or an aggregate of 6,978,800 Common Shares. The
Debentures may be purchased by the Company, at the option of the holder, as of
October 30, 2000, October 30, 2005 and October 30, 2010, at the issue price
plus accrued original issue discount. The Company, at its option, may elect to
pay such purchase price on any particular purchase date in cash or Common
Shares, or any combination thereof. After October 30, 2000, each Debenture is
redeemable in cash at the option of the Company for an amount equal to the
issue price plus accrued original issue discount.
Prior to October 30, 2000 the Debentures will be purchased for cash by the
Company, at the option of the holder, in the event of a Fundamental Change (as
defined). In addition, the Company will have the right, under certain
circumstances, to require the holders to exchange the Debentures for
Guaranteed Zero Coupon Exchangeable Subordinated Debentures due 2015 of Mutual
Group Ltd. (the "Exchangeable Debentures"), to be guaranteed on a subordinated
basis by the Company. The Exchangeable Debentures will be exchangeable for the
Company's Common Shares and will otherwise have terms and conditions
substantially identical to the Debentures. During the year Debentures
representing a principal amount of $34.23 million (1998--$24.1 million) were
converted into 736,606 Common Shares (1998--518,503 Common Shares).
F-13
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the year Debentures representing a principal amount of $14 million
were repurchased in the open market for $6.3 million, resulting in an
extraordinary loss of $.18 million, net of tax.
7. BRIDGING LOAN
The Company has entered into a $250 million bridging loan agreement with
various financial institutions. Interest rates on the facility are based on
LIBOR plus .75%. The credit agreement contains certain financial covenants,
including the requirement that the Company's total consolidated indebtedness
to total capital ratio shall not exceed 0.45:1, and that Shareholders' equity
shall be greater than or equal to $341,674,000. For these purposes,
Shareholders' equity is to be calculated in accordance with U. S. GAAP, but
excludes any unrealized gains or losses and any goodwill in excess of $55
million.
At December 31, 1999, the Company had $117 million outstanding under this
loan, on which monthly interest payments are made, with the principal sum
being repayable on September 6, 2000. Under the terms of the agreement, and if
the Company was in compliance with the covenants thereunder, the Company has
access to an additional $133 million should the need arise. Under the
agreement the Company has access to this facility for a six month period
ending June 6, 2000.
The Company was in compliance with all the covenants of this bridging loan
agreement as of December 31, 1999. Interest payments on the above loan totaled
$.4 million for the year ended December 31, 1999. The repayment of the loan
has been guaranteed by Mutual Group Ltd., a U.S. subsidiary of the Company.
Additionally, the Common Shares of the Company's significant subsidiaries have
been pledged as collateral for the repayment of the loan.
8. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption
of this Statement had no impact on the Company's Net income or Shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available for sale investments, which prior to adoption were reported
separately in Shareholders' equity, to be included in Other comprehensive
income.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-----------------------------
Before Tax Net of Tax
Amount Tax Amount
---------- ------ ----------
(In thousands)
<S> <C> <C> <C>
Net unrealized (losses) gains on available for
sale investments arising during the year....... $(27,310) $2,702 $(24,608)
Less: reclassification adjustment for losses
realized in net income......................... 5,587 (372) 5,215
-------- ------ --------
Other comprehensive income...................... $(21,723) $2,330 $(19,393)
======== ====== ========
<CAPTION>
Year Ended December 31, 1998
-----------------------------
Amount Tax Amount
---------- ------ ----------
(In thousands)
<S> <C> <C> <C>
Net unrealized (losses) gains on available for
sale investments arising during the year....... $ (563) $ 63 $ (500)
Less: reclassification adjustment for losses
realized in net income......................... 1,498 (577) 921
-------- ------ --------
Other comprehensive income...................... $ 935 $ (514) $ 421
======== ====== ========
</TABLE>
F-14
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------- -------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Investments............................. $451,920 $451,920 $462,434 $462,434
Other investments....................... $ 28,426 $ 28,426 $ 20,664 $ 20,664
Claims deposit liabilities.............. $ 27,924 $ 23,850 $ 37,448 $ 32,624
Debentures.............................. $110,898 $115,001 $125,485 $144,252
Bridging loan........................... $117,000 $117,000 $ -- $ --
</TABLE>
The following methods and assumptions were used to estimate the fair value
of specific classes of financial instruments. The carrying values of all other
financial instruments, as defined by SFAS 107, approximate their fair values
due to their short term nature.
Investments:
The fair market value of Investments is calculated using quoted market
prices.
Other investments:
Other investments consist primarily of privately held companies that do not
have readily ascertainable market values. These investments are initially
recorded at cost and are revalued based principally on substantive events or
factors which could indicate a diminution or appreciation in value.
Claims deposit liabilities:
The fair value of Claims deposit liabilities is calculated by discounting
the actuarially determined ultimate loss payouts at a rate of 6%.
Debentures:
The fair value of the Debentures is calculated using discounted cash flow
analyses based on current borrowing rates for similar types of borrowing
arrangements.
Bridging loan:
The Bridging loan bears interest at a floating rate and is repayable on
September 6, 2000, and as such, the fair value equals the carrying amount.
Assets held in separate accounts:
(a) Within Assets held in separate accounts are cash and marketable
investments with a carrying value and fair value of $471.2 million (1998:
$467.3 million). Fair value is calculated using quoted market prices.
(b) Within the $222.2 million of other assets (1998: $255.0 million) $70.0
million (1998: $78.5 million) are financial instruments. The fair market value
of other assets approximates carrying value due to the short term nature of
these items.
10. INCOME TAXES
The Company is incorporated under the laws of Bermuda and, under current
Bermuda law, is not obligated to pay any taxes in Bermuda based upon income or
capital gains. The Company has received an undertaking
F-15
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
from the Minister of Finance in Bermuda pursuant to the provisions of the
Exempted Undertakings Tax Protection Act, 1966, which exempts the Company and
its shareholders, other than shareholders ordinarily resident in Bermuda, from
any Bermuda taxes computed on profits, income or any capital asset, gain or
appreciation, or any tax in the nature of estate duty or inheritance tax, at
least until the year 2016.
Mutual Risk Management Ltd. and its non-U.S. subsidiaries, except as
described below, do not consider themselves to be engaged in a trade or
business in the United States and accordingly do not expect to be subject to
direct United States income taxation.
The United States subsidiaries of the Company file a consolidated U.S.
federal income tax return. Mutual Indemnity (U.S.) Ltd. and Premium Securities
Ltd., Bermuda subsidiaries of the Company, have made irrevocable elections to
be taxed as domestic United States corporations.
Income tax (benefit) expense consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -------
(In thousands)
<S> <C> <C> <C>
December 31, 1999:
U.S. federal....................................... $ (118) $(1,004) $(1,122)
U.S. state and local............................... 169 -- 169
Foreign............................................ 588 -- 588
------- ------- -------
$ 639 $(1,004) $ (365)
======= ======= =======
December 31, 1998:
U.S. federal....................................... $ 4,603 $ 3,198 $ 7,801
U.S. state and local............................... 171 (4) 167
Foreign............................................ 568 -- 568
------- ------- -------
$ 5,342 $ 3,194 $ 8,536
======= ======= =======
December 31, 1997:
U.S. federal....................................... $11,103 $(2,763) $ 8,340
U.S. state and local............................... 1,160 (26) 1,134
Foreign............................................ 1,158 -- 1,158
------- ------- -------
$13,421 $(2,789) $10,632
======= ======= =======
</TABLE>
The effective total tax rate differed from the statutory U.S. federal tax
rate for the following reasons:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Statutory U.S. federal tax rate.................... 35.0 % 35.0% 35.0%
Increase (reduction) in income taxes resulting
from:
U.S. state taxes................................. 0.2 0.2 1.2
Tax-exempt interest income....................... (2.5) (2.1) (3.1)
Foreign income not expected to be taxed in the
U.S............................................. (29.3) (18.2) (13.7)
Foreign taxes.................................... 1.2 0.8 1.9
Options.......................................... (6.2) (4.4) (3.7)
Other, net....................................... 0.9 0.4 (0.0)
------- ------- -------
Total............................................ (0.7)% 11.7% 17.6%
======= ======= =======
</TABLE>
F-16
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Unearned premiums and fees not deducted for tax........... $ 6,008 $ 7,355
Unpaid losses, discounted for tax......................... 10,164 11,870
Unrealized losses......................................... 3,463 --
Interest rate swap........................................ -- 704
Other..................................................... 120 154
-------- --------
Total gross deferred tax assets......................... 19,755 20,083
======== ========
Deferred tax liabilities:
Deferred acquisition costs................................ (7,090) (5,913)
Deferred marketing expenses............................... (2,577) (2,198)
Deferred market discount.................................. (1,039) (923)
Unrealized gains.......................................... -- (2,330)
Other..................................................... (1,353) (7,820)
-------- --------
Total gross deferred tax liabilities.................... (12,059) (19,184)
======== ========
Deferred tax benefit...................................... $ 7,696 $ 899
Valuation allowance on unrealized losses.................. (3,463) --
-------- --------
Net deferred tax benefit................................ $ 4,233 $ 899
======== ========
</TABLE>
The valuation allowance of $3.5 million relates to unrealized losses and has
been accounted for in Accumulated other comprehensive income.
11. REDEEMABLE PREFERRED AND COMMON SHARES
A. Series B Non-Voting Redeemable Preferred Shares--Authorized and issued
2,951,835, par value $1.00 per share. These shares were issued to one of the
IPC Companies as the holder of record for the benefit of the IPC Program
participants and were entitled to fixed, cumulative, preferential, semi-annual
dividends calculated at the six month LIBOR rate based on the redemption price
of $2.95 million. The Series B Non-Voting Redeemable Preferred Shares were
redeemed for their $1.00 par value or $2.95 million in 1997. The average
effective annual interest rate on these shares was 5.0% in 1997.
B. Common Shares Subject to Redemption--Issued 937,168 at $1.75 per share.
These shares were issued to four executive officers of the Company. The
Company had the right to reacquire these shares if the employees defaulted on
the loans used for the purchase. Two subsidiaries of the Company made loans to
these executive officers during 1990 for the purchase of the Common Shares
Subject to Redemption. These loans have been repaid and the Common Shares
included in Shareholders' equity.
12. SHAREHOLDERS' EQUITY AND RESTRICTIONS
A. The Board of Directors, on October 5, 1999, approved a stock repurchase
program to purchase up to three million of its outstanding Common Shares. On
October 27, 1999, the Board of Directors authorized the repurchase of an
additional two million shares. As of December 31, 1999, a total of 2,636,716
shares had been repurchased at an average price of $11.31.
F-17
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the last quarter of 1999, the Company sold 570,000 put options for a
total consideration of $339,481 which has been recorded directly in additional
paid-in capital. The put options entitle the holders to sell Common Shares to
the company if the price of the Company's Common Shares falls below a
specified strike price. At December 31, 1999, 250,000 put options were
outstanding and no options had been exercised. The options expire at various
dates through May 2000 and have an average strike price of $12.83.
B. In September 1997 the company announced a two-for-one stock split of its
Common Shares. In connection with this split the Company issued an additional
18,741,121 Common Shares and 468,584 Common Shares subject to redemption.
C. The Company's ability to pay dividends is subject to certain restrictions
including the following:
(i) The Company is subject to a 30% U.S. withholding tax on any dividends
received from its U.S. subsidiaries and certain of the IPC Companies.
(ii) The Company's ability to cause the Legion Companies to pay a
dividend is limited by insurance regulation to an annual amount equal to
the greater of 10% of the Legion Companies' statutory surplus as regards
policyholders, or the Legion Companies' statutory income for the preceding
year. The maximum dividend the Legion Companies will be permitted to pay
under this restriction in 2000 is $35.0 million based upon 1999 results
(1999--$23.6 million based on 1998 results). The Legion Companies' net
assets which were restricted by the above were $353.6 million at December
31, 1999 (1998--$236.9 million). Loans and advances by the Legion Companies
to the Company or any other subsidiary would require the prior approval of
the Pennsylvania insurance department and possibly other states in which
they are licensed.
D. At December 31, 1999 the Legion Companies' combined risk-based capital
was $347.4 million (1998--$225.5 million). Under the risk-based capital tests,
the threshold that constitutes the authorized control level, which authorizes
the commissioner to take whatever regulatory actions considered necessary to
protect the best interest of the policyholders and creditors of the Legion
Companies was $121.0 million (1998--$78.5 million).
E. Net income and policyholders' surplus of the Legion Companies, as filed
with regulatory authorities on the basis of statutory accounting practices,
are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Statutory net income for the year................... $ 11,269 $ 20,238 $ 21,947
Statutory policyholders' surplus at year end........ $349,867 $227,664 $200,249
</TABLE>
13. STOCK OPTIONS
Employees have been granted options to purchase Common Shares under the
Company's Long Term Incentive Plans. In each case, the option price equals the
fair market value of the Common Shares on the day of the grant and an option's
maximum term is five to ten years. Options granted vest ratably over a four
year period.
F-18
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In accordance with the provisions of SFAS 123, the Company applies APB
Opinion 25 and related Interpretations in accounting for its stock option
plans and, accordingly, does not recognize compensation cost. If the Company
had elected to recognize compensation cost based on the fair value of the
options granted at grant date as prescribed by SFAS 123, net income and
earnings per share would have been reduced to the pro forma amounts indicated
in the table below:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1999 1998 1997
------------- ------------- -------------
(In thousands except per share amounts)
<S> <C> <C> <C>
Net income--as reported............. $ 50,438 $ 64,527 $ 49,372
Net income--pro forma............... $ 44,465 $ 60,732 $ 47,192
Basic earnings per share--as
reported........................... $1.18 $1.56 $1.25
Basic earnings per share--pro
forma.............................. $1.04 $1.47 $1.20
Diluted earnings per share--as
reported........................... $1.14 $1.42 $1.15
Diluted earnings per share--pro
forma.............................. $1.02 $1.38 $1.13
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<S> <C> <C> <C>
Expected dividend yield.... 1.5% 0.6% 0.5%
Expected stock price
volatility................ .329-.398 .307-.330 .283-.329
Risk-free interest rate.... 5.9% 5.3% 5.0%
Expected life of options... 4 years-9 years 4 years-9 years 4 years-9 years
</TABLE>
The weighted average fair value of options granted during 1999 is $5.74 per
share (1998--$11.35 per share, 1997--$7.83 per share).
The pro forma effect on net income for 1999, 1998 and 1997 is not
representative of the pro forma effect on net income in future years because
it does not take into consideration pro forma compensation expense related to
grants made prior to 1995.
Options issued and outstanding under the plans are as follows:
Summary of Employee Stock Option Plan Activity
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Number of Options
Outstanding, beginning of year... 4,220,580 3,794,925 3,442,322
Granted.......................... 1,586,183 1,010,399 1,015,100
Exercised........................ (744,223) (563,293) (615,189)
Cancelled........................ (138,267) (21,451) (47,308)
------------- ------------- -------------
Outstanding and exercisable, end
of year......................... 4,924,273 4,220,580 3,794,925
============= ============= =============
Option Price Per Share
Granted.......................... $11.44-$39.63 $26.25-$38.31 $15.00-$28.63
Exercised........................ $ 7.97-$26.25 $ 7.97-$26.25 $ 7.97-$15.14
Cancelled........................ $ 9.52-$39.54 $10.83-$26.25 $ 7.97-$19.38
Outstanding and exercisable, end
of year......................... $11.44-$39.63 $ 7.97-$38.31 $ 7.97-$28.63
</TABLE>
F-19
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summary of Options Outstanding at December 31, 1999
<TABLE>
<CAPTION>
Weighted
Year of Number Number of Average Exercise
Grant of Shares Shares Vested Exercise Price Price Range Expiration Date Range
- ------- --------- ------------- -------------- ------------- --------------------------------------
<S> <C> <C> <C> <C> <C>
1995 316,553 316,553 $15.08 $13.97-$15.14 September 21, 2000 to December 1, 2000
1996 1,211,451 490,032 $15.11 $14.25-$16.78 January 2, 2001 to December 17, 2006
1997 898,625 440,750 $25.55 $15.00-$28.63 January 31, 2002 to December 18, 2002
1998 980,461 217,172 $35.23 $29.94-$38.31 January 2, 2003 to December 21, 2003
1999 1,517,183 -- $17.06 $11.44-$39.63 February 26, 2004 to December 14, 2004
--------- --------- ------
4,924,273 1,464,507 $21.54
========= ========= ======
</TABLE>
Options generally vest 25% annually commencing one year after issuance,
except for 770,000 of the options issued in 1996 at a grant price of $15,
which were issued to executives of the Company. These options are for 10 years
and 75% have vesting schedules tied to the conversion of the Zero Coupon
Convertible Exchangeable Subordinated Debentures (see Note 6) and other
performance benchmarks.
Options have been granted to each of the outside directors. All options are
for five years and become exercisable six months after issuance.
Total options granted to directors are as follows:
<TABLE>
<CAPTION>
Number of Shares
Year of ------------------- Exercise
Grant Granted Outstanding Price Expiration Date
- ------- ------- ----------- ------------- --------------------------------
<S> <C> <C> <C> <C>
1995 140,000 140,000 $15.14 December 1, 2000
1996 105,000 105,000 $16.69 December 1, 2001
1997 75,000 75,000 $19.50-$27.81 May 21, 2002 to December 1, 2002
1998 60,000 60,000 $37.25 December 1, 2003
1999 60,000 60,000 $14.75 December 1, 2004
------- -------
440,000 440,000
======= =======
</TABLE>
F-20
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings
per common share.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(In thousands, except shares and
earnings per share)
<S> <C> <C> <C>
Numerator
Income before extraordinary loss.............. $ 50,620 $ 64,527 $ 49,477
Extraordinary loss on extinguishment of
debentures, net of tax....................... 182 -- --
---------- ---------- ----------
Net Income.................................... 50,438 64,527 49,477
Preferred share dividends..................... -- -- 105
Numerator for basic earnings per common share
--Net income available to common
shareholders................................ 50,438 64,527 49,372
---------- ---------- ----------
Effect of dilutive securities:
Conversion of Zero Coupon Convertible
Exchangeable Subordinated Debentures........ 5,997 6,605 6,500
Numerator for diluted earnings per common
share
--Net income available to common shareholders
after assumed conversions................... $ 56,435 $ 71,132 $ 55,872
========== ========== ==========
Denominator
Denominator for basic earnings per common
share--weighted average shares............... 42,797,133 41,275,156 39,379,122
Effect of dilutive securities:
Stock options................................ 991,406 2,223,900 1,565,950
Common shares subject to Redemption.......... -- -- 861,380
Conversion of Zero Coupon Convertible
Exchangeable Subordinated Debentures........ 5,818,374 6,734,091 6,978,800
---------- ---------- ----------
Denominator for diluted earnings per common
share--adjusted weighted average shares and
assumed conversions.......................... 49,606,913 50,233,147 48,785,252
========== ========== ==========
Basic earnings per common share
Income before extraordinary loss............. $ 1.18 $ 1.56 $ 1.25
Extraordinary loss on extinguishment of
debentures, net of tax...................... $ 0.00 $ -- $ --
---------- ---------- ----------
Basic earnings per common share............... $ 1.18 $ 1.56 $ 1.25
========== ========== ==========
Diluted earnings per common share
Income before extraordinary loss............. $ 1.14 $ 1.42 $ 1.15
Extraordinary loss on extinguishment of
debentures, net of tax...................... $ 0.00 $ -- $ --
---------- ---------- ----------
Diluted earnings per common share............. $ 1.14 $ 1.42 $ 1.15
========== ========== ==========
</TABLE>
15. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has had only limited involvement with derivative financial
instruments and does not use them for trading or speculative purposes. They
are utilized to manage interest rate risk.
In June 1998, the Financial Accounting Standards Board issued Statement 133,
"Accounting for Derivative Instruments and Hedging Activities" which was
amended by Statement 137 in June 1999. The Statement
F-21
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
requires recording all derivative instruments as assets or liabilities,
measured at fair value. The Statement is effective for fiscal years beginning
after June 15, 2000. The Company does not expect the Statement to have a
material impact on its financial position or results of operations.
16. SEGMENT INFORMATION
Selected information by operating segment is summarized in the chart below.
Line of Business Financial Information
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Revenue(1)
Program Business................................. $ 95,132 $ 82,267 $ 49,363
Corporate Risk Management........................ 49,365 51,640 54,800
Specialty Brokerage.............................. 13,692 9,021 8,351
Financial Services............................... 19,522 14,343 8,744
Underwriting..................................... 181,798 101,913 84,200
Net investment income............................ 28,417 28,587 24,984
Other............................................ (300) 143 56
-------- -------- --------
Total.......................................... $387,626 $287,914 $230,498
======== ======== ========
Income Before Income Taxes and Minority Interest
Program Business................................. $ 26,969 $ 32,620 $ 19,080
Corporate Risk Management........................ 15,694 20,158 20,498
Specialty Brokerage.............................. 5,226 2,264 2,594
Financial Services............................... 1,298 542 2,291
Underwriting..................................... (17,489) (2,406) (1,473)
Net investment income............................ 21,610 21,768 18,232
Other............................................ (3,001) (1,976) (1,113)
-------- -------- --------
Total.......................................... $ 50,307 $ 72,970 $ 60,109
======== ======== ========
</TABLE>
- --------
(1) Fee income from two clients accounted for 2% and 2% of total Fee income in
1999 (1998--2% and 1%; 1997--2% and 1%). Premiums earned from two clients
accounted for 6% and 6% of total Premiums earned during 1999 (1998--4% and
3%; 1997--5% and 4%). The subsidiaries' accounting records do not capture
information by reporting segment sufficient to determine identifiable
assets by such reporting segments.
F-22
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. FOREIGN SALES AND OPERATIONS
The Company's non-U.S. operations include Bermuda, Barbados, the Cayman
Islands and Europe.
Financial Information Relating to Geographic Areas
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Total Revenues
U.S. Business................................ $ 291,458 $ 193,653 $ 161,681
Non-U.S. Business............................ 96,168 94,261 68,817
---------- ---------- ----------
Total...................................... $ 387,626 $ 287,914 $ 230,498
========== ========== ==========
Income Before Income Taxes and Minority
Interest
U.S. Business................................ $ 15,911 $ 38,285 $ 38,485
Non-U.S. Business............................ 34,396 34,685 21,624
---------- ---------- ----------
Total...................................... $ 50,307 $ 72,970 $ 60,109
========== ========== ==========
Total Assets
U.S. Business................................ $3,078,861 $2,082,077 $1,411,881
Non-U.S. Business(1)......................... 954,313 992,180 794,169
---------- ---------- ----------
Total...................................... $4,033,174 $3,074,257 $2,206,050
========== ========== ==========
</TABLE>
- --------
(1) Includes Assets held in separate accounts of $693.4 million, $722.3
million and $649.2 million for 1999, 1998 and 1997 respectively.
18. ACQUISITIONS
During 1998 the Company acquired several new businesses for a total of $25.6
million (1997--$19.6 million). The excess of the purchase price over net
assets acquired was $21.9 million (1997--$18.7 million). These acquisitions
were accounted for by the purchase method. The pro forma effect on the
Company's revenue, net income and earnings per share is not material.
During 1998 the Company acquired CompFirst, Inc. and IAS in a business
combination accounted for as a pooling of interests. These companies became
wholly owned subsidiaries of the Company through the exchange of 943,821
Common Shares for 100% of each company's outstanding stock.
F-23
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On March 1, 1999, the Company acquired Captive Resources, Inc. ("CRI") in a
business combination accounted for as a pooling of interests. CRI became a
wholly owned subsidiary of the Company through the exchange of 1,058,766
Common Shares for 100% of its outstanding stock.
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1998 1997
------------ ------------
(In thousands)
<S> <C> <C>
Revenues
MRM(1)................................................ $279,396 $223,826
Captive Resources, Inc................................ 8,518 6,672
-------- --------
As restated......................................... $287,914 $230,498
======== ========
Net Income
MRM(1)................................................ $ 63,632 $ 48,811
Captive Resources, Inc................................ 895 666
-------- --------
As restated......................................... $ 64,527 $ 49,477
======== ========
</TABLE>
- --------
(1) As previously reported
Shareholders' equity at January 1, 1997 was restated as follows:
<TABLE>
<CAPTION>
As previously Captive
reported Resources, Inc. As restated
------------- --------------- -----------
(In thousands)
<S> <C> <C> <C>
Common shares....................... $ 381 $ 11 $ 392
Additional paid-in capital.......... 82,059 (10) 82,049
Accumulated other comprehensive
income............................. 48 0 48
Retained earnings................... 129,036 (182) 128,854
-------- ----- --------
Total shareholders' equity........ $211,524 $(181) $211,343
======== ===== ========
</TABLE>
19. RELATED PARTY TRANSACTIONS
A. $.8 million (1998--$.6 million; 1997--$.9 million) of Fee income and
$(.1) million (1998--$1.4 million; 1997--$4.2 million) of premiums were earned
from a certain IPC Program participant associated with a director and
shareholder of the Company.
B. A number of subsidiaries of the Company have written business involving
subsidiaries of The Galtney Group, Inc. ("GGI") of which a director of the
Company is the principal shareholder. During 1999 the Company paid fees of
$3.0 million on such business to GGI (1998--$4.0 million; 1997--$4.3 million).
C. The Company and its subsidiaries provide administrative and accounting
services to a number of unaffiliated insurance and reinsurance companies.
Certain officers, directors and employees of the Company serve as officers and
directors of these companies, generally without remuneration.
D. In connection with the Company's acquisition of The Hemisphere Group
Limited ("Hemisphere") in July 1996, the Company acquired a 40% interest in
the Hemisphere Trust Company Limited ("Hemisphere Trust"), a Bermuda "local"
trust company, which had formerly been a wholly owned subsidiary of
Hemisphere. As a "local" Bermuda company, at least 60% of the shares of
Hemisphere Trust must be owned by Bermudians. In compliance with this
requirement, Mr. Robert A. Mulderig, Chairman and CEO of the Company, acquired
F-24
<PAGE>
MUTUAL RISK MANAGEMENT LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
60% of Hemisphere Trust for $.2 million at the time of the Company's
acquisition of Hemisphere. The amount of the purchase price was equal to 60%
of the book value of Hemisphere Trust on the date of acquisition.
The Company and Mr. Mulderig have entered into a Shareholders' Agreement
relating to Hemisphere Trust which provides, amongst other things, that (i)
the Company has the option, subject to regulatory approval to acquire Mr.
Mulderig's interest in Hemisphere Trust at Mr. Mulderig's cost, plus interest
at 6% per annum; (ii) the Company has a pre-emptive right, also subject to
regulatory approval, over the shares held by Mr. Mulderig and (iii) no
dividends or other distributions can be made by Hemisphere Trust without the
prior consent of the Company.
20. QUARTERLY FINANCIAL DATA--(UNAUDITED)
<TABLE>
<CAPTION>
1999--Quarters Ended
---------------------------------------
Dec 31 Sept 30 June 30 March 31
-------- --------- --------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Total revenues.......................... $ 89,293 $ 102,623 $ 103,817 $ 91,893
Income before income taxes and minority
interest............................... 7,723 2,065 19,713 20,806
Income before minority interest......... 8,417 5,366 18,098 18,791
Income before extraordinary loss........ 8,365 5,361 18,095 18,799
Net income.............................. 8,183 5,361 18,095 18,799
Net income available to common
shareholders........................... 8,183 5,361 18,095 18,799
Basic earnings per Common Share:
Net income available to common
shareholders......................... $ 0.20 $ 0.12 $ 0.42 $ 0.44
<CAPTION>
1998--Quarters Ended(1)
---------------------------------------
Dec 31 Sept 30 June 30 March 31
-------- --------- --------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Total revenues.......................... $ 77,351 $ 72,935 $ 65,154 $ 72,474
Income before income taxes and minority
interest............................... 18,070 19,309 18,149 17,442
Income before minority interest......... 16,113 17,054 16,092 15,175
Net income.............................. 16,163 17,097 16,092 15,175
Net income available to common
shareholders........................... 16,163 17,097 16,092 15,175
Basic earnings per Common Share:
Net income available to common
shareholders......................... $ 0.38 $ 0.41 $ 0.39 $ .0.38
</TABLE>
- --------
(1) Prior periods have been restated to reflect a pooling of interests
following the acquisition of Captive Resources, Inc.
21. SUBSEQUENT EVENTS
In January and February 2000, the Company repurchased Convertible Debentures
representing a principal amount of $168.1 million in the open market for $76.8
million, resulting in an extraordinary loss of $3.4 million, net of tax. The
Company expects to have similar extraordinary losses in the future if it
repurchases the remaining $83.9 million principal amount of Convertible
Debentures in 2000.
In January and February 2000, the Company drew down an additional $76.0
million under the bridging loan facility (see note 7).
In February 2000, the Company filed an S-3 Shelf Registration Statement with
the U. S. Securities and Exchange Commission, for the future issuance of $500
million of debt and preferred securities.
F-25
<PAGE>
INDEPENDENT AUDITOR'S REPORT
[LOGO OF ERNST & YOUNG
APPEARS HERE]
To the Board of Directors and Shareholders
Mutual Risk Management Ltd.
We have audited the accompanying consolidated balance sheets of Mutual Risk
Management Ltd. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income and comprehensive income, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. 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 in accordance with auditing standards generally
accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mutual Risk
Management Ltd. and subsidiaries at December 31, 1999 and 1998, and the
consolidated 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.
/S/ ERNST & YOUNG
Hamilton, Bermuda
February 15, 2000
except for note 21, as to which the date is
February 29, 2000
F-26
<PAGE>
MUTUAL RISK MANAGEMENT LTD
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY BALANCE SHEETS
<TABLE>
<CAPTION>
1999 1998(1)
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 6,721,527 $ 689,260
Investments.......................................... 9,664,914 8,594,316
Investments in subsidiaries and affiliates........... 570,072,530 425,013,307
Due from subsidiaries and affiliates................. 542,308 34,455,222
Other Assets......................................... 2,319,150 2,371,905
------------ ------------
Total Assets......................................... $589,320,429 $471,124,010
============ ============
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES &
SHAREHOLDERS'
EQUITY
</TABLE>
<TABLE>
<S> <C> <C>
LIABILITIES
Accounts payable and accrued expenses............... $ 393,741 $ 926
Other liabilities................................... 2,884,665 2,471,885
Debentures.......................................... 110,898,002 125,485,201
Bridging loan....................................... 117,000,000 --
------------ ------------
Total Liabilities................................... 231,176,408 127,958,012
============ ============
SHAREHOLDERS' EQUITY
Common Shares--Authorized 180,000,000 (par value
$0.01) Issued 41,205,191 (excluding 2,636,716
cumulative shares held in treasury) (1998--
42,205,596)........................................ 412,052 422,056
Additional paid-in capital.......................... 110,754,754 114,916,045
Accumulated other comprehensive (loss) income....... (14,937,127) 4,456,781
Retained earnings................................... 261,914,342 223,371,116
------------ ------------
Total Shareholders' Equity.......................... 358,144,021 343,165,998
------------ ------------
Total Liabilities & Shareholders' Equity............ $589,320,429 $471,124,010
============ ============
</TABLE>
- --------
(1) Prior periods have been restated to reflect a pooling of interests
following the acquisition of Captive Resources, Inc.
See Notes to Consolidated Financial Statements
S-1
<PAGE>
MUTUAL RISK MANAGEMENT LTD
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY INCOME STATEMENTS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1999 1998(1) 1997(1)
------------ ----------- -----------
<S> <C> <C> <C>
NET INVESTMENT INCOME................. 1,008,904 2,171,384 2,928,791
Operating expenses.................... 141,055 141,140 140,943
Interest expense...................... 573,200 -- --
Amortization of debentures............ 5,996,459 6,605,238 6,500,288
------------ ----------- -----------
LOSS BEFORE EXTRAORDINARY LOSS AND
EQUITY IN EARNINGS OF SUBSIDIARIES... (5,701,810) (4,574,994) (3,712,440)
Extraordinary loss on extinguishment
of debentures, net of tax............ (181,742) -- --
------------ ----------- -----------
NET LOSS BEFORE EQUITY IN EARNINGS OF
SUBSIDIARIES......................... (5,883,552) (4,574,994) (3,712,440)
Dividend from subsidiaries............ -- -- 11,922,627
Undistributed equity in earnings of
subsidiary........................... 56,321,584 69,102,196 41,266,925
------------ ----------- -----------
NET INCOME............................ 50,438,032 64,527,202 49,477,112
Preferred share dividends............. -- -- (104,929)
------------ ----------- -----------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS......................... 50,438,032 64,527,202 49,372,183
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized (losses) gains on
investments, net of reclassification
adjustment........................... (19,393,912) 421,385 3,987,716
------------ ----------- -----------
COMPREHENSIVE INCOME.................. $ 31,044,120 $64,948,587 $53,359,899
============ =========== ===========
</TABLE>
- --------
(1) Prior periods have been restated to reflect a pooling of interests
following the acquisition of Captive Resources, Inc.
See Notes to Consolidated Financial Statements
S-2
<PAGE>
MUTUAL RISK MANAGEMENT LTD
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1999 1998(1) 1997(1)
------------- ------------ ------------
<S> <C> <C> <C>
NET CASH FLOW FROM OPERATING
ACTIVITIES
Net loss before equity in earnings
of subsidiaries................... $ (5,883,552) $ (4,574,994) $ (3,712,440)
Items not affecting cash
Amortization of debentures........ 5,996,459 6,605,238 6,500,288
Amortization of investments....... (1,092,079) (1,188,773) (166,292)
Net changes in non-cash balances
relating to operations:
Other assets...................... 52,755 239,181 5,229,028
Accounts payable and accrued
expenses......................... 392,815 (6,592) (1,348,741)
Other liabilities................. -- -- (85,145)
Due from subsidiaries and
affiliates....................... 33,912,914 (11,370,137) (20,698,928)
------------- ------------ ------------
NET CASH FLOW FROM (APPLIED TO)
OPERATING ACTIVITIES.............. 33,379,312 (10,296,077) (14,282,230)
------------- ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of fixed
assets........................... -- -- 1,265,818
Cost of investments............... -- (15,942,997) (18,753,904)
Proceeds from sale of
investments...................... -- 30,475,717 56,556,009
Cost of investments in affiliates
and subsidiaries................. (108,097,564) (2,587,782) (36,397,234)
Dividends received from
subsidiaries..................... -- -- 11,922,627
------------- ------------ ------------
NET CASH (APPLIED TO) FROM
INVESTING ACTIVITIES.............. (108,097,564) 11,944,938 14,593,316
------------- ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from shares issued....... 11,209,642 8,055,217 7,297,184
Purchase of Treasury shares....... (29,813,837) -- --
Extinguishment of convertible
debentures....................... (6,163,258) -- --
Redemption of preferred shares.... -- -- (2,951,835)
Bridging loan received............ 117,000,000 -- --
Subscription loans receivable..... -- 383,761 383,761
Loan interest received............ -- 4,922 34,727
Dividends paid.................... (11,482,028) (10,427,321) (8,301,338)
------------- ------------ ------------
NET CASH FLOWS FROM (APPLIED TO)
FINANCING ACTIVITIES.............. 80,750,519 (1,983,421) (3,537,501)
------------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................. 6,032,267 (334,560) (3,226,415)
Cash and cash equivalents at begin-
ning of year...................... 689,260 1,023,820 4,250,235
------------- ------------ ------------
Cash and cash equivalents at end of
year.............................. $ 6,721,527 $ 689,260 $ 1,023,820
============= ============ ============
</TABLE>
- --------
(1) Prior periods have been restated to reflect a pooling of interests
following the acquisition of Captive Resources, Inc.
