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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1998
Commission file number 1-10804
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XL Capital Ltd
(Exact name of registrant as specified in its charter)
Cayman Islands 98-0058718
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Cumberland House, 1 Victoria Street, HM 11
Hamilton, Bermuda (Zip Code)
(Address of principal executive
offices)
(441) 292-8515
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Name of each exchange
Title of each class on which registered
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<S> <C>
Class A Ordinary Shares, Par Value $0.01 New York Stock Exchange, Inc.
per Share
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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 such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the shares of all classes of voting stock of
the registrant held by non-affiliates of the registrant on February 19, 1999
was approximately $6.9 billion computed upon the basis of the closing sales
price of all Ordinary Shares on that date. For purposes of this computation,
shares held by directors and officers of the registrant have been excluded.
Such exclusion is not intended, nor shall it be deemed, to be an admission
that such persons are affiliates of the registrant.
As of February 19, 1999, there were outstanding 108,423,500 Class A Ordinary
Shares, $0.01 par value per share, and 3,115,900 Class B Ordinary Shares,
$0.01 par value per share, of the registrant.
Documents Incorporated by Reference
The registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A relating to the annual
meeting of shareholders scheduled to be held on April 9, 1999 is incorporated
by reference in Part III of this Form 10-K.
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XL CAPITAL LTD
TABLE OF CONTENTS
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Page
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PART I
<S> <C> <C>
Item 1. Business............................................................................... 1
Item 2. Properties............................................................................. 19
Item 3. Legal Proceedings...................................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders.................................... 19
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters............... 22
Item 6. Selected Financial Data................................................................ 23
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition . 24
Item 8. Financial Statements and Supplementary Data............................................ 34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 63
PART III
Item 10. Directors and Executive Officers of the Registrant..................................... 63
Item 11. Executive Compensation................................................................. 63
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 63
Item 13. Certain Relationships and Related Transactions......................................... 63
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 63
</TABLE>
This Annual Report on Form 10-K contains "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995. A non-
exclusive list of the important factors that could cause actual results to
differ materially from those in such forward-looking statements is set forth
herein under the caption "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Cautionary Note Regarding Forward-Looking
Statements."
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PART I
Item 1. Business
Introduction
XL Capital Ltd ("XL" or the "Company") is a holding company organized under
the laws of the Cayman Islands. XL was incorporated on March 16, 1998 as the
successor to EXEL Limited, a Cayman Islands corporation organized in 1986
("EXEL"), in connection with EXEL's merger with Mid Ocean Limited, a Cayman
Islands corporation ("Mid Ocean"). In the merger, which was completed on
August 7, 1998, all of the shares of EXEL and Mid Ocean were exchanged for
shares in the Company pursuant to two schemes of arrangement (the
"Arrangements") approved by the Grand Court of the Cayman Islands in
accordance with Section 85 of the Companies Law (1995 Revision) of the Cayman
Islands. The Company operated under the name "EXEL Limited" from completion of
the merger until February 1, 1999, when its current name was approved by the
requisite vote of the Company's shareholders. References herein to "XL" or the
"Company" also shall include EXEL unless the context otherwise requires.
Through its subsidiaries, the Company is a leading provider of insurance and
reinsurance, including coverages relating to certain financial risks, to
industrial, commercial and professional service firms, insurance companies and
other enterprises on a worldwide basis.
XL Insurance Ltd, an insurance company organized under the laws of Bermuda
("XLI"), and its subsidiaries are the Company's principal insurance
subsidiaries. XLI was formed in 1986 in response to a shortage of high excess
liability coverage for Fortune 500 companies in the United States. In 1990,
XLI formed XL Europe Insurance, an insurance company organized under the laws
of the Republic of Ireland ("XLE"), to serve European clients. In 1998, XLI
acquired Folksamerica General Insurance Company (renamed X.L. Insurance
Company of America, Inc. ("XLIA")), an insurance company domiciled in the
State of New York and possessing property and casualty insurance licenses in
approximately 20 states and reinsurance licenses in approximately 14 states,
and formed X.L. Risk Solutions, Inc., an insurance company domiciled in the
State of Connecticut ("XLRS"). XLI also has a representative office in
Australia.
The Company's reinsurance operations are conducted primarily through XL Mid
Ocean Reinsurance Ltd, an insurance company organized under the laws of
Bermuda ("XLMORe"), and its subsidiaries. On August 7, 1998, XLMORe was formed
through the merger of X.L. Global Reinsurance Company, Ltd. ("XLGRe") and Mid
Ocean Reinsurance Company Ltd. ("MORe"). XLGRe was formed in November 1997
through the merger of X.L. Reinsurance Company, Ltd. ("XLRe") and Global
Capital Reinsurance Company Limited ("GCRe") following EXEL's acquisition of
GCR Holdings Limited, a Cayman Islands holding company ("GCR"), on June 12,
1997. XLRe commenced operations on December 1, 1995 to write specialty
reinsurance business. MORe and GCRe were organized in 1992 and 1993,
respectively, initially to write property catastrophe reinsurance following
severe hurricanes which struck the southeastern United States in the late
1980's and early 1990's. Each of XLRe, MORe and GCRe was organized as an
insurance company under the laws of Bermuda. XLMORe maintains branches in
London and Singapore and a European contact office in Munich.
The Company's operations at Lloyd's are conducted through The Brockbank
Group plc, a company organized under the laws of England, and its subsidiaries
(together, "Brockbank"). Brockbank is a leading Lloyd's managing agency which
manages five Lloyd's syndicates, two of which are dedicated corporate
syndicates ("corporate syndicates") whose capital is provided solely by the
Company and its subsidiaries. Mid Ocean acquired 51% of Brockbank in December
1995 and the remaining 49% in August 1997. The two corporate syndicates, which
commenced operations with effect from January 1, 1996, underwrite property,
marine and energy, aviation, satellite, professional indemnity, U.K. motor and
other specialty lines of insurance and reinsurance to a global client base. In
1998, the aggregate premium limit of the two corporate syndicates was
approximately $340 million, and the total capacity under management by
Brockbank was approximately $900 million. As a managing agency, Brockbank
receives fees and commissions in respect of the underwriting services it
provides to syndicates.
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In October 1998, the Company sold its 21% interest in Venton Holdings
Limited, a Bermuda holding company for the Venton managing agency group at
Lloyd's (together, the "Venton Group"). Prior to the sale, subsidiaries of the
Company provided reinsurance coverage to the Venton Group, which writes
principally professional indemnity, directors and officers liability and
fiduciary liability insurance coverages.
The Company participates in several joint ventures of strategic importance.
In general, the Company has pursued a strategy of entering into joint ventures
with organizations which possess expertise in lines of business that the
Company wishes to enter. The Company's principal joint ventures are in the
areas of financial guaranty insurance, life insurance for high net worth
individuals, Latin American reinsurance, political risk insurance and currency
overlay and related risk management.
In November 1998, the Company entered into a joint venture (the "FSA Joint
Venture") with Financial Security Assurance Holdings Ltd., a New York
corporation ("FSA"), to write certain types of financial guaranty insurance
and reinsurance. FSA, through its subsidiaries, is primarily engaged in the
business of providing financial guaranty insurance on asset-backed and
municipal obligations. Under the terms of the joint venture, each of the
Company and FSA formed a Bermuda insurance company in which it is the majority
shareholder and made a minority investment in the company formed by its co-
venturer. The Company formed and maintains majority ownership of XL Financial
Assurance Ltd ("XLFA"). FSA formed and maintains majority ownership of
Financial Security Assurance International Ltd. ("FSAI"). Each of XLFA and
FSAI has a capitalization of approximately $100 million. As part of the joint
venture, the Company and FSA exchanged approximately $80 million of each
other's stock, following which the Company owned approximately 6% of the
issued and outstanding common stock of FSA.
In June 1998, the Company formed Reeve Court Insurance Ltd., an insurance
company organized under the laws of Bermuda ("Reeve Court"), as a joint
venture with such company's management for the purpose of providing life
insurance to high net worth individuals. Reeve Court has a total
capitalization of approximately $100 million.
In October 1997, the Company and Risk Capital Holdings, Inc., a Delaware
corporation ("RCHI"), which holds all of the outstanding shares of Risk
Capital Reinsurance Company, a Nebraska corporation ("RCRe"), organized LARC
Holdings, Ltd., a Bermuda corporation ("LARC"), which holds all of the shares
of Latin American Reinsurance Company, Ltd., a Bermuda insurance company
("LARe"). LARe has approximately $100 million in shareholders' equity and
provides multi-line reinsurance to the Latin American reinsurance market,
concentrating on short-tail, multi-peril property reinsurance and, to a lesser
extent, casualty, marine, aviation and other lines of reinsurance on both a
treaty and facultative basis. XLMORe owns approximately 75% of the outstanding
shares of LARC. The Company indirectly owns approximately 28% of RCHI.
In March 1997, XLI became a founding shareholder along with RCHI and another
insurance company of Sovereign Risk Insurance Ltd. ("Sovereign"), a Bermuda-
based managing general agency formed to underwrite selected political risk
insurance coverages. The Company owns 40.5% of Sovereign.
In 1996, the Company acquired approximately 28% of Pareto Partners
("Pareto"), a firm which specializes in foreign currency overlay management
and related services. At December 31, 1998, Pareto had approximately $26
billion of assets under management. The Company works closely with Pareto to
develop new products and ventures, including the F/XLSM foreign currency
protection product offered by XLI.
On December 2, 1998, the Company signed a definitive agreement to acquire
all of the outstanding shares of Intercargo Corporation, a Delaware
corporation ("Intercargo"), for $12.00 per share, or approximately $88
million. Intercargo, through its subsidiaries, underwrites specialty insurance
products for companies engaged in international trade, including U.S. customs
bonds and marine cargo insurance. At September 30, 1998, Intercargo had total
assets of $165 million and shareholders' equity of $81 million. The
transaction is subject to approval by Intercargo's shareholders, regulatory
approvals and customary closing conditions.
Each of XLI, XLE and XLMORe possesses claims paying ratings of AA from
Standard & Poor's Corporation ("S&P") and A+ from A.M. Best Company, Inc.
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Business Strategy
The Company's strategy is to be the premier provider of strategic financial
risk solutions to specific global markets by applying intellectual and
financial resources to assure its customers' economic vitality and enhance
their competitive positions. Management believes that pursuing this strategy
will improve the Company's ability to differentiate itself from its
competitors, diversify its mix of business and revenue stream, reduce its
dependence on business lines which may be highly price sensitive and build
shareholder value.
The Company's strategy calls for its subsidiaries to go beyond offering
traditional insurance and reinsurance products to designing risk transfer
programs that address specific customer needs with respect to a broad range of
risks. These include certain types of financial risks and other non-
traditional insurance risks which the Company believes can be properly
analyzed and underwritten. As part of this approach, the Company's strategy
contemplates providing income statement and balance sheet protection to its
customers, involving in some instances structured portfolio transfers of
strategic importance to its customers. The Company also believes there will be
opportunities to build investment features into its risk transfer products.
The Company intends to retain its traditional focus generally on high
severity, low frequency risks.
In order to pursue its strategy effectively, the Company may need to secure
access to skills and capabilities in areas which historically have not been
found in the insurance and reinsurance industry. Accordingly, successful
implementation of the Company's strategy is expected to involve not only
maximizing its financial strength but attracting and retaining highly skilled
and motivated employees. It may also require entering into coordinated
initiatives, joint ventures or alliances with one or more strategic partners,
making strategic investments and, where appropriate, acquiring other
businesses of strategic value to the Company and its subsidiaries.
Business Operations
The Company reported net premiums written of $649.9 million, $439.4 million
and $467.7 million for the years ended November 30, 1998, 1997 and 1996,
respectively.
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Net Premiums Written 1998 1997 1996
($ in millions) -------------- ------------- ---------------
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Insurance.......................... $350.3 52.1% $296.4 93.6% $ 452.2 75.7%
Reinsurance........................ 238.9 35.6% 20.2 6.4% 144.9 24.3%
Lloyd's Syndicates................. 82.8 12.3% -- -- -- --
------ ------ ------ ------ ------- ------
$672.0 100.0% $316.6 100.0% $ 597.1 100.0%
====== ====== ======
Multi-year premiums................ (22.1) 122.8 (129.4)
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Annualized net premiums written.... $649.9 $439.4 $ 467.7
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Insurance
The Company, through its subsidiaries, provides third-party general
liability insurance, other liability insurance (including directors and
officers liability insurance, professional liability insurance, employment
practices liability insurance and integrated liability insurance), property
insurance and other insurance covers (including political risk insurance and
financial products). The liability insurance is written on an excess basis and
the loss experience is characterized as low frequency and high severity.
Property insurance is written on a pro rata as well as an excess basis.
Property policies written on a pro rata basis can have losses attaching at
lower levels, resulting in loss experiences that can be higher frequency and
lower severity than those associated with the Company's other insurance lines.
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Net Premiums Written 1998 1997 1996
($ in millions) ------------- ------------- -------------
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General liability..................... $136.1 38.9% $150.8 50.9% $319.7 70.7%
Other liability....................... 152.5 43.5% 116.2 39.2% 101.8 22.5%
Property.............................. 24.8 7.1% 29.4 9.9% 30.7 6.8%
Other................................. 36.9 10.5% -- -- -- --
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$350.3 100.0% $296.4 100.0% $452.2 100.0%
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As the Company's U.S. insurance subsidiaries were not yet fully operational
in 1998, the descriptions which follow relate to coverages offered by XLI and
XLE. The descriptions which follow are summary in nature. The terms and
conditions of individual policies govern, and nothing set forth herein
constitutes an admission of coverage or other liability or an interpretation
as to how any particular policy provision should be interpreted.
General Liability
General liability policies offered by the Company's insurance subsidiaries
cover occurrences causing unexpected and unintended personal injury or
property damage (as well as advertising liability) to third parties arising
from events or conditions which commence at or subsequent to an inception date
(or retroactive date, if applicable, but not prior to January 1, 1986) and
prior to the expiration of the policy, provided proper notice is given during
the term of the policy or the discovery period. With respect to the use of
products, the coverage applies where unexpected and unintended personal injury
or property damage to a third party caused, allegedly caused or deemed to have
been caused by the use of a product takes place during the term of the policy.
Where certain injury, damage or liability to third parties is expected or
intended by the insured, the policy provides coverage for injury, damage or
liability when the actual injury, damage or liability incurred is
fundamentally different in nature or vastly greater in order of magnitude than
expected. All claims for integrated occurrences are added together and treated
as one occurrence (thereby limiting such losses to one policy limit) with
respect to the policy in effect when the occurrence or claim is first reported
regardless of the length of the period over which such losses or liabilities
occur, although special notice requirements are imposed with respect to such
losses. The general liability policies generally do not "drop down" to provide
coverage below the per-occurrence attachment point even in the event of
exhausted underlying insurance policy aggregates.
Coverage includes product liability, claims resulting from abrupt pollution,
punitive damages (for unexpected or unintended damage/injury) and payment of
legal fees, as well as a broad range of catastrophic exposures such as
explosions, fires, utility blackouts and other catastrophic events not
excluded from coverage. Coverage generally excludes gradual pollution (other
than gradual pollution resulting from a products liability claim), property
damage arising out of most professional services, commercial airline risks,
certain marine exposures, and liability for injury or damage caused by, among
other things, asbestos, tobacco, intra-uterine devices, silicone implants and
nuclear risks. Unlike traditional insurance policy forms, disputes under the
policies are required to be settled by arbitration in London. Under the policy
arbitration clause, each party selects one arbitrator and the two arbitrators
so selected choose a third arbitrator. The English Arbitration Act of 1950, as
amended and supplemented, governs the arbitration under XLI policies (with
International Chamber of Commerce rules governing XLE policies).
Rather than issuing separate annual policies, a perpetual policy is issued
(which is subject to an annual underwriting review) with an annual aggregate
limit (subject to reinstatement). The policy remains in effect until canceled
or not continued. The terms, conditions, exclusions, deductibles and limit
applicable to an occurrence are determined by the policy in effect at the time
notice thereof is first given. Coverage is provided on an occurrence-reported
policy form up to a maximum of $200 million per occurrence and annual
aggregate in excess of a minimum attachment point of $15 million per
occurrence. Because the inception date (or, if applicable, the retroactive
date) remains unchanged, the exposure under each policy usually increases each
additional year that the policy is in force. The exposure to unreported claims
thus rolls forward each year, which is provided for by the establishment of
significant incurred but not reported ("IBNR") reserves. Each year's coverage,
however, is subject to an aggregate limit, and the limits of any given year
are not available for occurrences first reported in a subsequent year
notwithstanding that the injury or damage took place in that year. Premiums
are adjusted annually. A single event or set of circumstances may constitute
an insured occurrence under policies of different policyholders, resulting in
multiple claims exposure with respect thereto. Such events or circumstances
could have a material adverse effect on the results of the Company.
The policy permits cancellation by the insurer with refund of the unearned
premium at any time, except in the case of discovery period coverage, upon 90
days' prior written notice to the policyholder. The policy permits
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cancellation by a policyholder at any time with a pro-rata refund of premium.
If the basic coverage of the policy is canceled or discontinued, the insured
is given the option of purchasing discovery coverage (in respect of
occurrences taking place subsequent to the inception/retroactive date and
prior to cancellation or discontinuance of basic coverage) on an ongoing basis
for as long as is desired by the policyholder (with no maximum duration) for
predetermined annual premiums.
As contrasted with the standard policy form which provides for annual
determination of premiums and limits, the Company offers to certain of its
policyholders endorsements providing cover generally for two additional annual
periods (aggregating a total of three years), with either an annual aggregate
or term limit and with the provision for reinstatement of the limit selected.
Premiums are generally prepaid in whole or in part for the period of the
contract. Such endorsements limit the circumstances under which either the
policyholder or the insurer may cancel and provide that the otherwise
predetermined premium for the three-year period may be adjusted in certain
specified circumstances. It is contemplated that policyholders may be given
the opportunity to roll the three-year term forward year-by-year based on
premiums and other terms and conditions to be negotiated each year.
Other Liability
Other liability includes directors and officers liability insurance,
professional liability insurance, employment practices liability insurance and
integrated liability insurance branded as XL Risk Solutions.
Directors and Officers Liability. Directors and Officers liability coverage
is written on a claims-made basis providing up to a maximum of $25 million in
excess of $20 million for United States risks and up to $50 million for
individual director indemnification and excluding corporate reimbursement in
excess of $20 million, or $15 million in excess of $15 million for non-United
States risks, or a limit of $25 million in excess of not less than $25
million. The policy generally adopts the terms, conditions and exclusions in
the primary or other underlying policy. Each insured is rated separately. In
contrast to the general liability policy, the directors and officers policy is
for a designated period. Also, unlike the general liability policy, the
directors and officers policy "drops down" upon erosion or exhaustion of
underlying aggregates by multiple claims. The policy can be canceled by the
insurer upon typically 90 days' notice (with the insurer retaining a pro rata
proportion of the premium) or by the policyholder at any time with the insurer
retaining a short rate proportion (i.e., more than pro rata) of the premium.
If the insurer cancels or refuses to renew the policy, the policyholder is
given the option of purchasing discovery coverage for a specified period of
time (generally one to three years) at a predetermined premium. As with the
general liability form, disputes are required to be settled by arbitration in
London. Under the policy arbitration clause, each party selects one arbitrator
and the two arbitrators so selected choose a third arbitrator.
Professional Liability. Professional liability risks are written either on a
follow-form basis (i.e., the policy generally adopts the terms, conditions and
exclusions of the underlying policy, which usually is a "claims-made" policy)
or on a form which is structured similarly to the general liability form in
that it is extended from year to year (with annual underwriting reviews).
Coverage is provided for certain categories of risk up to a maximum of $50
million with a minimum attachment of $25 million, or $20 million for law
firms. The policy covers "wrongful acts" (instead of occurrences), subject to
customary exclusions, and covers punitive damages arising therefrom. As with
the other policy forms, disputes are required to be settled by arbitration in
London. In contrast to the general liability policy, the discovery period is
of finite duration (generally one to three years). Where the policy is written
on a claims made "stand alone" basis (i.e., it does not follow the warranties,
terms, conditions or exclusions of underlying policies), it does "drop down"
upon erosion or exhaustion of the aggregate limits of underlying policies by
multiple wrongful acts in the case of law firms and certain other insureds
(i.e., in these instances the attachment point applies on an aggregate rather
than a per wrongful act basis). The underlying policies of an insured seeking
professional liability coverage are reviewed and evaluated as part of the
underwriting process.
Employment Practices Liability. In 1997, XLI introduced coverage for
employment practices liability. Coverage is provided up to $100 million with a
minimum attachment of $1 million. Employment practices
5
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liability risks are written on a claims made and reported policy. The policy
is written on an annual basis and covers claims brought by an employee against
an insured for certain covered employment practices such as job
discrimination, sexual harassment and other employment related misconduct. As
with other XLI products, the employment practices liability policy has XLI's
standard arbitration clause which requires disputes to be settled by
arbitration in London.
XL Risk Solutions. XL Risk Solutions is a coordinated initiative with CIGNA
Risk Solutions offering multi-year, combined line coverages for traditional
casualty coverages, including general, directors and officers and professional
liability, and property coverage plus blended finite coverage for risks which
traditionally have had difficulty placing cover. The target market is large
and medium size companies that are trying to simplify and streamline the risk
transfer process. CIGNA Corporation ("CIGNA") provides services and fronting
policies to meet U.S. regulatory requirements and provides an excess policy
for the balance of capacity and coverages required. Available capacity by line
of coverage is $60 million to $200 million depending upon the lines selected.
Attachment levels may in certain situations be provided below traditional
stated levels subject to the underwriting requirements. Programs are typically
custom designed to meet specific needs with each customer.
Property
Property policies are primarily underwritten on an excess of loss occurrence
and pro rata form (except earthquake and flood when provided) utilizing
engineering reports, statement of values, prior loss history, annual report
and other publicly available information. Earthquake and flood coverage are
written on an excess of loss attachment basis which may be eroded in a given
policy year by accumulated losses from separate occurrences as customary in
the industry. When written as such, earthquake and flood have annual aggregate
limits. All classes of business are considered. The minimum attachment points
are generally $25 million for industrial/commercial accounts and $100 million
for oil/petrochemical accounts. Industrial/commercial accounts will also be
written on a pro rata basis with attachments as low as $1 million.
Coverage can be provided worldwide on an all-risk or named peril basis of
direct physical loss or damage with options for time element (e.g., business
interruption, extra expense, rental value, etc.), earthquake, flood, and
boiler and machinery coverage. Policies can be written on a modified follow
form or XLI form. Typical exclusions include but are not limited to war risk,
nuclear, pollution, and others customary in property policy coverage. Unlike
traditional property policies, disputes under XLI policies are required to be
settled by arbitration in London with each party selecting one arbitrator and
the two arbitrators so selected choosing a third arbitrator.
The maximum net capacity for any of the insurance subsidiaries for any one
insured is $100 million per occurrence with $10 million annual aggregate for
high frequency/severity earthquake (California, Japan, etc.) when provided.
Earthquake and coastal wind exposures are identified and monitored (policy
limit accumulations) by subzones worldwide in order to limit exposure to an
excessive concentration of catastrophic loss.
Other
Insurance is also provided to cover political risk. Political risk
insurance, including coverages for expropriation, currency inconvertibility
and certain other types of political risk associated with cross-border
investment, is provided through the Company's interest in Sovereign. Policies
written by Sovereign are subscribed 50% by each of XLI and Sovereign's other
insurance company shareholder, with RCRe participating in up to 10% of each
risk written on a quota share basis. Sovereign's per-country aggregate limit
is $100 million, except with respect to Argentina, Brazil, China and Indonesia
which have an aggregate limit of $250 million each, and its per risk limit is
$50 million.
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XLI also offers insurance and reinsurance solutions for certain types of
financial risks. In 1998, XLI introduced a foreign currency protection product
and began writing financial guaranty insurance and reinsurance in respect of
selected credit risks.
XLI sells customized basket and, in certain circumstances, single-currency
options for the purpose of mitigating exposures which corporate and financial
institution customers have to selected major currencies. XLI engages Pareto as
an advisor to assist in the evaluation of particular foreign currency
protection contracts and to manage the risk associated with such transactions.
Options have a duration of up to one year. Unrealized gains and losses are
marked to market on a periodic basis and reflected quarterly in the Company's
consolidated statements of income. At fiscal year-end 1998, XLI had written
options having an aggregate nominal value of $200 million, with no single
option accounting for more than $100 million. Using its proprietary foreign
currency overlay management technology, Pareto attempts to manage XLI's risk
of loss so that it generally will not exceed 3% of the nominal amount of each
option under the vast majority of possible scenarios. Gains from Pareto's
management activities are also possible. Although XLI believes that Pareto
generally will manage at or above the 3% loss floor and may produce gains on
some contracts, actual losses and gains may be greater or less, respectively,
than anticipated due to a variety of factors, including, without limitation,
flaws in Pareto's highly quantitative, model-driven technology, the inability
to execute hedging and other transactions called for by Pareto's technology in
a timely or cost efficient manner, especially in periods of significant
financial market volatility or illiquidity, and uncertainties surrounding the
application of Pareto's technology, which is predicated on a basket option
approach, to single-currency or other non-basket option types of transactions.
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition--Cautionary Note Regarding Forward-Looking Statements" for
a list of factors which could cause actual results to differ materially from
those contained in any forward-looking statement.
XLI and XLFA provide financial guaranty insurance and reinsurance in respect
asset-backed, future flow and municipal obligations. Financial guaranty
policies generally cover non-payment of principal and interest when due.