See Notes to Consolidated Financial Statements
S-3
<PAGE>
SCHEDULE VI
MUTUAL RISK MANAGEMENT LTD.
SUPPLEMENTARY INSURANCE INFORMATION
(U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Gross
Deferred Reserve for Gross
Year Ended Policy Unpaid Claims Discount, Gross Net Net
December 31, Acquisition and if any, Unearned Earned Investment
Property-Casualty Costs Claims Expenses Deducted(1) Premiums Premiums Income
- ----------------- ----------- --------------- ----------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
1999 20,531 1,860,120 39,538 335,265 181,798 17,466
1998 17,948 1,190,426 36,213 241,893 101,913 16,357
1997 19,204 716,461 28,083 188,389 84,200 16,879
</TABLE>
<TABLE>
<CAPTION>
Net Claim and Claims
Expenses Incurred
Related to (1)
---------------------
Amortization Net Paid
of Deferred Claims
Year Ended Policy and Net Other
December 31, Current Prior Acquisition Claims Premiums Operating
Property-Casualty Year Year Costs Expenses Written Expenses
- ----------------- ----------- --------- ------------ -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1999 146,414 1,291 51,582 128,384 200,517 42,857
1998 74,476 3,782 26,061 53,158 104,948 30,164
1997 50,301 (444) 35,816 33,512 96,170 19,559
</TABLE>
- --------
(1) Medical malpractice reserves have been discounted at 6% in 1999, 1998 and
1997. Workers' compensation reserves have been discounted at 4% in 1999,
1998 and 1997.
S-4
<PAGE>
Exhibit 10.12
EXECUTION VERSION
CREDIT AGREEMENT
dated as of
December 6, 1999
among
MUTUAL RISK MANAGEMENT LTD.,
as Borrower,
MUTUAL GROUP, LTD.,
as Guarantor,
MUTUAL RISK MANAGEMENT LTD.,
MUTUAL RISK MANAGEMENT (HOLDINGS) LTD.,
MUTUAL GROUP, LTD.
LEGION FINANCIAL CORPORATION,
as Pledgors,
MUTUAL INDEMNITY (DUBLIN) LTD.,
MUTUAL RISK MANAGEMENT (HOLDINGS) LTD.,
MUTUAL HOLDINGS (BERMUDA) LTD.,
IPC MUTUAL HOLDINGS, LTD.,
LEGION FINANCIAL CORPORATION,
LEGION INSURANCE COMPANY,
as Collateral Subsidiaries,
THE LENDERS PARTY HERETO
and
PRUDENTIAL SECURITIES CREDIT CORP.,
as Agent
<PAGE>
TABLE OF CONTENTS
SECTION 1.
DEFINITIONS; RULES OF CONSTRUCTION
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1.1. Definitions................................................................. 1
SECTION 1.2. Rules of Construction....................................................... 19
SECTION 2.
AMOUNT AND TERMS OF BRIDGE LOAN COMMITMENT AND LOANS; BRIDGE NOTES
SECTION 2.1. Bridge Loan Commitment...................................................... 19
SECTION 2.2. Procedure for Borrowing..................................................... 20
SECTION 2.3. Disbursement of Funds....................................................... 20
SECTION 2.4. Bridge Notes................................................................ 21
SECTION 2.5. Termination of Bridge Loan Commitment....................................... 21
SECTION 2.6. Pro Rata Borrowings......................................................... 21
SECTION 2.7. Interest.................................................................... 21
SECTION 2.8. Making of Payments.......................................................... 22
SECTION 2.9. No Setoff, Counterclaim or Withholding; Gross-Up............................ 22
SECTION 2.10. Increased Costs and Reduction of Return..................................... 23
SECTION 2.11. Illegality.................................................................. 24
SECTION 2.12. Repayment; Prepayments...................................................... 24
SECTION 2.13. Mandatory Offer to Purchase Bridge Notes.................................... 25
SECTION 2.14. Security for the Loan....................................................... 26
SECTION 3.
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Good Standing and Authority................................................. 26
SECTION 3.2. Stock Duly Authorized and Issued............................................ 27
SECTION 3.3. Loan Documents Authorized, etc.............................................. 27
SECTION 3.4. No Consents; No Conflicts................................................... 27
SECTION 3.5. Financial Information Complete.............................................. 28
SECTION 3.6. No Material Adverse Change.................................................. 28
SECTION 3.7. Accuracy and Completeness of Information.................................... 28
SECTION 3.8. Internal Accounting......................................................... 29
SECTION 3.9. No Insolvency............................................................... 29
SECTION 3.10. Legal Title................................................................. 29
SECTION 3.11. No Violations............................................................... 29
SECTION 3.12. No Litigation............................................................... 29
SECTION 3.13. Proceeds.................................................................... 29
SECTION 3.14. Margin Stock................................................................ 30
SECTION 3.15. Tax Returns and Payments.................................................... 30
SECTION 3.16. ERISA Compliance............................................................ 30
SECTION 3.17. Compliance With Laws........................................................ 31
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 3.18. Government Regulation....................................................... 31
SECTION 3.19. Insurance................................................................... 31
SECTION 3.20. Labor....................................................................... 31
SECTION 3.21. Environmental Matters....................................................... 31
SECTION 3.22. Insurance Regulations....................................................... 32
SECTION 3.23. Permits; Licenses........................................................... 32
SECTION 3.24. Year 2000................................................................... 32
SECTION 3.25. Collateral.................................................................. 33
SECTION 3.26. Acknowledgment of Pledge.................................................... 33
SECTION 4.
CONDITIONS TO THE OBLIGATIONS OF THE LENDERS
SECTION 4.1. Conditions to Closing....................................................... 34
SECTION 4.2. Condition to the Initial Bridge Loan........................................ 36
SECTION 4.3. Conditions to each Bridge Loan.............................................. 36
SECTION 5.
AFFIRMATIVE COVENANTS
SECTION 5.1. Corporate Existence......................................................... 36
SECTION 5.2. Compliance With Laws........................................................ 37
SECTION 5.3. Maintenance of Property; Insurance.......................................... 37
SECTION 5.4. Payment of Taxes and Other Claims........................................... 37
SECTION 5.5. Investment Company Act...................................................... 38
SECTION 5.6. Payments in U.S. Dollars.................................................... 38
SECTION 5.7. Use of Proceeds............................................................. 38
SECTION 5.8. Refinancing................................................................. 38
SECTION 5.9. Financial Statements........................................................ 38
SECTION 5.10. Notice of Litigation and Other Matters...................................... 40
SECTION 5.11. Collateral.................................................................. 40
SECTION 6.
NEGATIVE COVENANTS
SECTION 6.1. Consolidated Indebtedness to Consolidated Total Capital Ratio............... 41
SECTION 6.2. Shareholders' Equity........................................................ 41
SECTION 6.3. Negative Pledge............................................................. 42
SECTION 6.4. Limitation on Subsidiary Indebtedness....................................... 42
SECTION 6.5. Limitation on Asset Sales................................................... 42
SECTION 6.6. Merger, Acquisition, Sale of Assets and Liquidation......................... 42
SECTION 6.7. Sale and Leaseback.......................................................... 43
SECTION 6.8. Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries................................................................ 43
SECTION 6.9. Transactions with Affiliates................................................ 43
SECTION 6.10. Lines of Business........................................................... 44
SECTION 6.11. Amendment to Charter Documents.............................................. 44
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 6.12. Collateral................................................................ 44
SECTION 7.
DEFAULTS AND REMEDIES
SECTION 7.1. Events of Default......................................................... 44
SECTION 7.2. Default Remedies.......................................................... 46
SECTION 8.
THE AGENT
SECTION 8.1. Appointment............................................................... 47
SECTION 8.2. Delegation of Duties...................................................... 47
SECTION 8.3. Exculpatory Provisions.................................................... 47
SECTION 8.4. Reliance by Agent......................................................... 48
SECTION 8.5. Notice of Default......................................................... 48
SECTION 8.6. Non-Reliance on Agent and Other Lenders................................... 48
SECTION 8.7. Indemnification........................................................... 49
SECTION 8.8. Agent in Its Individual Capacity.......................................... 49
SECTION 8.9. Resignation of the Agent; Successor Agent................................. 49
SECTION 9.
GUARANTEE
SECTION 9.1. Unconditional Guarantee................................................... 50
SECTION 9.2. Severability.............................................................. 51
SECTION 9.3. Limitation of Guarantor's Liability....................................... 51
SECTION 9.4. Waiver of Stay, Extension or Usury Laws................................... 51
SECTION 10
PLEDGE; RIGHTS AND REMEDIES
SECTION 10.1. Pledge and Charge......................................................... 51
SECTION 10.2. Delivery of Collateral.................................................... 52
SECTION 10.3. Agent Appointed Attorney-in-Fact.......................................... 52
SECTION 10.4. Agent May Perform......................................................... 52
SECTION 10.5. Voting Rights and Dividends............................................... 53
SECTION 10.6. Remedies upon an Event of Default......................................... 54
SECTION 10.7. Application of Proceeds of Sale........................................... 57
SECTION 10.8. Responsibilities of the Agent............................................. 57
SECTION 10.9. Termination; Release Reinstatement........................................ 58
SECTION 10.10 Security Interest Absolute................................................ 58
SECTION 11
MISCELLANEOUS
SECTION 11.1. Representation of the Lenders............................................. 59
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 11.2. Participations in and Assignments of Bridge Loans........................ 59
SECTION 11.3. Expenses................................................................. 61
SECTION 11.4. Indemnity................................................................ 61
SECTION 11.5. Setoff................................................................... 62
SECTION 11.6. Amendments and Waivers................................................... 62
SECTION 11.7. Independence of Covenants................................................ 63
SECTION 11.8. Entirety................................................................. 63
SECTION 11.9. Notices.................................................................. 63
SECTION 11.10. Survival of Warranties and Certain Agreements............................ 63
SECTION 11.11. Failure or Indulgence Not Waiver; Remedies Cumulative.................... 64
SECTION 11.12. Severability............................................................. 64
SECTION 11.13. Headings................................................................. 64
SECTION 11.14. Governing Law; Consent to Jurisdiction; Venue; Waiver of Jury Trial...... 64
SECTION 11.15. Successors and Assigns................................................... 65
SECTION 11.16. Counterparts; Effectiveness.............................................. 66
SECTION 11.17. Payments Pro Rata........................................................ 66
SECTION 11.18. Waiver of Stay, Extension or Usury Laws.................................. 66
SECTION 11.19. Confidentiality.......................................................... 66
SECTION 11.20. Compensation............................................................. 67
</TABLE>
Exhibits
- --------
<TABLE>
<S> <C>
A Form of Bridge Note
B Form of Notice of Borrowing
C-1 Form of Legal Opinion of Mayer, Brown & Platt, U.S. Counsel to the Loan Parties
C-2 Form of Legal Opinion of Conyers Dill & Pearman, Bermuda Counsel to
the Loan Parties incorporated in Bermuda
C-3 Form of Legal Opinion of A & L Goodbody, Irish Counsel to Mutual Indemnity
(Dublin) Ltd.
C-4 Form of Legal Opinion of Lewis, Rice & Fingersh, Missouri Counsel to Legion
Financial Corporation
C-5 Form of Legal Opinion of Richard O'Brien, Esq., General Counsel to the Borrower
C-6 Form of Legal Opinion of Andrew Walsh, Esq., General Counsel to Legion
D Form of Assignment and Assumption Agreement
E Section 11.2(e)(ii) Certificate
</TABLE>
Schedules
- ---------
Schedule 3.10 List of Subsidiaries
Schedule 3.25 Executive Offices and Places of Business of Loan Parties
Schedule 6.3 Liens
Schedule 10.1-A Legion Pledged Shares
Schedule 10.1-B Legion Financial Corporation Pledged Shares
Schedule 10.1-C Mutual Holdings Pledged Shares
Schedule 10.1-D IPC Pledged Shares
iv
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
Schedule 10.1-E MI Dublin Pledged Shares
Schedule 10.1-F Mutual Risk Holdings Pledged Shares
Schedule 10.2 Pledged Securities
</TABLE>
v
<PAGE>
This Credit Agreement (this "Agreement") is dated as of December 6, 1999,
and entered into by and among Mutual Risk Management Ltd., a company
incorporated under the laws of Bermuda, as borrower (in such capacity, the
"Borrower"), Mutual Group, Ltd., a Delaware corporation, acting as guarantor (in
such capacity, the "Guarantor"), certain subsidiaries of the Borrower acting as
Pledgors (as defined below), certain subsidiaries of the Borrower acting as
Collateral Subsidiaries (as defined below), Prudential Securities Credit Corp.
as Lender (in such capacity, "PSCC"), the other banks and financial institutions
from time to time party hereto (each of PSCC and such other banks and financial
institutions, collectively the "Lenders" and individually a "Lender") and
Prudential Securities Credit Corp., as agent for the Lenders (in such capacity,
the "Agent").
RECITALS
WHEREAS, the Borrower desires that the Lenders extend a credit facility to
the Borrower guaranteed by the Guarantor and secured by the Collateral (as
defined below);
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereby agree as follows:
SECTION 1.
DEFINITIONS; RULES OF CONSTRUCTION
SECTION 1.1. Definitions. For all purposes of this Agreement and the
-----------
Bridge Notes (as defined below), the following definitions shall apply:
"Additional Shares" means all additional shares of Capital Stock of any
-----------------
issuer of any Pledged Shares, or any successor in interest thereto, from time to
time acquired by any Pledgor in any manner whatsoever.
"Affiliate" of any specified Person means any other Person, directly or
---------
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" (including with correlative meaning, the terms "controlling,"
"controlled by" and "under common control with"), when used with respect to any
Person, means (i) the power to direct or cause the direction of the management
or policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise, or (ii) the beneficial
ownership of 10% or more of the total voting power of the Voting Stock (on a
fully diluted basis) of such Person.
"Agent" has the meaning assigned to it in the preamble of this Agreement.
-----
"Amount of Unfunded Benefit Liability" means, with respect to any Pension
------------------------------------
Plan, (i) if set forth on the most recent actuarial valuation report with
respect to such Pension Plan, the amount of unfunded benefit liabilities (as
defined in Section 4001 (a)(18) of ERISA) and (ii) otherwise, the excess of (x)
the greater of the current liability (as defined in Section 412(1)(7) of the
Code) or the actuarial present value of the accrued benefits with respect to
such Pension Plan over (y) the market value of the assets of such Pension Plan.
1
<PAGE>
"Annual Statement" means, with respect to any Insurance Company Subsidiary,
----------------
the statutory annual financial statement of such Insurance Company Subsidiary as
is required to be filed with the applicable Governmental Authority of its state
of domicile, together with all exhibits and schedules filed therewith.
"Applicable Interest Rate" means for any Interest Period the sum of LIBOR
------------------------
(Reserve Adjusted) plus 0.75%.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
----------
lease, assignment, transfer or other disposition for value (including, without
limitation, pursuant to any amalgamation, merger or consolidation or pursuant to
any sale and leaseback transaction) by the Borrower or by any of its
Subsidiaries to any Person other than the Borrower or any of its Wholly Owned
Subsidiaries (any such transaction, a "disposition") of any asset of the
Borrower or any of its Subsidiaries, excluding (i) any disposition of Cash
Equivalents in the ordinary course of business, (ii) any disposition of
Investment Securities in the ordinary course of business the proceeds of which
are used to purchase other Investment Securities or invested in Cash Equivalents
pending such purchase and (iii) any disposition of assets the Fair Market Value
of which, together with the Fair Market Value of all assets disposed of in the
period from the Closing Date to the date of the proposed disposition, does not
exceed $10,000,000 in the aggregate.
"Bankruptcy Law" means Title 11, United States Code, or any other
--------------
applicable federal, state, or foreign bankruptcy, insolvency or similar law as
now or hereafter constituted.
"Board of Directors" means, in the case of a Person that is a corporation,
------------------
the board of directors of such person or any committee authorized to act
therefor and in the case of any other Person, the board of directors, management
committee, or similar governing body or any authorized committee thereof
responsible for the management and affairs of such Person.
"Borrower" has the meaning assigned to it in the preamble of this Agreement
--------
"Bridge Loan," with respect to any Lender at any time, means (a) any loan
-----------
to be made hereunder by such Lender after such time or (b) any loan made by such
Lender hereunder in the principal amount outstanding at such time, and "Bridge
------
Loans," at any time, means the aggregate of the Bridge Loans of all the Lenders
- -----
at such time.
"Bridge Loan Commitment" has the meaning assigned to it in Section 2.1.
----------------------
"Bridge Note" has the meaning assigned to it in Section 2.4.
-----------
"Broker-Dealer" means any broker or dealer (as defined in Sections 3(a)(4)
-------------
and 3(a)(5) of the Exchange Act) that is required to be registered under the
Exchange Act, or any business entity controlled by a Broker-Dealer (other than a
broker or dealer that is not required to be registered under the Exchange Act).
"Business Day" means any day excluding Saturday, Sunday and any day on
------------
which banking institutions located in New York, New York are authorized or
required by law or other governmental action to close; provided, that when used
--------
in connection with an interest rate
2
<PAGE>
determination, a notice of borrowing pursuant to Section 2.2 or any payment with
respect to the Bridge Loans, the term "Business Day" shall also exclude any day
on which banks in London, England are not open for dealings in Dollar deposits
in the London interbank market.
"Capital Adequacy Regulation" means any guideline, request or directive of
---------------------------
any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"Capital Stock" of any Person means any and all shares, interests, rights
-------------
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
----------------------------
such Person under a lease that are required to be capitalized and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued or
----------------
unconditionally guaranteed by the United States government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any State of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having the highest rating obtainable
from either Standard & Poor's Rating Group ("S&P") or Moody's Investors Service,
Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having the highest
rating obtainable from either S&P's or Moody's; and (iv) certificates of deposit
or bankers' acceptances maturing within one year from the date of acquisition
thereof issued by any commercial bank organized under the laws of the United
States of America or any State thereof or the District of Columbia that (A) is
at least "adequately capitalized" (as defined in the regulations of its primary
Federal banking regulator) and (B) has Tier 1 capital (as defined in such
regulations) of not less than $100,000,000; (v) shares of any money market
mutual fund that (a) has its assets invested continuously in the types of
investments referred to in clauses (i) and (ii) above, (b) has net assets of not
less than $500,000,000, and (c) has the highest rating obtainable from either
S&P's or Moody's; and (vi) repurchase agreements with respect to, and which are
fully secured by a perfected security interest in, obligations of a type
described in clause (i) or clause (ii) above and are with any commercial bank
described in clause (iv) above.
"Change of Control" means the occurrence of any of the following events:
-----------------
(i) any Person or Group (as defined below) becomes the beneficial owner (as
defined below), directly or indirectly, in the aggregate of more than 33% of the
total voting power of the Voting Stock of the Borrower; or (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Borrower, together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders
3
<PAGE>
of the Borrower was approved by a vote of a majority of the directors of the
Borrower then still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority of the Board of Directors of the
Borrower then in office.
For purposes of the foregoing definition:
(a) "beneficial owner" and "beneficially own" shall have the meaning
specified in Rules 13d-3 and 13d-5 under the Exchange Act, except that any
Person or Group shall be deemed to have "beneficial ownership" of all securities
that such Person or Group has the right to acquire, whether such right is
exercisable immediately, only after the passage of time or upon the occurrence
of a subsequent condition.
(b) "Person" and "Group" shall have the meanings for "person" and "group"
as used in Sections 13(d) and 14(d) of the Exchange Act; and
(c) any Person or Group shall be deemed to beneficially own any Voting
Stock of a corporation held by any other corporation (the "parent corporation")
so long as such other Person or Group, as the case may be, beneficially owns,
directly or indirectly, in the aggregate more than 33% of the voting power of
the Voting Stock of the parent corporation and no other Person or Group
beneficially owns an equal or greater amount of the Voting Stock of the parent
corporation.
"Change of Control Date" has the meaning assigned to it in Section 2.12.
----------------------
"Change of Control Offer" has the meaning assigned to it in Section 2.12.
-----------------------
"Closing Date" means the date on which each condition specified in Section
------------
4.1 shall be satisfied or waived in all respects in the sole discretion of the
Agent.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Collateral" means the LFC Collateral, the MG Collateral, the MRM
----------
Collateral and the MRMH Collateral, collectively.
"Collateral Subsidiary" means any of the following Subsidiaries of the
---------------------
Borrower, all the shares of Capital Stock of which (except the IPC Preferred
Shares in the case of IPC Mutual Holdings, Ltd., the MH Preferred Shares in the
case of Mutual Holdings (Bermuda) Ltd. and the MIDL Director Share in the case
of Mutual Indemnity (Dublin) Ltd.) are pledged to the Agent for the benefit of
the Lenders hereunder:
(i) IPC Mutual Holdings, Ltd. with respect to the MG Collateral;
(ii) Legion with respect to the LFC Collateral;
(iii) Legion Financial Corporation with respect to the MG Collateral;
(iv) Mutual Holdings (Bermuda) Ltd. with respect to the MRMH Collateral;
4
<PAGE>
(v) Mutual Indemnity (Dublin) Ltd. with respect to the MRM Collateral;
and
(vi) Mutual Risk Management (Holdings) Ltd. with respect to the MRM
Collateral.
"Consolidated Indebtedness" means, with respect to the Borrower and its
-------------------------
Subsidiaries at any date, the Indebtedness of the Borrower and its Subsidiaries,
determined on a consolidated basis as of such date, including, without
limitation, all Indebtedness outstanding under this Agreement.
"Consolidated Total Capital" means, with respect to the Borrower and its
--------------------------
Subsidiaries at any date, the sum of Consolidated Indebtedness, Stockholders'
Equity and Qualified Indebtedness; provided, that for purposes of this
--------
definition only, in determining Qualified Indebtedness, any Qualified
Indebtedness which includes any put right or option or other right or option in
favor of the holder to cause such Qualified Indebtedness to be redeemed or
otherwise paid on a date which is earlier than one (1) year after the Maturity
Date shall be disregarded.
"Contingent Obligation" means, with respect to the Borrower and its
---------------------
Subsidiaries, without duplication, any obligation, contingent or otherwise, of
any such Person pursuant to which such Person has directly or indirectly
guaranteed any Indebtedness or other obligation of any other Person and, without
limiting the generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of any such Person (a) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Indebtedness or other
obligation (whether arising by virtue of partnership arrangements, by agreement
to keep well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement condition or otherwise) or (b) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
or other obligation of the payment thereof or to protect such obligee against
loss in respect thereof (in whole or in part); provided, that the term
--------
Contingent Obligation shall not include (i) obligations under insurance or
reinsurance policies or (ii) endorsements for collection or deposit in the
ordinary course of business.
"Contract" has the meaning assigned to it in Section 3.4.
--------
"Convertible Securities" means the Borrower's Zero Coupon Convertible
----------------------
Exchangeable Subordinated Debentures due 2015 issued pursuant to the Indenture
dated as of October 30, 1995 by and among the Borrower as Issuer, Mutual Group
Ltd., as Guarantor, and State Street Bank and Trust Company as Trustee.
"Custodian" means any receiver, interim receiver, receiver and manager,
---------
trustee, assignee, liquidator, sequestrator, custodian or similar official
charged with maintaining possession or control over property for one or more
creditors, whether under any Bankruptcy Law or otherwise.
"Default" means any event which is, or after notice or passage of time or
-------
both would be, an Event of Default.
"Derivative Agreement" means any Interest Rate Protection Agreement or any
--------------------
other agreement of the Borrower relating to a rate swap transaction, basis swap,
forward rate transaction, commodity swap, commodity option, equity or equity
index swap, equity or equity
5
<PAGE>
index option, bond option, interest rate option, foreign exchange transaction,
cap transaction, floor transaction, collar transaction, currency swap
transaction, cross-currency rate swap transaction, currency option or any other
similar transaction (including any option with respect to any of the foregoing
transactions) or any combination of the foregoing transactions.
"Disbursement Date," with respect to any Bridge Loan, means the
-----------------
disbursement date for such Bridge Loan designated as such by the Borrower in
accordance with Section 2.2.
"Dollar" or the sign "$" means the lawful money of the United States of
------ -
America.
"Eligible Assignee" means (A) (i) a commercial bank organized under the
-----------------
laws of the United States of America or any state thereof; (ii) a savings and
loan association or savings bank organized under the laws of the United States
or any state thereof; (iii) a commercial bank organized under the laws of any
other country or a political subdivision thereof; provided, that (x) such bank
--------
is acting through a branch or agency located in the United States or (y) such
bank is organized under the laws of a country that is a member of the
Organization for Economic Cooperation and Development or a political subdivision
of such country; provided, further, that, at the time of determination, the
-------- -------
Lender making the assignment or transfer to such bank, believes that such bank
will be entitled to an exemption from U.S. withholding tax (assuming compliance
with the first sentence of Section 11.2(e); and (iv) any other entity which is
an "accredited investor" (as defined in Regulation D under the Securities Act of
1933) which extends credit or buys loans as one of its businesses including, but
not limited to, insurance companies, mutual funds and lease financing companies
(but other than a Broker-Dealer), in each case (under clauses (i) through (iv)
above) that is reasonably acceptable to the Agent; and (B) any Lender and any
Affiliate of any Lender (other than a Broker-Dealer).
"Employee Benefit Plan" means any employee benefit plan within the meaning
---------------------
of Section 3(3) of ERISA which (a) is sponsored, maintained or contributed to by
the Borrower, any of its Subsidiaries or any of their respective ERISA
Affiliates or (b) has at any time within the preceding six years been sponsored,
maintained or contributed to by the Borrower, any of its Subsidiaries or any of
their respective current or former ERISA Affiliates, or for which the Borrower,
its Subsidiaries or their respective current or former ERISA Affiliates retain
any liability, whether contingent or otherwise.
"Engagement Letter" means the engagement letter agreement, entered into
-----------------
prior to or concurrently herewith, between the Borrower and Prudential
Securities Incorporated ("PSI") relating to the Refinancing as the same may be
amended from time to time.
"ERISA" means the Employee Retirement Income Security Act of 1974, and the
-----
rules and regulations thereunder, each as amended, supplemented or otherwise
modified.
"ERISA Affiliate" means any Person who together with the Borrower is
---------------
treated as a single employer within the meaning of Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b) of ERISA.
"ERISA Event" means (i) a "reportable event" within the meaning of Section
-----------
4043 of ERISA and the regulations issued thereunder with respect to any Pension
Plan (excluding those for which the provision for 30-day notice to the PBGC has
been waived by regulation); (ii) the
6
<PAGE>
failure to meet the minimum funding standard of Section 412 of the Internal
Revenue Code with respect to any Pension Plan (whether or not waived) or the
failure to make any required contribution within 10 days of its due date with
respect to any Multiemployer Plan; (iii) the provision by the administrator of
any Pension Plan pursuant to Section 4041 (a) (2) of ERISA of a notice of intent
to terminate such plan in a distress termination described in Section 4041(c) of
ERISA; (iv) the withdrawal by the Borrower or any of its Subsidiaries or any of
their respective ERISA Affiliates from any Multiple Employer Plan or the
termination of any such Multiple Employer Plan resulting in liability pursuant
to Sections 4063 or 4064 of ERISA; (v) the institution by the PBGC of
proceedings to terminate any Pension Plan, or the occurrence of any event or
condition which might reasonably be expected to constitute grounds under ERISA
for the termination of, or the appointment of a trustee to administer, any
Pension Plan; (vi) the imposition of liability on the Borrower or any of its
Subsidiaries or any of their respective ERISA Affiliates pursuant to Section
4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of
ERISA; (vii) the withdrawal by the Borrower or any of its Subsidiaries or any of
their respective ERISA Affiliates in a complete or partial withdrawal (within
the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if
there is any potential liability therefor, or the receipt by the Borrower or any
of its Subsidiaries or any of their respective ERISA Affiliates of notice from
any Multiemployer Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated
under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or
omission which could reasonably be expected to give rise to the imposition on
the Borrower or any of its Subsidiaries or any of their respective ERISA
Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the
Internal Revenue Code or under Section 406, 409 or 502(i) or (1) of ERISA in
respect of any Employee Benefit Plan; (ix) receipt from the Internal Revenue
Service of notice of the failure of any Pension Plan (or any other Employee
Benefit Plan intended to be qualified under Section 401(a) of the Internal
Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or
the failure of any trust forming part of any Pension Plan or Employee Benefit
Plan to qualify for exemption from taxation under Section 501(a) of the Internal
Revenue Code; or (x) the imposition of a Lien pursuant to Section 401(a) (29) or
412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any
Pension Plan.
"Eurodollar Reserve Percentage" means for any day for any Interest Period
-----------------------------
the maximum reserve percentage (expressed as a decimal, rounded upward, if
necessary, to an integral multiple of 1/100th of 1%) in effect on such day
(whether or not applicable to any Lender) under regulations issued from time to
time by the FRB for determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement) with respect to
Eurocurrency funding (currently referred to as "Eurocurrency liabilities").
"Event of Default" has the meaning assigned to it in Section 7.1.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Fair Market Value" means, with respect to any asset, the price (after
-----------------
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction.
7
<PAGE>
"FAS 115" means Statement No. 115 ("Accounting for Certain Investments in
-------
Indebtedness and Equity Securities") issued by the Financial Accounting
Standards Board.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
------------------
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day in Federal Reserve Board Statistical Release H.15(519) or
any successor or substitute publication; provided, that (i) if such day is not a
--------
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published on the next
succeeding Business Day, and (ii) if no such rate is so published on such next
succeeding Business Day, the Federal Funds Rate for such day shall be the
average rate quoted to the Agent for such day on such transactions as determined
by the Agent.
"Foreign Plan" means any employee benefit plan maintained outside the U.S.
------------
by the Borrower, any of its Subsidiaries or any of their respective Affiliates
for employees substantially all of whom are non-resident aliens of the U.S. and
for which the Borrower or any of its Subsidiaries may be directly or indirectly
liable.
"FRB" means the Board of Governors of the Federal Reserve System, and any
---
Governmental Authority succeeding to any of its principal functions.
"GAAP" means generally accepted accounting principles, as recognized by the
----
American Institute of Certified Public Accountants and the Financial Accounting
Standards Board, consistently applied and maintained on a consistent basis for
the Borrower throughout the period indicated and consistent with the prior
financial practice of the Borrower.
"Governmental Authority" means any nation, province, state or political
----------------------
subdivision thereof, and any government or any Person exercising executive,
legislative, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Guarantee" has the meaning assigned to it in Section 9.1.
---------
"Guarantor" has the meaning set forth in the preamble of this Agreement.
---------
"Indebtedness" means, with respect to the Borrower and its Subsidiaries at
------------
any date and without duplication, the sum of the following calculated in
accordance with GAAP: (a) all liabilities, obligations and indebtedness for
borrowed money, including but not limited to obligations evidenced by bonds,
debentures, notes or other similar instruments of any such Person, (b) all
obligations to pay the deferred purchase price of property or services of any
such Person (other than trade payables due from such Person and arising in the
ordinary course of business for not more than 90 days not subject to (a) below),
(c) all Capitalized Lease Obligations of such Person, (d) all Indebtedness of
any other Person secured by a Lien on any asset of any such Person, (e) all
obligations, contingent or otherwise, of any such Person relating to the face
amount of letters of credit, whether or not drawn, and banker's acceptances
issued for the account of any such Person, but excluding any obligation relating
to an undrawn letter of
8
<PAGE>
credit if the undrawn letter of credit is issued in connection with a liability
for which a reserve has been established by the Borrower or the applicable
Subsidiary in accordance with GAAP, (f) all obligations incurred by any such
Person pursuant to Interest Rate Protection Agreements which are due and payable
and (g) all Contingent Obligations of any such Person with respect to
Indebtedness referred to in clauses (a) through (f) of this definition;
provided, that the term Indebtedness shall not include any Qualified
- --------
Indebtedness.
"Indemnified Liabilities" has the meaning assigned to it in Section 11.4.
-----------------------
"Indemnitees" has the meaning assigned to it in Section 11.4.
-----------
"Insurance Company Subsidiary" means a Subsidiary of the Borrower which is
----------------------------
a licensed insurance company.
"Interest Payment Date" means the last day of each Interest Period.
---------------------
"Interest Period" means, with respect to any Bridge Loan and subject to
---------------
Section 2.8(a), (a) the period beginning on the Disbursement Date and ending on
the day numerically corresponding to the Closing Date in the first month next
following such Disbursement Date (or, if such Disbursement Date falls on the
Closing Date, the third month next following such Disbursement Date) and (b)
each subsequent period beginning on the last day of the next preceding Interest
Period and ending on the day numerically corresponding to the first day of such
Interest Period in either (i) the third month thereafter, if such last day falls
on the day numerically corresponding to the Closing Date in the third or sixth
month next following the Closing Date or (ii) the first month thereafter, in any
other case.
"Interest Rate Determination Date" means, with respect to any Interest
--------------------------------
Period, the second Business Day prior to the first Business Day of such Interest
Period.