Particular types of transactions which XLI and XLFA have underwritten or
considered underwriting include financial guaranty insurance or reinsurance in
respect of bonds issued by public utilities, collateralized bond and
collateralized loan obligations, mortgage-backed securities, certain low
income housing tax credits, prime and sub-prime automobile loans, credit
default swaps, project finance-related obligations and other types of
structured insurance or reinsurance risks, including residual value insurance
for certain asset classes. The underlying risks guaranteed include both OECD
(Organization of Economic Cooperation and Development) and emerging market
issuers and assets. Guarantees provided by XLI an XLFA relate generally, but
not exclusively, to investment grade obligations. Gross and net retentions in
respect of financial guaranty and related risks are determined by XLI and XLFA
on a case-by-case basis in light of the particular credit, actuarial,
structuring and other risks associated with each transaction. Exposure to a
financial guaranty or related risk can exceed $100 million. XLI and XLFA also
may provide financial guaranty "fronting" services in return for fees and
other revenues on behalf of insurers or reinsurers whose claims paying ratings
are below their own. The fronting party is generally required to pay the full
amount of any claim even if it cannot recover all or part of the balance due
from an insurer or reinsurer for which the service was provided.
Reinsurance
The Company, through its subsidiaries, writes property catastrophe, property
excess of loss, property pro rata, marine and energy, aviation and satellite
and various other reinsurance to insurers on a worldwide basis. XLMORe
maintains branch offices in London and Singapore as well as a European contact
office in Munich, Germany. The London branch underwrites marine, energy and
aviation risks on a worldwide basis. The Singapore branch underwrites general
reinsurance, treaty and facultative business.
A significant portion of XLMORe's business underwritten consists of large
aggregate exposures to man-made and natural disasters and generally loss
experience is characterized as low frequency and high severity. This may
result in volatility in the Company's financial results. The Company endeavors
to manage its exposures
7
<PAGE>
to catastrophic events by limiting the amount of its exposure in each
geographic zone worldwide and requiring that its property catastrophe
contracts provide for aggregate limits and varying attachment points.
<TABLE>
<CAPTION>
Net Premiums Written 1998 1997 1996
($ in millions) ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Property catastrophe............... $ 76.5 32.1% ($78.9) 44.3% $ 64.1 44.3%
Other property..................... 25.4 10.6% 17.0 9.5% 2.1 1.5%
Marine and energy.................. 24.7 10.3% 17.8 10.0% 20.9 14.4%
Aviation and satellite............. 37.3 15.6% 37.5 21.1% 13.5 9.2%
Other.............................. 75.0 31.4% 26.8 15.1% 44.3 30.6%
------ ------ ------ ------ ------ ------
$238.9 100.0% $ 20.2 100.0% $144.9 100.0%
====== ====== ====== ====== ====== ======
</TABLE>
Property Catastrophe
XLMORe's property catastrophe reinsurance account is generally "all risk" in
nature. It is therefore exposed to losses from sources as diverse as
windstorms, earthquakes, snow and ice storms, riots, floods, industrial
explosions, fires or any number of other potential disasters. In accordance
with market practice, XLMORe's policies generally exclude certain risks such
as war, nuclear contamination or radiation. XLMORe's predominant exposure
under such coverage is to property damage. However, other risks, including
business interruption, death and injury under workers compensation policies
and other non-property losses also may be covered under a property reinsurance
contract when arising from a covered peril. Property catastrophe reinsurance
provides coverage on an excess of loss basis when aggregate losses and loss
adjustment expenses from a single occurrence of a covered peril exceed the
attachment point specified in the policy. Some of XLMORe's property
catastrophe contracts limit coverage to one occurrence in any one policy year,
but most contracts generally provide for one reinstatement.
In 1998, XLMORe's exposure to the following geographic regions based on net
premiums written were as follows: (i) United States 53.5%; (ii) United Kingdom
5.6%; (iii) Japan 2.6%; (iv) worldwide 28.4%; (v) continental Europe 1.7%;
(vi) Australasia 6.6%; (vii) Caribbean 0.6% and (viii) other 1.0%. XLMORe's
exposures in the United States are concentrated primarily in Florida, Texas,
and the southeastern United States with respect to property damage caused by
hurricanes and other wind-related storms and California for property damage
caused by earthquakes.
Other Property
Other property reinsurance written by XLMORe includes property risk excess
of loss and property pro rata business. Risk excess of loss reinsurance
responds to a loss of the reinsured on a single "risk" of the type reinsured
rather than to aggregate losses for all covered risks as does catastrophe
reinsurance. The risk excess of loss policy protects the reinsured from losses
in excess of its retention level on a single risk. A "risk" in this context
might mean the insurance coverage on one building or a group of buildings or
the insurance coverage under a single policy, which the reinsured treats as a
single risk. Risk excess contracts are generally "all risk" in nature, as
previously described.
XLMORe's property pro rata account includes proportional reinsurance of
direct written property insurance. XLMORe considers this business to be
related to its catastrophe and other property exposures. In proportional
reinsurance, XLMORe assumes a specified proportion of the risk on the
specified coverage and receives an equal proportion of the premium. The ceding
insurer receives a commission, based upon the premiums ceded to the reinsurer,
and the ceding insurer may also be entitled to receive a profit commission
based on the ratio of losses, loss adjustment expense and the reinsurer's
expenses to premiums ceded. A proportional reinsurer is dependent upon the
ceding insurer's underwriting, pricing and claims administration to yield an
underwriting profit. In some instances, XLMORe may be entitled to the benefit
of other reinsurance, known as common account reinsurance, purchased by the
ceding company on an account reinsured by XLMORe on a proportional basis.
8
<PAGE>
Marine and energy
XLMORe's marine and energy account is written on both a proportional and
excess of loss basis. The proportional business is based on specific areas of
account that are clearly defined with the exception of the reinsurance of
Brockbank Syndicate 861 which is written on a "whole account" basis.
Aviation and satellite
XLMORe's aviation portfolio comprises both direct insurance and reinsurance,
on both a proportional and excess of loss basis. The exposures are derived
through proportional relationships on defined segments of account following
market leaders in the field, with the exception of the reinsurance of
Brockbank Syndicate 861 which is written on a "whole account" basis. Due to
the highly technical nature of the satellite business, the exposures retained
by XLMORe under this portfolio are acquired mostly through proportional
reinsurances of specialist underwriters.
Other
Other reinsurance written by XLMORe includes political risk, nuclear,
accident, fidelity and professional indemnity.
Lloyd's Syndicates
<TABLE>
<CAPTION>
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Net Premiums Written...................................... $82.8 -- --
----- --- ---
($ in millions)
</TABLE>
Brockbank is a leading Lloyd's managing agency which manages five Lloyd's
syndicates, two of which are dedicated corporate syndicates whose capital is
provided solely by the Company. Corporate syndicate number 1209 writes
property, marine and energy, aviation and satellite, professional indemnity,
political risk and other specific lines, primarily of insurance but also
reinsurance, to a globally diverse group of clients. Corporate syndicate
number 2253 writes direct and broker-based motor insurance in the United
Kingdom. These corporate syndicates underwrite parallel to the other
syndicates managed by Brockbank (syndicate number 253 which writes direct
motor insurance and syndicate numbers 588 and 861 which write a composite book
of business).
Reinsurance Ceded
From Insurance Operations
Effective December 1, 1995, XLI and XLE entered into a quota share
reinsurance policy with five U.S. reinsurers and one non-U.S. reinsurer
covering general liability risks only. Effective fiscal 1998, three additional
U.S. reinsurers were added to this program, of which one is RCRe. Under the
terms of the policy, XLI will cede 20% of risks with total limits up to $100
million and 25% of risks with total limits in excess of $100 million up to
$150 million. Effective December 1, 1998, 20% of all general liability
business is ceded up to a limit of $150 million. The maximum amount
recoverable from the reinsurers will be the ceded percentage of the original
policy limit on a per occurrence basis, with an annual aggregate of 225% of
the total premium ceded. No single reinsurer participates in excess of 20% of
the quota share. All the reinsurers are rated, of which the lowest as rated by
S&P is BBB. The most significant reinsurers on this program are Fireman's
Fund, Hannover Re and Hartford Re. These companies are rated A, AA+ and AA+ by
S&P with participations of 16.0%, 18.7% and 16.0%, respectively on a
reinsurance balance receivable of $176.9 million.
Effective September 1, 1997, XLI and XLE entered into an excess of loss
casualty catastrophe contract covering all general liability risks. Under the
terms of this policy, XLI and XLE are reinsured for $80 million ultimate net
loss each occurrence excess of a per occurrence retention, subject to an
annual aggregate retention. The maximum amount recoverable from the reinsurers
will be an annual aggregate of $250 million. This policy
9
<PAGE>
was extended to November 30, 1998 and renewed December 1, 1998. For the year
ended November 30, 1998, 97.75% of this reinsurance was placed with seventeen
reinsurers, all of which are rated. With the exception of two reinsurers, the
lowest as rated by S&P is A-. The other two reinsurers are rated BBB and BB by
S&P, representing a participation of less than 4% on this program.
Property quota share reinsurance of 25% (subject to catastrophe occurrence
limit restrictions) of XLI's property policy limit is purchased from two
Bermuda-based property reinsurers, four U.S. reinsurers and one non-U.S.
reinsurer. All property reinsurers are rated with a minimum S&P rating of A-.
XLI reinsures one third of the first $75 million in limits of employment
practices liability to a U.S. insurer and the remaining excess layer of $25
million to a Bermuda-based insurer.
A quota share arrangement exists between XLI and subsidiaries of CIGNA based
on pre-agreed percentages by line of coverage for blended covers written
through XL Risk Solutions and CIGNA Risk Solutions. These percentages vary
from 12.5% to 90%, but do not exceed XLI's normal capacity on individual lines
of cover. XLI may underwrite an account 100% without CIGNA participation.
From Reinsurance Operations
For the years ended October 31, 1997 and 1996, XLMORe participated in
limited retrocessions. Initially, the majority of such retrocessions
originated from common account reinsurance on assumed business.
In August 1998, XLMORe successfully placed $200 million of retrocessional
property catastrophe cover in a combination reinsurance and capital market
swap transaction. The transaction was offered in two tranches and covered the
upper layers, with a remote possibility of attachment, of XLMORe's hurricane
and earthquake exposure in the United States and its territories and
possessions in the Caribbean. The risk securitization structure is unique in
that it provides retrocessional cover in financial swap form, with claim
recovery triggered by catastrophe losses actually incurred by XLMORe rather
than by a catastrophe index or industry size event.
From Lloyd's Operations
Brockbank, as a part of its business strategy, has historically purchased a
significant amount of reinsurance for its syndicates, including the corporate
syndicates. Corporate syndicate 1209 benefits from the same reinsurance
programs as its parallel syndicates 861 and 588. Reinsurance cover is
purchased to protect the syndicates against extraordinary loss and/or loss
involving one or more of their underwriting classes. The amount purchased is
determined with reference to the syndicates aggregate exposure and potential
loss scenarios.
Corporate syndicate 2253 benefits from the same reinsurance programmes as
its parallel syndicate 253. Reinsurance cover is purchased on a quota share
and excess of loss basis.
Competition
The property-casualty insurance and reinsurance industry, including the
Lloyd's market, is highly competitive. The markets for the Company's insurance
and reinsurance products are characterized by strong, and at times intense
price competition driven largely by the substantial amount of excess capacity
currently present in the industry. The Company believes that such competitive
forces will be present in the industry over the short to medium term.
Whereas only a small number of insurers used to compete with the Company's
property-casualty insurance business at the attachments and limits offered by
it, the Company currently estimates there to be at least 12 competitors
worldwide with respect to such business. Similarly, the Company believes there
to be a large number of reinsurers which compete with its reinsurance
business. Many of the Company's competitors possess significantly greater
financial and other resources than the Company. The Company generally competes
on the basis of price, financial strength, coverage terms, claims paying
reputation and customer service.
10
<PAGE>
Underwriting and Marketing
Underwriting
XLI and XLE write liability and property insurance coverage for a wide array
of industry groups, including chemical, industrial, pharmaceutical, property
owners, landlords and tenants, utilities, auto, consumer, rail, oil and
construction with respect to third-party general liability and first-party
property; industrial/manufacturing, utilities, chemical/pharmaceutical and
financial advisors with respect to directors and officers liability; and
lawyers, insurance brokers and insurance companies for professional liability.
Although rates are influenced by a number of factors, including competition,
the Company's insurance rating methodology seeks to set rates individually for
each insured in accordance with claims potential as measured by past experience
and future expectations, the attachment point and amount of underlying
insurance, the nature and scope of insured operations (including the industry
group in which the insured operates), exposures to loss, and other specific
risk factors relevant in the judgement of the underwriters and insurance market
conditions. Underwriters separately evaluate each industry category (and sub-
groups within each category) and premiums are set and adjusted for an insured
based in large part on the industry group in which the insured is placed and
the insured's risk relative to the other risks in the insured's industry group.
Each industry group is reviewed annually to take into account outstanding case
losses and new loss incident reports within each group. Rates may vary
significantly according to the industry group of the insured as well as within
the group.
XLMORe employs an analytical approach to underwriting designed to specify an
adequate premium for a given exposure that is intended to be commensurate with
the amount of capital it anticipates placing at risk. For its property
catastrophe reinsurance business, XLMORe has developed underwriting guidelines
under which it generally limits the amount of exposure it will directly
underwrite for any one reinsured and the amount of the aggregate exposure to
catastrophe losses in any geographic zone. XLMORe believes it has defined zones
such that a single occurrence, such as an earthquake or hurricane, generally
should not affect more than one zone. The definition of XLMORe's zones are
subject to periodic review and change. XLMORe also generally seeks an
attachment point for its property catastrophe reinsurance anticipated to be
high enough to produce a low frequency of loss. XLMORe limits its aggregate
exposure in the retrocessional and pro rata business because it is sometimes
difficult to allocate risks associated with such business to specific
geographic areas.
As part of its underwriting process, XLMORe typically assesses a variety of
factors, including: the reputation of the proposed cedent and the likelihood of
establishing a long-term relationship with the cedent; the geographic area in
which the cedent does business and its market share; a detailed assessment of
catastrophe and risk exposures; historical loss data for the cedent and, where
available, for the industry as a whole in the relevant regions, in order to
compare the cedent's historical catastrophe loss experience to industry
averages; and the perceived financial strength of the cedent.
At Brockbank, the daily acceptance of risk is performed by the active
underwriter, the class underwriters and senior underwriting assistants.
Underwriting authority limits are agreed between the active underwriter, the
class underwriter and the managing agency's board of directors.
As part of the underwriting process, all of the Company's insurance and
reinsurance underwriting operations, including Lloyd's, evaluate potential
exposures to claims, losses and defense costs associated with Year 2000-related
issues. Such claims, losses and costs, to the extent they materialize, could
have a material adverse affect on the Company's results of operations and
financial condition. For more information concerning the impact of Year 2000
issues on underwriting results, see "Management's Discussion and Analysis of
Results of Operation and Financial Condition--Year 2000 Considerations" and "--
Cautionary Note Regarding Forward-Looking Statements."
Marketing
Clients are referred to the Company's subsidiaries through a large number of
insurance brokers who receive from the insured or ceding company a brokerage
commission equal to a percentage of gross premiums. No
11
<PAGE>
subsidiary of the Company is committed to accept any business from any
particular broker, and brokers do not have the authority to bind any subsidiary
of the Company. All policy applications are subject to approval and acceptance
by the Company's subsidiaries.
Since the Company's inception, J&H Marsh McLennan Global Broking Limited
("J&H Marsh") and its predecessors companies have placed a significant amount
of business with the Company's subsidiaries. In fiscal 1996, 1997 and 1998
approximately 52%, 52% and 45%, respectively, of the Company's consolidated
gross premiums were placed by J&H Marsh or its predecessors and approximately
17%, 19% and 30% respectively, were placed by AON Corporation in fiscal 1996,
1997 and 1998, respectively. Concentration in the insurance and reinsurance
brokerage industry could have a material adverse effect on the Company's
business and results of operations in the future. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition--Cautionary Note
Regarding Forward-Looking Statements." No other broker accounted for more than
10% of gross premiums written in any fiscal year during such period.
Unpaid Losses and Loss Expenses
Loss reserves are established due to the significant periods of time that may
elapse between the occurrence of an insured loss, the reporting of the loss to
the Company's operating subsidiaries and the payment of that loss. To recognize
liabilities for unpaid losses, the Company establishes reserves, which are
balance sheet liabilities representing estimates of future amounts needed to
pay claims and related expenses with respect to insured events which have been
reported to the Company. The Company's reserving practices and the
establishment of any particular reserve reflect management's judgement
concerning sound financial practice and do not represent any admission of
liability with respect to any claims made against the Company's subsidiaries.
The method of establishing case reserves for reported claims differs between
the insurance and reinsurance operations. When an insurance claim is reported
to the Company's subsidiaries, its claims personnel determine whether to
establish a "case reserve" for the estimated amount of the ultimate settlement,
if any. The estimate reflects the judgment of claims personnel, based on
general corporate reserving practices and on the experience and knowledge of
such personnel regarding the nature and value of the specific type of claim
and, where appropriate, advice of counsel. Reserves are also established to
provide for the estimated expense of settling claims, including legal and other
fees and the general expenses of administering the claims adjustment process
("loss expense"). Reinsurance case reserves are established based upon reports
received from insureds and reinsureds supplemented by the Company's case
reserve estimates. Periodically, adjustments to the case reserves may be made
as additional information regarding the claims becomes known or partial
payments are made.
Most of the Company's IBNR (incurred but not reported) loss reserves are
derived from its insurance operations. This is because the liability business
that these operations write has a much longer tail than the Company's other
operations. The insurance IBNR is estimated in two steps. First, case reserve
development is estimated with the use of the loss development factor ("LDF")
method. Second, "pure" IBNR is estimated with a frequency and severity
approach. Since coverage is usually triggered when a notice is submitted by an
insured, "pure" IBNR losses exist only when claims with a loss notice develop
into their layers of coverage. The method calculates the ultimate number of
claims (i.e. frequency) via the Bornhuetter-Ferguson technique. The severity
component (average claim size) is developed via a single parameter pareto loss
distribution, adjusted for average attachment points and limits. The Company
believes the methods presently adopted provide a reasonably objective result as
it is based upon the Company's loss data rather than more theoretical models
often used in the low frequency high layer business the Company writes.
Several aspects of the Company's insurance operations complicate the
actuarial reserving techniques for loss reserves as compared to other insurance
companies. Among these aspects are the differences in the policy forms from
more traditional forms, the lack of complete historical loss data for losses of
the same type intended to be covered by the policies and the expectation that
losses in excess of the attachment level of the Company's policies generally
will be characterized by low frequency and high severity, limiting the utility
of claims experience of other insurers for similar claims. Accordingly, the
ultimate insurance claims experience cannot be
12
<PAGE>
as reliably predicted as may be the case with other insurance companies, and
there can be no assurance that losses and loss expenses will not exceed the
total reserves.
The reinsurance operations and Lloyd's syndicates, unlike the insurance
operations, have industry data available to support estimated reserves. This
data, supported by business knowledge, general market trends and actual
experience, is used to develop reporting patterns and initial expected loss
ratios. Most claims for these operations become known relatively soon. Claims
under property catastrophe and property risk excess treaties will generally
become known and ascertainable within approximately 18 to 24 months from the
date of occurrence giving rise to a claim. Claims under a significant number
of Lloyd's syndicate policies, with the exception of motor, will often become
known and ascertainable with 36 months of the date of the occurrence giving
rise to the claim, but many significant claims will not become known until
after such period. Motor claims involving property damage will generally be
known and paid within 12 months of the occurrence giving rise to the claim,
but claims involving personal injury can take more than 12 months to resolve.
Conversely, claims on the insurance operations generally develop on average 5
to 8 years from the date of occurrence giving rise to the claim.
Losses and loss expenses are charged to income as incurred. The reserve for
unpaid losses and loss expenses represents the accumulation of case reserves,
loss expense reserves and IBNR. During the loss settlement period, additional
facts regarding individual claims and trends usually will become known. As
these become apparent, it often may become necessary to refine and adjust the
reserves upward or downward from time to time. The final liability nonetheless
may be significantly less than or greater than prior estimates.
Conditions and trends that have affected development of liability in the
past may not necessarily occur in the future. Accordingly, it may not be
appropriate to extrapolate future redundancies or deficiencies based on the
tables below.
Analysis of Consolidated Loss and Loss Expense Reserve Development
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross liability
for unpaid
losses and loss
expenses......... $381,106 $616,611 $799,222 $957,344 $1,169,003 $1,359,701 $1,665,434 $1,920,500 $2,099,096 $2,342,254
Paid (cumulative)
as of:
One year later.. 517 98,519 141,863 103,970 163,086 138,072 188,370 299,465 233,162 199,066
Two years later. 23,285 240,207 169,656 266,191 296,213 326,610 487,264 531,694 409,818
Three years
later.......... 76,844 267,777 235,095 340,551 482,251 619,186 718,735 702,469
Four years
later.......... 87,639 296,095 258,589 432,506 688,064 806,140 843,046
Five years
later.......... 107,863 302,028 260,385 610,936 873,832 919,208
Six years later. 107,863 303,791 341,337 714,764 984,956
Seven years
later.......... 107,863 384,717 357,051 732,430
Eight years
later.......... 107,863 385,951 366,376
Nine years
later.......... 107,916 387,753
Ten years later. 107,970
Eleven years
later..........
Twelve years
later..........
Liability
re-estimated
as of:
End of year..... $381,106 $616,611 $799,222 $957,344 $1,169,003 $1,359,701 $1,665,434 $1,920,500 $2,099,096 $2,342,254
One year later.. 383,949 654,931 808,642 973,711 1,203,360 1,435,500 1,667,334 1,964,402 1,863,250 2,169,248
Two years later. 348,152 654,160 700,733 929,176 1,282,051 1,441,018 1,628,191 1,665,418 1,754,002
Three years
later.......... 329,403 587,758 557,782 876,071 1,270,410 1,485,101 1,468,588 1,605,576
Four years
later.......... 279,106 447,360 531,264 878,597 1,359,848 1,365,998 1,404,774
Five years
later.......... 159,117 434,326 465,605 967,410 1,325,166 1,356,523
Six years later. 107,863 444,213 479,940 959,363 1,304,338
Seven years
later.......... 107,863 452,662 475,136 953,289
Eight years
later.......... 107,863 459,023 512,601
Nine years
later.......... 108,063 507,510
Ten years later. 158,068
Eleven years
later..........
Twelve years
later..........
Redundancy
(deficiency).... 223,038 109,101 286,621 4,055 (135,335) 3,178 260,660 314,924 345,094 173,006
<CAPTION>
1998
----------
<S> <C>
Gross liability
for unpaid
losses and loss
expenses......... $3,121,739
Paid (cumulative)
as of:
One year later..
Two years later.
Three years
later..........
Four years
later..........
Five years
later..........
Six years later.
Seven years
later..........
Eight years
later..........
Nine years
later..........
Ten years later.
Eleven years
later..........
Twelve years
later..........
Liability
re-estimated
as of:
End of year..... $3,121,739
One year later..
Two years later.
Three years
later..........
Four years
later..........
Five years
later..........
Six years later.
Seven years
later..........
Eight years
later..........
Nine years
later..........
Ten years later.
Eleven years
later..........
Twelve years
later..........
Redundancy
(deficiency)....
</TABLE>
13
<PAGE>
The following table presents a reconciliation of beginning and ending reserve
balances for the periods indicated (in thousands):
Reconciliation of Unpaid Losses and Loss Expenses
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Unpaid losses and loss expenses at
beginning of period....................... $2,342,254 $2,099,096 $1,920,500
Losses and loss expenses incurred in
respect of losses occurring in:
Current year............................. 713,059 735,313 436,334
Prior years.............................. (164,158) (260,407) 14,465
---------- ---------- ----------
Gross losses incurred...................... 548,901 474,906 450,799
Interest (paid) incurred on experiences
reserves.................................. 1,798 886 1,752
Portfolio transfer (assumption of reserves
with acquisitions)........................ 595,261 34,593 28,687
Losses and loss expenses paid in respect of
losses occurring in:
Current year............................. 167,409 34,055 3,177
Prior years.............................. 199,066 233,172 299,465
---------- ---------- ----------
Gross paid losses.......................... 366,475 267,227 302,642
---------- ---------- ----------
Unpaid losses and loss expenses at end of
period.................................... 3,121,739 2,342,254 2,099,096
========== ========== ==========
</TABLE>
Gross case and loss expense reserves as a component of total gross reserves
in 1998 increased to $1.4 billion from $863 million after the payment of $366
million in losses. One of the main reasons for the increase relates to the
acquisition of Mid Ocean and its related reserves. The case reserves for the
reinsurance operations at November 30, 1998 were $318 million compared to $27
million at the beginning of the year. Included in these reserves was $63
million established in respect to hurricane Georges and the SwissAir airline
disaster. One of the contributing factors to the reduction in prior losses was
the related reduction in loss reserves that were acquired with Mid Ocean. The
balance of the change is not attributable to any single or group of related
events, but to normal attrition as losses have developed over time into the
Company's layers of exposure, consistent with the nature of excess casualty
insurance.
The 1998 current year losses reflect the inclusion of the operations of Mid
Ocean acquired on August 7, 1998. The results include four months of XLMORe and
three months of Brockbank. These operations incurred $169 million in gross
losses for the reported period. These losses were largely attributable to
Hurricane Georges and the SwissAir airline disaster. In addition, losses for
Brockbank attach at the primary layers and therefore are more frequent in
nature. Brockbank's losses are also significantly reinsured.
Prior year incurred losses in 1998 were affected in part, by the release of
insurance reserves established for the Company's professional lines. These
reserves were reduced in accordance with actuarial estimates. In addition,
reserves were released on certain specialty cover policies for the years 1995
through 1997 due to the absence of losses that would affect the Company's
layers. These policies were for a three-year period, written on a claims made
basis and expired in 1998.
Due to the nature of the Company's general liability policy form and the
level of coverage provided, with limits up to $200 million, adjustments to
reserves for individual years can be irregular and significant. Such
adjustments are part of the normal course of business for the Company.