"Interest Rate Protection Agreement" of any Person means any interest rate
----------------------------------
protection agreement (including, without limitation, interest rate swaps, caps,
floors, collars, derivative instruments and similar agreements), and/or other
types of interest hedging agreements in support of the Borrower's business and
not of a speculative nature.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
---------------------
from time to time, and any successor code or statute.
"Investment Securities" means "securities" classified as "trading
---------------------
securities" or "available-for-sale securities" for purposes of FAS115, in each
case within the meaning of FAS115.
"IPC Mutual Holdings, Ltd." means IPC Mutual Holdings Ltd., a corporation
-------------------------
organized under the laws of Bermuda and a direct Wholly Owned Subsidiary of the
Guarantor.
"IPC Pledged Shares" means all the shares of Capital Stock (other than the
------------------
IPC Preferred Shares) of IPC Mutual Holdings Ltd., as described in Schedule
10.1-D hereto.
9
<PAGE>
"IPC Preferred Shares" means the non-voting redeemable shares of Preferred
--------------------
Stock of IPC Mutual Holdings, Ltd. which are issued from time to time solely in
connection with insurance and reinsurance programs underwritten by Mutual
Indemnity, Ltd, commonly known as the "insurance profit center", and which
shares of Preferred Stock serve as a means by which, inter alia, underwriting
----------
and investment gains, determined in accordance with an accompanying preferred
shareholders agreement, are distributed to the preferred shareholder.
"Laws" has the meaning assigned to it in Section 3.4.
----
"Legion" means Legion Insurance Company, a Pennsylvania corporation and an
------
indirect Wholly Owned Subsidiary of the Borrower.
"Legion Financial Corporation" means Legion Financial Corporation, a
----------------------------
Missouri corporation and a direct Wholly Owned Subsidiary of the Guarantor.
"Legion Financial Corporation Pledged Shares" means all the shares of
-------------------------------------------
Capital Stock of Legion Financial Corporation, as described in Schedule 10.1-B
hereto.
"Legion Pledged Shares" means all the shares of Capital Stock of Legion, as
---------------------
described in Schedule 10.1-A hereto.
"Lender" has the meaning assigned to it in the Preamble of this Agreement.
------
"LFC Collateral" means each of the following, whether now owned or
--------------
hereafter acquired:
(i) The Legion Pledged Shares and the certificates representing the
Legion Pledged Shares;
(ii) The Additional Shares with respect to Legion and the certificates
representing the Additional Shares with respect to Legion;
(iii) All dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any and all of the Legion Pledged Shares, Additional Shares with respect to
Legion and other LFC Collateral;
(iv) All other rights and privileges relating to the property described in
clauses (i), (ii) and (iii) above (including, without limitation, voting
rights); and
(v) Cash and noncash proceeds of any and all of the foregoing.
"LIBOR" means, with respect to any Bridge Loan for any Interest Period, an
-----
interest rate per annum equal to the rate of interest appearing on Telerate Page
3750 (or any successor page) or if no such rate is available, the rate of
interest determined by the Agent to be the rate or the arithmetic mean of rates
(rounded upward, if necessary, to the nearest 1/32 of one percentage point) at
which Dollar deposits in immediately available funds in an amount approximately
equal to the aggregate amount of such Bridge Loan, for a period equal to the
applicable Interest Period, are offered to first-tier banks in the London
interbank Euro-dollar market, at approximately 11:00 a.m., London time, on the
Interest Rate Determination Date; provided, however, that for
-------- -------
10
<PAGE>
purposes of this definition only any Interest Period of less than one month
shall be deemed to be an Interest Period of one month.
"LIBOR (Reserve Adjusted)" means, for any Interest Period, the rate of
-----------------------
interest per annum (rounded upward to the next 1/100th of 1%) determined by the
Agent as follows:
LIBOR = LIBOR
----------------------------------------
(Reserve Adjusted) 1.00 minus Eurodollar Reserve Percentage
"Lien" has the meaning assigned to it in Section 3.4.
----
"Loan Documents" means this Agreement, the Bridge Notes and the Engagement
--------------
Letter.
"Loan Party" means any of the Borrower, the Guarantor, each Pledgor and
----------
each Collateral Subsidiary.
"Margin Stock" has the meaning specified in Regulation U.
------------
"Material Adverse Effect" means (i) a material adverse effect upon the
-----------------------
business, operations, properties, assets, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries, taken as a whole, or (ii) a
material impairment of the ability of the Borrower to perform any material
obligations under the Loan Documents or to consummate the Refinancing.
"Material Subsidiary" means a Subsidiary of the Borrower which, as of the
-------------------
last day of the most recently ended fiscal year, either held five percent (5%)
or more of the consolidated total assets, or contributed five percent (5%) or
more to the consolidated total revenues, of the Borrower and its consolidated
Subsidiaries for the fiscal year ending on such date (or, in the case of any
Subsidiary acquired or created during any fiscal year, which would have met
either of such tests on a pro forma basis as of the last day of the preceding
fiscal year).
"Maturity Date" means the day numerically corresponding to the Closing Date
-------------
in the ninth month thereafter (or, with respect to any Bridge Loan, such earlier
date as the principal thereof shall become due and payable whether by voluntary
or mandatory repayment, acceleration or otherwise).
"MG Collateral" means each of the following, whether now owned or hereafter
-------------
acquired:
(A) The MG Collateral with respect to IPC Mutual Holdings, Ltd., which is
comprised of:
(i) The IPC Pledged Shares and the certificates representing the
IPC Pledged Shares;
(ii) The Additional Shares with respect to IPC Mutual Holdings,
Ltd. and the certificates representing the Additional Shares with respect
to IPC Mutual Holdings, Ltd.;
(iii) All dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or
in exchange for any and all
11
<PAGE>
of the IPC Pledged Shares, Additional Shares with respect to IPC Mutual
Holdings, Ltd. and other MG Collateral with respect to IPC Mutual Holdings,
Ltd.;
(iv) All other rights and privileges relating to the property
described in clauses (i), (ii) and (iii) above (including, without
limitation, voting rights); and
(v) Cash and noncash proceeds of any and all of the foregoing;
and
(B) The MG Collateral with respect to Legion Financial Corporation, which
is comprised of:
(i) The Legion Financial Corporation Pledged Shares and the
certificates representing the Legion Financial Corporation Pledged Shares;
(ii) The Additional Shares with respect to Legion Financial
Corporation and the certificates representing the Additional Shares with
respect to Legion Financial Corporation;
(iii) All dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or
in exchange for any and all of the Legion Financial Corporation Pledged
Shares, Additional Shares with respect to Legion Financial Corporation and
other MG Collateral with respect of Legion Financial Corporation;
(iv) All other rights and privileges relating to the property
described in clauses (i), (ii) and (iii) above (including, without
limitation, voting rights); and
(v) Cash and noncash proceeds of any and all of the foregoing.
"MH Preferred Shares" means the non-voting redeemable shares of Preferred
-------------------
Stock of Mutual Holdings (Bermuda) Ltd. which are issued from time to time
solely in connection with insurance and reinsurance programs underwritten by
Mutual Indemnity (Bermuda) Ltd. and Mutual Indemnity (Guernsey) Ltd. commonly
known as the "insurance profit center", and which shares of Preferred Stock
serve as a means by which, inter alia, underwriting and investment gains,
----------
determined in accordance with an accompanying preferred shareholders agreement,
are distributed to the preferred shareholder.
"MI Dublin Pledged Shares" means all the shares of Capital Stock of Mutual
------------------------
Indemnity (Dublin) Ltd. except the MIDL Director Share, as described in Schedule
10.1-E hereto.
"MIDL Director Share" means the one share of Capital Stock of Mutual
-------------------
Indemnity (Dublin) Ltd. that is not owned by the Borrower as of the date hereof.
"MRM Collateral" means each of the following, whether now owned or
--------------
hereafter acquired:
(A) The MRM Collateral with respect to Mutual Indemnity (Dublin) Ltd.,
which is comprised of:
12
<PAGE>
(i) The MI Dublin Pledged Shares and the certificates
representing the MI Dublin Pledged Shares;
(ii) The Additional Shares with respect to Mutual Indemnity
(Dublin) Ltd. and the certificates representing the Additional Shares with
respect to Mutual Indemnity (Dublin) Ltd.;
(iii) All dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or
in exchange for any and all of the MI Dublin Pledged Shares, Additional
Shares with respect to Mutual Indemnity (Dublin) Ltd. and other MRM
Collateral with respect to Mutual Indemnity (Dublin) Ltd.;
(iv) All other rights and privileges relating to the property
described in clauses (i), (ii) and (iii) above (including, without
limitation, voting rights); and
(v) Cash and noncash proceeds of any and all of the foregoing;
and
(B) The MRM Collateral with respect to Mutual Risk Management (Holdings)
Ltd., which is comprised of:
(i) The Mutual Risk Holdings Pledged Shares and the certificates
representing the Mutual Risk Holdings Pledged Shares;
(ii) The Additional Shares with respect to Mutual Risk Management
(Holdings) Ltd. and the certificates representing the Additional Shares
with respect to Mutual Risk Management (Holdings) Ltd.;
(iii) All dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or
in exchange for any and all of the Mutual Risk Holdings Pledged Shares,
Additional Shares with respect to Mutual Risk Management (Holdings) Ltd.
and other MRM Collateral with respect to Mutual Risk Management (Holdings)
Ltd.;
(iv) All other rights and privileges relating to the property
described in clauses (i), (ii) and (iii) above (including, without
limitation, voting rights); and
(v) Cash and noncash proceeds of any and all of the foregoing.
"MRMH Collateral" means each of the following, whether now owned or
---------------
hereafter acquired:
(i) The Mutual Holdings Pledged Shares and the certificates representing
the Mutual Holdings Pledged Shares;
(ii) The Additional Shares with respect to Mutual Holdings (Bermuda) Ltd.
and the certificates representing the Additional Shares with respect to Mutual
Holdings (Bermuda) Ltd.;
13
<PAGE>
(iii) All dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any and all of the Mutual Holdings Pledged Shares, Additional Shares with
respect to Mutual Holdings (Bermuda) Ltd. and other MRMH Collateral;
(iv) All other rights and privileges relating to the property described in
clauses (i), (ii) and (iii) above (including, without limitation, voting
rights); and
(v) Cash and noncash proceeds of any and all of the foregoing.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
------------------
4001(a)(3) of ERISA to which the Borrower, its Subsidiaries or any of their
respective ERISA Affiliates is making or is accruing an obligation to make
contributions or has within the preceding six years made or accrued an
obligation to make contributions.
"Multiple Employer Plan" means a "single employer plan" as defined in
----------------------
Section 4001(a)(15) of ERISA that (i) is or was sponsored, maintained or
contributed to by the Borrower, its Subsidiaries or any of their respective
ERISA Affiliates and at least one Person other than the Borrower, its
Subsidiaries or their respective ERISA Affiliates or (ii) was so sponsored,
maintained or contributed to and in respect of which the Borrower, its
Subsidiaries or such ERISA Affiliates could incur liability under Section 4064
or 4069 of ERISA in the event such plan has been or were to be terminated.
"Mutual Holdings (Bermuda) Ltd." means Mutual Holdings (Bermuda) Ltd., a
------------------------------
Bermuda corporation and a direct Wholly Owned Subsidiary of Mutual Risk
Management (Holdings) Ltd.
"Mutual Holdings Pledged Shares" means all the shares of Capital Stock
------------------------------
(other than the MH Preferred Shares) of Mutual Holdings (Bermuda) Ltd., as
described in Schedule 10.1-C hereto.
"Mutual Indemnity (Dublin) Ltd." means Mutual Indemnity (Dublin) Ltd., an
------------------------------
Irish corporation and a direct Subsidiary of the Borrower.
"Mutual Risk Holdings Pledged Shares" means all the shares of Capital Stock
-----------------------------------
of Mutual Risk Management (Holdings) Ltd., as described in Schedule 10.1-F
hereto.
"Mutual Risk Management (Holdings) Ltd." means Mutual Risk Management
--------------------------------------
(Holdings) Ltd., a Bermuda corporation and a direct Wholly Owned Subsidiary of
Mutual Risk Management Ltd.
"Net Cash Proceeds" means (i) with respect to any issuance or sale of
-----------------
Capital Stock or Indebtedness, the proceeds of such issuance or sale in the form
of cash or Cash Equivalents net of attorneys' fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees actually incurred in connection with such issuance or
sale and (ii) with respect to any Asset Sale, the proceeds in the form of cash
or Cash Equivalents, including payments in respect of deferred payment
obligations when received in the form of cash or Cash Equivalents received by
the Borrower or any of its Subsidiaries from such Asset Sale, net of (1)
reasonable out-of-pocket expenses and fees relating to such Asset Sale
14
<PAGE>
(including, without limitation, legal, accounting and investment banking fees
and sales commissions); (2) taxes paid or payable in respect of such Asset Sale
after taking into account any reduction in consolidated tax liability due to
available tax credits or deductions and any tax sharing arrangements; (3)
repayment of Indebtedness secured by a Lien permitted hereunder that is required
to be repaid in connection with such Asset Sale; and (4) appropriate amounts to
be provided by the Borrower or such Subsidiary, as the case may be, as a
reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale and retained by the Borrower or such Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other post-
employment benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"Obligations" means all obligations of every nature of the Borrower and the
-----------
Guarantor from time to time owed to the Lenders and the Agent under the Loan
Documents, whether for principal, reimbursements, interest, fees, expenses,
indemnities or otherwise, and whether primary, secondary, direct, indirect,
contingent, fixed or otherwise (including obligations of performance).
"Offer Payment Date" has the meaning assigned to it in Section 2.12.
------------------
"Officer" means, with respect to any Person, the President, an Executive
-------
Vice President, the Chief Operating Officer, a Senior Vice President, the
General Manager, the Chief Financial Officer, the Treasurer or the Secretary of
such Person (or, in the case of Mutual Indemnity (Dublin) Ltd., a Director).
"Officers' Certificate" means a certificate signed by two Officers.
---------------------
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
----
agency.
"Pension Plan" means a Single Employer Plan or a Multiple Employer Plan.
------------
"Permitted Business" means (i) with respect to the Borrower, the business
------------------
of acting as a holding company the only material assets of which are listed in
Schedule 3.10 and (ii) with respect to any of the Borrower's Subsidiaries, the
business carried on by such Subsidiary on the Closing Date; it being understood
that the term "Permitted Business" shall include the business of any Person
acquired by the Borrower or any of its Subsidiaries subsequent to the Closing
Date which is engaged in the same or a substantially similar business as the
business carried on by the Borrower or such Subsidiary on the Closing Date.
"Permitted Liens" means (i) Liens described on Schedule 6.3; (ii) Purchase
---------------
Money Liens; (iii) any Lien on any asset securing Indebtedness incurred or
assumed for the purpose of financing all or any part of the cost of acquiring
such asset, provided, that such Lien attaches only to such asset and that such
--------
Lien attaches to such asset concurrently with or within ninety (90) days after
the acquisition thereof; (iv) any Lien existing on any asset of any corporation
at the time such corporation becomes a Subsidiary of the Borrower and not
created in contemplation of such event; (v) any Lien on any asset of any
corporation existing at the time such corporation is merged or consolidated with
or into the Borrower or a Subsidiary of the Borrower and not created
15
<PAGE>
in contemplation of such event; (vi) any Lien existing on any asset prior to the
acquisition thereof by the Borrower or a Subsidiary of the Borrower and not
created in contemplation of such acquisition; (vii) any Lien arising out of the
refinancing, extension, renewal or refunding of any Indebtedness secured by any
Lien permitted by any of the foregoing clauses, provided that such Indebtedness
is not increased and is not secured by any additional assets; (viii) Liens
arising in the ordinary course of business of the Borrower and its Subsidiaries
(including Liens arising in the ordinary course of the insurance business of the
Borrower and its Subsidiaries) which do not secure Indebtedness and do not in
the aggregate materially detract from or impair the use or value of the asset or
assets subject thereto; (ix) Liens on cash and cash equivalents securing
obligations under Derivative Agreements entered into for bona fide hedging
purposes as long as the aggregate amount of cash and Cash Equivalents subject to
such Liens does not at any time exceed $10,000,000; (x) any Liens on securities
securing repurchase obligations of the Borrower or a Subsidiary relating to
those securities as long as such Liens arise in the ordinary course of business
and as long as such Liens are in amounts and otherwise are on terms consistent
with then existing practices in the repurchase agreement market; (xi) any Liens
on securities or cash of any Insurance Company Subsidiary which secure its
obligations as a reinsurer; and (xii) any Liens not otherwise permitted by the
foregoing clauses securing Indebtedness in an aggregate principal amount at any
time outstanding not to exceed $10,000,000. Notwithstanding the foregoing, no
Lien on the Collateral other than the security interest created hereunder in
favor of the Agent for the benefit of the Lenders shall be a Permitted Lien for
purposes hereof.
"Person" means any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Pledged Securities" has the meaning set forth in Section 10.2.
------------------
"Pledged Shares" means the IPC Pledged Shares, the Legion Pledged Shares,
--------------
the Legion Financial Corporation Pledged Shares, the Mutual Indemnity Dublin
Pledged Shares, the Mutual Holdings Pledged Shares and the Mutual Risk Holdings
Pledged Shares, collectively.
"Pledgor" means any of the following:
-------
(i) the Borrower with respect to the MRM Collateral;
(ii) the Guarantor with respect to the MG Collateral;
(iii) Legion Financial Corporation with respect to the LFC Collateral; and
(iv) Mutual Risk Management (Holdings) Ltd. with respect to the MRMH
Collateral.
"Preferred Stock" of any Person means any Capital Stock of such Person that
---------------
has preferential rights over any other Capital Stock of such Person with respect
to dividends, distributions or redemptions or upon liquidation.
"Property" means, with respect to any Person, any interest of such Person
--------
in any kind of property or asset, whether real, personal or mixed, tangible or
intangible.
16
<PAGE>
"Purchase Money Lien" means (i) any mortgage, pledge, hypothecation, lien,
-------------------
encumbrance, charge or security interest of any kind upon any capital stock of
any Insurance Company Subsidiary of the Borrower acquired after the date hereof,
if such purchase money lien is given for the purpose of financing, and does not
exceed, the cost to the Borrower or any Subsidiary of acquiring the capital
stock or property of the acquired Insurance Company Subsidiary and such
financing is effected concurrently with, or within six months after, the date of
such acquisition, and (ii) any extension, renewal or refinancing of any such
Purchase Money Lien as long as the principal amount of obligations secured
thereby does not exceed the principal amount of obligations secured immediately
prior to such extension, renewal or refinancing.
"Qualified Indebtedness" means, without duplication, (a) securities
----------------------
evidencing Indebtedness of the Borrower, provided that the terms of any such
security (i) permit the deferral of principal and interest payments for a period
of up to five years (but not beyond the maturity date), as elected by the
Borrower, (ii) have a maturity for payment of principal of not less than ten
(10) years after the date of issuance, and (iii) include provisions making such
security expressly subordinate to all other Indebtedness of the Borrower; (b)
preferred securities issued by a Subsidiary of the Borrower, the sole purpose of
which is to issue such preferred securities and invest the proceeds thereof in
securities of the type described in clause (a) above, and which preferred
securities are payable solely out of the proceeds of payments on account of such
securities; and (c) the obligations recorded on the consolidated balance sheet
of the Borrower and its Subsidiaries with respect to securities of the type
described in clause (a) above and preferred securities of the type described in
clause (b) above.
"Quarterly Statement" means, with respect to any Insurance Company
-------------------
Subsidiary, the statutory quarterly financial statement of such Insurance
Company Subsidiary as is required to be filed with the applicable Governmental
Authority of its state of domicile, with all exhibits and schedules filed
therewith.
"Refinancing" means the offering and sale by the Borrower or any of its
-----------
Subsidiaries of Refinancing Securities pursuant to the Engagement Letter.
"Refinancing Fee" means an amount equal to 1.0% of the aggregate amount of
---------------
the Bridge Loan Commitment; provided, that, solely for purposes of Section
--------
2.12(d), the term "Refinancing Fee," on any prepayment date pursuant to Section
---------------
2.12(d), shall mean an amount equal to 1.0% of the aggregate amount of the
Bridge Loans prepaid on such prepayment date.
"Refinancing Securities" means debt securities or Capital Stock issued by
----------------------
the Borrower or any of its Subsidiaries in connection with the Refinancing the
proceeds of which are to be used to repay the Bridge Loans in full.
"Regulation U" means Regulation U of the FRB, as in effect from time to
------------
time.
"Required Lenders" means the Lender or Lenders holding at least 66-2/3% of
----------------
the aggregate outstanding principal amount of all Bridge Loans then outstanding.
"SAP" means, with respect to any Insurance Company Subsidiary, the
---
accounting practices and procedures required to be complied with by such
Insurance Company Subsidiary
17
<PAGE>
under the statutes of its state of domicile and under the rules and regulations
of the applicable Governmental Authority of that state.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Single Employer Plan" means a "single-employer plan," as defined in
--------------------
Section 4001(a)(15) of ERISA, that (i) is or was sponsored, maintained or
contributed to by the Borrower any of its Subsidiaries or any of their
respective ERISA Affiliates and no Person other than the Borrower any of its
Subsidiaries or any of their respective ERISA Affiliates or (ii) was so
sponsored, maintained or contributed to by and in respect of which such
Borrower, its Subsidiaries or their respective ERISA Affiliates could have
liability under Section 4069 of ERISA in the event such plan has been or were to
be terminated.
"Stockholders' Equity" means, with respect to the Borrower and its
--------------------
Subsidiaries at any date, the stockholders' equity of the Borrower and its
Subsidiaries determined on a consolidated basis in accordance with GAAP;
provided, that, for purposes hereof, Stockholders' Equity shall be determined
- --------
without regard to the requirements of FAS115; and provided, further, that for
--- -------- -------
purposes hereof the amount of goodwill and other intangible assets reflected in
determining Stockholders' Equity shall be the lesser of (i) the amount shown as
goodwill and other intangible assets on the most recent audited or unaudited
consolidated balance sheet of the Borrower and its consolidated Subsidiaries and
(ii) $55,000,000.
"Subsidiary" means, in respect of any Person, any corporation, association,
----------
partnership or other business entity of which more than 50% of the total voting
power of the Voting Stock is at the time owned or controlled, directly or
indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of
such Person or (iii) one or more Subsidiaries of such Person.
"Tax Return" means a report, return or other information (including any
----------
amendments) required to be supplied with respect to Taxes including, where
permitted or required, combined or consolidated returns for any group of
entities that includes the Borrower or any Subsidiary.
"Taxes" means any present or future taxes, assessments, fees, levies,
-----
imposts, duties, deductions, liabilities, withholdings or other charges of any
nature whatsoever, including interest, penalties and additions thereto from time
to time or at any time imposed by any Law or any tribunal.
"Transactions" means the execution, delivery and performance of the Loan
------------
Documents and the issuance or incurrence of the Bridge Loans, the Bridge Notes
and the Guarantee pursuant to the Loan Documents.
"UCC" means the Uniform Commercial Code, as in effect from time to time in
---
the State of New York.
"Voting Stock" of a Person means all classes of Capital Stock or other
------------
interests (including partnership interests) of such Person then outstanding and
normally entitled (without
18
<PAGE>
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Subsidiary, all the Capital Stock of
-----------------------
which (other than directors' qualifying shares) is owned by the Borrower or one
or more Wholly Owned Subsidiaries.
SECTION 1.2. Rules of Construction. Unless the context otherwise
---------------------
requires:
(i) a term has the meaning assigned to it herein;
(ii) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(iii) the term "principal" with respect to any Bridge Loan or Bridge Note
includes any premium payable with respect thereto;
(iv) "or" is not exclusive;
(v) "including" means including without limitation;
(vi) words in the singular include the plural and words in the plural
include the singular;
(vii) the words "herein", "hereof", and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Section or other subdivision;
(viii) section references refer to Sections of this Agreement unless
otherwise indicated;
(ix) the headings in this Agreement are for purposes of reference only
and shall not be considered in construing this Agreement; and
(x) any reference to this Agreement hereunder shall mean this Credit
Agreement, as the same may be modified, amended or supplemented.
SECTION 2.
AMOUNT AND TERMS OF BRIDGE LOAN COMMITMENT AND LOANS; BRIDGE NOTES
SECTION 2.1. Bridge Loan Commitment. (a) Subject to the terms and
----------------------
conditions of this Agreement and in reliance upon the representations and
warranties of the Loan Parties herein set forth, PSCC hereby agrees to make
Bridge Loans to the Borrower from time to time in an aggregate principal amount
not exceeding $250,000,000 (the "Bridge Loan Commitment"). Following any sale,
transfer or negotiation by PSCC pursuant to Section 11.2 hereof of any portion
of the Bridge Loan Commitment to one or several new Lenders, the terms "Bridge
Loan Commitment," individually, and "Bridge Loan Commitments," collectively, as
19
<PAGE>
used herein, shall refer to the commitment of each of PSCC and such new Lender
or Lenders to make its pro rata portion of each Bridge Loan to the Borrower
pursuant to this Section 2.
(b) This Agreement will not be in the nature of a revolving credit
facility, and amounts borrowed and repaid hereunder at any time may not be
reborrowed.
SECTION 2.2. Procedure for Borrowing. (a) The Borrower may request a
-----------------------
Bridge Loan hereunder by a notice substantially in the form set forth in Exhibit
B, with all blank spaces appropriately completed in compliance with Section
2.2(b), specifying the aggregate principal amount of the Bridge Loan to be made
on the applicable Disbursement Date, which shall be $5,000,000 or a whole
multiple of $1,000,000 in excess thereof and shall be an amount which, when
taken together with all other Bridge Loans made hereunder prior to such
Disbursement Date, shall not exceed the Bridge Loan Commitment. The notice must
be given to the Agent not later than 11:00 a.m. (New York City time) on the
third Business Day before such Disbursement Date.
(b) A notice of borrowing pursuant to this Section 2.2 shall specify the
Disbursement Date and the account to which the Borrower wishes the proceeds of
the Bridge Loan to be credited. The Disbursement Date so specified must be a
Business Day on or before the termination of the Bridge Loan Commitment, except
any day in the period from December 28, 1999 through January 3, 2000 during
which the Borrower may not request a Bridge Loan hereunder. The giving of a
notice as provided in this Section 2.2 shall constitute the Borrower's
irrevocable commitment to borrow an amount equal to the Bridge Loan specified
therein on such Disbursement Date.
SECTION 2.3. Disbursement of Funds. No later than 3:00 p.m. (New York
---------------------
time) on the relevant Disbursement Date, each Lender will make available its pro
rata share of the Bridge Loan requested to be made on such date in the manner
provided below. All amounts shall be made available to the Agent in Dollars and
immediately available funds by deposit to the Agent's account specified in
Section 2.8(b) and the Agent promptly will make available to the Borrower by
depositing to its account specified pursuant to Section 2.2(b) the aggregate of
the amounts so made available in the type of funds received. Unless the Agent
shall have been notified by any Lender prior to such Disbursement Date that such
Lender does not intend to make available to the Agent its pro rata share of the
Bridge Loan to be made on such date, the Agent may assume that such Lender has
made such amount available to the Agent on such date, and the 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 Agent by such Lender
and the Agent has made available same to the Borrower, the Agent shall be
entitled to recover such corresponding amount from such Lender. If such Lender
does not pay such corresponding amount forthwith upon the Agent's demand
therefor, the Agent shall promptly notify the Borrower, and the Borrower shall
immediately pay such corresponding amount to the Agent. The Agent shall also be
entitled to recover from such Lender 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 Agent to the Borrower to the date
such corresponding amount is recovered by the Agent, at a rate per annum equal
to (x) if paid by such
20
<PAGE>
Lender, the overnight Federal Funds Rate or (y) if paid by the Borrower, the
then applicable rate of interest on the relevant Bridge Loan.
SECTION 2.4. Bridge Notes. The Borrower shall execute and deliver to
------------
each Lender on the Disbursement Date such Lender shall first contribute to a
Bridge Loan hereunder a note substantially in the form of Exhibit A and with
appropriate insertions, to evidence the date and such Lender's pro rata portion
of each Bridge Loan, and each payment of principal, interest or other amounts
due under the Loan Documents (a "Bridge Note"). Each Lender is hereby authorized
to endorse on the schedule attached to the Bridge Note held by such Lender (or
on a continuation of any such schedule attached to any such Bridge Note and made
a part thereof) an appropriate notation evidencing the date and its pro rata
portion of each Bridge Loan, and each payment of principal, interest or other
amounts due under the Loan Documents, in respect thereof. Such schedule shall,
absent manifest error, constitute prima facie evidence of the accuracy of the
information contained therein. The failure of any Lender to make a notation on
the schedule to the Bridge Note held by such Lender as aforesaid or the making
of an incorrect notation by any Lender shall not affect the obligations of the
Loan Parties hereunder or under any of the Bridge Notes or any other Loan
Document in any respect.
SECTION 2.5. Termination of Bridge Loan Commitment. The Bridge Loan
-------------------------------------
Commitment hereunder shall terminate at 5:00 p.m. (New York City time) on the
day numerically corresponding to the Closing Date in the sixth month thereafter.
SECTION 2.6. Pro Rata Borrowings. The Bridge Loans made under this
-------------------
Agreement shall be made by the Lenders pro rata on the basis of their respective
Bridge Loan Commitments. It is understood that no Lender shall be responsible
for any default by any other Lender of its obligation to make its portion of any
Bridge Loan hereunder and that each Lender shall be obligated to make its
portion of any Bridge Loan hereunder, regardless of the failure of any other
Lender to fulfill its commitments hereunder.
SECTION 2.7. Interest. (a) Each Bridge Loan shall bear interest on
--------
the unpaid principal amount thereof during each Interest Period, from and
including the first day of that Interest Period to but excluding the last day
thereof, at a rate per annum equal to the Applicable Interest Rate for each
Interest Period.
(b) Any principal payments on any Bridge Loan not paid when due and, to
the extent permitted by applicable law, any interest payment on any Bridge Loan
not paid when due, in each case whether at stated maturity, by notice of
redemption, by acceleration or otherwise, shall thereafter bear interest payable
upon demand at a rate which is 2.00% per annum in excess of the rate of interest
otherwise payable under this Agreement.
(c) Interest on each Bridge Loan shall be computed on the basis of a 360-
day year and the actual number of days elapsed in the period during which it
accrues.
(d) Interest shall be payable with respect to each Bridge Loan, in
arrears, on each Interest Payment Date, commencing on the first Interest Payment
Date following the Disbursement Date with respect to such Bridge Loan.
21
<PAGE>
SECTION 2.8. Making of Payments. (a) Any payment stated to be due in
------------------
respect of any Bridge Loan, and any Interest Period stated to end, on a given
day in a specified month shall instead be made or end (as the case may be) (i)
if there is no such day in that month, on the last Business Day of that month or
(ii) if that day is not a Business Day, on the following Business Day, unless
that following Business Day falls in a different calendar month, in which case
that payment shall be made or that Interest Period shall end (as the case may
be) on the preceding Business Day.
(b) Each payment by the Borrower or the Guarantor under this Agreement or
the Bridge Notes shall be made in Dollars, by deposit in funds settled through
the New York Clearing House Interbank Payments System or such other same-day
funds as the Agent may at the time determine to be customary for the settlement
in New York City of international banking transactions denominated in Dollars,
by 11:00 a.m. New York City time on the date such payment is due, to the Agent's
account No. JLA111569PPC (Reference: Mutual Risk Management Ltd.), ABA Number:
02100018, maintained at The Bank of New York, 80 Broadway, New York, New York
10292, or to any other account in New York City designated by the Agent by
notice to the Borrower and the Guarantor.
SECTION 2.9. No Setoff, Counterclaim or Withholding; Gross-Up. (a)
------------------------------------------------
Each payment by the Borrower or the Guarantor under this Agreement or the Bridge
Notes shall be made without setoff or counterclaim and without withholding on
account of any present or future Taxes imposed by or within Bermuda or any
political subdivision or taxing authority thereof or therein or any other
jurisdiction from or through which the Borrower or the Guarantor makes payment
hereunder; provided, however, that, if such Taxes are required to be withheld or
-------- -------
deducted from any such payment, the Borrower or the Guarantor shall make such
withholding or deduction, make payment of the amount withheld or deducted to the
appropriate Governmental Authority and forthwith pay such additional amount as
may be necessary to ensure that the net amount actually received by each Lender
and the Agent free and clear of such Taxes is equal to the amount that such
Lender or the Agent (as the case may be) would have received had no such Taxes
been withheld or deducted; and provided, further, that no such additional
-------- -------
amounts shall be payable in respect of (i) in the case of each Lender and the
Agent, any Taxes imposed on its net income and franchise Taxes imposed on it by
the jurisdiction under the laws of which such Person is organized (unless such
Taxes are imposed solely because the payment was made by a Guarantor and would
not have been imposed had such payment instead been made by the Borrower) or
(ii) any Taxes imposed on a payee by reason of such payee's failure or inability
to comply with the provisions of Section 11.2(e) of this Agreement. All such
Taxes shall be paid by the Borrower or the Guarantor prior to the date on which
penalties attach thereto or interest accrues thereon; provided, however, that,
-------- -------
if any such penalties or interest become due, the Borrower or the Guarantor
shall make prompt payment thereof to the appropriate Governmental Authority. If
the Agent or any Lender pays any amount in respect of such Taxes, penalties or
interest, the Borrower or the Guarantor shall reimburse the Agent or such Lender
in Dollars for such payment on demand together with interest thereon from and
including the date of payment to but excluding the date of reimbursement at a
rate per annum equal to the then applicable rate of interest on the relevant
Bridge Loan. If the Borrower or the Guarantor pays any such Taxes, penalties or
interest, it shall deliver official tax receipts evidencing such payment or
certified copies thereof to the Agent on or before the thirtieth day after
payment.
22
<PAGE>
(b) The Lender agrees to comply with any certification, identification,
information, documentation or other reporting requirement if (i) such compliance
is required by law, regulation, administrative practice or an applicable treaty
as a precondition to exemption from, or reduction in the rate of, deduction or
withholding of any Taxes for which the Borrower is required to pay additional
amounts pursuant to Section 2.9(a) hereof and (ii) at least 30 days prior to the
first Payment Date with respect to which the Borrower shall apply this clause
(b), the Borrower shall have notified the Lender that the Lender will be
required to comply with such requirement, provided, however, that the exclusion
-------- -------
set forth in this clause (b) shall not apply in respect of any certification,
identification, information, documentation or other reporting requirement if
such requirement would be materially more onerous, in form, in procedure or in
the substance of information disclosed, to the Lender than comparable
information or other reporting requirements imposed under U.S. tax law,
regulation and administrative practice (such as IRS Forms 1001, W-8 and W-9).
(c) The Borrower shall pay any present or future documentary, transfer or
stamp Taxes or any other excise or property Taxes, charges or similar levies,
and any penalties, additions to Tax or interest that may be due with respect
thereto, that may be imposed by any jurisdiction in connection with this
Agreement or the Bridge Notes. If the Agent or any Lender pays any amount in
respect of any such taxes, duties, levies, penalties or interest, the Borrower
shall reimburse the Agent or such Lender for such payment in Dollars on demand,
together with interest thereon from and including the date of payment to, but
excluding, the date of reimbursement at a rate per annum equal to the then
applicable rate of interest on the relevant Bridge Loan.
SECTION 2.10. Increased Costs and Reduction of Return. (a) If any
---------------------------------------
Lender determines that, due to either (i) the introduction of or any change
(other than any change by way of imposition of or increase in reserve
requirements included in the calculation of LIBOR (Reserve Adjusted)) in or in
the interpretation of any Law or (ii) compliance by such Lender with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to such Lender of agreeing to make or making, funding or maintaining Bridge
Loans, then the Borrower shall be liable for, and shall from time to time upon
demand (with a copy of such demand to be sent to the Agent) pay to the Agent for
the account of such Lender, additional amounts as are sufficient to compensate
such Lender for such increased cost.
(b) If any Lender shall have determined that (i) the introduction of any
Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation,
(iii) any change in the interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by such Lender or
any corporation controlling such Lender with any Capital Adequacy Regulation
affects or would affect the amount of capital required or expected to be
maintained by such Lender or any corporation controlling such Lender and (taking
into consideration such Lender's or such corporation's policies with respect to
capital adequacy and such Lender's desired return on capital) determines that
the amount of such capital is increased as a consequence of its Bridge Loan
Commitment or Bridge Loans, then the Borrower shall be liable for, and shall
from time to time upon demand (with a copy of such demand to be sent to
23
<PAGE>
the Agent) pay to the Agent for the account of such Lender, additional amounts
as are sufficient to compensate such Lender for such increase.
SECTION 2.11. Illegality. If any Lender determines at any time that
----------
any Law or treaty or any change therein or in the interpretation or application
thereof makes or will make it unlawful for such Lender to fulfill its commitment
pursuant to Section 2.1 to maintain a Bridge Loan or to claim or receive any
amount payable to it hereunder, such Lender shall give notice of such
determination to the Borrower, whereupon the obligations of such Lender
hereunder shall terminate. If any such notice is given after the disbursement of
any Bridge Loans, the Borrower shall prepay the Bridge Loans of such Lender in
full on the Interest Payment Date next succeeding the date such notice is given
(or on such earlier date as such Lender determines and certifies to be necessary
in order to enable it to comply with such Law, treaty or change), without
premium or Refinancing Fee but together with interest accrued to the date of
prepayment on such Bridge Loans and all other amounts then payable to such
Lender by the Borrower hereunder.
SECTION 2.12. Repayment; Prepayments. (a) All Bridge Loans shall
----------------------
mature and the Borrower shall pay in full the outstanding principal amount
thereof and accrued interest thereon on the Maturity Date; provided, that if the
--------
Borrower does not effect such repayment by means of the Refinancing in
accordance with the provisions of Section 5.8 hereof, the Borrower shall pay to
PSI on the Maturity Date an amount equal to (i) the Refinancing Fee less (ii)
the aggregate amount of any Refinancing Fees paid to PSI pursuant to paragraph
(d) of this Section 2.12 on or prior to the Maturity Date.
(b) The Borrower may at any time and from time to time, upon not less than
three Business Days' prior written or telephonic notice confirmed in writing to
the Agent, prepay the outstanding principal amount of the Bridge Loans, in whole
but not in part. Such notice shall constitute the Borrower's irrevocable
commitment to prepay the full outstanding principal amount of the Bridge Loans
on that date, together with accrued and unpaid interest on such amount to but
excluding such prepayment date; provided, that the Borrower shall pay to PSI on
--------
such prepayment date an amount equal to (i) the Refinancing Fee less (ii) the
aggregate amount of any Refinancing Fees paid to PSI pursuant to paragraph (d)
of this Section 2.12 on or prior to such prepayment date.
(c) Concurrently with the receipt by the Borrower or any of its
Subsidiaries of any capital contribution or proceeds from any sale or issuance
of Capital Stock or Indebtedness by the Borrower or such Subsidiary subsequent
to the Closing Date (other than the proceeds of any issuance of Capital Stock
pursuant to employee or director stock option plans the aggregate amount of
which, together with the aggregate amount of any such issuances subsequent to
the Closing Date, does not exceed $5,000,000), the Borrower shall apply, or
cause such Subsidiary to apply, the Net Cash Proceeds thereof to prepay Bridge
Loans in a principal amount equal to the lesser of such Net Cash Proceeds and
the aggregate amount of the Bridge Loans then outstanding, together with any
accrued and unpaid interest thereon to but excluding the prepayment date;
provided, that if such Capital Stock or Indebtedness does not constitute
- --------
Refinancing Securities, the Borrower shall pay to PSI on such prepayment date an
amount equal to (i) the Refinancing Fee less (ii) the aggregate amount of any
Refinancing Fees paid to PSI pursuant to paragraph (d) of this Section 2.12 on
or prior to such prepayment date.
24
<PAGE>
(d) Concurrently with the receipt by the Borrower or any of its
Subsidiaries of any proceeds from any Asset Sale subsequent to the Closing Date,
the Borrower shall, or shall cause such Subsidiary to, apply the Net Cash
Proceeds thereof to prepay Bridge Loans in a principal amount equal to the
lesser of such Net Cash Proceeds and the aggregate amount of the Bridge Loans
then outstanding, together with any accrued and unpaid interest thereon to but
excluding such prepayment date; provided, that the Borrower shall pay a
--------
Refinancing Fee to PSI on such prepayment date; and provided, further, that the
-------- -------
Borrower may defer a mandatory prepayment pursuant to this paragraph until there
is an aggregate amount of unapplied Net Cash Proceeds from one or more Asset
Sales equal to or in excess of $1,000,000, at which time the entire amount of
unapplied Net Cash Proceeds, and not just the amount in excess of $1,000,000,
shall be applied pursuant to this paragraph. Concurrently with the consummation
of any such Asset Sale, the Borrower shall deliver to the Agent an Officer's
Certificate demonstrating the derivation of Net Cash Proceeds from the gross
sales price of such Asset Sale.
(e) The Borrower shall notify the Agent of any prepayment to be made
pursuant to paragraph (c) or (d) of this Section 2.12 at least three Business
Days prior to the prepayment date.
(f) Any partial prepayment pursuant to paragraph (c) or (d) of this
Section 2.12 shall be allocated pro rata among the Bridge Loans at the time
outstanding in proportion, subject to such rounding as may be determined by the
Agent, to the respective unpaid principal amounts of such Bridge Loans.
SECTION 2.13. Mandatory Offer to Purchase Bridge Notes. (a) Upon the
----------------------------------------
occurrence of a Change of Control (the date of such occurrence, the "Change of
Control Date"), the Borrower shall, if the Lenders so request, offer to purchase
(the "Change of Control Offer") all of the Bridge Notes at a purchase price
equal to 101.0% of the aggregate principal amount thereof plus accrued and
unpaid interest thereon to the date of purchase (it being understood that no
Refinancing Fee shall be payable by the Borrower in connection with such
purchase).
(b) The notice to the Agent shall contain all instructions and materials
necessary to enable the Lenders to tender Bridge Notes.
(c) Within 30 days following any Change of Control the Borrower shall mail
a notice to the Agent stating:
(A) that the Change of Control Offer is being made pursuant to
this Section 2.13 and that all Bridge Notes validly tendered will be
accepted for payment;
(B) the purchase price and the purchase date, which shall be no
earlier than 30 days nor later than 40 days from the date such notice is
mailed (the "Offer Payment Date");
(C) that any Bridge Note not tendered will continue to accrue
interest;
(D) that any Bridge Note accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Offer
Payment Date unless the Borrower shall default in the payment of the
repurchase price of the Bridge Notes;
25
<PAGE>
(E) that if a Lender elects to have a Bridge Note purchased
pursuant to the Change of Control Offer it will be required to surrender
the Bridge Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Bridge Note completed, to the Borrower
prior to 5:00 p.m. New York time on the Offer Payment Date;
(F) that a Lender will be entitled to withdraw its election if
the Borrower receives, not later than 5:00 p.m. New York time on the
Business Day preceding the Offer Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the principal amount of Bridge Notes
such Lender delivered for purchase, and a statement that such Lender is
withdrawing its election to have such Bridge Note purchased; and
(G) that if Bridge Notes are purchased only in part, new Bridge
Notes of the same type will be issued in principal amount equal to the
unpurchased portion of the Bridge Notes surrendered.
(d) On or before the Offer Payment Date, the Borrower shall (i) accept for
payment Bridge Notes or portions thereof which are to be purchased in accordance
with the above, and (ii) deposit with the Agent Dollars sufficient to pay the
purchase price of all Bridge Notes to be purchased. The Agent shall promptly
mail to the Lenders whose Bridge Notes are so accepted payment in an amount
equal to the purchase price.
(e) The Borrower shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Bridge Notes pursuant to an offer hereunder. To the extent the provisions of
any securities laws or regulations conflict with the provisions under this
Section, the Borrower shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section by virtue thereof.
SECTION 2.14. Security for the Loan. The Bridge Notes and the
---------------------
Borrower's Obligations shall be secured by first priority Liens on the
Collateral in favor of the Agent for the benefit of the Lenders, as provided
herein.
SECTION 3.
REPRESENTATIONS AND WARRANTIES
The Loan Parties, jointly and severally, hereby represent and warrant as of
the date hereof as follows:
SECTION 3.1. Good Standing and Authority. Each of the Borrower and
---------------------------
its Subsidiaries is duly organized and validly existing and (other than with
respect to Mutual Indemnity (Dublin) Ltd., given the inapplicability thereof
under Irish law) in good standing under the laws of its jurisdiction of
incorporation. Each of the Borrower and its Subsidiaries has the corporate power
and authority to own and operate its properties and to carry on its business as
now conducted and as proposed to be conducted following the consummation of the
Transactions, and is duly qualified as a foreign corporation and in good
standing in all
26
<PAGE>
jurisdictions in which it is doing business and is proposed to be doing business
following the consummation of the Transactions, except where failure to be so
qualified or in good standing, singly or in the aggregate, would not have a
Material Adverse Effect.
SECTION 3.2. Stock Duly Authorized and Issued.
--------------------------------
(a) The Capital Stock of each of the Borrower and its Subsidiaries is duly
authorized, validly issued and fully paid and nonassessable.
(b) All of the outstanding shares of Capital Stock of the Guarantor and
Mutual Holdings (Bermuda) Ltd. (other than the MH Preferred Shares) are
beneficially owned directly by Mutual Risk Management (Holdings) Ltd., free and
clear of any Liens. All of the outstanding shares of Capital Stock of Mutual
Risk Management (Holdings) Ltd. and Mutual Indemnity (Dublin) Ltd. (other than
the MIDL Director Share) are beneficially owned directly by the Borrower, free
and clear of any Liens. All of the outstanding shares of Capital Stock (other
than the IPC Preferred Shares) of IPC Mutual Holdings, Ltd. and Legion Financial
Corporation are beneficially owned directly by the Guarantor, free and clear of
any Liens. All of the outstanding shares of Capital Stock of Legion are
beneficially owned directly by Legion Financial Corporation, free and clear of
any Liens.
(c) There are no outstanding stock purchase warrants, subscriptions,
options, securities, instruments or other rights of any type or nature
whatsoever, which are convertible into, exchangeable for or otherwise provide
for or permit the issuance of Capital Stock of the Borrower or its Subsidiaries,
except as disclosed in the applicable filings of the Borrower with the SEC.
SECTION 3.3. Loan Documents Authorized, etc. Each of the Loan
-------------------------------
Documents and each other document or instrument to be delivered in connection
therewith has been duly authorized by all necessary action of each Loan Party
that is a party thereto; each of this Agreement and the other Loan Documents and
each other document or instrument to be executed and delivered in connection
herewith or therewith on or prior to the date hereof has been duly executed and
delivered by each Loan Party that is a party hereto or thereto and constitutes,
and each of the Loan Documents and each other document or instrument to be
executed and delivered in connection therewith by such Loan Party that is a
party thereto after the date hereof will constitute upon its execution and
delivery, the legal, valid and binding obligation of such Loan Party,
enforceable against such Loan Party in accordance with its terms, except to the
extent that the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or similar laws affecting the
enforcement of creditors' rights generally or by general principles of equity.
SECTION 3.4. No Consents; No Conflicts. The execution, delivery and
-------------------------
performance of the Loan Documents, and the consummation of the transactions
contemplated or described therein (including, without limitation, the issuance
and performance of the Guarantee by the Guarantor, the creation of the security
interests granted by the Pledgors hereunder in favor of the Agent for the
benefit of the Lenders and the exercise of any rights or remedies specified in
Section 10 with respect thereto and the Refinancing) do not and will not (i)
require the consent, approval, authorization, registration or qualification of
or with any Governmental Authority
27
<PAGE>
(including, without limitation, any insurance authority, commission or other
insurance regulatory body), except that (A) the approval of a Form A filing by
the Department of Insurance of the State of Pennsylvania shall be required
before the Agent or the Lenders can exercise their rights and remedies with
respect to the LFC Collateral pursuant to Section 10 hereof upon the occurrence
and during the continuance of an Event of Default, and (B) prior to the security
interest in the shares of Mutual Indemnity (Dublin) Ltd. being enforced, an
application for a clearance from the Irish Minister for Enterprise, Trade and
Employment pursuant to the Irish Mergers, Take-Overs and Monopolies (Control)
Act, 1978 is likely to have to be made and the consent of the Irish Department
of Finance will be required, (ii) violate any statute, law, rule, regulation,
order, judgment or decree (singly, "Law" and collectively, "Laws") applicable to
the Borrower or any of its Subsidiaries of any court, Governmental Authority,
arbitrator or other authority having jurisdiction over the Borrower or such
Subsidiary or any of their respective properties, (iii) conflict with, result in
a breach or violation of or constitute a default under the certificate of
incorporation and by-laws or similar organizational documents of the Borrower or
any of its Subsidiaries or any indenture, mortgage, deed of trust, contract,
undertaking, loan agreement, lease or other agreement or instrument to which the
Borrower or any of its Subsidiaries is a party or by which the Borrower or any
of its Subsidiaries or any of their respective properties are bound
("Contracts") or (iv) result in or require the creation or imposition of any
mortgage, pledge, assignment, security interest, charge or encumbrance of any
kind (including any conditional sale or other title retention agreement, any
lease in the nature thereof, and any agreement to give any security interest)
and any option, trust or other preferential arrangement having the practical
effect of any of the foregoing ("Lien").
SECTION 3.5. Financial Information Complete. The financial statements
------------------------------
delivered pursuant to paragraph (7) of Section 4.1(a), including the related
schedules and notes thereto, have been prepared in accordance with GAAP and are
complete and correct and fairly present in all material respects the assets,
liabilities and financial position of the Borrower and its consolidated
Subsidiaries as at such dates, and the results of operations and changes of
financial position for the periods then ended. The Borrower and its consolidated
Subsidiaries have no debt, obligation or other forward or long-term commitment
required to be reflected in the foregoing financial statements or in the notes
thereto which is not fairly reflected in all material respects therein.
SECTION 3.6. No Material Adverse Change. From and after September 30,
--------------------------
1999, there has been no material adverse change in the business, properties,
operations, condition (financial or otherwise), results of operations or
prospects, of the Borrower or any of its Subsidiaries and no event has occurred
or condition arisen that would have a Material Adverse Effect.
SECTION 3.7. Accuracy and Completeness of Information. (a) No written
----------------------------------------
information, written statements, reports and other papers and data produced by
or on behalf of the Borrower or any of its Subsidiaries and furnished to the
Agent in connection with the Transactions (including, without limitation, any
statement or report filed by the Borrower with the SEC under the Exchange Act)
taken as a whole contain or will contain any untrue statement of fact material
to the creditworthiness of the Borrower or any of its Subsidiaries or omit or
will omit to state a material fact necessary in order to make the statements
contained therein not misleading in the circumstances in which made.
<PAGE>
(b) The Borrower is not aware of any fact with respect to the Borrower or
any of its Subsidiaries or the Transactions that would have a Material Adverse
Effect that has not been previously disclosed to the Lenders.
SECTION 3.8. Internal Accounting. Each of the Borrower and its
-------------------
Subsidiaries maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
SECTION 3.9. No Insolvency. As of the date hereof and after giving
-------------
effect to the consummation of the Transactions:
(a) The aggregate value of the assets of each of the Borrower and the
Guarantor, at fair value and present fair salable value, exceeds (i) its total
liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities) and (ii) the amount required to pay such liabilities as they become
absolute and matured in the normal course of business;
(b) Each of the Borrower and the Guarantor has the ability to pay its
debts and liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities) as they become absolute and matured in the normal
course of business; and
(c) None of the Borrower or the Guarantor has an unreasonably small amount
of capital with which to conduct its business.
SECTION 3.10. Legal Title. The Borrower holds no ownership interests
-----------
in any Person or any other material assets except as specified in Schedule 3.10
and has good, sufficient and legal title to all ownership interests listed in
Schedule 3.10, free and clear of any Liens.
SECTION 3.11. No Violations. Each of the Borrower and its Subsidiaries
-------------
is not, and after the consummation of the Transactions will not be, in violation
of its charter, by-laws or other organizational documents, and no default or
event that but for the giving of notice or the lapse of time, or both, would
constitute a default on the part of the Borrower or any of its Subsidiaries
exists or will exist under any Contracts which would have a Material Adverse
Effect.
SECTION 3.12. No Litigation. There are no actions, suits or
-------------
proceedings pending nor, to the knowledge of the Borrower, threatened against or
in any other way relating adversely to or affecting the Borrower or any of its
Subsidiaries or any of their respective properties or the Transactions in any
court or before any arbitrator of any kind or before or by any Governmental
Authority which would have a Material Adverse Effect.
SECTION 3.13. Proceeds. The Borrower will apply the net proceeds from
--------
the Bridge Loans solely for the purposes specified in Section 5.7 hereof.
Neither the incurrence of the Bridge Loans and the application of the proceeds
thereof by the Borrower nor the pledge of
29
<PAGE>
the Pledged Securities by the Pledgors hereunder will violate Regulations T, U
and X of the FRB.
SECTION 3.14. Margin Stock. (a) At no time, including following
------------
application of the proceeds of any Bridge Loan, shall more than 25% of the value
of the assets (either of the Borrower, the Guarantor or of the Borrower and its
Subsidiaries on a consolidated basis) (i) subject to the provisions of Section
6.3 and 6.5 or (ii) subject to any restriction contained in any agreement or
instrument between the Borrower and any Lender or any Affiliate of any Lender
relating to any Indebtedness and within the scope of Section 7.1(h), consist of
Margin Stock.
(b) None of the Pledged Securities shall at any time during the term of
the Bridge Loans hereunder consist of Margin Stock.
SECTION 3.15. Tax Returns and Payments. All Tax Returns, foreign and
------------------------
domestic, required to be filed by or on behalf of the Borrower and each of its
Subsidiaries in any jurisdiction have been timely filed, or caused to be filed,
and all material Taxes (whether or not actually shown on such tax returns) for
which they are directly or indirectly liable or to which any of their respective
properties and assets is subject have been paid, or caused to be paid, other
than any Tax (i) the validity or amount of which is being contested in good
faith, (ii) for which adequate reserve, or other appropriate provision, if any,
as required in conformity with GAAP shall have been made, and (iii) with respect
to which any right to execute upon or sell any assets of the Borrower or any of
the Subsidiaries has not matured or has been and continues to be effectively
enjoined, superseded or stayed ("Contested Claims"); all such Tax Returns are
true, correct and complete in all material respects. As of the Closing Date,
there is no material proposed tax assessment with respect to Taxes due by, or on
behalf of, the Borrower or any of its Subsidiaries, and to the best knowledge of
the Borrower there is no basis for such assessment, except for Contested Claims.
To the best knowledge of the Borrower and the Guarantor, there is no tax, levy,
impost, duty, charge, fee, deduction or withholding imposed by (i) Bermuda or
any political subdivision or taxing authority thereof or therein or (ii) by any
other jurisdiction from or through which the Borrower or the Guarantor makes
payment on or by virtue of the execution, delivery, enforcement or performance
of the Credit Agreement or in connection with the Bridge Notes.
SECTION 3.16. ERISA Compliance. (a) As of the Closing Date, the
----------------
Borrower, its Subsidiaries and any of their respective ERISA Affiliates do not
sponsor, maintain or contribute to, or have any obligation under, any Pension
Plan or Multiemployer Plan.
(b) The Borrower, each of its Subsidiaries and each of their respective
ERISA Affiliates is in material compliance with all applicable provisions of
ERISA and the regulations material thereunder with respect to all Employee
Benefit Plans except for any required amendments for which the remedial
amendment period as defined in Section 401(b) of the Code has not yet expired.
The Internal Revenue Service has issued a favorable determination letter with
respect to the form of the plan document of each Employee Benefit Plan that is
intended to be qualified under Section 401(a) of the Code and nothing has
occurred, whether by action or failure to act, that could reasonably be expected
to cause the loss of such qualification.
30
<PAGE>
(c) No ERISA Event has occurred or is reasonably expected to occur which,
alone or together with all other ERISA Events, has resulted, or is reasonably
expected to result, in any material liability to the Borrower or its
Subsidiaries.
(d) No proceeding, claim (other than claims for benefits made in the
ordinary course of the operation of any Employee Benefit Plan), lawsuit and/or
investigation is existing or, to the best knowledge of the Borrower after due
inquiry, threatened concerning or involving any Employee Benefit Plan currently
sponsored, maintained or contributed to by the Borrower, any of its Subsidiaries
or any of their respective ERISA Affiliates.
(e) In accordance with the most recent actuarial valuations, the Amount of
Unfunded Benefit Liabilities individually or in the aggregate for all Pension
Plans (excluding for purposes of such computation any Pension Plans which have a
negative Amount of Unfunded Benefit Liabilities), does not exceed $1,000,000.
(f) Neither the Borrower nor any of its Subsidiaries has incurred or is
reasonably expected to incur any material liability with respect to any Foreign
Plan or Foreign Plans.
SECTION 3.17. Compliance With Laws. Each of the Borrower and its
--------------------
Subsidiaries is in compliance with all Laws, except where the failure to comply,
singly or in the aggregate, would not have a Material Adverse Effect.
SECTION 3.18. Government Regulation. No Loan Party is subject to
---------------------
regulation under the Public Utility Holding Company Act of 1935, as amended, the
Federal Power Act, as amended, or other Law which would regulate the incurrence
of Indebtedness by the Borrower or the Guarantor or the pledge of Pledged
Securities by any of the Pledgors, including, but not limited to, Laws relating
to common contract carriers or the sale of electricity, gas, steam, water or
other public utility services. No Loan Party is, and after consummation of the
Transactions will be, an "investment company" or an entity "controlled" by an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.
SECTION 3.19. Insurance. Each of the Borrower and its Subsidiaries
---------
carries or is entitled to the benefits of insurance (including self-insurance)
in such amounts and covering such risks as is generally maintained by companies
of established repute engaged in the same or similar businesses, and all such
insurance is (and will be following consummation of the Transactions) in full
force and effect, except where the failure to carry such insurance or be
entitled to the benefits of such insurance would not, singly or in the
aggregate, have a Material Adverse Effect.
SECTION 3.20. Labor. No labor disturbance by the employees of the
-----
Borrower or any of its Subsidiaries exists or, to the best knowledge of the
Borrower, is threatened and the Borrower is not aware of any existing or
imminent labor disturbance by the employees of the principal suppliers,
manufacturers or customers of the Borrower or any of its Subsidiaries which
would have a Material Adverse Effect.
SECTION 3.21. Environmental Matters. Each the Borrower and its
---------------------
Subsidiaries have been and are in compliance with all applicable laws, statutes,
ordinances, codes, orders, decisions, judgments, permits, approvals, rules,
regulations or requirements, including without
31
<PAGE>
limitation common law, relating to: (i) protection, preservation or cleanup of
the environment or natural resources; (ii) chemical substances or toxic,
hazardous or deleterious materials, wastes or agents (hereinafter "Hazardous
Substances"), including without limitation petroleum or any fraction thereof,
asbestos, and polychlorinated biphenyls; or (iii) health and safety (hereinafter
"EHS Laws"), except in each case for such noncompliance which would not have a
Material Adverse Effect ; there has been no proceeding, claim, notice or
complaint pending or, to the best knowledge of the Borrower, threatened against
any of the Borrower or its Subsidiaries relating to: (i) noncompliance with EHS
Laws; or (ii) liabilities or obligations arising from Hazardous Substances or
pursuant to EHS Laws; and there are no conditions or circumstances, including
without limitation the presence or release of any Hazardous Substances (whether
or not on the property of the Borrower or its Subsidiaries), reasonably
anticipated to result in liabilities or obligations to the Borrower or its
Subsidiaries pursuant to EHS Laws.
SECTION 3.22. Insurance Regulations. The Borrower is a holding company
---------------------
and is not subject to Bermuda insurance regulations. The Borrower and each of
its Subsidiaries are in compliance with all other insurance laws and regulations
of the jurisdictions that apply to them, including laws that relate to companies
that control insurance companies, except where the failure to comply would not
have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries
has received any notification from any Bermuda, U.S. federal, state or foreign
insurance authority, commission or other insurance regulatory body to the effect
that the Borrower or such Subsidiary is not in compliance with any insurance law
or regulation, which notification can reasonably be expected to have a material
adverse effect on the business of the Borrower or such Subsidiary.
SECTION 3.23. Permits; Licenses. Each of the Borrower and its
-----------------
Subsidiaries possesses all certificates, authorizations and permits issued by
the appropriate Bermuda, U.S. federal, state or foreign Governmental Authority
necessary to conduct their respective businesses, and neither the Borrower nor
any of its Subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
SECTION 3.24. Year 2000. The Borrower has (i) initiated a review and
---------
assessment of all areas within its and each of its Subsidiaries' business and
operations (including those affected by suppliers, vendors and customers) that
could be adversely affected by the risk that computer applications used by the
Borrower or any of its Subsidiaries (or suppliers, vendors and customers) may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999 (the "Year 2000
Problem"), (ii) developed a plan and timetable for addressing the Year 2000
Problem on a timely basis and (iii) to date, implemented that plan in accordance
with such timetable. Based on the foregoing, the Borrower believes that all
computer applications (including those of its suppliers, vendors and customers)
that are material to its or any of its Subsidiaries' business and operations are
reasonably expected on a timely basis to be able to perform properly date-
sensitive functions for all dates before and after January 1, 2000 ("Year 2000
Compliant"), except to the extent that a failure to do so would not have a
Material Adverse Effect.
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<PAGE>
SECTION 3.25. Collateral. (a) With respect to the Pledged Shares, such
----------
Pledged Shares represent that percentage as set forth on Schedules 10.1-A, 10.1-
B, 10.1-C, 10.1-D, 10.1-E or 10.1-F, as applicable, of the issued and
outstanding shares of Capital Stock of the applicable Collateral Subsidiary.
(b) Except for the security interest granted hereunder to the Agent for
the benefit of the Lenders, each Pledgor (i) is the sole owner of the Pledged
Securities pledged by it as described on the applicable Schedule hereto, and
(ii) holds the same free and clear of all Liens.
(c) Each Pledgor has the power and authority to pledge the Collateral in
the manner hereby done or contemplated and will defend its title or interest
thereto or therein against any and all Liens (other than the Lien created hereby
in favor of the Agent for the benefit of the Lenders), however arising, of all
Persons whomsoever.
(d) By virtue of the execution and delivery by each Pledgor of this
Agreement, when the Pledged Securities, certificates or other documents
representing or evidencing the Collateral, along with duly executed stock powers
endorsed in the name of the Agent or in blank, are delivered to the Agent in
accordance with Section 10, the Agent will obtain a valid and perfected first
priority security interest in such Pledged Securities for the benefit of the
Lenders as security for the payment and performance of the Obligations.
(e) All of the Pledged Securities have been duly authorized and validly
issued, are fully paid and nonassessable, and are not subject to any options to
purchase or other similar rights.
(f) All information set forth herein relating to the Pledged Securities is
accurate and complete in all material respects.
(g) No Loan Party incorporated outside the United States of America has an
executive office in the United States of America. The chief executive office and
the principal place of business of each Loan Party are as described in Schedule
3.25 hereto.
Any certificate signed by any officer of a Loan Party and delivered to the
Agent or its counsel pursuant to this Agreement shall be deemed to be a
representation and warranty by such Loan Party to the Agent or such Lender as to
the matters covered thereby.
SECTION 3.26. Acknowledgment of Pledge. Each Collateral Subsidiary
------------------------
hereby (i) acknowledges that all the shares of its Capital Stock (except the MH
Preferred Shares in the case of Mutual Holdings (Bermuda) Ltd., the IPC
Preferred Shares with respect to IPC Mutual Holdings, Ltd., and the MIDL
Director Share in the case of Mutual Indemnity (Dublin) Ltd.) constitute
Collateral pledged hereunder to the Agent for the benefit of the Lenders, (ii)
confirms that such shares constitute all issued and outstanding shares of its
Capital Stock, and (iii) agrees to fully cooperate with the implementation of
such pledge (including, without limitation, with any regulatory or other filings
or registrations with any insurance authority).
SECTION 4.
CONDITIONS TO THE OBLIGATIONS OF THE LENDERS
33
<PAGE>
SECTION 4.1. Conditions to Closing. The obligations of the Lenders
---------------------
to make Bridge Loans hereunder shall be subject to the satisfaction on or before
December 15, 1999 of the following conditions precedent:
(a) The Agent shall have received on behalf of the Lenders the following
items, each of which shall be in form and substance satisfactory to the Agent
and, unless otherwise noted, dated the Closing Date:
(1) A copy of the following certified by an Officer of the Borrower
and the Guarantor: resolutions of the Borrower's and the Guarantor's Board
of Directors approving and authorizing the execution, delivery and
performance of this Agreement, each of the other Loan Documents and any
other documents, instruments and certificates required to be executed by
the Borrower or the Guarantor in connection herewith and therewith and
approving and authorizing the consummation of the Transactions, each being
in full force and effect without modification or amendment;
(2) An original counterpart of this Agreement;
(3) Originally executed copies of an opinion of (i) Mayer, Brown &
Platt, U.S. counsel to the Loan Parties, substantially in the form of
Exhibit C-1, (ii) Conyers Dill & Pearman, Bermuda counsel to the Loan
Parties incorporated in Bermuda, substantially in the form of Exhibit C-2,
(iii) A & L Goodbody, Irish counsel to Mutual Indemnity (Dublin) Ltd.,
substantially in the form of Exhibit C-3, (iv) Lewis, Rice & Fingersh,
Missouri counsel to Legion Financial Corp., substantially in the form of
Exhibit C-4, (v) Richard O'Brien, Esq., General Counsel to the Borrower,
substantially in the form of Exhibit C-5, and (vi) Andrew Walsh, Esq.,
General Counsel to Legion Insurance Company, substantially in the form of
Exhibit C-6.
(4) A certificate, delivered by the Borrower and signed by the Chief
Executive Officer or President and the Chief Financial or Accounting
Officer of the Borrower stating that, after giving effect to the
consummation of the Transactions, the fair saleable value of the assets of
each of the Borrower and its Subsidiaries will not be less than the
probable liability on their debts, that each of the Borrower and its
Subsidiaries will be able to pay its debts as they mature and that each
will not have unreasonably small capital to conduct its business, and the
Agent shall have received such opinions of value, other appropriate factual
information and expert advice supporting the conclusions reached in such
letter as the Agent may reasonably request;
(5) An Officer's Certificate from each Loan Party, certifying as to
(i) (A) the due organization and good standing (other than with respect to
Mutual Indemnity (Dublin) Ltd., given the inapplicability thereof under
Irish law) of such Loan Party in their respective jurisdictions of
organization and (B) the absence of any proceeding for the dissolution or
liquidation of such Loan Party; (ii) the completeness and accuracy in all
material respects of all of the representations and warranties made by such
Loan Party in this Agreement and the other Loan Documents to which it is or
is to be a party, before and after giving effect to the Transactions as
though made on and as of the Closing Date; (iii) the absence of any Default
or Event of Default; (iv) the satisfaction of all conditions
34
<PAGE>
precedent by such Loan Party to be satisfied on or prior to the Closing
Date; and (v) (solely in the case of each of the Borrower or the Guarantor)
to the best of their knowledge, the absence of any existing or threatened
event or circumstance relating to the Borrower or any of its Subsidiaries
that could reasonably be expected to impair the ability of the Borrower to
consummate the Refinancing.
(6) A certificate of the Secretary or an Assistant Secretary (or, in
the case of Mutual Indemnity (Dublin) Ltd., a Director) of each Loan Party
certifying the names and true signatures of the officers of such Loan Party
authorized to sign each Loan Document to which such Loan Party is or is to
be a party and the other documents to be delivered hereunder and
thereunder.
(7) The most recent audited and unaudited consolidated financial
statements of the Borrower and its consolidated Subsidiaries.
(8) An irrevocable acceptance by Corporation Service Company of its
appointment as each Loan Party's agent to receive service of process
pursuant to Section 11.14 hereof.
(9) Such further information, certificates and documents as the Agent
may reasonably request.
The documents required to be delivered by this Section 4.1(a) will be
delivered at the office of Cleary, Gottlieb, Steen & Hamilton, One Liberty
Plaza, New York, New York 10006 on the Closing Date.
(b) No Default or Event of Default shall have occurred and be continuing,
and no default or event of default shall have occurred and be continuing under
any material Contract of the Borrower or any of its Subsidiaries.
(c) No action, proceeding, investigation, regulation or legislation shall
have been instituted, threatened or proposed before any court or other
Governmental Authority to enjoin, restrain, or prohibit, or to obtain
substantial damages in respect of, or which is related to or arises out of the
Transactions, or which, if adversely determined, would have a Material Adverse
Effect. There shall be no material pending or threatened litigation, bankruptcy
or insolvency, injunction, order, decree or claim with respect to the Borrower
or any of its Subsidiaries or the Transactions, which would have a Material
Adverse Effect.