Conditions and trends that have affected development of liability in the past
may not necessarily occur in the future. Accordingly, it is inappropriate to
extrapolate future redundancies or deficiencies based upon historical
experience. See generally "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Cautionary Note Regarding Forward-Looking
Statements."
14
<PAGE>
Claims Administration
All claims management activities are conducted by each insurance subsidiary
of the Company at such subsidiary's offices. Claims management includes the
review of initial loss reports, creation of claims files, administration of
claims data base, generation of appropriate response to claims reports,
including identification and handling of coverage issues, determination of
whether further investigation is required and, where appropriate, retention of
claims counsel, establishment of case reserves, payment of claims, and
notification to reinsurers.
Claims arising from contracts written by the Company's reinsurance
subsidiaries are managed in Bermuda by their own claims departments. Loss
notifications are received from brokers, reviewed and entered into a claims
database and loss reserves are established for the reinsurer's share of the
loss. Loss reserves are adjusted based on receipt of further notifications from
brokers. The claims handled by the Singapore branch are done in a similar
manner at that location.
Claims in respect of business written by corporate syndicate 1209 and
XLMORe's London branch are entered into a claims database maintained at each
location. Losses are primarily notified by various central market bureaus, such
as through a daily electronic data interchange message. Where a syndicate is a
"leading" syndicate on a Lloyd's policy, it will act with its underwriters and
claims adjusters in dealing with the broker or insured on behalf of itself and
the following market in dealing with the broker or insured for any particular
claim. This may involve appointing attorneys or loss adjusters. The claims
bureaus and the leading syndicate advise movements in loss reserves to all
syndicates participating on the risk. The claims departments can vary the case
reserves it records from those advised by the bureaus and all adjustments are
recorded on the claims system.
Claims in respect of the direct motor business written by corporate syndicate
2253 are handled by Admiral Insurance Services ("Admiral") at two tele-
servicing centers in Cardiff and Swansea, Wales. The majority of accidental
damage claims are handled by Admiral's national network of 135 approved repair
centers, most of which have direct video links with Admiral's in-house
engineering team. Personal injury cases are handled by a team of in-house
specialists who, where necessary, appoint attorneys from a preferred panel.
Investments
The Finance Committee of the Board of the Company and management oversee
investment strategy, establish guidelines for the various investment managers
and implement investment decisions with the assistance of such managers. The
current investment policy is based on a total return strategy and seeks to
maximize investment income through a high-quality, diversified portfolio while
focusing on preserving principal and maintaining liquidity. In this regard, at
November 30, 1998, the Company's fixed income investment portfolio included
U.S. and non-U.S. sovereign government obligations, corporate bonds and other
securities, 58% of which were rated Aa or AA or better by a nationally
recognized rating agency. Under current investment guidelines, up to 30% of the
Company's investment portfolio may be invested in equity securities. Applicable
insurance laws and regulations generally do not restrict the Company's
investments except that certain types of investments (such as unquoted equity
securities, investments in affiliates, real estate and collateral loans) may
not qualify as a "relevant asset" for purposes of satisfying Bermuda statutory
financial requirements. The Company's U.S. insurance subsidiaries and Brockbank
are subject to restrictions on investment prescribed by laws applicable to such
operations. At each of November 30, 1998, 1997 and 1996, 11%, 19% and 14% of
the Company's investments in fixed maturity and short-term investments and 34%,
42% and 45% of the Company's investments in equity securities were represented
by securities of non-U.S. issuers. The Company did not have an aggregate
investment in a single entity (other than the U.S. government) in excess of 10%
of total consolidated shareholders' equity at November 30, 1998, 1997 or 1996.
15
<PAGE>
The following table reflects investment results for the Company for each of
the five years in the period ended November 30, 1998:
<TABLE>
<CAPTION>
Net Pre-Tax
Pre-Tax Realized Annualized
Average Investment Gains Effective
Year Ended November 30, Investments(1) Income(2) (Losses) Yield
----------------------- -------------- ---------- -------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
1998...................... $5,323,308 $279,375 $191,795 5.25%
1997...................... 4,125,244 216,552 335,939 5.25
1996...................... 3,888,001 198,598 206,212 5.11
1995...................... 3,559,454 200,145 49,774 5.62
1994...................... 3,267,286 182,262 (95,197) 5.58
</TABLE>
- --------
(1) Average of the beginning and ending amounts of investments and cash and
cash equivalents net of pending trades for the period. Investment
securities are carried at market value.
(2) After investment expenses, excluding realized net capital gains (losses).
Regulation
Bermuda
The Insurance Act 1978 of Bermuda, amendments thereto and related
regulations (the "Act"), regulates the business of XLI and XLMORe. The Act
imposes on Bermuda insurance companies solvency and liquidity standards and
auditing and reporting requirements and grants to the Minister of Finance
powers to supervise, investigate and intervene in the affairs of insurance
companies. XLI and XLMORe are designated as Class 4 insurers under the Act
because they carry on insurance and reinsurance business including excess
liability business and property catastrophe reinsurance business,
respectively. Class 4 insurers are required to maintain total statutory
capital and surplus of not less than $100 million. Both companies are
restricted from paying dividends in any one financial year in excess of 25% of
the prior year's statutory capital and surplus unless the companies' directors
attest such dividends will not cause the companies to fail to meet their
relevant margins. As both companies are highly capitalized, they are not
materially affected by this requirement. In addition to other regulatory
requirements, each Class 4 insurer is required to appoint a loss reserve
specialist, who must be approved by the Minister of Finance of Bermuda, to
review and report on the loss reserves of the insurer on an annual basis.
Other subsidiaries of the Company based in Bermuda, including XLFA, LARe and
Reeve Court, are also subject to regulation under the Act.
Republic of Ireland
XLE is permitted to cover risks throughout the European Community (subject
to certain restrictions) pursuant to the "Third Directive" relating to non-
life insurance. Its operations, however, are largely restricted to the
Republic of Ireland and are subject to regulation under Irish regulatory
authority. The principal legislation and regulations governing the insurance
activities of Irish insurance companies are the Companies Act of 1963 to 1990
and a range of Irish Insurance Acts from 1909 through 1995 (the "Irish Acts").
In addition, there is a comprehensive network of regulations and statutory
provisions empowering the making of regulations of which the most relevant are
the European Communities (Non-Life Insurance) Framework Regulations, 1994, the
European Communities (Insurance Undertakings Accounts) Regulations, 1996 and a
range of other European Communities Regulations and administrative rules (the
"Irish Regulations").
XLE's insurance activities are subject to extensive regulation in the
Republic of Ireland, principally under the Irish Acts and Irish Regulations,
which impose on insurers headquartered in the Republic of Ireland minimum
solvency and reserve standards and auditing and reporting requirements and
grant to the Minister for Enterprise, Trade and Employment (the "Irish
Minister") wide powers to supervise, investigate and intervene in the affairs
of such insurers. The Irish Minister's powers and functions are exercised
through the Department of Enterprise, Trade and Employment.
16
<PAGE>
United States
The Company's U.S. insurance subsidiaries are subject to regulatory oversight
under the insurance statutes and regulations of the jurisdictions in which they
conduct business, including requirements as to premium rates and policy forms,
adequacy of reserves, types and quality of investments, dividends and changes
of control. Any entity wishing to acquire more than 10 percent of the voting
securities of the Company would require prior regulatory approval from one or
more U.S. state insurance regulatory authorities. Brockbank, via Lloyd's, is
licensed in the states of Illinois and Kentucky and in the U.S. Virgin Islands
("USVI"). It is also an eligible surplus lines writer in all states other than
Kentucky and USVI, and an accredited reinsurer in every state other than
Michigan. Brockbank Insurance Services, Inc. is licensed in California as a
surplus and special lines broker.
The insurance laws of each state of the United States and of many foreign
countries regulate the sale of insurance within their jurisdictions by alien
insurers, such as XLI and XLMORe, which conduct their businesses in Bermuda.
The Company believes it and its subsidiaries are not in violation of the
insurance laws of any state in the U.S. or any foreign country. From time to
time, various proposals for federal legislation within the United States have
been circulated which could indirectly require the Company's non-U.S.
subsidiaries to, among other things, register as surplus lines insurers. The
Company believes that generally its subsidiaries could meet and comply with the
requirements to be registered as surplus lines insurers and such compliance
would not have a material impact on the ability of the Company's subsidiaries
to conduct their businesses. There can be no assurance, however, that the
activities of the Company's subsidiaries will not be challenged in the future
or that the Company's subsidiaries will be able to successfully defend against
such challenges or that legislation will not be enacted that will affect its
subsidiaries' ability to conduct their businesses or subject them to additional
U.S. regulation.
United Kingdom
The United Kingdom Financial Services Authority ("UK FSA") regulates
reinsurance entities that are "effecting and carrying on" insurance business in
the United Kingdom. XLMORe, through its London branch, "effects and carries on"
business in the United Kingdom and is therefore regulated by the UK FSA.
Lloyd's
As a result of the Company's ownership of Brockbank, the Company and
Brockbank are subject to the regulatory jurisdiction of the Council of Lloyd's
(the "Council"). Unlike other financial markets in the UK, Lloyd's is not
subject to direct UK government regulation through The Financial Services Act
of 1986 but, instead, is self regulating by virtue of The Lloyd's Act of 1982
through bye-laws, regulations and codes of conduct written by the Council,
which governs the market. Under the Council, there are two boards, the Market
Board and the Regulatory Board. The former is led by working members of the
Council and is responsible for strategy and the provision of services such as
premium and claims handling, accounting and policy signing. The Regulatory
Board is responsible for the regulation of the market, compliance and the
protection of policyholders and capital providers. Under the regulations, the
approval of the Council has to be obtained before any person can be a "major
shareholder" or "controller" of a corporate Name or a managing agency. The
Company has been approved as both a "major shareholder" and a "controller" of
its corporate Names (the "CCVs") and managing agencies.
A person would be viewed by Lloyd's as a "major shareholder" of the CCVs if
such person owns 15% or more of the Company's outstanding capital stock and as
a "controller" if it owns 30% or more of the Company's outstanding capital
stock. Therefore, any person that becomes the owner of 15% or more of the
Company's stock may be required to deliver a declaration and undertaking to
Lloyd's, in the form prescribed by Lloyd's, unless Lloyd's exempts such person
from this requirement.
17
<PAGE>
As a "controller", the Company is required to give certain undertakings,
directed principally towards ensuring that there is no direct interference in
the conduct of the business of the relevant managing agency, but there are no
provisions in The Lloyd's Act of 1982, the bye-laws or the regulations which
provide for any liabilities of the CCVs or the Brockbank group as a whole to be
met by the Company. In addition, a managing agency is required to comply with
various capital and solvency requirements, and to submit to regular monitoring
and compliance procedures. The CCVs, as corporate members of Lloyd's, are each
required to commit a specified amount approximately equal to 50% of their
underwriting capacity on the syndicates to support its underwriting on those
syndicates.
The Lloyd's Act of 1982 generally restricts certain direct or indirect equity
cross-ownership between a Lloyd's broker and a Lloyd's managing agent.
Other
The Company is subject to regulation in Australia, Singapore and Germany as a
result of its representative offices and branches in such jurisdictions. The
Company or its subsidiaries also may become subject to regulation in
jurisdictions not described herein from time to time based on their activities.
Tax Matters
Corporate Income Tax
The Company is a Cayman Islands corporation and, except as described below,
neither it nor its non-U.S. subsidiaries have ever paid United States corporate
income taxes (other than withholding taxes on dividend income) on the basis
that they are not engaged in a trade or business in the United States; however,
because definitive identification of activities which constitute being engaged
in trade or business in the United States is not provided by the Internal
Revenue Code of 1986 (the "Code"), regulations or court decisions, there can be
no assurance that the Internal Revenue Service ("IRS") will not contend that
the Company or its non-U.S. subsidiaries are engaged in trade or business in
the United States. If the Company or its non-U.S. subsidiaries were considered
to be engaged in trade or business in the United States (and, if the Company or
such subsidiaries were to qualify for the benefits under the income tax treaty
between the United States and Bermuda or the Republic of Ireland, such
businesses were attributable to a "permanent establishment" in the United
States), the Company or such subsidiaries could be subject to U.S. tax at
regular tax rates on its taxable income that is effectively connected with its
U.S. trade or business plus an additional 30% "branch profits" tax on such
income remaining after the regular tax, in which case there could be a material
adverse effect on the Company's shareholders' equity and earnings.
Lloyd's names are required to pay U.S. income tax on U.S. connected income
("U.S. income") written by Lloyd's syndicates in which they participate.
Lloyd's has a closing agreement with the IRS whereby the amount of tax due on
this business is calculated by Lloyd's and remitted directly to the IRS. These
amounts are then charged to the personal accounts of the names in proportion to
their participation in the relevant syndicates. The CCVs are subject to this
arrangement but, as UK domiciled companies, will receive U.K. corporation tax
credits for any U.S. income tax incurred up to the value of the equivalent U.K.
corporation income tax charge.