(d) Each of the Loan Documents to be executed and delivered on or prior to
the Closing Date (including any amendments thereto) shall have been duly
authorized, executed and delivered by each of the parties thereto, and the Agent
shall have received copies of each such document (including any amendments
thereto) as so executed and delivered in the form provided to the Agent on or
before the Closing Date except for changes approved by the Agent.
(e) All consents and approvals of the boards of directors or similar
governing bodies, shareholders, members, partners, governmental and regulatory
bodies and other applicable third parties (including all required approvals of
internal committees of PSCC) necessary or desirable in connection with the
Transactions shall have been obtained.
35
<PAGE>
(f) The Borrower shall have entered into the Engagement Letter and shall
have paid all amounts due and payable to PSI thereunder on or prior to the
Closing Date.
(g) The Borrower shall have paid all costs and expenses payable hereunder
to the extent then due and payable on the Closing Date, including any such costs
and expenses arising under or referenced in Section 11.3.
(h) There shall not have occurred any material adverse change in the
condition of the financial, banking or capital markets the effect of which, in
the judgment of the Agent, makes it impractical or inadvisable to proceed with
the Refinancing or to sell or syndicate the Bridge Loans or the Bridge Loan
Commitment.
(i) No event shall have occurred that has had, or would have, a Material
Adverse Effect.
SECTION 4.2. Condition to the Initial Bridge Loan. The obligations of
------------------------------------
the Lenders to make the initial Bridge Loan on the first Disbursement Date
hereunder shall be subject to the satisfaction of all the obligations of the
Borrower pursuant to Section 5.11(d) hereof on or prior to the Disbursement Date
on which such initial Bridge Loan is scheduled to be made.
SECTION 4.3. Conditions to each Bridge Loan. The obligations of the
------------------------------
Lenders to make any Bridge Loan hereunder shall be subject to the satisfaction
of the following conditions precedent on or prior to the Disbursement Date on
which such Bridge Loan is scheduled to be made:
(a) The representations and warranties on the part of the Loan Parties
contained herein and in any certificates pursuant to the provisions hereof shall
be true and complete on and as of such Disbursement Date as if made on such
date, and the Loan Parties shall have performed all of their respective
obligations hereunder to be performed on or prior to such date;
(b) The Agent on behalf of the Lenders shall have received, in form and
substance satisfactory to the Agent, (i) an originally executed notice of
borrowing pursuant to Section 2.2 hereof and (ii) one or several Bridge Notes,
as applicable, evidencing the Bridge Loan made on such date, duly executed and
delivered and drawn to the order of the Lender or Lenders making such Bridge
Loan and with appropriate insertions; and
(c) No Default or Event of Default shall have occurred and be continuing.
SECTION 5.
AFFIRMATIVE COVENANTS
Until all Obligations shall have been paid in full and no Lender shall have
any Bridge Loan Commitment hereunder, each Loan Party, jointly and severally,
agrees with the Lenders that:
SECTION 5.1. Corporate Existence. Subject to the provisions hereof,
-------------------
the Borrower shall do or cause to be done all things necessary to preserve and
keep in full force and
36
<PAGE>
effect the corporate existence, rights (charter and statutory) and licenses of
the Borrower and each of its Subsidiaries; provided, that subject to Section 6.6
--------
hereof the Borrower and any such Subsidiary shall not be required to preserve
the corporate existence of any such Subsidiary (other than a Guarantor) or any
such right or license if the Board of Directors of the Borrower shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Borrower and that the loss thereof is not disadvantageous in any
material respect to the Lenders.
SECTION 5.2. Compliance With Laws. The Borrower will, and will cause
--------------------
each of its Subsidiaries to, comply with all applicable Laws to the extent
noncompliance would have a Material Adverse Effect.
SECTION 5.3. Maintenance of Property; Insurance. The Borrower shall
----------------------------------
cause all Property used or useful in the conduct of its business or the business
of any of its Subsidiaries to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and shall cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as, in the judgment of the Borrower, may be necessary
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, that nothing in this Section
--------
5.3 shall prevent the Borrower from discontinuing the operation or maintenance
of any of such Property if such discontinuance is, in the judgment of the
Borrower, desirable in the conduct of its business or the business of any of its
Subsidiaries and not disadvantageous in any material respect to the Lenders. The
Borrower will maintain or cause to be maintained, with financially sound and
reputable insurers or with self insurance programs, in each case to the extent
consistent with prudent business practices and customary in its industry,
insurance with respect to its properties and business and the properties and
businesses of its Subsidiaries against loss or damage of the kinds (including,
in any event, business interruption insurance) and in the amounts customarily
carried or maintained under similar circumstances by corporations of established
reputation engaged in similar businesses and owning similar properties in the
same general respective areas in which the Borrower and its Subsidiaries
operate.
SECTION 5.4. Payment of Taxes and Other Claims. The Borrower shall
---------------------------------
pay or discharge and will cause each of its Subsidiaries to pay or discharge,
before the same shall become delinquent, (a) all Taxes, assessments and other
governmental charges levied or imposed upon the Borrower or any of its
Subsidiaries or upon the income, profits or Property of the Borrower or any of
its Subsidiaries and (b) all lawful claims including, without limitation, for
labor, services, materials and supplies which have become due and payable and,
if unpaid, might by law become a Lien upon the Property of the Borrower or any
of its Subsidiaries; provided, that the Borrower shall not be required to pay or
--------
discharge, or cause to be paid or discharged, any such Tax, assessment, charge
or claim whose amount, applicability or validity is being diligently contested
in good faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP or other appropriate provision has been made. The Borrower
and each of its Subsidiaries, as the case may be, will, promptly upon any of its
officers obtaining knowledge that a charge or claim described in the previous
sentence has not been paid, other than as permitted by the proviso in the
previous sentence, deliver notice to the Agent (which will provide a copy of
such notice to each Lender) of such failure to pay.
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<PAGE>
SECTION 5.5. Investment Company Act. No Loan Party shall become an
----------------------
investment company subject to registration under the Investment Company Act of
1940, as amended (without giving effect to any exception based upon the number
or status of the holders of its securities).
SECTION 5.6. Payments in U.S. Dollars. All payments of principal,
------------------------
premium and interest to be made hereunder or under the Bridge Notes shall be
made solely in U.S. Dollars or such other currency as is then legal tender for
public and private debts in the United States of America.
SECTION 5.7. Use of Proceeds. The Borrower shall use the proceeds of
---------------
the Bridge Loans solely as follows:
(a) The Borrower shall use up to $115,000,000 of such proceeds to
repurchase Convertible Securities in open market or privately negotiated
transactions; provided, that any Convertible Securities so repurchased shall be
--------
immediately cancelled;
(b) The Borrower shall use up to $135,000,000 of such proceeds to make a
capital contribution to Legion, directly or through one or several Wholly Owned
Subsidiaries of the Borrower; and
(c) In the event such proceeds are not utilized in full for the purposes
set forth in subsections 5.7(a) and 5.7(b), the Borrower may use the remaining
proceeds, but in no event more than $35,000,000, for general corporate purposes;
provided, that none of such proceeds shall be used by the Borrower or any of its
- --------
Subsidiaries, directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of buying or "carrying" (within the meaning of
Regulation U) any Margin Stock.
SECTION 5.8. Refinancing. The Borrower shall use its reasonable
-----------
commercial efforts to effectuate the Refinancing as soon as practicable after
the date of this Agreement for the purpose, among other things, of refinancing
the Bridge Loans then outstanding, which Refinancing shall yield an amount
sufficient (together with any cash available at such time to the Borrower), and,
if consummated, the proceeds of which shall be used, to repay the aggregate
unpaid principal amount of the Bridge Loans in full plus accrued interest
thereon to the date of repayment and all other amounts payable under the Loan
Documents; provided, however, that the Borrower will not be required to
-------- -------
consummate the Refinancing unless it can be completed on such terms and
conditions as are reasonably satisfactory in all respects to PSI and the
Borrower in light of the then prevailing market conditions; provided, further,
-------- -------
that if for any reason the Borrower refinances the Bridge Loans by any means
other than the Refinancing the Borrower shall pay PSI the Refinancing Fee upon
the repayment of the Bridge Loans in connection with such refinancing.
SECTION 5.9. Financial Statements. The Borrower will furnish or cause
--------------------
to be furnished to the Agent and to each of the Lenders:
(a) as soon as available, but in no event more than forty-five (45) days
after the end of each of the first three (3) fiscal quarters in each fiscal
year, the quarterly report of the Borrower on Form 10-Q (or other applicable
form) filed with the SEC, accompanied by a certificate of the
38
<PAGE>
Chief Financial Officer of the Borrower stating whether to his best knowledge
and belief any Default or Event of Default has occurred or exists hereunder,
and, if any such Default or Event of Default has occurred and is continuing or
otherwise exists, stating the facts with respect thereto;
(b) as soon as available, but in no event more than ninety (90) days after
the end of each fiscal year, a copy of the consolidated financial statements and
annual audit report of the Borrower and its Subsidiaries in reasonable detail,
prepared in accordance with GAAP, and certified without material qualification
by Ernst & Young or other independent certified public accountants selected by
the Borrower and reasonably satisfactory to the Agent, which report shall
include a consolidated balance sheet of the Borrower and its Subsidiaries as of
the end of such fiscal year and consolidated statements of earnings, changes in
stockholders' equity and cash flows of the Borrower and its Subsidiaries for
such fiscal year and a copy of the annual report of the Borrower on Form 10-K
(or other applicable form) filed with the SEC, accompanied by a certificate of
the Chief Financial Officer of the Borrower stating whether to his best
knowledge and belief any Default or Event of Default has occurred or exists
hereunder, and, if any such Default or Event of Default has occurred and is
continuing or otherwise exists, stating the facts with respect thereto;
(c) as soon as available, but in no event more than one hundred and twenty
(120) days after the end of each fiscal year of each unconsolidated Subsidiary
or Affiliate of the Borrower (whose operations are accounted for in the
consolidated financial statements of the Borrower on the equity method), if any,
a copy of the annual audit report of such corporation and its subsidiaries, if
any, in reasonable detail, prepared in accordance with GAAP (or SAP in the case
of a regulated insurance company) and certified by independent certified public
accountants of recognized standing, which report shall include a consolidated
balance sheet of each such Subsidiary or Affiliate and its Subsidiaries, if any,
as of the end of such fiscal year and consolidated statements of income,
retained earnings, and cash flows for each such Subsidiary or Affiliate and its
Subsidiaries, if any, for such fiscal year;
(d) promptly upon their becoming available but in no event (i) more than
ninety (90) days after the end of each calendar year in the case of the Annual
Statements or (ii) more than forty-five (45) days after the end of each calendar
quarter in the case of the Quarterly Statements, a copy of each Annual Statement
and Quarterly Statement of each Insurance Company Subsidiary prepared in
accordance with SAP, and a copy of each externally-prepared actuarial analysis
of each Insurance Company Subsidiary obtained by the Borrower or any of its
Subsidiaries;
(e) promptly upon their becoming available, copies of all financial
statements, reports, notices as to material matters, and proxy statements sent
by the Borrower or any of its Subsidiaries (which is not a Wholly Owned
Subsidiary) to public stockholders and of all regular, periodic and special
reports filed by the Borrower or any of its Subsidiaries with any securities
exchange or with the SEC;
(f) together with the items described in clauses (a) and (b) above,
written calculations in form reasonably satisfactory to the Agent demonstrating
compliance by the Borrower with the covenants contained in Sections 6.1 and 6.2;
and
39
<PAGE>
(g) such additional information, reports or statements (financial or
otherwise) as the Agent or any Lender may from time to time reasonably request.
SECTION 5.10. Notice of Litigation and Other Matters. The
--------------------------------------
Borrower will furnish or cause to be furnished to the Agent and to each of the
Lenders promptly (but in no event later than ten (10) days after an Officer of
the Borrower obtains knowledge thereof) telephonic and written notice of:
(a) the commencement of all proceedings and investigations by or before
any Governmental Authority and all actions and proceedings in any court or
before any arbitrator against or involving the Borrower or any Subsidiary or any
of their respective properties, assets or businesses which in any given case or
in the aggregate would have a Material Adverse Effect;
(b) any notice of any violation received by the Borrower or any Subsidiary
from any Governmental Authority, including, without limitation, any notice of
violation of environmental laws, which in any such case would have a Material
Adverse Effect;
(c) any attachment, judgment, lien, levy or order exceeding $5,000,000
that may be assessed against or threatened against the Borrower or any
Subsidiary other than normal insurance claims adjustment matters involving
Insurance Company Subsidiaries;
(d) any Default or Event of Default, or any other event which constitutes
or which with the passage of time or giving of notice or both would constitute a
default or event of default under any Contract to which the Borrower or any of
its Subsidiaries is a party or by which the Borrower or any Subsidiary or any of
their respective properties may be bound, which default or event of default
would have a Material Adverse Effect;
(e) any unfavorable determination letter from the Internal Revenue Service
regarding the qualification of an Employee Benefit Plan under Section 401(a) of
the Code (along with a copy thereof), (ii) any fact or circumstance that has
resulted, or could reasonably be expected to result, in an ERISA Event, (iii)
the Amount of Unfunded Benefit Liabilities exceeds $1,000,000, and (iv) any
event or events in respect of any Foreign Plan or Foreign Plans occur that, or
are reasonably expected to occur which, individually or together with all other
similar events, result or would reasonably be expected to result in an aggregate
liability to the Borrower or its Subsidiaries in excess of $1,000,000; and
(f) any event which makes any of the representations set forth in Section
3 inaccurate in any material respect.
SECTION 5.11. Collateral. (a) Each Pledgor shall at any time
----------
and from time to time, at its own expense, promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Agent may reasonably request, in order to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Lenders and the Agent to exercise and enforce their
rights and remedies hereunder with respect to the Collateral or any part thereof
(including, without limitation, the execution and filing of any UCC financing or
continuation statements deemed necessary or appropriate by the Agent or its
counsel).
40
<PAGE>
(b) Except for the security interest granted hereunder to the Agent for
the benefit of the Lenders, each Pledgor will at all times continue to (i) be
the sole owner of the Pledged Securities indicated on Schedule 10.1, (ii) hold
the same free and clear of all Liens, and (iii) subject to Section 10.5, cause
any and all Collateral to be forthwith delivered to the Agent and pledged and
assigned hereunder.
(c) Each delivery of any Additional Shares or other Collateral shall
constitute a representation and warranty that, as of the date thereof, Sections
3.14(b) and 3.25 are true and correct as to the Pledged Securities.
(d) The Borrower shall take, or cause to be taken, all actions deemed
necessary or appropriate by the Agent or its counsel (including, without
limitation, filing of UCC financing statements) under applicable Law to perfect
each security interest and register each charge in favor of the Agent for the
benefit of the Lenders under Section 10 hereof within five days of the Closing
Date (and which actions shall be taken or caused to be taken prior to the
Lenders making the initial Bridge Loan on the first Disbursement Date).
(e) Each Collateral Subsidiary shall at all times use its commercially
reasonable efforts to assist and cooperate with the Pledgor and the Agent and
take such actions (including, without limitation, the making of any regulatory
filings or registrations with any insurance authority) as may be required from
it under applicable Law or reasonably requested by the Pledgor or the Agent to
maintain a first priority security interest in the Collateral in favor of the
Agent for the benefit of the Lenders, or to exercise the rights and remedies of
the Agent for the benefit of the Lenders in connection therewith.
(f) On and at any time after the Closing Date, each Pledgor shall use its
commercially reasonable efforts to assist and cooperate with the Agent in
obtaining any consent, approval, authorization, registration or qualification of
or with any Governmental Authority (including, without limitation, any insurance
authority, commission or other insurance regulatory body) necessary for the
exercise by the Agent or any Lender of the rights and remedies set forth in
Section 10 hereof, including, without limitation, the approval of a Form A
filing by the Department of Insurance of the Commonwealth of Pennsylvania upon
the occurrence and during the continuance of an Event of Default.
SECTION 6.
NEGATIVE COVENANTS
Until all Obligations shall have been paid in full and no Lender shall have
any Bridge Loan Commitment hereunder, each Loan Party, jointly and severally,
agrees with the Lenders that:
SECTION 6.1. Consolidated Indebtedness to Consolidated Total Capital
-------------------------------------------------------
Ratio . The Borrower shall not permit the ratio of Consolidated Indebtedness to
- ------
Consolidated Total Capital to exceed 0.45 to 1 at any time.
SECTION 6.2. Shareholders' Equity. The Borrower shall maintain a
--------------------
Shareholders' Equity which is not less than $341,674,000 at any time.
41
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SECTION 6.3. Negative Pledge. The Borrower shall not create, incur,
---------------
assume or suffer to exist any Lien upon any of its assets or properties
(including, without limitation, the Capital Stock of any Subsidiary, whether
such Capital Stock is owned on the date of this Agreement or hereafter
acquired), or permit any of its Subsidiaries to create, incur, assume or suffer
to exist any Lien upon any of its assets or properties (including, without
limitation, the Capital Stock of any Subsidiary, whether such Capital Stock is
owned on the date of this Agreement or hereafter acquired), except for Permitted
Liens.
SECTION 6.4. Limitation on Subsidiary Indebtedness. The Borrower
-------------------------------------
shall not permit any of its Subsidiaries to create, incur, assume or suffer to
exist in any manner any Indebtedness other than that outstanding on the date of
this Agreement; provided, that nothing contained in this Section 6.4 shall
--------
prohibit (i) any Indebtedness of any Subsidiary of the Borrower outstanding at
the time such Subsidiary becomes a Subsidiary of the Borrower and not incurred
in contemplation thereof, as long as the outstanding amount of the Indebtedness
remains the sole obligation of such Subsidiary and as long as the outstanding
amount of such Indebtedness is not voluntarily increased by such Subsidiary
after the date such Subsidiary becomes a Subsidiary of the Borrower, (ii) any
Indebtedness of any Subsidiary of the Borrower permitted under Section 6.7
hereof, (iii) any Indebtedness of any Subsidiary secured by a Permitted Lien,
provided that such Indebtedness does not exceed the value of the assets or
- --------
property subject to such Permitted Lien, (iv) any Indebtedness owing directly or
indirectly to the Borrower or a Collateral Subsidiary by a Subsidiary of the
Borrower, and (v) any Indebtedness not otherwise permitted by the foregoing
clauses, provided that the aggregate amount at any time outstanding for all
Subsidiaries of the Borrower of (A) such Indebtedness and (B) the Indebtedness
incurred under the preceding clause (iii) shall not exceed $10,000,000.
SECTION 6.5. Limitation on Asset Sales. The Borrower will not, and
-------------------------
will not permit any of its Subsidiaries to, consummate an Asset Sale unless (a)
the Borrower or the applicable Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets sold or otherwise disposed of, and (b) the consideration
received for the assets sold by the Borrower or such Subsidiary, as the case may
be, in such Asset Sale are in the form of cash or Cash Equivalents, in each case
received at the time of such Asset Sale.
SECTION 6.6. Merger, Acquisition, Sale of Assets and Liquidation.
---------------------------------------------------
The Borrower shall not enter into any merger or consolidation with any Person,
or sell, lease, assign, distribute or otherwise dispose of all or any material
portion of its assets or liquidate in whole or in part, or permit any Subsidiary
to enter into any merger or consolidation with any Person, or sell, lease,
assign, distribute or dispose of all or any material portion of its assets or
liquidate in whole or in part, except that (i) the Borrower may merge or
consolidate with any Subsidiary or other Person incorporated under the laws of
Bermuda or a State of the United States, if the Borrower is the surviving
corporation and immediately after giving effect thereto no Default or Event of
Default shall have occurred and be continuing, and (ii) any Subsidiary may be
merged or consolidated into, or may be liquidated into, or may sell, lease or
transfer assets to, the Borrower or a Wholly Owned Subsidiary, if, in the case
of a merger or consolidation, (x) the Borrower or such Wholly Owned Subsidiary
is the surviving corporation, (y) in the event such Subsidiary is a Collateral
Subsidiary, a security agreement in a form satisfactory to the Agent is executed
and delivered to the Agent pursuant to which all the shares of Capital Stock
(other than,
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if applicable, any share issued to the holder of the MIDL Director Share or any
preferred shares issued to the holders of MH Preferred Shares and IPC Preferred
Shares in connection with such merger or consolidation, provided that such
--------
preferred shares have terms substantially similar to the terms of the MH
Preferred Shares and the IPC Preferred Shares, respectively) of such surviving
corporation is pledged to the Agent for the benefit of the Lenders, and (z)
immediately after giving effect thereto no Default or Event of Default shall
have occurred and be continuing.
SECTION 6.7. Sale and Leaseback. The Borrower shall not enter into,
------------------
or permit any of its Subsidiaries to enter into, directly or indirectly, any
arrangement under which the Borrower or such Subsidiary, as the case may be,
sells or transfers any of the fixed assets then owed by it and thereupon or
within one year thereafter rents or leases the assets so sold or transferred;
provided, that nothing contained in this Section 6.6 shall prohibit (i) a
Subsidiary of the Borrower from entering into a sale-leaseback transaction
involving any real estate currently owned by such Subsidiary, or (ii) the
Borrower or any Subsidiary of the Borrower from entering into any other sale-
leaseback transaction as long as such other sale-leaseback transaction, together
with all other such sale-leaseback transactions and any Asset Sales of the
Borrower and its Subsidiaries made in the period from the Closing Date to the
date of such other sale-leaseback transaction, does not involve assets having a
value of more than $10,000,000 in the aggregate.
SECTION 6.8. Limitations on Dividends and Other Payment Restrictions
-------------------------------------------------------
Affecting Subsidiaries. The Borrower will not, and will not permit any of its
- ----------------------
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any of its Subsidiaries to (a) pay dividends, in cash or
otherwise, or make any other distributions on or in respect of its Capital
Stock, (b) pay any Indebtedness owed to the Borrower or any other Subsidiary,
(c) make loans or advances to the Borrower or any other Subsidiary or (d)
transfer any of its properties or assets to the Borrower or any other
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of any of the following:
(i) This Agreement and any agreement in effect on the Closing Date;
(ii) Customary non-assignment provisions of any lease governing a
leasehold interest of the Borrower or any of its Subsidiaries;
(iii) Any agreement or other instrument of a Person acquired by the
Borrower or any of its Subsidiaries in existence at the time of such
acquisition (but not created in contemplation thereof), which
encumbrance or restriction is not applicable to any person, or
properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired; and
(iv) Any limitations under applicable Laws as to dividends payable by
Insurance Company Subsidiaries.
SECTION 6.9. Transactions with Affiliates. The Borrower shall not
----------------------------
enter into or be a party to, or permit any Subsidiary to enter into or be a
party to, any transaction with any Affiliate, except pursuant to the reasonable
requirements of its business and upon fair and
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reasonable terms that are no less favorable to it than it would obtain in a
comparable arm's length transaction with an unrelated Person.
SECTION 6.10. Lines of Business. The Borrower will not, nor will it
-----------------
permit any Subsidiary to, engage in any business other than a Permitted
Business.
SECTION 6.11. Amendment to Charter Documents. The Borrower shall
------------------------------
not, and shall not cause or permit any of its Subsidiaries to, amend its
certificate of incorporation, by-laws or other organizational documents in any
respect which could be materially adverse to the interests of the Lenders.
SECTION 6.12. Collateral. (a) Each Pledgor shall not (i) make any
----------
assignment, pledge, hypothecation or transfer of, or create or permit to exist
any Lien on, the Collateral, other than pursuant hereto.
(b) Each Pledgor shall not change its name, identity or corporate
structure in any manner or its jurisdiction of organization or the location of
its chief executive office unless it shall have given the Lenders and the Agent
not less than 30 days' prior notice thereof.
(c) Each Collateral Subsidiary shall not take any action that could
adversely affect the first priority security interest in the shares of its
Capital Stock granted hereunder in favor of the Agent for the benefit of the
Lenders.
(d) Each Collateral Subsidiary shall not issue any additional Capital
Stock except for MH Preferred Shares in the case of Mutual Holdings (Bermuda)
Ltd. and IPC Preferred Shares in the case of IPC Mutual Holdings, Ltd.
SECTION 7.
DEFAULTS AND REMEDIES
SECTION 7.1. Events of Default. The term "Event of Default,"
-----------------
wherever used herein with respect to the Bridge Loans, means any one of the
following events (whatever the reason for such event, and whether it shall be
voluntary or involuntary, or be effected by operation of law, pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) The Borrower (i) defaults in the payment of the principal of any
Bridge Loan when the same becomes due and payable whether at the stated maturity
thereof, upon voluntary or mandatory repayment, upon acceleration or otherwise
or (ii) fails to offer to repurchase or repurchase Bridge Notes to the extent
required herein.
(b) The Borrower defaults in any payment of interest on any Bridge Loan
within two (2) Business Days after the same becomes due and payable.
(c) Any Loan Party fails to observe or perform any covenant, condition or
agreement on the part of such Loan Party to be observed or performed pursuant to
Sections 5.7, 5.11, 6.1, 6.2, 6.3, 6.8 and 6.12 hereof.
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(d) Any Loan Party fails to comply with any of its other agreements or
covenants hereunder and such failure continues for 30 days.
(e) The Guarantee or any provision thereof ceases to be in full force and
effect (other than in accordance with its express terms and the terms of this
Agreement), or (ii) the Guarantor or any Person acting by or on behalf of the
Guarantor denies or disaffirms the Guarantor's obligations under its Guarantee,
or (iii) the Guarantor defaults in the due performance or observance of any
term, covenant or agreement on its part to be performed or observed, after
giving effect to any applicable grace periods, pursuant to its Guarantee.
(f) Any representation or warranty of any Loan Party made in this
Agreement or in any other Loan Document proves to have been inaccurate,
incomplete or misleading in any material respect at the time it was made.
(g) (i) Any ERISA Event occurs or is reasonably expected to occur with
respect to any Employee Benefit Plan, including, without limitation, any Pension
Plan or Multiemployer Plan, (ii) the Amount of Unfunded Benefit Liabilities,
when added to the aggregate Amount of Unfunded Benefit Liabilities with respect
to all other Pension Plans, exceeds the aggregate Amount of Unfunded Benefit
Liabilities that existed on the Closing Date by $1,000,000, and (iii) any event
shall have occurred with respect to any Foreign Plan which results in a
liability to the Borrower or any of its Subsidiaries which, individually or
together with any similar events, exceeds $1,000,000.
(h) The Borrower or any of its Subsidiaries (i) fails to pay any of its
Indebtedness in excess of $5,000,000 as and when such Indebtedness becomes
payable or (ii) fails to perform or observe any covenant or agreement to be
performed or observed by it contained in any other agreement or in any
instrument evidencing any of its Indebtedness in excess of $5,000,000 if, as a
result of such failure, any other party to such agreement or instrument is
entitled to exercise, and has not irrevocably waived, the right to accelerate
the maturity of any amount owing thereunder.
(i) A court having jurisdiction in the premises enters (i) a decree or
order for relief in respect of any Loan Party or any of the Borrower's Material
Subsidiaries in an involuntary case or proceeding under any Bankruptcy Law or
(ii) a decree or order (A) adjudging any Loan Party or any of the Borrower's
Material Subsidiaries bankrupt or insolvent, or (B) approving as properly filed
a petition seeking reorganization, arrangement, adjustment or composition of, or
in respect of, any Loan Party or any of the Borrower's Material Subsidiaries
under any Bankruptcy Law, or (C) appointing a Custodian of any Loan Party or any
of the Borrower's Material Subsidiaries or of any substantial part of the
Property of such Loan Party or such Material Subsidiary or (D) ordering the
winding-up or liquidation of the affairs of any Loan Party or any of the
Borrower's Material Subsidiaries, and in each case, the continuance of any such
decree or order for relief or any such other decree or order unstayed and in
effect for a period of thirty (30) consecutive calendar days.
(j) (i) Any Loan Party or any of the Borrower's Material Subsidiaries
commences a voluntary case or proceeding under any Bankruptcy Law or of any
other case or proceeding to be adjudicated a bankrupt or insolvent; or (ii) any
Loan Party or any of the Borrower's Material
45
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Subsidiaries consents to the entry of a decree or order for relief in respect of
such Loan Party or such Material Subsidiary in an involuntary case or proceeding
under any Bankruptcy Law or to the commencement of any bankruptcy or insolvency
case or proceeding against such Loan Party or such Material Subsidiary; or (iii)
any Loan Party or any of the Borrower's Material Subsidiaries files a petition
or answer or consent seeking reorganization or relief under any Bankruptcy Law;
or (iv) any Loan Party or any of the Borrower's Material Subsidiaries consents
to the filing of such petition or to the appointment of or taking possession by
a Custodian of such Loan Party or such Material Subsidiary or of any substantial
part of the Property of such Loan Party or such Material Subsidiary, or (v) any
Loan Party or any of the Borrower's Material Subsidiaries makes an assignment
for the benefit of creditors; or (vi) any Loan Party or any of the Borrower's
Material Subsidiaries admits in writing its inability to pay its debts generally
as they become due; or (vii) the stockholders of any Loan Party or any of the
Borrower's Material Subsidiaries approve any plan or proposal for the
liquidation or dissolution of such Loan Party or such Material Subsidiary; or
(viii) any Loan Party or any of the Borrower's Material Subsidiaries takes
corporate action in furtherance of any such action.
(k) Any judgment or decree for the payment of money involving a liability
(to the extent not covered by independent third-party insurance as to which the
insurer has not denied coverage) in excess of $5,000,000 or its foreign currency
equivalent at the time is entered against the Borrower or any of its
Subsidiaries and is not discharged, waived or the execution thereof stayed
within thirty (30) days after such entry.
(l) Any insurance license or other authorization or permit necessary for
the conduct by any Insurance Company Subsidiary of its business is revoked or
withdrawn or otherwise fails to be in full force and effect, which failure,
revocation or withdrawal, in the judgment of the Agent, has a Material Adverse
Effect.
(m) The Borrower fails to be the beneficial owner at all times, directly
or indirectly, of all of the outstanding Capital Stock of the Guarantor or any
other Loan Party, except for (i) the MIDL Director Share, (ii) the IPC Preferred
Shares and (iii) the MH Preferred Shares.
SECTION 7.2. Default Remedies. (a) If any Event of Default
----------------
shall occur and be continuing, the Agent shall, upon the request of Required
Lenders, by notice to the Borrower, (a) declare the obligations of each Lender
hereunder to be terminated, whereupon such obligations shall terminate, and (b)
declare all amounts payable hereunder by the Borrower that would otherwise be
due after the date of such termination to be immediately due and payable,
whereupon all such amounts shall become immediately due and payable, all without
diligence, presentment, demand of payment, protest or notice of any kind, which
are expressly waived by the Borrower and the Guarantor; provided, however, that
if any event of any kind referred to in paragraphs (i) or (j) of Section 7.1
occurs with respect to the Borrower or the Guarantor, the obligations of each
Lender hereunder shall immediately terminate, and all amounts payable hereunder
by the Borrower that would otherwise be due after the occurrence of such event
shall become immediately due and payable without any such notice or other
preliminary waived by the Borrower and the Guarantor in this Section 7.2.
(b) The rights provided for herein are cumulative and are not exclusive of
any other rights, powers, privileges or remedies provided by law.
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SECTION 8.
THE AGENT
SECTION 8.1. Appointment. Each Lender hereby irrevocably designates
-----------
and appoints Prudential Securities Credit Corp. as Agent of such Lender to act
as specified herein and in the other Loan Documents, and each Lender hereby
irrevocably authorizes Prudential Securities Credit Corp. as the Agent to take
such action on its behalf under the provisions of this Agreement and the other
Loan Documents and to exercise such powers and perform such duties as are
expressly delegated to the Agent by the terms of this Agreement and the other
Loan Documents, together with such other powers as are reasonably incidental
thereto. The Agent agrees to act as such upon the express conditions contained
in this Section 8. Without limitation to the foregoing, the Agent shall take,
or refrain from taking, such action hereunder as shall be reasonably directed by
the Required Lenders; provided, that, as between the Agent and the Lenders
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, as it shall deem advisable in the best interests of the Lenders.
Notwithstanding any provision to the contrary elsewhere in this Agreement or in
any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein or in the other Loan
Documents, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Agent. The
provisions of this Section 8 are solely for the benefit of the Agent and the
Lenders, and neither of the Borrower nor any of its Subsidiaries 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 Agent shall act
solely as agent of the Lenders and the Agent does not assume and shall not be
deemed to have assumed any obligation or relationship of agent or trust with or
for the Borrower or any of its Subsidiaries.
SECTION 8.2. Delegation of Duties. The Agent may execute any of its
--------------------
duties under this Agreement or any other Loan Document by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The 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 8.3.
SECTION 8.3. Exculpatory Provisions. Neither the 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 or the other Loan
Documents (except for its or such Person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by the Borrower, any of
its Subsidiaries or any of their respective officers contained in this
Agreement, any other Loan Documents, or in any certificate, report, statement or
other document referred to or provided for in, or received by the Agent under or
in connection with, this Agreement or any other Loan Document or for any failure
of the Borrower, any of its Subsidiaries or any of their respective officers to
perform its or their obligations hereunder or thereunder. The Agent shall not
be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or the other Loan Documents, or to inspect the
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properties, books or records of the Borrower or any of its Subsidiaries. The
Agent shall not be responsible to any Lender for the effectiveness, genuineness,
validity, enforceability, collectibility or sufficiency of this Agreement or any
other Loan 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
Agent to the Lenders or by or on behalf of the Borrower or any of its
Subsidiaries to the Agent or any Lender 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 Bridge Loans or of the existence or possible existence of any
Default or Event of Default.
SECTION 8.4. Reliance by Agent. The 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, telex or teletype message, statement, order or other
document or conversation believed by them 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 or any of its Subsidiaries), independent accountants and other experts
selected by the Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Loan Document
unless they shall first receive such advice as they deem appropriate or they
shall first be indemnified to their satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. As between the Agent and the Lenders, the
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Loan Documents in accordance with a
request of the Required Lenders, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Lenders.
SECTION 8.5. Notice of Default. The Agent shall not be deemed to
-----------------
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has actually received notice from a Lender or the
Borrower 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 Agent receives such a notice, the Agent shall give prompt notice
thereof to the Lenders.
SECTION 8.6. Non-Reliance on Agent and Other Lenders. Each Lender
---------------------------------------
expressly acknowledges that neither the Agent nor any of its respective
officers, directors, employees, agents, attorneys-in-fact or affiliates have
made any representations or warranties to it and that no act by the 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 Agent to any Lender. Each Lender represents to the Agent that it has,
independently and without reliance upon the Agent or any other Lender, 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 condition, prospects and creditworthiness of the Borrower
and its Subsidiaries and made its own decision to make Bridge Loans hereunder
and enter into this Agreement. Each Lender also represents that it will,
independently and without reliance upon the Agent or any other Lender, and based
on such
48
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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 condition, prospects and creditworthiness of the Borrower
and its Subsidiaries. The Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
operations, assets, property, financial and other condition, prospects or
creditworthiness of the Borrower or any of its Subsidiaries which may come into
the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates.
SECTION 8.7. Indemnification. The Lenders agree to indemnify the
---------------
Agent in their capacity as such ratably according to their respective
"percentages" as used in determining the Required Lenders at such 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 in full of the Obligations) be imposed on, incurred
by or asserted against the Agent in its capacity as such in any way relating to
or arising out of this Agreement or any other Loan 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 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 Lender shall
be liable to the Agent for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from the gross negligence or willful
misconduct of the Agent. If any indemnity furnished to the Agent for any
purpose shall, in the opinion of the Agent, be insufficient or become impaired,
the 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 8.7 shall survive the payment in full of all
Obligations.
SECTION 8.8. Agent in Its Individual Capacity. The Agent and its
--------------------------------
affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrower and its Subsidiaries, including, without
limitation, in connection with the Refinancing as though the Agent were not the
Agent hereunder. With respect to the Bridge Loans to be made by it and all
Obligations owing to it, the Agent shall have the same rights and powers under
this Agreement as any Lender and may exercise the same as though it were not the
Agent and the terms "Lender" and "Lenders" shall include the Agent in its
individual capacity as Lender.
SECTION 8.9. Resignation of the Agent; Successor Agent. The Agent
-----------------------------------------
may resign as Agent upon 20 days' notice to the Lenders and the Borrower. Upon
the resignation of the Agent, the Required Lenders shall appoint from among the
Lenders a successor Agent which is a bank or a trust company for the Lenders
subject to prior approval by the Borrower (such approval not to be unreasonably
withheld or delayed), whereupon such successor agent shall succeed to the
rights, powers and duties of such Agent, and the term "Agent" shall include such
successor agent effective upon its appointment, and the resigning Agent's
rights, powers and duties as an Agent shall be terminated, without any other or
further act or deed on the part of such former Agent or any of the parties to
this Agreement. If the Required Lenders fail to appoint a successor Agent
pursuant to the provisions of the preceding sentence, the resigning
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Agent shall designate one of the Lenders as successor Agent. After the
resignation of an Agent hereunder, the provisions of this Section 8 shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement.
SECTION 9.
GUARANTEE
SECTION 9.1. Unconditional Guarantee. The Guarantor hereby
-----------------------
unconditionally guarantees (such guarantee to be referred to herein as the
"Guarantee") to each of the Lenders and to the Agent and their respective
successors and assigns that (i) the principal of and interest on each Bridge
Loan will be promptly paid in full when due, subject to any applicable grace
period, whether at the Maturity Date, by acceleration or otherwise and interest
on the overdue principal, if any, and interest on any interest, to the extent
lawful, of each Bridge Loan and all other obligations of the Borrower to the
Lenders or the Agent hereunder or under the Bridge Notes (including, without
limitation, for any reimbursements, fees, expenses, indemnities or otherwise)
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and (ii) in case of any extension of time of payment or
renewal of any Bridge Loan or of any such other obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, subject to any applicable grace period, whether at stated
maturity, by acceleration or otherwise. The Guarantor hereby guarantees that
the Obligations will be paid or performed, as applicable, strictly in accordance
with the terms of the Credit Agreement governing them or any other agreement
relating thereto, regardless of the value, genuineness, validity, regularity or
enforceability of the Obligations, and of any Law now or hereafter in effect in
any jurisdiction affecting any of such terms or the rights of the Lenders with
respect thereto. The liability of the Guarantor to the extent herein set forth
shall be absolute and unconditional, not subject to any reduction, limitation,
impairment, termination, defense, offset, counterclaim or recoupment whatsoever
(all of which are hereby expressly waived by the Guarantor) whether by reason of
any claim of any character whatsoever, including, without limitation, any claim
of waiver, release, surrender, alteration or compromise, or by reason of any
liability at any time to the Guarantor or otherwise, whether based upon any
obligations or any other agreement or otherwise, and howsoever arising, whether
out of action or inaction or otherwise and whether resulting from default,
willful misconduct, negligence or otherwise, and, without limiting the
foregoing, irrespective of : any lack of validity, legality or enforceability of
any agreement or instrument relating to the Obligations; any change in the time,
manner or place of payment of, or in any other term in respect of, all or any of
the Obligations, or any other amendment to or waiver of or consent to any
departure from any other agreement relating to any Obligations; any release or
amendment or waiver of or consent to any departure from or failure to enforce
any other guarantee, for all or any of the Indebtedness; any other circumstance
which might otherwise constitute a defense available to, or a discharge of, the
Borrower or the Guarantor in respect of the Obligations; the absence of any
action on the part of the Lenders to obtain payment of the Obligations from the
Borrower; any insolvency, bankruptcy, reorganization or dissolution, or any
similar proceeding of the Borrower, including, without limitation, rejection of
the Obligations in such bankruptcy; the assignment of the Credit Agreement by
the Lenders or the Borrower; or the absence of notice or any delay in any action
to enforce any Obligations or to exercise any right or remedy against the
Guarantor, whether hereunder, under any Obligations or any agreement or any
indulgence, compromise or extension
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granted. The Guarantor hereby waives diligence, presentment, demand of payment,
filing of claims with a court in the event of insolvency or bankruptcy of the
Borrower, any right to require a proceeding first against the Borrower, protest,
notice and all demands whatsoever and covenants that this Guarantee will not be
discharged except by complete performance of the obligations contained in each
Bridge Note, this Agreement and in this Guarantee. If any Lender or the Agent
are required by any court or otherwise to return to the Borrower, the Guarantor,
or any custodian, trustee, liquidator or other similar official acting in
relation to the Borrower or the Guarantor, any amount paid by the Borrower or
the Guarantor to the Agent or such Lender, this Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect. The
Guarantor further agrees that, as between the Guarantor, on the one hand, and
the Lenders and the Agent, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Section 7 for
the purposes of this Guarantee, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Section 7, such obligations (whether or not due and payable)
shall forthwith become due and payable by the Guarantor for the purpose of this
Guarantee.
SECTION 9.2. Severability. In case any provision of this Guarantee
------------
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 9.3. Limitation of Guarantor's Liability. The Guarantor and
-----------------------------------
by its acceptance hereof each of the Lenders hereby confirms that it is the
intention of all such parties that the guarantee by the Guarantor pursuant to
its Guarantee not constitute a fraudulent transfer or conveyance for purposes of
any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act or any similar Federal or state law. To effectuate the
foregoing intention, the Lenders and the Guarantor hereby irrevocably agree that
the obligations of the Guarantor under the Guarantee shall be limited to the
maximum amount as will result in the obligations of the Guarantor under the
Guarantee not constituting such fraudulent transfer or conveyance.
SECTION 9.4. Waiver of Stay, Extension or Usury Laws. The Guarantor
---------------------------------------
covenants that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
or any usury law or other law that would prohibit or forgive the Guarantor from
performing the Guarantee as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Agreement; and the Guarantor hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Agent, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
SECTION 10.
PLEDGE; RIGHTS AND REMEDIES
SECTION 10.1. Pledge and Charge. As security for the payment and
-----------------
performance, as the case may be, in full of the Obligations, each Pledgor hereby
grants to the
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Agent for the benefit of the Lenders and their successors and assigns a first
priority security interest in all of such Pledgor's right, title and interest
in, to and under the Collateral; provided, that with respect to the
--------
shares of Capital Stock of Mutual Indemnity (Dublin) Ltd., as security for the
payment and performance in full of the Obligations, the Borrower as record and
beneficial owner hereby mortgages and charges all the shares of Capital Stock of
Mutual Indemnity (Dublin) Ltd. (other than the MIDL Director Share) by way of a
first fixed mortgage and charge (it being understood that all the obligations of
each Pledgor hereunder shall, to the fullest extent permitted by applicable
Laws, apply to the Borrower as mortgagor and chargor, and with respect to such
shares of Capital Stock only, any reference to a "pledge" herein shall be deemed
to be a reference to such first fixed mortgage and charge).
SECTION 10.2. Delivery of Collateral. Each Pledgor agrees promptly
----------------------
to deliver or cause to be delivered to the Agent any and all Pledged Shares,
Additional Shares and other securities now or hereafter included in the
Collateral pledged by it (the "Pledged Securities"), and any and all
certificates or other instruments or documents representing the Collateral. In
addition, each Pledgor agrees that:
(a) Each delivery of Pledged Securities shall be accompanied by a schedule
describing the securities theretofore and then being pledged hereunder, a form
of which is attached hereto as Schedule 10.2. Each schedule so delivered shall
supersede any prior schedules so delivered;
(b) Any Pledged Securities shall be accompanied by stock powers duly
executed in the name of the Agent or in blank or other instruments of transfer
satisfactory to the Agent and by such other instruments and documents as the
Agent may reasonably request; and
(c) All other property comprising part of the Collateral shall be
accompanied by proper instruments of assignment duly executed by such Pledgor
and such other instruments or documents as the Agent may reasonably request.
SECTION 10.3. Agent Appointed Attorney-in-Fact. Each Pledgor hereby
--------------------------------
appoints the Agent as such Pledgor's attorney-in-fact, with full authority in
the place and stead of such Pledgor and in the name of such Pledgor or
otherwise, from time to time in the Agent's discretion, after the occurrence and
during the continuation of an Event of Default, to take any action and to
execute, deliver and complete any instrument or deed which the Agent may deem
necessary or advisable to accomplish the purposes of this Section, including,
without limitation, to complete any stock or bond power, to sign, deliver and
complete an Irish stock transfer form and to apply for registration of the Agent
and/or its nominee as the holder of any shares of Capital Stock of Mutual
Indemnity (Dublin) Ltd. pledged hereunder, to receive, endorse and collect all
instruments made payable to such Pledgor representing any dividend or other
distribution in respect of the Pledged Securities or any part thereof and to
give full discharge for the same. This appointment is irrevocable and is
coupled with an interest. The Agent is authorized to prepare and file financing
statements with respect to the Collateral without the signature of each Pledgor,
at such Pledgor's expense.
SECTION 10.4. Agent May Perform. If any Pledgor fails to perform any
-----------------
act required by this Section, the Agent may (in such Pledgor's name or
otherwise) perform, or cause
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performance of, such act, and the expenses the Agent incurred in connection
therewith shall be payable by such Pledgor under Section 11.3.
SECTION 10.5. Voting Rights and Dividends. (a) Unless and until an
---------------------------
Event of Default shall have occurred and be continuing:
(i) each Pledgor shall be entitled to exercise any and all voting
rights and/or other consensual rights and powers inuring to an owner of
Pledged Securities or any part thereof for any purpose consistent with the
terms of this Section; provided, however, that such Pledgor will not be
entitled to exercise any such right if the result thereof would materially
and adversely affect the rights inuring to a holder of the Pledged
Securities or the rights and remedies of the Agent or the Lenders under
this Section; and provided, further, that such Pledgor shall give the Agent
at least five days' prior written notice of the manner in which it intends
to exercise, or the reasons for refraining from exercising, any such right;
(ii) each Pledgor as to the Pledged Securities pledged by it shall be
entitled to receive and retain any and all cash dividends (except cash
dividends paid or payable in respect of the total or partial liquidation of
an issuer) paid on the Pledged Securities pledged by it; provided, however,
that until actually paid, all rights to such dividends shall remain subject
to the security interest of this Section. All dividends (other than those
cash dividends which each Pledgor may retain pursuant to the immediately
preceding sentence) and all other distributions in respect of, or in
exchange for, any of the Pledged Securities, shall forthwith be paid or
delivered to the Agent and held by the Agent subject to the security
interest of this Section and, if received by any Pledgor, shall, until paid
or delivered to the Agent, be segregated from the other funds and property
of such Pledgor and held in trust for the Agent for the benefit of the
Lenders subject to the security interest of this Section; and
(iii) the Agent shall execute and deliver to each Pledgor, or cause
to be executed and delivered to each Pledgor, all such proxies, powers of
attorney and other instruments as such Pledgor may reasonably request for
the purpose of enabling such Pledgor to exercise the voting and/or
consensual rights and powers it is entitled to exercise pursuant to
paragraph (a)(i) above and to receive the cash dividends it is entitled to
receive pursuant to paragraph (a)(ii) above, as soon as reasonably
practicable after receipt of a written request from such Pledgor together
with a certificate by an Officer of such Pledgor stating that no Default or
Event of Default has occurred and is continuing.
(b) Upon the occurrence and during the continuance of an Event of Default:
(i) All rights of each Pledgor to exercise the voting and consensual
rights and powers it is entitled to exercise pursuant to paragraph (a)(i)
above, and the obligations of the Agent under paragraph (a)(iii) above,
shall cease, and all such rights shall thereon become vested in the Agent,
which shall have sole and exclusive right and authority to exercise such
voting and consensual rights and powers. The Agent shall also have the
right (in its sole and absolute discretion) to hold the Pledged Securities
in its own name as Agent, in the name of its nominee or in the name of each
Pledgor, endorsed or assigned
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in blank or in favor of the Agent. With respect to the shares of Capital
Stock of Mutual Indemnity (Dublin) Ltd. pledged hereunder, the Agent and/or
its nominee shall have the right (in its sole and absolute discretion) to
apply for registration as the holder of such shares of Capital Stock and to
become the registered holder thereof. Each Pledgor will promptly give the
Agent copies of any notices or other communications received by it with
respect to the Pledged Securities registered in the name of such Pledgor;
and
(ii) All rights of each Pledgor to dividends or other payments
pursuant to paragraph (a)(ii) above shall cease, and all such rights shall
thereupon become vested in the Agent, which shall have the sole and
exclusive right and authority to receive and retain such dividends or other
payments. All dividends or other payments received by each Pledgor
contrary to the provisions of this Section 10.5 shall be held in trust for
the Agent for the benefit of the Lenders, shall be segregated from other
property or funds of such Pledgor and shall be forthwith delivered to the
Agent upon demand in the same form as so received (with any necessary
endorsement). Any and all money and other property paid over to or
received by the Agent pursuant to this paragraph (b)(ii) shall be retained
by the Agent for the benefit of the Lenders as additional Collateral
hereunder and applied in accordance with the provisions hereof.
SECTION 10.6. Remedies upon an Event of Default. (i) Upon the
---------------------------------
occurrence and during the continuance of an Event of Default, in addition to the
rights and remedies of a secured party under the UCC, the Agent may:
(i) to the fullest extent permitted by applicable law, without
notice, advertisement, hearing or process of law of any kind, sell any or
all of the Collateral, free of all rights and claims of each Pledgor
therein and thereto, at any public or private sale or at any broker's board
or on any securities exchange, for cash, upon credit or for future delivery
as the Agent shall deem appropriate;
(ii) bid for and purchase any or all of the Collateral at any such
public (or, to the extent permitted by applicable law, private) sale and
make payment in account thereof by using any claim then due and payable to
it from each Pledgor as a credit against the purchase price, and it may,
upon compliance with the terms of the sale, hold, retain and dispose of
such property without further accountability to such Pledgor therefor;
(iii) as an alternative to exercising the power of sale herein
conferred upon it, proceed by a suit or suits at law or in equity to
foreclose upon the Collateral and to sell the Collateral or any portion
thereof pursuant to a judgment or decree of a court or courts having
competent jurisdiction; and
(iv) otherwise act with respect to the Collateral or the proceeds
thereof as though the Agent was the outright owner thereof.
(b) The Agent shall be authorized at any sale (if it deems it advisable to
do so) to restrict the prospective bidders or purchasers to persons who will
represent and agree that they are purchasing the Collateral for their own
account for investment and not with a view to the distribution or sale thereof.
Upon consummation of any such sale, the Agent shall have the right
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to assign, transfer and deliver to the purchaser or purchasers thereof the
Collateral so sold. Each such purchaser at any such sale shall hold the property
sold absolutely free from any claim or right on the part of each Pledgor.
(c) The Agent shall give each Pledgor not less than ten days' prior notice
of the time and place of any sale or other intended disposition of any of the
Collateral, except that with respect to any Collateral that is perishable,
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, no notice shall be necessary. Each Pledgor agrees that such
notice, where required, constitutes "reasonable notification" within the meaning
of Section 9-504(3) of the UCC.
(d) The Agent shall not be obligated to make any sale of any Collateral if
it shall determine not to do so, regardless of the fact that notice of sale of
such Collateral shall have been given. The Agent may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned.
(e) In case any sale of all or part of the Collateral is made on credit or
for future delivery, the Collateral so sold may be retained by the Agent until
the sale price is paid in full by the purchaser or purchasers thereof, but the
Agent shall not incur any liability in case any such purchaser or purchasers
shall fail to pay for the Collateral so sold and, in case of any such failure,
such Collateral may be sold again upon like notice.
(f) For purposes hereof, (i) a written agreement to purchase the
Collateral or any portion thereof shall be treated as a sale thereof, (ii) the
Agent shall be free to carry out such sale pursuant to such agreement and (iii)
each Pledgor shall not be entitled to the return of the Collateral or any
portion thereof, notwithstanding the fact all Events of Default shall have been
remedied and all Obligations paid in full.
(g) Each Pledgor shall be liable for the deficiency if, after applying the
Collateral or net proceeds thereof as set forth in Section 10.7 below, the
Lenders have not received all amounts to which they are entitled pursuant to
this Agreement.
(h) The Agent is hereby authorized to comply with any limitation or
restriction in connection with any sale of Collateral as it may be advised by
counsel is necessary in order to (i) avoid any violation of applicable law or
(ii) obtain any required approval of the sale or of the purchase by any
Governmental Authority, and each Pledgor agrees that such compliance shall not
result in such sale being considered or deemed not to have been made in a
commercially reasonable manner and that the Agent shall not be liable or
accountable to such Pledgor for any discount allowed by reason of the fact that
such Collateral is sold in compliance with any such limitation or restriction.
(i) (I) If the Agent wishes to sell all or any Pledged Securities
pursuant to this Section 10.6, and determines, in its sole and absolute
discretion, that it is necessary or advisable to effect a public registration of
all or any of the Pledged Securities pursuant to the Securities Act (or any
similar statutes then in effect), then each Pledgor will, at its own expense:
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(A) execute and deliver, and use its best efforts to cause the
issuer thereof (and such issuer's directors and officers) to execute and
deliver, all such instruments and documents, and do or cause to be done all
such other acts and things (including, without limitation, removing any
legends affixed to the certificates evidencing the Pledged Securities
pledged by such Pledgor) as may, in the reasonable judgment of the Agent,
be necessary or advisable to register and sell such Pledged Securities
under the Securities Act and to cause the related registration statement to
become effective and to remain effective for such period as may be required
by law, and to make all amendments thereto and/or to the related prospectus
that, in the reasonable judgment of the Agent, are necessary or advisable,
all in conformity with the Securities Act;
(B) use its best efforts to (1) qualify the Pledged Securities
pledged by such Pledgor under, and cause such issuer to comply with, the
provisions of the securities or "blue sky" laws of any jurisdiction
designated by the Agent and (2) cause such issuer to make available to its
security holders, as soon as practicable, an earnings statement that will
satisfy the provisions of Section 11(a) of the Securities Act; and
(C) take such action as the Agent shall request to enable the
Agent to exercise the rights of such Pledgor under any registration rights
agreement.
(II) Notwithstanding anything in paragraph (I) of this Section 10.6(i) to
the contrary, the Agent may (subject only to applicable requirements of Law and
the other requirements of this Section 10) sell all or any of the Pledged
Securities by private sale in such manner and under such circumstances as the
Agent may deem necessary or advisable and notwithstanding that a registration
statement for all or any of such Pledged Securities could be or shall have been
filed under the Securities Act. Without limitation on the foregoing, the Agent
may approach and negotiate with a single possible purchaser to effect such sale
and/or require that any such sale (including one held by auction) be subject to
restrictions as to (A) the financial sophistication and ability of any person
permitted to bid or purchase at such sale, (B) the content of legends to be
placed upon any certificates representing the Pledged Securities sold in such
sale, including restrictions on future transfer thereof, (C) the representations
to be made by each person bidding or purchasing at such sale relating to that
person's access to financial information about each Pledgor, the relevant issuer
or the Lenders, and such person's intentions as to the holding of the Pledged
Securities so sold for investment, for its own account, and not with a view to
the distribution thereof, and (D) such other matters as the Agent may deem
necessary or advisable in order that such sale, notwithstanding any failure so
to register, may be effected in compliance with the Uniform Commercial Code as
in effect in any relevant jurisdiction and other laws affecting the enforcement
of creditors' rights, the Securities Act and all applicable state securities
laws.
(j) If the Agent shall determine to exercise its right to sell or cause
the sale of any or all of the Collateral pursuant to this Section 10, each
Pledgor will do or cause to be done all such other acts and things as may be
necessary to make such sale or sales of any portion or all of the Collateral
valid and binding and in compliance with any and all applicable Law.
(k) Each Pledgor acknowledges that (i) any sale in accordance with this
Section 10 shall be deemed to have been held in a commercially reasonable
manner; (ii) notwithstanding the legal
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availability of a private sale or a sale subject to restrictions as described
above, the Agent may, in its sole and absolute discretion, elect to seek
registration of the Pledged Securities under the Securities Act or any
applicable state securities laws in accordance with this Section 10; (iii) the
Agent shall incur no responsibility or liability for selling all or any of the
Pledged Securities under this Section 10 at a price which the Agent may deem
reasonable under the circumstances, notwithstanding the possibility that a
substantially higher price might be realized if such sale were deferred until
after registration as aforesaid; and (iv) any sale of all or any of the Pledged
Securities which has not been registered as aforesaid may be for a price less
than that which might have been obtained had the Pledged Securities been so
registered.
(l) Each Pledgor agrees that it will not at any time plead, claim or take
the benefit of any appraisal, valuation, stay, extension, moratorium or
redemption law now or hereafter in effect in order to prevent or delay the
enforcement of this Section, or the absolute sale of the whole or any part of
the Collateral or the possession thereof by any purchaser at any sale hereunder,
and such Pledgor waives the benefit of all such Laws to the extent it lawfully
may do so. Each Pledgor agrees that it will not interfere with any right, power
and remedy of the Lenders or the Agent provided for in this Section or now or
hereafter existing at law or in equity or by statute or otherwise, or the
exercise or beginning of the exercise by the Lenders or the Agent of any one or
more such rights, powers or remedies.
SECTION 10.7. Application of Proceeds of Sale. Subject to the terms
-------------------------------
of this Agreement, the proceeds of any sale of Collateral pursuant to Section
10, as well as any Collateral consisting of cash, shall be applied by the Agent
as follows:
FIRST, to the payment of all reasonable costs and expenses incurred by
the Lenders and the Agent in connection with such sale or otherwise in
connection with this Agreement, including all court costs and the
reasonable fees and expenses of their agents and legal counsel, the
repayment of all advances made by the Lenders hereunder on behalf of each
Pledgor and any other reasonable costs or expenses incurred in connection
with the exercise of any right or remedy hereunder;
SECOND, to the payment in full of the Obligations; and
THIRD, to each Pledgor in proportion to its right, title and interest
in, to and under the Collateral, its successors or assigns, or as a court
of competent jurisdiction may otherwise direct.
SECTION 10.8. Responsibilities of the Agent. (a) Other than the
-----------------------------
exercise of reasonable care in the custody of the Collateral, the Agent shall
have no responsibility for or duty with respect to any Collateral or any matter
or proceedings arising out of or relating thereto. The Agent shall be deemed to
have exercised reasonable care in the custody and preservation of the Collateral
in its possession if the Collateral is accorded treatment substantially equal to
that which it accords its own property.
(b) In exercising or refraining from exercising its rights hereunder, the
Agent shall not be liable or responsible for any loss or damage to any of the
Collateral, or for any diminution in the
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value thereof, by reason of the act or omission of any agent or bailee selected
by the Agent in good faith.
(c) The Agent may consult with legal counsel, and shall be fully protected
in taking, or omitting to take, any action in good faith reliance thereon.
(d) Neither the Agent nor any of its directors, officers, employees,
agents or counsel shall be liable for any action lawfully taken or omitted to be
taken by it hereunder or in connection herewith, except for its own gross
negligence or willful misconduct, and the Agent shall not be liable for any
error of judgment made by it in good faith.
SECTION 10.9. Termination; Release Reinstatement. (a) The security
----------------------------------
interest granted hereby shall terminate when all the Obligations have been
indefeasibly paid in full and the Lenders have no further commitment to lend
under this Agreement.
(b) Upon any sale or other transfer by any Pledgor of any Collateral that
is permitted under this Agreement, or, upon the effectiveness of any written
consent to the release of the security interest granted hereby in any Collateral
pursuant to this Agreement, the security interest in such Collateral shall be
automatically released.
(c) This Agreement shall remain in full force and effect and continue to
be effective should any petition be filed by or against each Pledgor for
liquidation or reorganization, should such Pledgor become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of such Pledgor's assets. This
Section shall continue to be effective or be reinstated, as the case may be, if
at any time payment and performance of the Obligations, or any part thereof, is,
pursuant to applicable Law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Obligations, whether as a voidable
preference, fraudulent conveyance, or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
(d) In connection with any termination or release pursuant to this Section
10.9, the Agent shall execute and deliver to each Pledgor, at such Pledgor's
sole expense, all documents that such Pledgor shall reasonably request to
evidence such termination or release, in each case without recourse,
representations or warranties of any kind.
SECTION 10.10. Security Interest Absolute. All rights of the Agent and
--------------------------
the Lenders hereunder, the grant of a security interest in the Collateral and
all obligations of each Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) Any claim as to the validity, regularity or enforceability of this
Agreement or any other Loan Document, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing;
(b) Any change in the time, manner or place of payment of, or in any other
term of, all of or any of the Obligations, or any other amendment or waiver of
or any consent to any departure
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from this Agreement, any other Loan Document or any other agreement or
instrument relating to any of the foregoing;
(c) Any change in the corporate existence, structure or ownership of any
issuer of Pledged Securities, or any liquidation, dissolution, insolvency,
reorganization or other similar proceeding affecting any such issuer or its
assets;
(d) Any change in the Laws of any jurisdiction;
(e) The occurrence of any Default or Event of Default;
(f) Any exchange, release or non-perfection of the Lenders' security
interest in any other Collateral, or any release or amendment or waiver of or
consent to or departure from any guaranty, for all or any of the Obligations; or
(g) Any other circumstance that might otherwise constitute a defense
available to, or a discharge of, such Pledgor in respect of the Obligations or
in respect of this Agreement (other than the indefeasible payment in full of all
Obligations).
SECTION 11.
MISCELLANEOUS
SECTION 11.1. Representation of the Lenders. Each Lender hereby
-----------------------------
represents that it is a commercial lender which makes loans in the ordinary
course of its business and that it will make Bridge Loans hereunder for its own
account or the account of its Affiliates in the ordinary course of such
business.
SECTION 11.2. Participations in and Assignments of Bridge Loans. (a)
-------------------------------------------------
Each Lender shall have the right at any time to sell, assign, transfer or
negotiate all or any portion of its Bridge Loans or its Bridge Loan Commitment
in an aggregate amount of not less than $5,000,000 to any Eligible Assignee. In
the case of any sale, transfer or negotiation of all or part of any Bridge Loan
or any Bridge Loan Commitment authorized under this Section 11.2(a), the
assignee, transferee or recipient shall become a party to this Agreement as a
Lender by execution of an assignment and assumption agreement substantially in
the form of Exhibit D hereto; provided, that (i) at such time Section 2.1 shall
--------
be deemed modified to reflect the Bridge Loan Commitment of such new Lender and
of the existing Lenders, (ii) upon surrender of the Bridge Notes evidencing all
or any portion of any Bridge Loan so sold, transferred, assigned or negotiated,
new Bridge Notes will be issued, at the Borrower's expense to such new Lender
and to the assigning Lender, such new Bridge Notes to be in conformity with the
requirements of Section 2.4 (with appropriate modifications), and (iii) PSCC
shall receive at the time of each such assignment, from the assigning or
assignee Lender, the payment of a non-refundable assignment fee of $3,500. To
the extent of any assignment pursuant to this Section 11.2(a), the assigning
Lender shall be relieved of its obligations hereunder with respect to its
assigned Bridge Loan or Bridge Loan Commitment, and the assignee, transferee or
recipient shall have, to the extent of such sale, assignment, transfer or
negotiation, the same rights, benefits and obligations as it would if it were a
Lender with respect to such Bridge Loan or Bridge Loan Commitment, including,
without limitation, the right to approve or disapprove actions which, in
accordance
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with the terms hereof, require the approval of a Lender. At the time of each
assignment pursuant to this Section 11.2(a) to an Eligible Assignee which is not
already a Lender hereunder and which is not a United States Person (as such term
is defined in Section 7701 (a) (30) of the Internal Revenue Code) for Federal
income tax purposes, the respective Eligible Assignee shall provide to the
Borrower and the Agent the appropriate Internal Revenue Service Forms (and, if
applicable a Section 11.2(e)(ii) Certificate) described in Section 11.2(e).
(b) Each Lender may grant participations in all or any part of its Bridge
Loans or its Bridge Loan Commitment in an aggregate amount of not less than
$5,000,000 to any Eligible Assignee.
(c) The Borrower shall, at its own cost and expense, provide such
certificates, acknowledgments and further assurances in respect of this
Agreement and the Bridge Loans as any Lender may reasonably require in
connection with any participation, transfer or assignment pursuant to this
Section 11.2.
(d) Nothing in this Agreement shall prevent or prohibit any Lender from
pledging its Bridge Notes hereunder to a Federal Reserve Bank in support of
borrowings made by such Lender from such Federal Reserve Bank.
(e) Each Lender that is an assignee or transferee of an interest under
this Agreement pursuant to Section 11.2(a) (unless the respective Lender was
already a Lender hereunder immediately prior to such assignment or transfer) and
that is not a United States Person (as such term is defined in Section 7701 (a)
(30) of the Internal Revenue Code) agrees to deliver to the Borrower and the
Agent, on the date of such assignment or transfer to such Lender, (i) two
accurate and complete original signed copies of Internal Revenue Service Form W-
8ECI or W-8BEN Parts I and II including such Lender's U.S. taxpayer
identification number (or successor forms) certifying to such Lender's
entitlement to a complete exemption from United States withholding tax with
respect to payments to be made under this Agreement and under any Bridge Note,
or (ii) if the Lender is not a "bank" within the meaning of Section 881(c) (3)
(A) of the Internal Revenue Code and cannot deliver either Internal Revenue
Service Form W-8ECI or W-8BEN Parts I and II (or successor forms) pursuant to
clause (i) above, (X) a certificate substantially in the form of Exhibit E
hereto (a "Section 11.2(e)(ii) Certificate") stating that such Lender is not a
"bank" within the meaning of Section 881(c)(3)(A) of the Code and (Y) two
accurate and complete original signed copies of Internal Revenue Service Form W-
8BEN Part I only (or successor form) certifying to such Lender's entitlement to
a complete exemption from United States withholding tax with respect to payments
of interest to be made under this Agreement and under any Bridge Note. In
addition, each Lender agrees that, 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 Agent two new accurate
and complete original signed copies of Internal Revenue Service Form W-8ECI or
W-8BEN (or successor forms), or a Section 11.2(e)(ii) Certificate and Form W-
8BEN Part I only (or successor form), as the case may be, and such other forms
as may be required in order to confirm or establish the entitlement of such
Lender to a continued exemption from or reduction in United States withholding
tax with respect to payments under this Agreement and any Bridge Note, or it
shall immediately notify the Borrower and the Agent of its inability to deliver
any such form or certificate; provided, however, that the Lender shall not be
-------- -------
obligated to complete and deliver any
60
<PAGE>
form requiring disclosure of information or statements that it considers to be
confidential or otherwise disadvantageous to disclose. Subject to the
immediately succeeding sentence, and notwithstanding Section 2.9, the Borrower
shall be entitled, to the extent they are required to do so by law, to deduct or
withhold income or similar taxes imposed by the United States (or any political
subdivision or taxing authority thereof or therein) from interest, fees or other
amounts payable hereunder or made on any other Loan Document for the account of
any Lender which is not a United States Person (as such term is defined in
Section 7701 (a) (30) of the Internal Revenue Code) for U.S. Federal income tax
purposes to the extent that such Lender has not provided to the Borrower U.S.
Internal Revenue Service Forms that establish a complete exemption from such
deduction or withholding. Notwithstanding anything to the contrary contained in
the preceding sentence or elsewhere in this Section 11.2(e), the Borrower agrees
to pay additional amounts and to indemnify and hold harmless each Lender
(without regard to the identity of the jurisdiction requiring the deduction or
withholding), and reimburse such Lender upon its written request, in respect of
any amounts deducted or withheld by it as described in the immediately preceding
sentence as a result of any changes after the date of any assignment or transfer
in any applicable Law or treaty, or in the interpretation thereof, relating to
the deducting or withholding of income or similar taxes.
SECTION 11.3. Expenses. Whether or not the transactions contemplated
--------
hereby shall be consummated, the Borrower and the Guarantor, jointly and
severally, agree to pay on demand (i) all reasonable costs and expenses of
preparation of the Loan Documents and all the costs of furnishing all opinions
by counsel for the Loan Parties (including without limitation any opinions
requested by the Lenders as to any legal matters arising hereunder), and of the
Loan Parties' performance of and compliance with all agreements and conditions
contained herein on their part to be performed or complied with; (ii) the
reasonable fees, expenses and disbursements of Cleary, Gottlieb, Steen &
Hamilton in connection with the negotiation, preparation, execution and
administration of the Loan Documents, and any amendments, modifications and
waivers thereto and consents to departures from the terms thereof; (iii) all
costs and expenses incurred by the Lenders or the Agent in connection with the
custody or preservation of any of the Collateral in accordance with the terms
hereof; and (iv) after the occurrence of an Event of Default, all costs and
expenses (including reasonable attorneys' fees, including allocated costs of
internal counsel, and costs of settlement) incurred by the Lenders or the Agent
in enforcing any Obligations of or in collecting any payments due from the Loan
Parties hereunder or under the Bridge Notes by reason of such Event of Default
(including, without limitation, in connection with the sale of, collection from,
or other realization upon, any of the Collateral in accordance with the terms
hereof or the exercise or enforcement of any of the rights of the pledgees
hereunder) or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a "work-out" or of
any insolvency or bankruptcy proceedings.