Certain subsidiaries of the Company and certain branches and offices of such
subsidiaries are located in taxable jurisdictions such as the United States,
the United Kingdom, Ireland, Australia, Singapore and Germany. The Company pays
corporate income taxes and other taxes, including applicable value added and
premium taxes, to which its subsidiaries and their branches and offices are
subject in such jurisdictions.
Employees
At November 30, 1998, the Company and its subsidiaries employed a total of
506 employees; of which 181 were located in Bermuda, 261 were located in the
United Kingdom, 43 in the Republic of Ireland, 6 in the United States with the
balance located in the Company's offices in Munich and Singapore. None of the
these employees are represented by a labor union, and the Company believes that
its employee relations are excellent.
18
<PAGE>
Item 2. Properties
The Company rents space for its principal executive offices under leases
which expire up to June 2009. Total rent expense for the years ended November
30, 1998, 1997 and 1996 were approximately $3.7 million, $2.1 million and $1.8
million, respectively. Future minimum rental commitments under existing leases
are expected to be approximately $4.0 million annually. In 1997, the Company
acquired commercial real estate in Bermuda for the purpose of securing long-
term office space to meet its anticipated needs. The Company is in the process
of developing this property and constructing its worldwide headquarters. The
total cost of this development, including the land, is expected to be
approximately $110.0 million, of which $23.7 million has been spent to date. It
is estimated that the headquarters project will be completed early in 2001.
Item 3. Legal Proceedings
The Company, through its subsidiaries, in common with the insurance and
reinsurance industry in general, is subject to litigation in the normal course
of its business. Although most of its insurance policies provide for resolution
of disputes by arbitration in London, XLI has been sued several times in United
States courts and is defending each suit vigorously, both on procedural grounds
and the merits. As of November 30, 1998, the Company was not a party to any
material litigation other than as routinely encountered in claims activity,
none of which is expected by management to have a material adverse effect on
the Company's financial condition.
The Company, Mid Ocean and the directors of Mid Ocean have been named as
defendants in a purported class action lawsuit (the "Shareholder Action") filed
in connection with the Arrangements in the Supreme Court, County of New York,
State of New York (the "Supreme Court"). Harbor Finance Partners v. Newhouse,
et al., C.A. No. 1998/601266. The Shareholder Action alleges that the
defendants breached their fiduciary duties to the Mid Ocean shareholders by
failing to exercise independent business judgment (due to their alleged
conflict of interest) and by agreeing to sell Mid Ocean at an unfair and
inadequate price. The Shareholder Action is brought on behalf of a purported
class of persons consisting of Mid Ocean shareholders other than the
defendants. As relief, the Shareholder Action seeks, among other things, an
order enjoining consummation of the Arrangements, or, in the event the
Arrangements are consummated, rescission of the Arrangements, and an award of
compensatory damages in an unspecified amount, as well as costs, including fees
for plaintiff's counsel and experts' fees and expenses. On January 25, 1999,
the Supreme Court granted the defendants' motion to dismiss the Shareholder
Action on the grounds that the Shareholder Action (i) failed to state a claim
upon which relief may be granted under Cayman Islands law and (ii) was not
brought in an appropriate forum (forum non conveniens). The Supreme Court's
decision is subject to appeal.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of stockholders during the fourth quarter
of the fiscal year covered by this report.
19
<PAGE>
Executive Officers of the Company
The table below sets forth the names, ages and titles of the persons who were
the executive officers of the Company for the year ended November 30, 1998.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Brian M. O'Hara......... 50 President, Chief Executive Officer and Director of
the Company
Robert R. Lusardi....... 42 Executive Vice President and Chief Financial Officer
of the Company.
Robert J. Cooney........ 44 Executive Vice President of the Company and
President and Chief Executive Officer of XLI
Henry C. V. Keeling..... 43 Executive Vice President of the Company and
President and Chief Executive Officer of XLMORe
Mark E. Brockbank....... 46 Executive Vice President of the Company and
Chief Executive Officer of Brockbank
K. Bruce Connell........ 46 Executive Vice President of the Company and President and
Chief Executive Officer of XL Capital Products Ltd
Christopher V. Greetham. 54 Executive Vice President and Chief Investment Officer of the
Company
Paul S. Giordano........ 36 Senior Vice President, General Counsel and Secretary of
the Company, XLI and XLMORe
</TABLE>
Brian M. O'Hara has been President and Chief Executive Officer of the Company
since 1994 and a Director of the Company since 1986, having previously served
as Vice Chairman of the Company from 1987. He is Chairman of XLI and XLMORe,
and was Chief Executive Officer of XLI until 1998, having previously served as
Chairman, President and Chief Executive Officer from 1994, President and Chief
Executive Officer from 1992, and as President and Chief Operating Officer from
1986.
Robert R. Lusardi has been Executive Vice President and Chief Financial
Officer of the Company since February 1998. Prior to joining the Company, Mr.
Lusardi was Managing Director at Lehman Brothers from 1980 to 1998.
Robert J. Cooney has been Executive Vice President of the Company since March
1995 and President and Chief Executive Officer of XLI since August 1998, having
previously served as President and Chief Operating Officer of XLI from December
1995, having previously served as Executive Vice President and Chief
Underwriting Officer of XLI from 1992, and as a Senior Vice President from
1987.
Henry C. V. Keeling has been Executive Vice President of the Company and
President and Chief Executive Officer of XLMORe since August 1998. Mr. Keeling
was President, Chief Operating and Underwriting Officer of MORe from 1992 to
1998, and previously served as a director of Taylor Clayton (Underwriting
Agencies) Ltd. and deputy underwriter for syndicate 51 at Lloyd's from 1984
through 1992.
Mark E. Brockbank has been Executive Vice President of the Company since
August 1998 and is a director and the Chief Executive Officer of Brockbank. Mr.
Brockbank has been employed at Lloyd's since 1974 when he joined Willis Faber
Dumas as a marine broker. He was an underwriter of syndicate 861 from 1983
through to 1998. He was appointed a Director of Brockbank Syndicate Management
Ltd in 1983 and of The Brockbank Group plc in 1988.
K. Bruce Connell has been Executive Vice President of the Company since March
1998 and is President and Chief Executive Officer of XL Capital Products Ltd.
Mr. Connell previously served as President and Chief Operating Officer of XLGRe
from November 1997 to August 1998, President of XLGRe from December 1995 and as
Senior Vice President of XLI from 1990 to 1995.
20
<PAGE>
Christopher V. Greetham has been an Executive Vice President of the Company
since December 1998 and has served as its Chief Investment Officer since 1996.
From 1996 until December 1998, Mr. Greetham was a Senior Vice President of the
Company. Prior to joining the Company, Mr. Greetham served as Senior Vice
President and Chief Financial Officer of OIL Insurance Ltd. from 1982 to 1996
and as Vice President of Bankers Trust Company from 1975 to 1982.
Paul S. Giordano has been Senior Vice President and General Counsel of the
Company and XLI since January 1997. Mr. Giordano was appointed Secretary of
the Company and XLI on December 31, 1997. Mr. Giordano was appointed Senior
Vice President, General Counsel and Secretary of XLMORe in August 1998. Mr.
Giordano was associated with major law firms in New York and London prior to
joining the Company.
21
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
(a) The Company's Class A Ordinary Shares, $0.01 par value, are listed on the
New York Stock Exchange under the symbol XL.
The following table sets forth the high and low closing sales prices per
share of the Company's Class A Ordinary Shares per fiscal quarter, as reported
on the New York Stock Exchange Composite Tape, adjusted for the one-for-one
stock dividend on July 26, 1996.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
1997:
1st Quarter............................................. $45.000 $36.500
2nd Quarter............................................. 44.500 39.000
3rd Quarter............................................. 57.500 44.500
4th Quarter............................................. 64.000 55.063
1998:
1st Quarter............................................. $66.688 $59.063
2nd Quarter............................................. 80.813 66.938
3rd Quarter............................................. 83.250 66.813
4th Quarter............................................. 77.688 62.125
</TABLE>
Each Class A Ordinary Share has one vote, except that if, and so long as, the
Controlled Shares of any person constitute ten percent (10%) or more of the
issued Class A Ordinary Shares, the voting rights with respect to the
Controlled Shares owned by such person shall be limited, in the aggregate, to a
voting power of approximately ten percent (10%), pursuant to a formula
specified in the Articles of Association. "Controlled Shares" shall include,
among other things, all Class A Ordinary Shares for which such person is deemed
to beneficially own directly, indirectly or constructively (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934).
(b) The approximate number of record holders of Class A Ordinary Shares as of
November 30, 1998 was 360.
(c) The Company paid four regular quarterly dividends in 1997, three of $0.32
per share to shareholders of record at February 6, April 22 and July 11 and one
of $0.40 per share to shareholders of record at September 25.
The Company paid four regular quarterly dividends in 1998, three of $0.40 per
share to shareholders
of record on February 6, April 16 and July 15 and one of $0.44 per share to
shareholders of record on
September 28.
The declaration and payment of future dividends by the Company will be at the
discretion of the Board of Directors and will depend upon many factors,
including the Company's earnings, financial condition, business needs, the
capital and surplus requirements of the Company's operating subsidiaries and
regulatory considerations.
As a holding company, the Company's principal source of income is dividends
or other statutorily permissible payments from its subsidiaries. The ability to
pay such dividends is limited by the applicable insurance laws and regulations
of Bermuda, the United States and the United Kingdom, including those
promulgated by the Society of Lloyd's. In order to pay dividends, the amount of
which is limited to accumulated net realized profits, XLI and XLMORe must
maintain certain minimum levels of share capital, solvency and liquidity
pursuant to Bermuda statutes and regulations. At November 30, 1998, XLI and
XLMORE could have paid dividends in the amount of approximately $1.8 billion
and $1.3 billion, respectively. Neither the Company nor any of its material
subsidiaries other than XLI, XLMORe, XLE, XLIA or XLRS had any other
restrictions preventing them from paying dividends. No assurance, however, can
be given that the Company or its subsidiaries will not be prevented from paying
dividends in the future.
(d) Rights to purchase Class A Ordinary Shares were distributed as a dividend
at the rate of one Right for each outstanding Class A Ordinary Share held of
record as of the close of business on October 31, 1998. Each
22
<PAGE>
Right will entitle holders of XL Class A Ordinary Shares to buy one ordinary
share at an exercise price of $350.00. The Rights would be exercisable, and
would detach from the Class A Ordinary Shares, only if a person or group were
to acquire 20 percent or more of XL's outstanding Class A Ordinary Shares, or
were to announce a tender or exchange offer that, if consumated, would result
in a person or group beneficially owning 20 percent or more of XL's Class A
Ordinary Shares. Upon a person or group without prior approval of the Board
acquiring 20 percent or more of XL's Class A Ordinary Shares, each Right would
entitle the holder (other than such an acquiring person or group) to purchase
XL Class A Ordinary Shares (or, in certain circumstances, Class A Ordinary
Shares of the acquiring person) with a value of twice the Rights exercise
price upon payment of the Rights exercise price, XL will be entitled to redeem
the Rights at $0.01 per Right at any time until the close of business on the
tenth day after the Rights become exercisable. The Rights will expire at the
close of business on September 30, 2008, and do not initially have a fair
value. The Company has initially reserved 119,073,878 Class A Ordinary Shares
being authorized and unissued for issuance upon exercise of the Rights.
(e) On November 3, 1998, the Company issued 1,066,667 Class A Ordinary
Shares to FSA in connection with entering into the FSA Joint Venture. The
consideration for the Class A Ordinary Shares was common stock of FSA. The
transaction was exempt from the registration requirements of the Securities
Act of 1933 by virtue of the exemption provided under Section 4(2) of such
Act.