SECTION 11.4. Indemnity. In addition to the payment of expenses
---------
pursuant to Section 11.3, whether or not the transactions contemplated hereby
shall be consummated, the Borrower and the Guarantor, jointly and severally,
agree to indemnify, pay and hold each of the Lenders and the Agent, and each of
their respective officers, directors, employees, agents, representatives and
affiliates (collectively called the "Indemnitees"), harmless from and against
any and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including, without
61
<PAGE>
limitation, the reasonable fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Indemnitee shall be
designated as a party thereto), which may be suffered by, imposed on, incurred
by, or asserted against that Indemnitee, in any manner resulting from, connected
with, in respect of, relating to or arising out of this Agreement, the other
Loan Documents or the Lenders' agreements to make Bridge Loans or the use or
intended use of any of the proceeds of the Bridge Loans hereunder or the
issuance of the Refinancing Securities or the breach of any representation,
warranty or covenant in this Agreement (the "Indemnified Liabilities");
provided, that the Loan Parties shall have no obligation to an Indemnitee
- --------
hereunder with respect to Indemnified Liabilities to the extent such liabilities
are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted primarily from the gross negligence or willful
misconduct of that Indemnitee. To the extent that the undertaking to indemnify,
pay and hold harmless set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, the Loan Parties shall
contribute the maximum portion which they are permitted to pay and satisfy under
applicable law to the payment and satisfaction of all Indemnified Liabilities
incurred by the Indemnitees or any of them.
SECTION 11.5. Setoff. In addition to any rights now or hereafter
------
granted under applicable law and not by way of limitation of any such rights,
upon the occurrence and during the continuance of any Event of Default, each
Lender and the Agent is hereby authorized by any Loan Parties at any time or
from time to time, without notice to such Loan Party or to any other Person, any
such notice being hereby expressly waived, to set off and to appropriate and to
apply any and all deposits (general or special, including, but not limited to,
Indebtedness evidenced by certificates of deposit, whether matured or unmatured
but not including trust accounts or any other accounts held for the benefit of
another Person) and any other Indebtedness at any time held or owing by such
Person to or for the credit or the account of such Loan Party against and on
account of the obligations and liabilities of such Loan Party to such Person
under this Agreement and the Bridge Notes, including, but not limited to, all
claims of any nature or description arising out of or connected with this
Agreement or the Bridge Notes, irrespective of whether or not (a) such Person
shall have made any demand hereunder or (b) such Person shall have declared the
principal of or the interest on its portion of any Bridge Loan to be immediately
due and payable and although said obligations and liabilities, or any of them,
may be contingent or unmatured.
SECTION 11.6. Amendments and Waivers. No amendment, modification,
----------------------
termination or waiver of any term or provision of this Agreement, of the Bridge
Notes or any Guarantee or consent to any departure by any Loan Party therefrom,
shall in any event be effective without the prior written concurrence of such
Loan Party and the Agent and the Required Lenders, and, upon the request of any
Lender, the receipt of a written opinion of counsel of such Loan Party addressed
to the Lenders to the effect that such amendment, modification, termination,
waiver or consent does not violate or conflict with any of the terms and
provisions of any Contract of such Loan Party in respect of Indebtedness for
money borrowed or other material agreement of such Loan Party otherwise known to
such counsel after reasonable inquiry; provided, that, notwithstanding the third
--------
sentence of Section 11.15, without the prior written consent of each Lender and
the acknowledgement of the Agent, an amendment, modification, termination or
waiver of this Agreement, any Bridge Notes or any Guarantee or consent to
departure from a term or provision hereof or thereof may not: (i) increase or
extend
62
<PAGE>
the Bridge Loan Commitment; (ii) reduce the principal amount of any Bridge Loan;
(iii) reduce the rate of or extend the time for payment of principal or interest
on any Bridge Loan; (iv) reduce the principal amount of any Bridge Loan; (v)
make any Bridge Loan payable in money other than that stated herein; (vi) make
any change to this Section 11.6; (vii) reduce the rate or extend the time of
payment of fees or other compensation payable to the Lenders hereunder; and
provided, further, that without the consent of the Agent, no such amendment,
- -------- -------
modification, termination or waiver may amend, modify, terminate or waive any
provision of Section 8 as the same applies to the Agent or any other provision
of this Agreement as it relates to the rights or obligations of the Agent. Any
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which it was given. No notice to or demand on any Loan
Party in any case shall entitle such Loan Party to any further notice or demand
in similar or other circumstances.
SECTION 11.7. Independence of Covenants. All covenants hereunder
-------------------------
shall be given independent effect so that if a particular action or condition is
not permitted by any of such covenants, the fact that it would be permitted by
an exception to, or be otherwise within the limitation of, another covenant
shall not avoid the occurrence of an Event of Default or Default if such action
is taken or condition exists.
SECTION 11.8. Entirety. The Loan Documents embody the entire
--------
agreement of the parties and supersede all prior agreements and understandings,
if any, relating to the subject matter hereof and thereof.
SECTION 11.9. Notices. Unless otherwise provided herein, any notice
-------
or other communications herein required or permitted to be given shall be in
writing and may be personally served, telecopied, telexed or sent by mail and
shall be deemed to have been given when delivered in person, upon receipt of
telecopy or telex against receipt of answer back or four Business Days after
depositing it in the mail, registered or certified, with postage prepaid and
properly addressed; provided, that notices shall not be effective until
--------
received. For the purposes hereof, the addresses of the parties hereto (until
notice of a change thereof is delivered as provided in this Section 11.9) shall
be set forth under each party's name on the signature pages hereto.
SECTION 11.10. Survival of Warranties and Certain Agreements. (a) All
---------------------------------------------
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement, the making of the Bridge Loans
hereunder and the execution and delivery of the Bridge Notes and,
notwithstanding the making of the Bridge Loans, the execution and delivery of
the Bridge Notes or any investigation made by or on behalf of any party, shall
continue in full force and effect. The closing of the transactions herein
contemplated shall not prejudice any right of one party against any other party
in respect of anything done or omitted hereunder or in respect of any right to
damages or other remedies.
(b) Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of any Loan Party set forth in Sections 2.9, 2.10,
11.3, 11.4, 11.11, 11.15, 11.18, 11.19, and 11.20 shall survive the payment of
and the termination of this Agreement.
63
<PAGE>
SECTION 11.11. Failure or Indulgence Not Waiver; Remedies Cumulative.
-----------------------------------------------------
No failure or delay on the part of the Agent or any Lender in the exercise of
any power, right or privilege hereunder, under a Guarantee or under the Bridge
Notes shall impair such power, right or privilege or be construed to be a waiver
of any default or acquiescence therein, nor shall any single or partial exercise
of any such power, right or privilege preclude other or further exercise thereof
or of any other right, power or privilege. All rights and remedies existing
under this Agreement, under a Guarantee or the Bridge Notes are cumulative to
and not exclusive of any rights or remedies otherwise available.
SECTION 11.12. Severability. In case any provision in or obligation
------------
under this Agreement, under a Guarantee or the Bridge Notes shall be invalid,
illegal or unenforceable in any jurisdiction, then, to the fullest extent
permitted by law, the other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in favor of the
Lenders in order to carry out intentions of the parties hereto as nearly as may
be possible. The invalidity, illegality or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction.
SECTION 11.13. Headings. Section and Sub-section headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 11.14. Governing Law; Consent to Jurisdiction; Venue; Waiver
-----------------------------------------------------
of Jury Trial. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
- -------------
INTERPRETED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
(a) Any legal action or proceeding with respect to the Bridge Notes, this
Agreement or the other Loan Documents 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
each of the parties to this Agreement hereby irrevocably accepts for itself and
in respect of its respective Property, generally and unconditionally, the
jurisdiction of the aforesaid courts. Each Loan Party irrevocably appoints
Corporation Service Company, 80 State Street, Albany, New York, 12207-2543, as
its agent to receive service of process or other legal summons for purposes of
any such action or proceeding. So long as any Loan Party has any obligation
under this Agreement, the Bridge Notes or the Guarantee, it will maintain a duly
appointed agent in the State of New York for the service of such process or
summons, and if such Loan Party fails to maintain such an agent, any such
process or summons may be served by mailing a copy thereof by registered mail,
or a form of mail substantially equivalent thereto, addressed to it at its
address as provided for notices hereunder. Each of the parties to this
Agreement hereby further irrevocably waives any claim that any such courts lack
jurisdiction over such party, and agrees not to plead or claim, in any legal
action, or proceeding with respect to this Agreement brought in any of the
aforesaid courts, that any such court lacks jurisdiction over such party. Each
of the parties to this Agreement irrevocably consents to the service of process
in any such action or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, to such party, at its respective address for
notices pursuant to Section 11.9, such service to become effective 30 days after
such mailing. To the extent permitted by law, each of the parties to this
Agreement 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 commenced hereunder that service of
64
<PAGE>
process was in any way invalid or ineffective. Nothing herein shall affect the
right of any party to this Agreement to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed against
any party in any other jurisdiction.
(b) Any such action or proceeding may be brought and enforced in the
courts of Bermuda, Ireland, the Commonwealth of Pennsylvania, the State of
Missouri or any other jurisdiction where any Loan Party or any of its property
may be found, and each such Loan Party irrevocably submits to the jurisdiction
of each such court in respect of any such action or proceeding.
(c) Each Loan Party irrevocably waives all immunity (whether on the basis
of sovereignty or otherwise) from jurisdiction, attachment (both before and
after judgment) and execution to which it might otherwise be entitled in any
action or proceeding relating in any way to this Agreement, the Bridge Notes or
the Guarantee in the courts of Bermuda, of Ireland, of the States of New York,
Pennsylvania or Missouri, of the United States or of any other country or
jurisdiction, and each Loan Party shall not raise or claim or cause to be
pleaded any such immunity at or in respect of any such action or proceeding.
(d) Each of the parties to this Agreement 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 brought in the courts referred to in clause (b) or (c) 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.
(e) TO THE EXTENT PERMITTED BY LAW, EACH OF THE PARTIES TO THIS AGREEMENT
HEREBY IRREVOCABLY WAIVES SUCH PARTY'S RESPECTIVE RIGHTS TO A JURY TRIAL WITH
RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THE
PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.
SECTION 11.15. Successors and Assigns. This Agreement shall be binding
----------------------
upon the parties hereto and their respective successors and assigns and shall
inure to the benefit of the parties hereto and the successors and assigns of the
Lenders. The terms and provisions of this Agreement and each Guarantee shall
inure to the benefit of any assignee or transferee of the Bridge Loans pursuant
to Section 11.2(a), and in the event of such transfer or assignment, the rights
and privileges herein conferred upon the Lenders shall automatically extend to
and be vested in such transferee or assignee which becomes a Lender pursuant to
Section 11.2(a), all subject to the terms and conditions hereof. Except as
provided in Section 11.6, in determining whether the holders of a sufficient
aggregate principal amount of the Bridge Loans shall have consented to any
action under this Agreement, any amount of the Bridge Loans owned or held by the
Borrower, the Pledgors and the Guarantor or any of their respective Affiliates
shall be disregarded. The Loan Parties' rights or interest therein hereunder may
not be assigned without the prior express written consent of each of the
Lenders.
65
<PAGE>
SECTION 11.16. Counterparts; Effectiveness. This Agreement and any
---------------------------
amendments, waivers, consents or supplements hereto may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument.
SECTION 11.17. Payments Pro Rata. (a) The Agent agrees that promptly
-----------------
after its receipt of each payment of any interest or principal of the Bridge
Loans from or on behalf of the Borrower or the Guarantor, it shall, except as
otherwise provided in this Agreement, distribute such payment to the Lenders
(other than any Lender that has consented in writing to waive its pro rata share
of such payment) pro rata based upon their respective pro rata shares, if any,
of such payment.
(b) Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of set-off or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Loan Documents, or otherwise)
which is applicable to the payment of the principal of, or interest on, any
Bridge Loan of a sum which with respect to the related sum or sums received by
other Lenders is in a greater proportion than the total of such Obligation then
owed and due to such Lender bears to the total of such Obligation then owed and
due to all of the Lenders immediately prior to such receipt, then such Lender
receiving such excess payment shall purchase for cash without recourse or
warranty from the other Lenders an interest in the Obligations of the Borrower
to such Lenders in such amount as shall result in a proportional participation
by all of the Lenders in such amount; provided, that, if all or any portion of
--------
such excess amount is thereafter recovered from such Lender, such purchase shall
be rescinded and the purchase price restored to the extent of such recovery, but
without interest.
SECTION 11.18. Waiver of Stay, Extension or Usury Laws. The Loan
---------------------------------------
Parties covenant (to the extent that they may lawfully do so) that they will not
at any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Loan Parties from paying all or any portion
of the principal of or interest on the Bridge Loans as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Agreement; and (to the extent that it may
lawfully do so) the Loan Parties hereby expressly waive all benefit or advantage
of any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Agent, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 11.19. Confidentiality. Each Lender shall hold all non-public
---------------
information obtained pursuant to the requirements of or in connection with this
Agreement which has been identified as confidential by the Borrower in
accordance with such Lender's customary procedures for handling confidential
information of this nature, it being understood and agreed by the Borrower that
(i) in any event a Lender may make disclosures reasonably required by any bona
fide assignee, transferee or participant in connection with the contemplated
assignment or transfer by such Lender of any Bridge Loan or any participation
therein or as required or requested by any governmental agency or representative
thereof or pursuant to legal
66
<PAGE>
process; provided, that unless specifically prohibited by applicable law or
- --------
court order, each Lender shall notify the Borrower of any request by any
governmental agency or representative thereof (other than any such request in
connection with any examination of the financial condition of such Lender by
such governmental agency) for disclosure of any such non-public information
prior to disclosure of such information and (ii) a Lender may share with any of
its Affiliates, and such Affiliates may share with any Lender, any information
related to the Borrower or any of its Affiliates (including information relating
to creditworthiness); and provided, further, that in no event shall any Lender
-------- -------
be obligated or required to return any materials furnished by the Borrower or
any of its Subsidiaries. In connection with any sales, assignments or transfers
referred to in Section 11.2(a), a Lender shall obtain agreements from the
purchasers, assignees or transferees, as the case may be, reasonably
satisfactory to the Borrower, that such parties will comply with this Section
11.19.
SECTION 11.20. Compensation. The Borrower shall compensate each
------------
Lender, 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 Lender to fund its Bridge Loan but excluding loss of
anticipated profit with respect to any Bridge Loan) which such Lender may
sustain: (i) if for any reason (other than a default by such Lender or the
Agent) a borrowing under any Bridge Loan does not occur on a date specified
therefor in the notice of borrowing (whether or not withdrawn by the Borrower);
(ii) if any repayment of any Bridge Loan occurs on a date which is not the last
day of an Interest Period applicable thereto; (iii) if any prepayment of any
Bridge Loan is not made on any date specified in a notice of prepayment given by
the Borrower; or (iv) as a consequence of any other default by the Borrower to
repay any Bridge Loan when required by the terms of this Agreement. Calculation
of all amounts payable to a Lender under this Section 11.20 shall be made as
though that Lender had actually funded the relevant Bridge Loan utilizing the
Applicable Interest Rate, through the purchase of a LIBOR rate deposit bearing
interest at the Applicable Interest Rate in an amount equal to the amount of
that Bridge Loan, having a maturity comparable to the relevant Interest Period.
67
<PAGE>
WITNESS the due execution hereof by the respective duly authorized officers
of the undersigned as of the date first written above.
BORROWER:
MUTUAL RISK MANAGEMENT LTD.
By:__________________________________
Name:
Title:
Notice Address:
--------------
44 Church Street
P.O. Box HM 2064
Hamilton, HM HX, Bermuda
Attention: Richard O'Brien
---------
Telephone: (441) 295-5688
Telecopy: (441) 292-1867
GUARANTOR:
MUTUAL GROUP, LTD.
By:__________________________________
Name:
Title:
Notice Address:
--------------
One Logan Square
Suite 1400
P.O. Box 59239
Philadelphia, PA 19103
Attention: Andrew Walsh
---------
Telephone: (215) 963-1240
Telecopy: (215) 963-1210
<PAGE>
PLEDGORS:
MUTUAL RISK MANAGEMENT LTD.
By:__________________________________
Name:
Title:
Notice Address:
--------------
44 Church Street
P.O. Box HM 2064
Hamilton, HM HX, Bermuda
Attention: Richard O'Brien
---------
Telephone: (441) 295-5688
Telecopy: (441) 292-1867
MUTUAL RISK MANAGEMENT (HOLDINGS) LTD.
By:__________________________________
Name:
Title:
Notice Address:
--------------
44 Church Street
P.O. Box HM 2064
Hamilton, HM HX, Bermuda
Attention: Richard O'Brien
---------
Telephone: (441) 295-5688
Telecopy: (441) 292-1867
<PAGE>
MUTUAL GROUP, LTD.
By:__________________________________
Name:
Title:
Notice Address:
--------------
One Logan Square
Suite 1400
P.O. Box 59239
Philadelphia, PA 19103
Attention: Andrew Walsh
---------
Telephone: (215) 963-1240
Telecopy: (215) 963-1210
LEGION FINANCIAL CORPORATION
By:__________________________________
Name:
Title:
Notice Address:
--------------
One Logan Square
Suite 1400
P.O. Box 59239
Philadelphia, PA 19103
Attention: Andrew Walsh
---------
Telephone: (215) 963-1240
Telecopy: (215) 963-1210
<PAGE>
LENDERS:
PRUDENTIAL SECURITIES CREDIT CORP.
By:__________________________________
Name:
Title:
Notice Address:
--------------
One New York Plaza, 14/th/ floor
New York, NY 10292
Attention: Fred Angelo
---------
Telephone: (212) 214-7365
Telecopy: (212) 214-7678
AGENT:
PRUDENTIAL SECURITIES CREDIT CORP.
as Agent
By:__________________________________
Name:
Title:
Notice Address:
--------------
One New York Plaza, 14/th/ floor
New York, NY 10292
Attention: Fred Angelo
---------
Telephone: (212) 214-7365
Telecopy: (212) 214-7678
<PAGE>
COLLATERAL SUBSIDIARIES:
MUTUAL RISK MANAGEMENT (HOLDINGS) LTD.
By:__________________________________
Name:
Title:
Notice Address:
--------------
44 Church Street
P.O. Box HM 2064
Hamilton, HM HX, Bermuda
Attention: Richard O'Brien
---------
Telephone: (441) 295-5688
Telecopy: (441) 292-1867
MUTUAL INDEMNITY (DUBLIN) LTD.
By:__________________________________
Name:
Title:
Notice Address:
--------------
44 Church Street
P.O. Box HM 2064
Hamilton, HM HX, Bermuda
Attention: Richard O'Brien
---------
Telephone: (441) 295-5688
Telecopy: (441) 292-1867
<PAGE>
MUTUAL HOLDINGS (BERMUDA) LTD.
By:__________________________________
Name:
Title:
Notice Address:
--------------
44 Church Street
P.O. Box HM 2064
Hamilton, HM HX, Bermuda
Attention: Richard O'Brien
---------
Telephone: (441) 295-5688
Telecopy: (441) 292-1867
IPC MUTUAL HOLDINGS, LTD.
By:__________________________________
Name:
Title:
Notice Address:
--------------
44 Church Street
P.O. Box HM 2064
Hamilton, HM HX, Bermuda
Attention: Richard O'Brien
---------
Telephone: (441) 295-5688
Telecopy: (441) 292-1867
<PAGE>
LEGION FINANCIAL CORPORATION
By:__________________________________
Name:
Title:
Notice Address:
--------------
One Logan Square
Suite 1400
P.O. Box 59239
Philadelphia, PA 19103
Attention: Andrew Walsh
---------
Telephone: (215) 963-1240
Telecopy: (215) 963-1210
LEGION INSURANCE COMPANY
By:__________________________________
Name:
Title:
Notice Address:
--------------
One Logan Square
Suite 1400
P.O. Box 59239
Philadelphia, PA 19103
Attention: Andrew Walsh
---------
Telephone: (215) 963-1240
Telecopy: (215) 963-1210
<PAGE>
Schedule 3.10
-------------
LIST OF SUBSIDIARIES/1/
SUBSIDIARY JURISDICTION OF ORGANIZATION
- ------------------------------------------------------------------------------
Alpine Meadows Bermuda
Capital Management of Bermuda Ltd. Bermuda
Captive Resources, Inc. Delaware
CFM Insurance Managers Ltd. Bermuda
Commonwealth Risk Services, LP Delaware
Commonwealth Risk Services (Europe) Limited United Kingdom
CompFirst, Inc. Georgia
Continental Benefit Company Bermuda
Genesis Holdings Cayman
H&H Reinsurance Brokers, Ltd. Bermuda
Hamilton Management Ltd. Wisconsin
Hemisphere Financial Services, LLC Delaware
Hemisphere Management Ltd. Bermuda
Hugo Trust Company United Kingdom
Hurst Holme Insurance Company Ltd. Bermuda
International Advisory Services, Ltd. Bermuda
IPC Mutual Holdings Ltd. (Bermuda) Bermuda
Kensington Management Group, Ltd. Cayman
Legion Insurance Company Pennsylvania
Legion Financial Corporation Missouri
Legion Management Corporation Oklahoma
Legion Indemnity Company Illinois
Livery Management, Inc. Delaware
M&A Holdings Ltd. Bermuda
Market Reinsurance Intermediaries, Inc. California
MG Financial Ltd. Delaware
MGL Investments, Ltd. Delaware
MRM Reinsurance Brokers Bermuda
MRM Financial Services Limited Bermuda
MRM Hancock Limited United Kingdom
MRM Life Ltd. Bermuda
Mutual Finance Ltd. Bermuda
Mutual Group Ltd. Delaware
Mutual Holdings (Bermuda) Ltd. Bermuda
_____________________
/1/ The above list is all of the subsidiaries of the Borrower except for
various subsidiaries and investments that would not in the aggregate represent a
material subsidiary. For this purpose a "material subsidiary" means a subsidiary
that would represent more than 10% of the total assets or net income of the
Borrower.
S-1-1
<PAGE>
Mutual Holdings Ltd. Delaware
Mutual Holdings (U.S.) Ltd. Delaware
Mutual Indemnity (U.S.) Ltd. Bermuda
Mutual Indemnity (Dublin) Ltd. Ireland
Mutual Indemnity (Barbados) Ltd. Barbados
Mutual Indemnity (Bermuda) Ltd. Bermuda
Mutual Indemnity Ltd. Bermuda
Mutual Risk Captive Group Bermuda
Mutual Risk Management (Cayman) Ltd. Cayman
Mutual Risk Management (Barbados) Ltd. Barbados
Mutual Risk Management (Holdings) Ltd. Bermuda
Park International Limited Bermuda
Premium Securities Bermuda
Premium Securities (Bermuda) Ltd. Bermuda
Professional Underwriters Corp Delaware
PUC Midwest Acquisition Corp Delaware
Renaissance Underwriting Managers, Inc. Georgia
SBU Southeast, Inc. Delaware
Shoreline Mutual Management (Bermuda) Ltd. Bermuda
Tremont International Insurance Ltd. Cayman
SPDA Bermuda
Utility Management Insurance Services, Inc. Delaware
Villanova Insurance Company Pennsylvania
Worksafe, Inc. Delaware
S-1-2
<PAGE>
Schedule 3.25
-------------
EXECUTIVE OFFICES AND PLACES OF BUSINESS OF LOAN PARTIES
- --------------------------------------------------------------------------------
Loan Party Chief Executive Office/Place of Business
- ---------- ----------------------------------------
- --------------------------------------------------------------------------------
Mutual Risk Management, Ltd. 44 Church Street
Hamilton HM HX, Bermuda
- --------------------------------------------------------------------------------
Mutual Group, Ltd. One Logan Square, Suite 1400
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
Mutual Risk Management (Holdings) Ltd. 44 Church Street
Hamilton HM HX, Bermuda
- --------------------------------------------------------------------------------
Legion Financial Corporation One Logan Square, Suite 1400
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
Legion Insurance Company One Logan Square, Suite 1400
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
Mutual Indemnity (Dublin) Ltd. Frederick House
South Frederick Street
Dublin 2, Ireland
- --------------------------------------------------------------------------------
Mutual Holdings (Bermuda) Ltd. 44 Church Street
Hamilton HM HX, Bermuda
- --------------------------------------------------------------------------------
IPC Mutual Holdings, Ltd. 44 Church Street
Hamilton HM HX, Bermuda
- --------------------------------------------------------------------------------
S-2
<PAGE>
Schedule 6.3
------------
LIENS
Charges against Mutual Indemnity (Dublin) Ltd.:
- ---------------------------------------------
1. Charge over Deposits in favor or The Bank of N.T. Butterfield & Son
Limited, dated February 26, 1993.
2. Custodian Accounts Charge in favor of The Bank of N.T. Butterfield & Son
Limited as fiscal and collateral agent etc., dated November 1, 1996.
S-3
<PAGE>
Schedule 10.1-A
---------------
LEGION PLEDGED SHARES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Owner Certificate # Number and Type of Percentage of
----- ------------- ------------------ -------------
Shares Shares Outstanding
------ ------------------
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Legion Financial Corporation 58 39,992 100%
Common Shares
Par Value:
$65 per Share
- -----------------------------------------------------------------------------------------------
</TABLE>
S-4-1
<PAGE>
Schedule 10.1-B
---------------
LEGION FINANCIAL CORPORATION PLEDGED SHARES
- --------------------------------------------------------------------------------
Owner Certificate # Number and Type of Percentage of
----- ------------- ------------------ -------------
Shares Shares Outstanding
------ ------------------
- --------------------------------------------------------------------------------
Mutual Group, Ltd. 1 19,619 100%
Common Shares
- --------------------------------------------------------------------------------
S-4-2
<PAGE>
Schedule 10.1-C
---------------
MUTUAL HOLDINGS PLEDGED SHARES
- --------------------------------------------------------------------------------
Owner Certificate # Number and Type of Percentage of Shares
----- ------------- ------------------ --------------------
Shares Outstanding/1/
------ -------------
- --------------------------------------------------------------------------------
Mutual Risk Management 5 12,000 100%
(Holdings) Ltd. Common Shares
Par Value:
US$1.0000
- --------------------------------------------------------------------------------
________________
/1/ Not taking into account the MH Preferred Shares.
S-4-3
<PAGE>
Schedule 10.1-D
---------------
IPC PLEDGED SHARES
- --------------------------------------------------------------------------------
Owner Certificate # Number and Type of Percentage of
----- ------------- ------------------ -------------
Shares Shares Outstanding/1/
------ ---------------------
- --------------------------------------------------------------------------------
Mutual Group, Ltd. 9 11,995
Common Shares
Par Value:
US$1.0000 100%
- ----------------------------------------------------------
Mutual Group, Ltd. 10 5
Common Shares
Par Value:
US$1.0000
- --------------------------------------------------------------------------------
______________
/1/ Not taking into account the IPC Preferred Shares.
S-4-4
<PAGE>
Schedule 10.1-E
---------------
MI DUBLIN PLEDGED SHARES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Owner Certificate # Number and Type of Percentage of Shares
----- ------------- ------------------ --------------------
Shares Outstanding/1/
------ --------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mutual Risk Management, Ltd. 4 4,999,999 100%
Ordinary Shares
Par Value:
US$1
- -------------------------------------------------------------------------------------------------
</TABLE>
_______________
/1/ Not taking into account the MIDL Director Share.
S-4-5
<PAGE>
Schedule 10.1-F
---------------
MUTUAL RISK HOLDINGS PLEDGED SHARES
- --------------------------------------------------------------------------------
Owner Certificate # Number and Type Percentage of
----- ------------- --------------- -------------
of Shares Shares Outstanding
--------- ------------------
- --------------------------------------------------------------------------------
Mutual Risk Management, Ltd. 1 12,000 100%
Common Shares
Par Value:
US$1.0000
- --------------------------------------------------------------------------------
S-4-6
<PAGE>
Schedule 10.2
-------------
PLEDGED SECURITIES
Date:
- ----
Collateral Subsidiary:
- ----------------------
Pledgor:
- -------
Pledged Shares
- --------------
- --------------------------------------------------------------------------------
Owner Certificate # Number and Type of Shares; Percentage of Shares
----- ------------- -------------------------- --------------------
Par Value Outstanding
--------- -----------
- --------------------------------------------------------------------------------
Pledgor ___%
- --------------------------------------------------------------------------------
Additional Shares
- -----------------
- --------------------------------------------------------------------------------
Owner Certificate # Number and Type of Shares; Percentage of Shares
----- ------------- -------------------------- --------------------
Par Value Outstanding
--------- -----------
- --------------------------------------------------------------------------------
Pledgor ____%
- --------------------------------------------------------------------------------
Other Securities, if any:
- -------------------------
- --------------------------------------------------------------------------------
Owner Certificate # Number and Type of Shares; Percentage of Shares
----- ------------- -------------------------- --------------------
Par Value Outstanding
--------- -----------
- --------------------------------------------------------------------------------
Pledgor ____%
- --------------------------------------------------------------------------------
Pledged Securities:
- -------------------
- ----------------------------------------------------------
Total Number of Shares; Percentage of Shares
----------------------- --------------------
Outstanding/1/
--------------
- ----------------------------------------------------------
100%
- ----------------------------------------------------------
_______________
/1/ Not taking into account (i) the MIDL Director Share in the case of Mutual
Indemnity (Dublin) Ltd., (ii) the MH Preferred Shares in the case of Mutual
Holdings (Bermuda) Ltd., and (iii) the IPC Preferred Shares in the case of IPC
Mutual Holdings, Ltd.
S-5-1
<PAGE>
This Schedule is true and complete and is delivered to the Agent pursuant to
Section 10.2 of the Credit Agreement.
[PLEDGOR]
By:_______________________
S-5-2
<PAGE>
EXHIBIT A
FORM OF BRIDGE NOTE
-------------------
MUTUAL RISK MANAGEMENT LTD.
PROMISSORY NOTE
New York, New York
$__________ [DATE]
FOR VALUE RECEIVED, MUTUAL RISK MANAGEMENT LTD., a company
incorporated under the laws of Bermuda (the "Company"), promises to pay to the
order of __________ (the "Lender"), on the Maturity Date, the principal amount
of __________ Dollars ($__________).
The Company also promises to pay interest on the unpaid principal
amount hereof from the date hereof until paid in full at the rates and at the
times which shall be determined in accordance with the provisions of the Credit
Agreement dated as of December 6, 1999, as the same may at any time be amended,
modified or supplemented and in effect (the "Credit Agreement"), among the
Company, the Guarantor, the Pledgors and Collateral Subsidiaries named therein,
the Lenders from time to time party thereto and Prudential Securities Credit
Corp., as Agent.
This Note is issued pursuant to and entitled to the benefits of the
Credit Agreement, to which reference is hereby made for a more complete
statement of the terms and conditions under which the Bridge Loan evidenced
hereby was made and is to be repaid. Capitalized terms used herein without
definition shall have the meanings set forth in the Credit Agreement.
The Payee is hereby authorized to endorse on the schedule attached to
this Note (or on a continuation of any such schedule attached to this Note and
made a part hereof) an appropriate notation evidencing the date and amount of
each Bridge Loan, and each payment of principal made hereon, which schedule
shall constitute prima facie evidence of the accuracy of the information
----- -----
contained therein. The failure of the Payee to make a notation on the schedule
to this Note as aforesaid or the making of an incorrect notation by the Payee
shall not affect the obligations of the Loan Parties hereunder or under the
Credit Agreement or any other Loan Document in any respect.
This Note is subject to mandatory prepayment as provided in
subsections 2.12(c) and 2.12(d) of the Credit Agreement and prepayment at the
option of the Company as provided in subsection 2.12(b) of the Credit Agreement.
This Note is also subject to a mandatory offer to purchase upon the occurrence
of a Change of Control, in accordance with Section 2.13 of the Credit Agreement.
The full payment of this Note shall be (i) guaranteed by the Guarantor
pursuant to Section 9 of the Credit Agreement and (ii) secured by the Collateral
pursuant to Section 10 of the Credit Agreement.
A-1
<PAGE>
THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued but unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment only in the manner
provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this
Note or the Credit Agreement shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Note at the place, at the respective times, and in the currency
herein prescribed.
Pursuant to the provisions of the Credit Agreement, the Company
promises to pay, after the occurrence of an Event of Default, all costs and
expenses incurred by the Lenders or the Agent in enforcing any Obligations of or
in collecting any payments due from the Company hereunder or under the Bridge
Notes by reason of such Event of Default (including with respect to the sale of,
collection from, or other realization upon, any of the Collateral) or in
connection with any refinancing or restructuring of the credit arrangements
provided in the Credit Agreement in the nature of a "work-out" or of any
insolvency or bankruptcy proceedings.
The Company and the other Loan Parties hereby consent to renewals and
extensions of time at or after the maturity hereof, without notice, and hereby
waive diligence, presentment, protest, demand and notice of every kind and, to
the full extent permitted by law, the right to plead any statute of limitations
as a defense to any demand hereunder.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed
and delivered by its duly authorized officer, as of the day and year and at the
place first above written.
MUTUAL RISK MANAGEMENT LTD.
By:
___________________________
Name:
A-3
<PAGE>
TRANSACTIONS ON BRIDGE NOTE
- -------------------------------------------------------------------------------
Amount of Amount of Interest
Amount of Principal Paid Through This
Date Bridge Loan Paid This Date Date Notation Made By
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
A-4
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
In connection with the Change of Control Offer made pursuant to Section
2.12 of the Credit Agreement, the undersigned hereby elects to have
[ ] the entire principal amount
[ ] $________________ ($1,000,000 in principal amount or an integral
multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Agent to
pay it or __________________________ an amount in cash equal to 101.0% of
the principal amount indicated in the preceding sentence plus accrued and
unpaid interest thereon, if any, to the Offer Payment Date.