Item 6. Selected Financial Data
The selected consolidated financial data below should be read in conjunction
with the consolidated financial statements and the notes thereto presented
under Item 8.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(in thousands of U.S. dollars, except per share
amounts and ratios)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Gross premiums
written.............. $ 806,861 $ 441,290 $ 729,446 $ 698,020 $ 638,294
Net premiums written.. 672,044 316,626 597,102 694,337 627,987
Net premiums earned... 685,200 540,653 517,892 558,049 521,177
Net investment income. 279,375 216,552 198,598 200,145 182,262
Net realized gains
(losses)............. 191,795 335,939 206,212 49,774 (95,197)
Equity in net income
of affiliates........ 47,980 65,882 59,249 51,074 25,028
Losses and loss
expenses............. 390,483 365,325 405,357 440,922 407,172
Acquisition costs and
administration
expenses............. 197,864 98,665 79,476 83,602 81,219
Interest expense...... 11,523 7,176 -- -- --
Amortization of
intangible assets.... 23,926 5,844 -- -- --
Income before minority
interest and income
tax expense.......... 593,852 682,016 497,118 334,518 144,879
Net income............ 587,663 676,961 494,313 332,798 143,954
Net income per share--
basic (1)(2)......... $ 6.32 $ 7.95 $ 5.45 $ 6.48 $ 2.66
Net income per share--
diluted (1)(2)....... $ 6.20 $ 7.84 $ 5.41 $ 6.44 $ 2.65
Weighted average
shares outstanding--
basic (2)............ 92,975 85,120 90,734 51,326 54,088
Weighted average
shares outstanding--
diluted (2).......... 94,785 86,314 91,328 51,648 54,338
Cash dividends per
share (2)............ $ 1.64 $ 1.36 $ 0.95 $ 0.71 $ 0.62
Balance Sheet Data:
Total investments..... $6,462,396 $4,254,668 $3,772,976 $3,355,295 $2,943,712
Cash and cash
equivalents.......... 443,654 394,599 252,734 673,433 456,176
Investment in
affiliates........... 154,044 517,396 414,891 351,669 230,852
Total assets.......... 10,108,650 6,088,462 5,031,538 4,721,466 3,853,152
Unpaid losses and loss
expenses............. 3,121,739 2,342,254 2,099,096 1,920,500 1,665,434
Loans payable......... 301,000 141,000 11,000 -- --
Shareholders' equity.. 4,817,880 2,479,130 2,116,038 2,006,133 1,684,393
Book value per share
(2).................. $ 43.09 $ 29.37 $ 24.27 $ 21.22 $ 15.73
Fully diluted book
value per share (2).. $ 42.79 $ 29.33 $ 24.21 $ 21.11 $ 15.73
Operating Ratios:
Loss and loss expense
ratio................ 57.0% 67.6% 78.3% 79.0% 78.1%
Underwriting expense
ratio................ 26.3 18.2 15.3 15.0 15.6
Combined ratio........ 83.3 85.8 93.6 94.0 93.7
</TABLE>
23
<PAGE>
- --------
(1) Net income per share is based on the weighted average number of ordinary
shares and ordinary share equivalents outstanding for each period as
required by Statement of Financial Accounting Standard No. 128.
(2) All share and per share information has been retroactively restated to give
effect to a one for one stock dividend paid to shareholders of record on
July 26, 1996.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations for the Years Ended November 30, 1998, 1997 and 1996
The following is a discussion of the Company's results of operations and
financial condition. This discussion and analysis should be read in conjunction
with the audited Consolidated Financial Statements and notes thereto presented
under Item 8.
The following table presents an analysis of the Company's revenues for the
years ended November 30, 1998, 1997 and 1996 (U.S. dollars in thousands):
<TABLE>
<CAPTION>
1998 Change 1997 Change 1996
---------- ------ ---------- ------ --------
<S> <C> <C> <C> <C> <C>
Net premiums earned.............. $ 685,200 26.7% $ 540,653 4.4% $517,892
Net investment income............ 279,375 29.0% 216,552 9.0% 198,598
Net realized gains............... 191,795 NM 335,939 NM 206,212
Equity in net earnings of
affiliates...................... 47,980 (27.2)% 65,882 11.2% 59,249
Fee and other income............. 13,298 NM -- NM --
---------- ---------- --------
$1,217,648 $1,159,026 $981,951
========== ========== ========
</TABLE>
Both net earned premiums and net investment income increased significantly in
1998 over 1997, compared to the change from 1996 to 1997. These results were
affected by the Company's acquisition of GCR in June 1997 and the merger with
Mid Ocean in August 1998. Accordingly, such growth may not be indicative for
future periods.
Mid Ocean prior to the acquisition was an affiliate of the Company.
Consequently, the equity in net earnings from affiliates only reflects the
Company's share of Mid Ocean's earnings for the first nine months of 1998.
Subsequent results for Mid Ocean are now consolidated.
The Company is effectively organized into three business operations:
insurance, reinsurance and Lloyd's Syndicates.
The insurance business is written primarily by XLI, based in Bermuda, and its
subsidiaries, XLE, based in Dublin, Ireland, XLIA and XLRS, based in New York
and Connecticut, respectively. The insurance operations are leading providers
of high excess coverage for general third party liability, other liability,
including directors and officers, professional and employment practices
liability, property and other specialty covers.
The reinsurance business is written primarily by XLMORe, based in Bermuda,
with branch operations in London and Singapore and an office in Munich. It also
has controlling ownership of LARe. MORe, a subsidiary of Mid Ocean, was
acquired by merger on August 7, 1998, and was amalgamated with XLGRe. The
reinsurance group is a leading writer of property catastrophe, other property,
including property excess of loss and property pro rata, marine and energy,
aviation and satellite and specialty liability and other covers.
The Lloyd's operations are managed by Brockbank which provides underwriting
and other services to five Lloyd's syndicates, two of which are dedicated
corporate syndicates whose capital is provided by the Company. These syndicates
write property, marine and energy, aviation and satellite, professional
indemnity, motor and other specialty lines primarily of insurance but also
reinsurance, to a globally diverse group of clients. The Brockbank operations
were acquired through the merger with Mid Ocean. The results of Brockbank are
only included in the Company's 1998 fourth quarter. Premiums written for the
first nine months relate to the Company's interest in Venton Holdings Limited
("Venton"). The Company's interest in Venton was sold in the fourth quarter of
the Company's 1998 fiscal year.
24
<PAGE>
Premiums
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Gross premiums written
Insurance Operations
General liability............................... $185,081 $252,790 $432,002
Other liability................................. 161,423 127,321 111,892
Property........................................ 35,567 38,261 40,691
Other........................................... 42,213 -- --
Reinsurance Operations
Property catastrophe............................ 89,084 (78,331) 64,130
Other property.................................. 29,014 17,069 2,111
Marine and energy............................... 26,169 17,797 20,931
Aviation and satellite.......................... 37,602 37,470 13,433
Other........................................... 79,909 28,913 44,256
Lloyd's Syndicates............................... 120,799 -- --
-------- -------- --------
806,861 441,290 729,446
Multi-year premiums............................... (26,433) 115,645 (164,033)
-------- -------- --------
$780,428 $556,935 $565,413
======== ======== ========
Net premiums written
Insurance Operations
General liability............................... $136,095 $150,816 $319,745
Other liability................................. 152,491 116,230 101,818
Property........................................ 24,822 29,367 30,678
Other........................................... 36,875 -- --
Reinsurance Operations
Property catastrophe............................ 76,549 (78,940) 64,130
Other property.................................. 25,335 17,068 2,111
Marine and energy............................... 24,714 17,797 20,931
Aviation and satellite.......................... 37,332 37,470 13,433
Other........................................... 75,029 26,818 44,256
Lloyd's Syndicates............................... 82,802 -- --
-------- -------- --------
672,044 316,626 597,102
Multi-year premiums............................... (22,116) 122,762 (129,432)
-------- -------- --------
$649,928 $439,388 $467,670
======== ======== ========
Net premiums earned
Insurance Operations
General liability............................... $178,735 $263,543 $325,777
Other liability................................. 95,166 91,364 80,427
Property........................................ 23,273 21,264 20,622
Other........................................... 5,124 -- --
Reinsurance Operations
Property catastrophe............................ 122,199 40,892 26,927
Other property.................................. 42,247 16,581 419
Marine and energy............................... 31,068 20,420 21,536
Aviation and satellite.......................... 44,033 36,421 7,256
Other........................................... 70,478 50,168 34,928
Lloyd's Syndicates............................... 72,877 -- --
-------- -------- --------
$685,200 $540,653 $517,892
======== ======== ========
</TABLE>
25
<PAGE>
The growth in gross and net premiums written and net premiums earned have
been affected by the Company's acquisitions (as discussed previously), the
development of new product lines and the ability to maintain a relatively high
level of policy retention despite the highly competitive environment that the
Company and its subsidiaries operate in.
The increase in gross premiums written of $356.6 million in 1998 compared to
1997 was caused by several factors. The level of multi-year premiums written
increased in 1998 compared a decline in such business in 1997. The 1997 fiscal
year was negatively affected by several multi-year property catastrophe
contracts which were rewritten during the year resulting in the return of
premiums written for future years that had not yet been collected or earned.
This also resulted in a reduction of premiums receivable and unearned
premiums.
Additionally, as previously mentioned, the growth in gross premiums written
was affected by the acquisitions of GCR and Mid Ocean. The 1998 year includes
a full year of GCR's premiums compared to five and a half months in 1997, plus
four months of Mid Ocean results and three months of Brockbank results. The
GCR and Mid Ocean premiums are included under Reinsurance Operations and the
Brockbank premiums are included under Lloyd's Syndicates.
Property catastrophe premiums through the first nine months of 1998 reflect
business assumed primarily by XLGRe prior to its amalgamation with MORe while
premiums thereafter reflect the combined MORe and XLGRe. Other reinsurance
represents specialty liability reinsurance related primarily to tailored
programs written by XLI.
Premiums written by Lloyd's Syndicates for the first nine months of the
year, approximately $25 million gross and $7 million net, relate solely to the
Company's interest in Venton. As mentioned previously, Venton was sold in the
fourth quarter of 1998. Accordingly, all results from Lloyd's Syndicates from
the fourth quarter of 1998 and forward are attributable to Brockbank.
Gross premiums written in 1998 and 1997 were also affected by a significant
decline in premiums written for general liability insurance. The Company
continues to experience high levels of competition, particularly on a price
basis and coverage terms, although business retention has remained in excess
of 80%. Policy retention for general liability insurance was 86.1% in 1998
compared to 80.1% in 1997 and 87.9% in 1996. The Company's response has been
to move generally to higher attachment levels which results in lower premiums
as the Company moves further away from risk. As at November 30, 1998, the
average limits for general liability insurance was $84.4 million in excess of
$135.2 million attachment point, as compared to average limits of $86.4
million and $80.2 million in excess of attachment points of $104.0 million and
$78.7 million for the years ended November 30, 1997 and 1996, respectively.
Other liability insurance (comprising mostly professional lines), increased
significantly primarily as a result of several tailored multi-year programs
written in the year. These transactions tend to be complex in nature and often
take a significant period of time to structure, thus premiums written in any
given year may not be representative of future years and/or may be irregular
in nature.
The growth in net premiums written (gross premiums net of reinsurance ceded)
in 1998 over 1997 was likewise affected by the above mentioned factors. In
addition, the Insurance Operations purchased general liability excess of loss
reinsurance contract for $33.8 million at the beginning of the Company's 1997
fourth quarter resulting in a reduction of net premiums written. Such
reinsurance was extended to the Company's year end and has been renewed for
1999. There was no equivalent reinsurance for 1996.
26
<PAGE>
The increase in net premiums earned reflects the corresponding growth in net
premiums written. Unlike net premiums written, the timing differences created
by the writing of multi-year premiums are smoothed as net premiums are earned
over the lives of the policies. Thus net earned premiums earned may give a
better indication of the trends in the Company's underlying business.
Net Investment Income
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net investment income........................ $279,375 $216,552 $198,598
</TABLE>
The increase in net investment income in 1998 over 1997 is due to a number
of factors. The average asset base increased primarily due to the merger with
Mid Ocean during the third quarter of 1998 and the Company's positive
operational cash flow. In addition, the average yield of the portfolio was
higher due to a widening of interest spreads and a decrease in the
proportionate amount of equity securities held as a percentage of the total
investment portfolio.
Similarly, in 1997, the average asset base increased with the acquisition of
GCR. Average investment yields were also higher than 1996. The proportion of
equity securities relative to the fixed income portfolio decreased marginally
in 1997 compared to 1996.
Net Realized Investment Gains
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net realized investment gains....................... $191,795 $335,939 $206,212
</TABLE>
Gains realized in 1998 reflected the strong performance of both the equity
and certain sectors of the fixed income markets early in 1998, offset by
dramatic price declines in the third quarter, followed by recoveries in the
fourth quarter. Regarding the latter, generally declining interest rates and
sector volatility have resulted in spreads widening in the corporate and
mortgage markets, thereby providing the Company with opportunities to increase
the yield on its investments despite the general decline in interest rates.
Also, volatile markets may promote opportunities for the Company's investment
managers to pursue their total return objectives with a goal of generating
investment gains in the process.
The equity markets world-wide have remained strong but also have been
subject to greater volatility through the year. This resulted in $136.7
million in gains being realized as some of the Company's equity managers
locked in gains where they felt valuations had reached their targets. The
Company also sold its minority investment in Venton during the fourth quarter,
realizing a $14.1 million gain.
During 1997, both the fixed income and equity portfolios were restructured,
resulting in above normal turnover of the portfolio and contributing to the
significant gains realized during the year. Market conditions were also very
strong during 1997. The Company also maintains a synthetic equity portfolio
holding S&P 500 Index futures that realized net gains of $25.8 million and
$37.4 million for the years ended November 30, 1998 and 1997, respectively.
Equity in Net Income of Affiliates
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Equity in net income of affiliates..................... $47,980 $65,882 $59,249
</TABLE>
Equity in net income from affiliates was derived mostly from the Company's
equity position in Mid Ocean, which ended in August 1998 upon the acquisition
of the balance of the outstanding Mid Ocean shares. As a result, only nine
months of earnings were accounted for on this basis in 1998, compared to a
full year in 1997.
27
<PAGE>
The increase in equity in net income of affiliates in 1997 over 1996
reflected an improvement in reported earnings of Mid Ocean plus contributions
of $3.9 million from the Company's equity positions in Risk Capital Holdings,
Inc. and certain limited partnerships. No positive contributions were recorded
from these affiliates in 1998.