Dated: _______________________
_____________________________
Signature of Holder
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
A-5
<PAGE>
EXHIBIT B
FORM OF NOTICE OF BORROWING
---------------------------
Prudential Securities Credit Corp.,
as Agent
One New York Plaza, 14/th/ floor
New York, NY 10292
Attention: Fred Angelo
Ladies and Gentlemen:
The undersigned, Mutual Risk Management Ltd. (the "Borrower"), refers
to the Credit Agreement dated as of December 6, 1999, as amended, supplemented
or restated from time to time (the "Credit Agreement," the terms defined therein
being used herein as therein defined) among the Borrower, the Guarantor, the
Pledgors and Collateral Subsidiaries named therein, the Lenders from time to
time party thereto and Prudential Securities Credit Corp., as Agent, and hereby
gives you notice pursuant to Section 2.2(a) of the Credit Agreement that the
Borrower wishes to borrow under Section 2.1 of the Credit Agreement and, in that
connection, sets forth below the information relating to such borrowing (the
"Proposed Borrowing") as required by Section 2.2(a) of the Credit Agreement:
(a) The date of the Proposed Borrowing, being a Business Day, is ______.
(ii) The aggregate amount of the Proposed Borrowing is $__________.
(iii) The Borrower wishes the proceeds of the Proposed Borrowing to
be credit to the following account:
Bank:_______________________________
Account Number:_____________________
Yours truly,
MUTUAL RISK MANAGEMENT LTD.
By:__________________________________
Name:
Title:
B-1
<PAGE>
EXHIBIT C-1
FORM OF LEGAL OPINION OF MAYER, BROWN & PLATT,
----------------------------------------------
U.S. COUNSEL TO THE LOAN PARTIES
--------------------------------
[Distributed separately]
C-1-1
<PAGE>
EXHIBIT C-2
FORM OF LEGAL OPINION OF CONYERS DILL & PEARMAN,
------------------------------------------------
BERMUDA COUNSEL
---------------
TO THE BORROWER AND THE LOAN PARTIES
------------------------------------
[Distributed separately]
C-2-1
<PAGE>
EXHIBIT C-3
FORM OF LEGAL OPINION OF A & L GOODBODY,
---------------------------------------
IRISH COUNSEL TO MUTUAL INDEMNITY (DUBLIN) LTD.
-----------------------------------------------
[Distributed separately]
C-3-1
<PAGE>
EXHIBIT C-4
FORM OF LEGAL OPINION OF LEWIS, RICE & FINGERSH,
-----------------------------------------------
MISSOURI COUNSEL TO LEGION FINANCIAL CORP.
------------------------------------------
[Distributed separately]
C-4-1
<PAGE>
EXHIBIT C-5
FORM OF LEGAL OPINION OF RICHARD O'BRIEN, ESQ.
----------------------------------------------
GENERAL COUNSEL TO THE BORROWER
-------------------------------
[Distributed separately]
C-5-1
<PAGE>
EXHIBIT C-6
FORM OF LEGAL OPINION OF ANDREW WALSH, ESQ.
-------------------------------------------
COUNSEL TO LEGION INSURANCE COMPANY
-----------------------------------
[Distributed separately]
C-6-1
<PAGE>
EXHIBIT D
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
-------------------------------------------
Reference is made to the Agreement described in Item 2 of Annex I
annexed hereto (the "Credit Agreement"). Terms defined in the Credit Agreement
----------------
are used herein as defined therein.
______________ (the "Assignor") and ________________ (the "Assignee")
-------- --------
agree as follows:
The Assignor hereby sells and assigns to the Assignee without recourse
and without representation or warranty except as expressly set forth herein, and
the Assignee hereby purchases and assumes from the Assignor, that interest in
and to all of the Assignor's rights and obligations under the Credit Agreement
and the other Loan Documents as of the date hereof which represents the
percentage interest specified in Item 4 of Annex I of all outstanding rights and
obligations under the Credit Agreement and the other Loan Documents. After
giving effect to such sale and assignment the Assignee's Bridge Loan Commitment
and the amount of the outstanding Bridge Loans owing to the Assignee under the
Credit Agreement will be as set forth in Item 4 of Annex I hereto.
The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim created by the Assignor; (ii)
makes no representation or warranty and assumes no responsibility with respect
to any statements, warranties or representations made in or in connection with
the Loan Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Documents or any other instrument
or document furnished pursuant thereto; and (iii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of any Loan Party or the performance or observance by any Loan Party of any of
its obligations under the Loan Documents or any other instrument or document
furnished pursuant thereto.
The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to therein
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into the Assignment Agreement;
(ii) agrees that it will, independently and without reliance upon the Assignor,
the Agent or any other Lender, as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement; (iii) confirms that it is an Eligible Assignee under the
terms of the Credit Agreement; (iv) appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto; (v) agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Lender[; and (vi)
attaches the forms prescribed by the Internal Revenue Service of the United
States certifying as to the purchasing Lender's status for purposes of
determining exemption from United States withholding taxes with respect to all
payments to be
D-1
<PAGE>
made to the Assignee under the Credit Agreement or such other documents as are
necessary to indicate that all such payments are subject to such rates at a rate
reduced by an applicable tax treaty]/1/.
Following the execution of this Assignment and Assumption Agreement by
the Assignor and the Assignee, this Assignment and Assumption Agreement will be
delivered to the Agent for acceptance and recording by the Agent together with
the fee specified in Section 11.2 of the Credit Agreement. The effective date
of this Assignment and Assumption Agreement shall be the date of acceptance
hereof by the Agent, unless otherwise specified in Item 5 of Annex I hereto (the
"Settlement Date").
---------------
Upon such acceptance and recording by the Agent, as of the Settlement
Date, (i) the Assignee shall be a party to the Credit Agreement and, to the
extent provided in this Assignment and Assumption Agreement, shall have the
rights and obligations of a Lender thereunder and (ii) the Assignor shall, to
the extent provided in this Assignment and Assumption Agreement, relinquish its
rights and be released from its obligations under the Credit Agreement.
Upon such acceptance and recording by the Agent, from and after the
Settlement Date, the Agent shall make all payments under the Credit Agreement
and the Bridge Notes in receipt of the interest assigned hereby (including,
without limitation, all payments of principal, interest and commitment fees (if
applicable) with respect thereto) to the Assignee. On the Settlement Date, the
Assignee shall pay to the Assignor the principal amount of any outstanding
Bridge Loans owing to the Assignor under the Credit Agreement and the Bridge
Notes and assigned to the Assignee hereunder. The Assignor and Assignee shall
make all appropriate adjustments in payments under the Credit Agreement and the
Bridge Notes for periods prior to the Settlement Date directly between
themselves.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS ASSIGNMENT AND
ASSUMPTION AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
____________________
/1/ Insert bracketed language if the Assignee is organized under the laws of a
jurisdiction outside the United States.
D-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Assumption Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written, such execution being made on
Annex I hereto.
[Name of Assignor],
as Assignor
By:_________________________________
Name:
Title:
[Name of Assignee],
as Assignee
By:_________________________________
Name:
Title:
Acknowledged and Agreed:
Prudential Securities Credit Corp.
By:________________________________
Name:
Title:
D-3
<PAGE>
ANNEX I
SCHEDULE OF TERMS
1 Borrower:
2. Name and Date of Credit Agreement: Credit Agreement dated as of December 6,
1999 by and among Mutual Risk Management Ltd., as Borrower, the Guarantor,
the Pledgors and Collateral Subsidiaries named therein, the Lenders from time
to time party thereto and Prudential Securities Credit Corp., as Agent.
3. Date of Assignment Agreement:
4. Amounts (as of Date of Item #3 above):
(b) Percentage Interest Assigned: ______ %
(c) Assignee's Bridge Loan Commitment: $______
(d) Aggregate Amount of Bridge Loan Commitment Assigned: $______
(e) Aggregate Outstanding Principal Amount of Bridge Loan Assigned:
$______
5. Settlement Date: /1/
6. Payment Instructions:
ASSIGNEE: ASSIGNOR:
___________________________ _____________________________
___________________________ _____________________________
___________________________ _____________________________
___________________________ _____________________________
___________________________ _____________________________
7. Notice Instructions:
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
8. Agreed & Accepted:
Name of Assignor Name of Assignee
_________________________________
/1/ Should be no earlier than the date of acceptance by the Agent.
D-4
<PAGE>
EXHIBIT E
SECTION 11.2(e)(ii) CERTIFICATE
-------------------------------
Reference is hereby made to the Credit Agreement, dated as of December
6, 1999, among Mutual Risk Management Ltd., as Borrower, the Guarantor, the
Pledgors and Collateral Subsidiaries named therein, the Lenders from time to
time party thereto and Prudential Securities Credit Corp., as Agent (as amended
from time to time, the "Credit Agreement"). Pursuant to the provisions of
Section 11.2e(ii) of the Credit Agreement, the undersigned hereby certifies that
it is not a "bank" as such term is used in Section 881(c)(34)(A) of the Internal
Revenue Code of 1986, as amended.
[NAME OF LENDER]
By:______________________
Name:
Title:
Date:________________________
E-1
<PAGE>
EXHIBIT 12
MUTUAL RISK MANAGEMENT LTD.
CONSOLDIATED RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges 6.6 9.6 8.4 7.1 13.9
===== ==== ==== ==== ====
</TABLE>
For purposes of computing the consolidated ratio of earnings to fixed charges,
"earnings" represent income before income taxes, minority interest,
extraordinary item and fixed charges. "Fixed charges" include gross interest
expense, the proportion deemed representative of the interest factor of rent
expense and preferred share dividend requirements of consolidated subsidiary
companies.
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Capital Management of Bermuda
Captive Resources, Inc
Commonwealth Risk Holdings (Europe) Ltd
Commonwealth Risk Services Inc.
Commonwealth Risk Services LLP
CompFirst LLC
Genesis Holdings
H&H Park International
Hamilton Management Ltd
Hemisphere Holdings Ltd
Hemisphere Management Ltd
Hemisphere Trust (Jersey) Ltd
Hemisphere Trust Company Ltd
Hurst Holme Insurance Co
IAS (Holdings) Ltd.
International Advisory Services Ltd
IPC Mutual Holdings, Ltd
Kensington Management Group Ltd
Legion Financial Corp
Legion Indemnity Co
Legion Insurance Company
Legion Management Corp
MG Financial Ltd
MGL Investments Ltd
MRM Financial Services Ltd
MRM Life Ltd.
MRM Securities Ltd
MRM Specialty Brokerage Ltd
Mutual Finance Ltd
Mutual Group Ltd
Mutual Holdings (Bermuda) Ltd
Mutual Holdings (US) Ltd
Mutual Indemnity (Barbados) Ltd
Mutual Indemnity (Bermuda) Ltd
Mutual Indemnity (Dublin) Ltd
Mutual Indemnity (US) Ltd
Mutual Indemnity Ltd
Mutual Risk Captive Group Ltd
Mutual Risk Management (Cayman) Ltd
Mutual Risk Management (Holdings) Ltd
Shoreline Mutual Management (Bermuda) Ltd
Tremont International Insurance Ltd
Villanova Insurance Company
Worksafe, Inc
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
MUTUAL RISK MANAGEMENT LTD.
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 33-44124, 33-55282, 333-05008, 333-77359 and 333-80741) and Form
S-3 (Nos. 333-64419, 333-11053, 333-75505 and 333-96425) of Mutual Risk
Management Ltd. of our report dated February 15, 2000 (except for note 21, as to
which the date is February 29, 2000), with respect to the consolidated financial
statements and schedules of Mutual Risk Management Ltd. included in this Annual
Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young
Hamilton, Bermuda
March 30, 2000
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Shareholders
Mutual Risk Management Ltd.
We have audited the accompanying consolidated balance sheets of Mutual Risk
Management Ltd. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income and comprehensive income, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. Our audits also included the financial statement
schedules listed in the Index at Item 14(B). These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mutual Risk
Management Ltd. and subsidiaries at December 31, 1999 and 1998, and the
consolidated 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. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
Hamilton, Bermuda
February 15, 2000
except for note 21, as to which the date is
February 29, 2000
/s/ Ernst & Young
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Mutual Risk Management Ltd., a company organized under the laws of
Bermuda (the "Company"), hereby appoints Robert A. Mulderig, James C. Kelly and
Richard E. O'Brien and each of them, his attorneys and agents to execute on his
behalf and in his name and in the capacity set forth below, an Annual Report of
the Company for the fiscal year ended December 31, 1999 on Form 10-K, and any
amendment or amendments thereto, for filing with the United States Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Act"),
and to do or cause to be done such other acts and to execute such other
documents which said attorneys and agents may deem necessary or advisable to
enable the Company to comply with the Act and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof.
/s/ Arthur E. Engel
-------------------
January 28, 2000 Arthur E. Engel
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Mutual Risk Management Ltd., a company organized under the laws of
Bermuda (the "Company"), hereby appoints Robert A. Mulderig, James C. Kelly and
Richard E. O'Brien and each of them, his attorneys and agents to execute on his
behalf and in his name and in the capacity set forth below, an Annual Report of
the Company for the fiscal year ended December 31, 1999 on Form 10-K, and any
amendment or amendments thereto, for filing with the United States Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Act"),
and to do or cause to be done such other acts and to execute such other
documents which said attorneys and agents may deem necessary or advisable to
enable the Company to comply with the Act and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof.
/s/ Roger E. Dailey
-------------------
January 28, 2000 Roger E. Dailey
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Mutual Risk Management Ltd., a company organized under the laws of
Bermuda (the "Company"), hereby appoints Robert A. Mulderig, James C. Kelly and
Richard E. O'Brien and each of them, his attorneys and agents to execute on his
behalf and in his name and in the capacity set forth below, an Annual Report of
the Company for the fiscal year ended December 31, 1999 on Form 10-K, and any
amendment or amendments thereto, for filing with the United States Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Act"),
and to do or cause to be done such other acts and to execute such other
documents which said attorneys and agents may deem necessary or advisable to
enable the Company to comply with the Act and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof.
/s/ David J. Doyle
------------------
January 28, 2000 David J. Doyle, J.P.
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Mutual Risk Management Ltd., a company organized under the laws of
Bermuda (the "Company"), hereby appoints Robert A. Mulderig, James C. Kelly and
Richard E. O'Brien and each of them, his attorneys and agents to execute on his
behalf and in his name and in the capacity set forth below, an Annual Report of
the Company for the fiscal year ended December 31, 1999 on Form 10-K, and any
amendment or amendments thereto, for filing with the United States Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Act"),
and to do or cause to be done such other acts and to execute such other
documents which said attorneys and agents may deem necessary or advisable to
enable the Company to comply with the Act and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof.
/s/ Allan W. Fulkerson
----------------------
January 25, 2000 Allan W. Fulkerson
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Mutual Risk Management Ltd., a company organized under the laws of
Bermuda (the "Company"), hereby appoints Robert A. Mulderig, James C. Kelly and
Richard E. O'Brien and each of them, his attorneys and agents to execute on his
behalf and in his name and in the capacity set forth below, an Annual Report of
the Company for the fiscal year ended December 31, 1999 on Form 10-K, and any
amendment or amendments thereto, for filing with the United States Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Act"),
and to do or cause to be done such other acts and to execute such other
documents which said attorneys and agents may deem necessary or advisable to
enable the Company to comply with the Act and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof.
/s/ Glenn R. Partridge
----------------------
January 25, 2000 Glenn R. Partridge
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Mutual Risk Management Ltd., a company organized under the laws of
Bermuda (the "Company"), hereby appoints Robert A. Mulderig, James C. Kelly and
Richard E. O'Brien and each of them, his attorneys and agents to execute on his
behalf and in his name and in the capacity set forth below, an Annual Report of
the Company for the fiscal year ended December 31, 1999 on Form 10-K, and any
amendment or amendments thereto, for filing with the United States Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Act"),
and to do or cause to be done such other acts and to execute such other
documents which said attorneys and agents may deem necessary or advisable to
enable the Company to comply with the Act and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof.
/s/ Norman L. Rosenthal
-----------------------
January 24, 2000 Norman L. Rosenthal
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Mutual Risk Management Ltd., a company organized under the laws of
Bermuda (the "Company"), hereby appoints Robert A. Mulderig, James C. Kelly and
Richard E. O'Brien and each of them, his attorneys and agents to execute on his
behalf and in his name and in the capacity set forth below, an Annual Report of
the Company for the fiscal year ended December 31, 1999 on Form 10-K, and any
amendment or amendments thereto, for filing with the United States Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Act"),
and to do or cause to be done such other acts and to execute such other
documents which said attorneys and agents may deem necessary or advisable to
enable the Company to comply with the Act and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof.
/s/ Joseph D. Sargent
---------------------
January 24, 2000 Joseph D. Sargent
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Mutual Risk Management Ltd., a company organized under the laws of
Bermuda (the "Company"), hereby appoints Robert A. Mulderig, James C. Kelly and
Richard E. O'Brien and each of them, his attorneys and agents to execute on his
behalf and in his name and in the capacity set forth below, an Annual Report of
the Company for the fiscal year ended December 31, 1999 on Form 10-K, and any
amendment or amendments thereto, for filing with the United States Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Act"),
and to do or cause to be done such other acts and to execute such other
documents which said attorneys and agents may deem necessary or advisable to
enable the Company to comply with the Act and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof.
/s/ Jerry S. Rosenbloom
-----------------------
January 28, 2000 Jerry S. Rosenbloom
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Mutual Risk Management Ltd., a company organized under the laws of
Bermuda (the "Company"), hereby appoints Robert A. Mulderig, James C. Kelly and
Richard E. O'Brien and each of them, his attorneys and agents to execute on his
behalf and in his name and in the capacity set forth below, an Annual Report of
the Company for the fiscal year ended December 31, 1999 on Form 10-K, and any
amendment or amendments thereto, for filing with the United States Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Act"),
and to do or cause to be done such other acts and to execute such other
documents which said attorneys and agents may deem necessary or advisable to
enable the Company to comply with the Act and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof.
/s/ William F. Galtney, Jr.
---------------------------
January 27, 2000 William F. Galtney, Jr.
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Mutual Risk Management Ltd., a company organized under the laws of
Bermuda (the "Company"), hereby appoints Robert A. Mulderig, James C. Kelly and
Richard E. O'Brien and each of them, his attorneys and agents to execute on his
behalf and in his name and in the capacity set forth below, an Annual Report of
the Company for the fiscal year ended December 31, 1999 on Form 10-K, and any
amendment or amendments thereto, for filing with the United States Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Act"),
and to do or cause to be done such other acts and to execute such other
documents which said attorneys and agents may deem necessary or advisable to
enable the Company to comply with the Act and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof.
/s/ John Kessock, Jr.
---------------------
January 27, 2000 John Kessock, Jr.
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Mutual Risk Management Ltd., a company organized under the laws of
Bermuda (the "Company"), hereby appoints James C. Kelly and Richard E. O'Brien
and each of them, his attorneys and agents to execute on his behalf and in his
name and in the capacity set forth below, an Annual Report of the Company for
the fiscal year ended December 31, 1999 on Form 10-K, and any amendment or
amendments thereto, for filing with the United States Securities and Exchange
Commission under the Securities Exchange Act of 1934 (the "Act"), and to do or
cause to be done such other acts and to execute such other documents which said
attorneys and agents may deem necessary or advisable to enable the Company to
comply with the Act and any rules, regulations or requirements of the Securities
and Exchange Commission in respect thereof.
/s/ Robert A. Mulderig
----------------------
January 28, 2000 Robert A. Mulderig
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Mutual Risk Management Ltd., a company organized under the laws of
Bermuda (the "Company"), hereby appoints Robert A. Mulderig, James C. Kelly and
Richard E. O'Brien and each of them, his attorneys and agents to execute on his
behalf and in his name and in the capacity set forth below, an Annual Report of
the Company for the fiscal year ended December 31, 1999 on Form 10-K, and any
amendment or amendments thereto, for filing with the United States Securities
and Exchange Commission under the Securities Exchange Act of 1934 (the "Act"),
and to do or cause to be done such other acts and to execute such other
documents which said attorneys and agents may deem necessary or advisable to
enable the Company to comply with the Act and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof.
/s/ Richard G. Turner
---------------------
January 28, 2000 Richard G. Turner
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE>7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK
MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826918
<NAME> MUTUAL RISK MANAGEMENT LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 451,921
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 451,921
<CASH> 155,387
<RECOVER-REINSURE> 1,729,936
<DEFERRED-ACQUISITION> 30,406
<TOTAL-ASSETS> 4,033,174
<POLICY-LOSSES> 1,860,120
<UNEARNED-PREMIUMS> 335,265
<POLICY-OTHER> 67,981
<POLICY-HOLDER-FUNDS> 27,924
<NOTES-PAYABLE> 231,947
0
0
<COMMON> 412
<OTHER-SE> 357,732
<TOTAL-LIABILITY-AND-EQUITY> 4,033,174
181,798
<INVESTMENT-INCOME> 33,616
<INVESTMENT-GAINS> (5,199)
<OTHER-INCOME> 177,411
<BENEFITS> 147,705
<UNDERWRITING-AMORTIZATION> 51,582
<UNDERWRITING-OTHER> 138,032
<INCOME-PRETAX> 50,307
<INCOME-TAX> (365)
<INCOME-CONTINUING> 50,672
<DISCONTINUED> 0
<EXTRAORDINARY> 182
<CHANGES> 0
<NET-INCOME> 50,438
<EPS-BASIC> 1.18
<EPS-DILUTED> 1.14
<RESERVE-OPEN> 110,863
<PROVISION-CURRENT> 146,414
<PROVISION-PRIOR> 1,291
<PAYMENTS-CURRENT> 61,697
<PAYMENTS-PRIOR> 66,687
<RESERVE-CLOSE> 130,184
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE>7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK
MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826918
<NAME> MUTUAL RISK MANAGEMENT LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 430,504
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 430,504
<CASH> 108,188
<RECOVER-REINSURE> 1,460,879
<DEFERRED-ACQUISITION> 34,313
<TOTAL-ASSETS> 3,604,591
<POLICY-LOSSES> 1,587,371
<UNEARNED-PREMIUMS> 317,745
<POLICY-OTHER> 69,797
<POLICY-HOLDER-FUNDS> 30,626
<NOTES-PAYABLE> 119,703
0
0
<COMMON> 437
<OTHER-SE> 385,963
<TOTAL-LIABILITY-AND-EQUITY> 3,604,591
139,570
<INVESTMENT-INCOME> 25,219
<INVESTMENT-GAINS> (3,224)
<OTHER-INCOME> 136,768
<BENEFITS> 115,924
<UNDERWRITING-AMORTIZATION> 40,240
<UNDERWRITING-OTHER> 99,585
<INCOME-PRETAX> 42,584
<INCOME-TAX> 329
<INCOME-CONTINUING> 42,255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,255
<EPS-BASIC> 0.98
<EPS-DILUTED> 0.93
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE>7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK
MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF JUNE 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826918
<NAME> MUTUAL RISK MANAGEMENT LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 451,889
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 451,889
<CASH> 76,652
<RECOVER-REINSURE> 1,219,961
<DEFERRED-ACQUISITION> 35,892
<TOTAL-ASSETS> 3,370,075
<POLICY-LOSSES> 1,342,605
<UNEARNED-PREMIUMS> 309,100
<POLICY-OTHER> 70,125
<POLICY-HOLDER-FUNDS> 33,292
<NOTES-PAYABLE> 117,617
0
0
<COMMON> 435
<OTHER-SE> 385,287
<TOTAL-LIABILITY-AND-EQUITY> 3,370,075
89,018
<INVESTMENT-INCOME> 16,663
<INVESTMENT-GAINS> (1,030)
<OTHER-INCOME> 91,058
<BENEFITS> 67,793
<UNDERWRITING-AMORTIZATION> 23,414
<UNDERWRITING-OTHER> 63,983
<INCOME-PRETAX> 40,519
<INCOME-TAX> 3,630
<INCOME-CONTINUING> 36,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,894
<EPS-BASIC> 0.86
<EPS-DILUTED> 0.79
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE>7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK
MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF MARCH, 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826918
<NAME> MUTUAL RISK MANAGEMENT LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 473,806
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 473,806
<CASH> 82,988
<RECOVER-REINSURE> 1,162,045
<DEFERRED-ACQUISITION> 31,477
<TOTAL-ASSETS> 3,184,564
<POLICY-LOSSES> 1,267,338
<UNEARNED-PREMIUMS> 248,983
<POLICY-OTHER> 77,933
<POLICY-HOLDER-FUNDS> 42,248
<NOTES-PAYABLE> 116,749
0
0
<COMMON> 433
<OTHER-SE> 373,900
<TOTAL-LIABILITY-AND-EQUITY> 3,184,564
38,785
<INVESTMENT-INCOME> 7,221
<INVESTMENT-GAINS> 502
<OTHER-INCOME> 45,385
<BENEFITS> 26,229
<UNDERWRITING-AMORTIZATION> 13,495
<UNDERWRITING-OTHER> 31,363
<INCOME-PRETAX> 20,806
<INCOME-TAX> 2,014
<INCOME-CONTINUING> 18,791
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,799
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.40
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE>7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK
MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826918
<NAME> MUTUAL RISK MANAGEMENT LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 462,434
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 462,434
<CASH> 117,423
<RECOVER-REINSURE> 1,079,563
<DEFERRED-ACQUISITION> 27,215
<TOTAL-ASSETS> 3,074,257
<POLICY-LOSSES> 1,190,426
<UNEARNED-PREMIUMS> 241,893
<POLICY-OTHER> 79,753
<POLICY-HOLDER-FUNDS> 37,448
<NOTES-PAYABLE> 129,023
0
0
<COMMON> 422
<OTHER-SE> 342,744
<TOTAL-LIABILITY-AND-EQUITY> 3,074,257
101,913
<INVESTMENT-INCOME> 29,590
<INVESTMENT-GAINS> (1,003)
<OTHER-INCOME> 157,414
<BENEFITS> 78,258
<UNDERWRITING-AMORTIZATION> 26,061
<UNDERWRITING-OTHER> 110,625
<INCOME-PRETAX> 72,970
<INCOME-TAX> 8,536
<INCOME-CONTINUING> 64,434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,527
<EPS-BASIC> 1.56
<EPS-DILUTED> 1.42
<RESERVE-OPEN> 85,764
<PROVISION-CURRENT> 74,476
<PROVISION-PRIOR> 3,782
<PAYMENTS-CURRENT> 15,039
<PAYMENTS-PRIOR> 38,120
<RESERVE-CLOSE> 110,863
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE>7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK
MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826918
<NAME> MUTUAL RISK MANAGEMENT LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 487,797
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 487,797
<CASH> 92,813
<RECOVER-REINSURE> 758,154
<DEFERRED-ACQUISITION> 29,315
<TOTAL-ASSETS> 2,654,300
<POLICY-LOSSES> 854,169
<UNEARNED-PREMIUMS> 234,222
<POLICY-OTHER> 87,908
<POLICY-HOLDER-FUNDS> 37,524
<NOTES-PAYABLE> 129,722
0
0
<COMMON> 420
<OTHER-SE> 325,571
<TOTAL-LIABILITY-AND-EQUITY> 2,654,300
73,993
<INVESTMENT-INCOME> 21,802
<INVESTMENT-GAINS> (1,099)
<OTHER-INCOME> 115,866
<BENEFITS> 51,637
<UNDERWRITING-AMORTIZATION> 24,042
<UNDERWRITING-OTHER> 79,984
<INCOME-PRETAX> 54,900
<INCOME-TAX> 6,579
<INCOME-CONTINUING> 48,321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,363
<EPS-BASIC> 1.18
<EPS-DILUTED> 1.06
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE>7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK
MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF JUNE 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826918
<NAME> MUTUAL RISK MANAGEMENT LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 393,671
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 393,671
<CASH> 75,345
<RECOVER-REINSURE> 717,409
<DEFERRED-ACQUISITION> 26,541
<TOTAL-ASSETS> 2,498,650
<POLICY-LOSSES> 805,381
<UNEARNED-PREMIUMS> 240,845
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 43,420
<NOTES-PAYABLE> 128,356
0
0
<COMMON> 418
<OTHER-SE> 306,375
<TOTAL-LIABILITY-AND-EQUITY> 2,498,650
49,806
<INVESTMENT-INCOME> 15,223
<INVESTMENT-GAINS> (1,157)
<OTHER-INCOME> 73,755
<BENEFITS> 33,877
<UNDERWRITING-AMORTIZATION> 16,892
<UNDERWRITING-OTHER> 51,268
<INCOME-PRETAX> 35,590
<INCOME-TAX> 4,324
<INCOME-CONTINUING> 31,266
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,266
<EPS-BASIC> 0.77
<EPS-DILUTED> 0.69
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE>7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK
MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF MARCH 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826918
<NAME> MUTUAL RISK MANAGEMENT LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 404,088
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 404,088
<CASH> 80,052
<RECOVER-REINSURE> 697,459
<DEFERRED-ACQUISITION> 26,486
<TOTAL-ASSETS> 2,356,572
<POLICY-LOSSES> 796,103
<UNEARNED-PREMIUMS> 198,395
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 42,145
<NOTES-PAYABLE> 132,860
0
0
<COMMON> 412
<OTHER-SE> 280,728
<TOTAL-LIABILITY-AND-EQUITY> 2,356,572
28,929
<INVESTMENT-INCOME> 8,064
<INVESTMENT-GAINS> (213)
<OTHER-INCOME> 35,694
<BENEFITS> 21,499
<UNDERWRITING-AMORTIZATION> 8,095
<UNDERWRITING-OTHER> 25,438
<INCOME-PRETAX> 17,442
<INCOME-TAX> 2,267
<INCOME-CONTINUING> 15,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,175
<EPS-BASIC> 0.38
<EPS-DILUTED> 0.34
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE>7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK
MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826918
<NAME> MUTUAL RISK MANAGEMENT LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 395,143
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 395,143
<CASH> 82,706
<RECOVER-REINSURE> 630,697
<DEFERRED-ACQUISITION> 29,992
<TOTAL-ASSETS> 2,206,050
<POLICY-LOSSES> 716,461
<UNEARNED-PREMIUMS> 188,389
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 42,445
<NOTES-PAYABLE> 130,890
0
0
<COMMON> 399
<OTHER-SE> 263,175
<TOTAL-LIABILITY-AND-EQUITY> 2,206,050
84,200
<INVESTMENT-INCOME> 26,592
<INVESTMENT-GAINS> (1,608)
<OTHER-INCOME> 121,314
<BENEFITS> 49,857
<UNDERWRITING-AMORTIZATION> 35,816
<UNDERWRITING-OTHER> 84,716
<INCOME-PRETAX> 60,109
<INCOME-TAX> 10,632
<INCOME-CONTINUING> 49,477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,372
<EPS-BASIC> 1.25
<EPS-DILUTED> 1.15
<RESERVE-OPEN> 69,419
<PROVISION-CURRENT> 50,301
<PROVISION-PRIOR> (444)
<PAYMENTS-CURRENT> (10,850)
<PAYMENTS-PRIOR> (22,662)
<RESERVE-CLOSE> 85,764
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE>7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK
MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826918
<NAME> MUTUAL RISK MANAGEMENT LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 384,844
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 384,844
<CASH> 90,997
<RECOVER-REINSURE> 453,556
<DEFERRED-ACQUISITION> 22,908
<TOTAL-ASSETS> 1,977,610
<POLICY-LOSSES> 538,575
<UNEARNED-PREMIUMS> 166,763
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 37,925
<NOTES-PAYABLE> 129,586
0
0
<COMMON> 396
<OTHER-SE> 247,048
<TOTAL-LIABILITY-AND-EQUITY> 1,977,610
62,530
<INVESTMENT-INCOME> 19,759
<INVESTMENT-GAINS> (1,083)
<OTHER-INCOME> 88,268
<BENEFITS> 37,125
<UNDERWRITING-AMORTIZATION> 26,412
<UNDERWRITING-OTHER> 61,496
<INCOME-PRETAX> 44,441
<INCOME-TAX> 8,003
<INCOME-CONTINUING> 36,438
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,333
<EPS-BASIC> 0.92
<EPS-DILUTED> 0.85
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE>7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK
MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF JUNE 30 , 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826918
<NAME> MUTUAL RISK MANAGEMENT LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 399,151
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 399,151
<CASH> 66,394
<RECOVER-REINSURE> 401,463
<DEFERRED-ACQUISITION> 21,019
<TOTAL-ASSETS> 1,866,919
<POLICY-LOSSES> 481,295
<UNEARNED-PREMIUMS> 151,259
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 40,552
<NOTES-PAYABLE> 127,910
2,952
0
<COMMON> 395
<OTHER-SE> 233,226
<TOTAL-LIABILITY-AND-EQUITY> 1,866,919
35,183
<INVESTMENT-INCOME> 13,138
<INVESTMENT-GAINS> (1,471)
<OTHER-INCOME> 56,434
<BENEFITS> 19,216
<UNDERWRITING-AMORTIZATION> 16,688
<UNDERWRITING-OTHER> 39,590
<INCOME-PRETAX> 27,790
<INCOME-TAX> 4,928
<INCOME-CONTINUING> 22,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,779
<EPS-BASIC> 0.58
<EPS-DILUTED> 0.54
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE>7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MUTUAL RISK
MANAGEMENT LTD.'S FINANCIAL STATEMENTS AS OF MARCH 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000826918
<NAME> MUTUAL RISK MANAGEMENT LTD.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 332,853
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 332,853
<CASH> 121,005
<RECOVER-REINSURE> 380,766
<DEFERRED-ACQUISITION> 25,151
<TOTAL-ASSETS> 1,785,466
<POLICY-LOSSES> 456,224
<UNEARNED-PREMIUMS> 118,219
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 44,070
<NOTES-PAYABLE> 126,645
2,952
0
<COMMON> 394
<OTHER-SE> 216,912
<TOTAL-LIABILITY-AND-EQUITY> 1,785,466
17,953
<INVESTMENT-INCOME> 6,067
<INVESTMENT-GAINS> (774)
<OTHER-INCOME> 27,471
<BENEFITS> 7,663
<UNDERWRITING-AMORTIZATION> 10,605
<UNDERWRITING-OTHER> 19,320
<INCOME-PRETAX> 13,129
<INCOME-TAX> 2,284
<INCOME-CONTINUING> 10,844
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,803
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.26
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