Fee and Other Income
<TABLE>
<CAPTION>
1998 1997 1996
------- ---- ----
(in thousands)
<S> <C> <C> <C>
Fee and other income.......................................... $13,298 -- --
</TABLE>
Approximately one half of all fee income represents net managing agency
income for fees earned by Brockbank and are only for one reported quarter in
1998. These fees are received from the management of Lloyd's syndicates, and
profit commissions are earned under GAAP based upon estimated results of the
syndicates managed. Profit commissions are settled and paid to the managing
agent after an underwriting year has been closed under Lloyd's rules, which is
normally three years after its inception.
Of the remaining balance, $2.2 million represents a fee to the Company's
insurance operations for structuring a specialty insurance cover and $3.6
million represents a distribution from one of its limited partnership
investments.
Combined Ratio
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Loss and loss expense ratio................................... 57.0% 67.6% 78.3%
Underwriting expense ratio.................................... 26.3% 18.2% 15.3%
----- ----- -----
Combined ratio................................................ 83.3% 85.8% 93.6%
===== ===== =====
</TABLE>
The decrease in the loss ratio primarily reflects the diversification of the
Company's business over the past two years to include a lower proportion of
liability business, which tends to be long-tail in nature. Loss ratios for this
longer tail business can be higher but usually pay out claims over several
years. The Company experienced lower losses in shorter tail lines resulting in
an overall lower loss ratio. The decrease in the proportion of longer tail
business will cause overall Company loss ratios to decrease in periods of low
catastrophic activity. It should also be noted that the converse may also
occur.
The 1998 year reflects a full year of the results of GCR acquired in June
1997 and four months of MORe acquired in August 1998. Most of the business
written by these companies is short tail in nature.
The 1998 loss ratio was also affected by the reduction of insurance reserves
established for the Company's professional lines to bring them in line with
updated actuarially determined reserve estimates. The Company generally
attempts to take a conservative stance with respect to initial reserves,
particularly on new lines of business due to the limited loss development the
Company would have experienced to date and the long tail nature of certain
lines of cover. In addition, reserves were reduced on specialty cover policies
for the years 1995 through 1997 due to the absence of losses on these policies.
These policies were for a three-year period, written on a claims made basis,
and expired in 1998.
During the fourth quarter of 1998 the Company incurred reinsurance losses of
$63 million relating to Hurricane Georges and the SwissAir airline disaster.
These losses were offset in part by reserves accrued during the year that were
transferred to the Company through the merger with Mid Ocean.
Prior to the acquisition of GCR, reinsurance business was not a significant
component of the Company's total book of business. As the relative proportion
of this business increased, the loss ratio decreased for the reasons explained
above resulting in a lower loss ratio in 1997 over 1996.
28
<PAGE>
The increase in the expense ratio reflects the change in the Company's
business mix. The reinsurance and Lloyd's syndicate businesses typically have
higher acquisition costs than the Company's insurance business.
The underwriting expense ratio excludes interest costs, the amortization of
intangible assets and one time charges totaling $17.5 million associated with
the realignment of the Company's reinsurance systems and operations. XLGRe and
MORe were amalgamated in August 1998, requiring the merging of data from two
different underwriting systems to effectively monitor the spread of geographic
and other risks. This also required the conversion of all the contracts on one
system to the other. Duplicate office facilities were closed and their
associated capitalized costs were expensed. The Company's severance costs
relating to redundant staff were expensed as well as certain professional
expenses incurred in connection with the merger.
Net Income
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(in thousands except per
share amounts)
<S> <C> <C> <C>
Income excluding net realized gains on
investments, amortization of intangible assets
and one time realignment charges................ $437,254 $346,866 $288,101
Net realized gains............................... 191,795 335,939 206,212
Amortization of intangible assets................ (23,926) (5,844) --
Alignment charges................................ (17,460) -- --
-------- -------- --------
Net income....................................... $587,663 $676,961 $494,313
======== ======== ========
Earnings per share--basic........................ $ 6.32 $ 7.95 $ 5.45
======== ======== ========
Earnings per share--diluted...................... $ 6.20 $ 7.84 $ 5.41
======== ======== ========
</TABLE>
Net income for 1998 decreased over 1997 which had increased over 1996
primarily due to the amount of investment gains realized in 1997 compared to
1998 and 1996. The increase in income before realized gains and the other
disclosed charges in 1998 and 1997 reflect the Company's acquisitions of Mid
Ocean on August 7, 1998 and GCR on June 12, 1997. Earnings per share were also
affected by the weighted average number of shares outstanding. On a diluted
basis, these were 94,785,000 shares for 1998, 86,314,000 shares for 1997 and
91,328,000 for 1996. The decrease in the weighted average number of shares
outstanding in 1997 reflects the repurchase of shares in 1996 and 1997. The
increase in the number of shares for 1998 is primarily due to the issue of
shares in exchange for Mid Ocean Limited shares.
Financial Condition and Liquidity
As a holding company, the Company's assets consist primarily of its
investments in the stock of its subsidiaries, and the Company's future cash
flows depend on the availability of dividends or other statutorily permissible
payments from its subsidiaries. The ability to pay such dividends is limited
by the applicable laws, rules and regulations of Bermuda, the United States,
the Republic of Ireland and the United Kingdom insurance law and regulations,
including those promulgated by the Society of Lloyd's. In order to pay
dividends, the amount of which is limited to accumulated net realized profits,
XLI and XLMORe must maintain certain minimum levels of share capital, solvency
and liquidity pursuant to Bermuda statutes and regulations. At November 30,
1998, XLI and XLMORe could have paid dividends in the amount of approximately
$1.8 billion and $1.3 billion, respectively. Neither the Company nor any of
its material subsidiaries other than XLI, XLMORe, XLE, XLIA and XLRS had any
other restrictions preventing them from paying dividends. No assurance,
however, can be given that the Company or its subsidiaries will not be
prevented from paying dividends in the future. The Company's shareholders'
equity at November 30, 1998 was $4.8 billion, of which $2.4 billion was
retained earnings.
At November 30, 1998, total investments and cash net of unsettled investment
trades was $6.4 billion, compared to $4.3 billion at November 30, 1997. The
increase is due to the acquisition of cash and investments included in the
merger with Mid Ocean, as well as the reinvestment of investment income and
realized gains and
29
<PAGE>
the strengthening of the bond and equity markets during the year. However, as
the Company's long-tail casualty insurance business matures over the next
three to five years, it is possible that claims payments may increase due to
the increased exposure to events which occurred in prior years but have not
yet been reported or paid. It is also possible that funds available for
investment will be reduced as compared to prior years due to potential
increased claims payments. The Company's fixed income investments (including
short-term investments and cash equivalents) at November 30, 1998 represented
approximately 83% of invested assets and were managed by several outside
investment managers with different strategies. Of the fixed income securities,
83% are of investment grade, with 58% rated Aa or AA or better by a nationally
recognized rating agency. The average quality of the fixed income portfolio
was AA-.
The payable for investments purchased has increased from $382.3 million at
November 30, 1997 to $526.4 million at November 30, 1998. This increase
results from timing differences as it is the Company's policy to account for
its investments on a trade basis.
In fiscal 1996, 1997 and 1998, the total amount of losses paid by the
Company was $302.6 million, $267.2 million and $366.5 million respectively.
The Company establishes reserves to provide for the estimated expenses of
settling claims, the general expenses of administering the claims adjustment
process and for losses incurred but not reported. These reserves are
calculated by using actuarial and other reserving techniques to project the
estimated ultimate net liability for losses and loss expenses. The Company's
reserving practices and the establishment of any particular reserve reflect
management's judgement concerning sound financial practice and does not
represent any admission of liability with respect to any claims made against
the Company's subsidiaries. No assurance can be given that actual claims made
and payments related thereto will not be in excess of the amounts reserved.
Inflation can have an effect on the Company in that inflationary factors can
increase damage awards and potentially result in more claims exceeding
applicable minimum attachment points. The Company's underwriting philosophy is
to adjust premiums in response to inflation, although this may not always be
possible due to competitive pressure. Inflationary factors are considered in
determining the premium level on multi-year policies at the time contracts are
written. In addition, the Company from time to time evaluates whether minimum
attachment points should be raised to take into account inflationary factors.
The Company commenced its initial stock repurchase program in September 1993
as authorized by its Board of Directors and obtained approval for subsequent
programs as each program was completed. On January 24, 1997, the Board of
Directors authorized the Company to repurchase 3 million shares as
circumstances warrant. As at November 30, 1997, the Company had purchased
595,000 shares at cost of $25.3 million. On March 13, 1998, the Board of
Directors discontinued this program with 2.4 million shares remaining and
replaced it with an authorization to repurchase $500 million of its shares. Of
this amount, $300 million was used to repurchase 3.7 million shares related to
the merger with Mid Ocean. In addition, the Company had purchased a further
732,000 shares at a cost of $51.2 million during the year. On January 22,
1999, the Board of Directors discontinued this program with $148.8 million
remaining and replaced it with an authorization to repurchase $500 million of
its shares.
On June 11, 1997, subsidiaries of the Company obtained two revolving lines
of credit each for $250 million, one for 364 days and the other for 5 years.
The one-year facility has been extended until June 1999. These facilities are
provided by a syndicate of banks in order to facilitate strategic acquisitions
and to supplement operational cash flow. The weighted average interest rate on
the funds borrowed during 1998 was 5.667%. The balance of the loan outstanding
under the facilities as at November 30, 1998 was $190 million, which was
extended for an additional three months at its due date on December 16, 1998.
This amount represents the balance remaining of $250 million that was borrowed
to fund the cash election option available to shareholders in connection with
the Mid Ocean merger.
Mid Ocean had obtained multi-currency committed lines of credit provided by
a syndicate of banks which provides for unsecured borrowing up to an aggregate
amount of $200 million subject to certain conditions in
30
<PAGE>
August 1997. The Mid Ocean facility is split evenly between a 364-day and a
5-year facility. These facilities remained in place following the merger with
Mid Ocean. In August 1998, $50 million was borrowed from the 5-year facility
and used by the Company in connection with the purchase of shares as part of
the Mid Ocean merger. This was repaid in November 1998.
In 1998, X.L. America, Inc. ("XLA") obtained an unsecured revolving line of
credit of $100 million for 364 days from a U.S. bank. During the year the full
amount of this facility was borrowed and used to fund the Company's U.S.
operations. This line of credit was replaced in December 1998 with a $150
million commercial paper funding facility of which $100 million has been
drawn. XLI guarantees the indebtedness of XLA under this facility.
On February 27, 1998, subsidiaries of the Company obtained a $500 million
letter of credit facility from a syndicate of banks, which is secured against
the Company's investment portfolio. This facility is used to collateralize
certain reinsured's technical reserves with the Company. The Company has
committed to letters of credit of approximately $80.6 million as at November
30, 1998.
Mid Ocean had a $325 million letter of credit facility with Citibank N.A.,
London Branch, which is secured against its investment portfolio. Letters of
credit totaling approximately $223.0 million under this facility were
outstanding as at November 30, 1998.
Year 2000 Considerations
The Company is exposed to risks associated with Year 2000 issues in terms of
both the technology systems on which it depends and the underwriting exposures
which it assumes.
In 1997, the Company initiated a project to address Year 2000 issues with
respect to the Company's computer software and information technology systems
as well as its non-information technology systems. The project has two
distinct areas of focus--assessment of the Year 2000 compliance of the
Company's software, systems and technology platforms, and the evaluation of
the Year 2000 preparedness of significant third parties with whom the Company
conducts business, including vendors and customers.
The Company has substantially completed its assessment of Company software
and systems and has adopted a plan to implement compliant components, targeted
to be substantially complete by June 1999. The Company estimates that through
November 30, 1998 the remediation and validation efforts are approximately 50%
complete, with the costs through such date aggregating approximately $3
million. Future costs of remediation are not expected to have a material
impact on the Company's financial position, results of operation or cash
flows.
The Company recognizes the potential impact of Year 2000 issues from its
service providers and customers. The Company is currently communicating with
its significant service providers to assess their readiness and will address
compliance risks with each new significant vendor. In addition, the Company's
potential exposure to its customers' Year 2000 issues is being reviewed.
Formal contingency plans will not be formulated until the Company has
identified specific areas where there is a substantial risk of Year 2000
problems occurring, and no such areas are identified as of this date.
All insurance and reinsurance subsidiaries of the Company examine the
potential exposure to Year 2000-related risks associated with the coverages
that they provide. In some instances, Year 2000-related risks are expressly
excluded from or included in certain coverages, and in other instances,
coverage in respect of such risks is neither expressly excluded nor included.
To the extent that Year 2000-related risks materialize, participants in the
property and casualty insurance and reinsurance industry, including the
Company, could pay or incur significant claims, losses or defense costs which
could have a material adverse effect on the Company's results of operations
and financial condition. In view of the inherent uncertainties surrounding the
likelihood that Year 2000-related risks will materialize and the extent to
which such risks will result in insurance and reinsurance losses, it is not
possible at this time to estimate the Company's potential exposure, if any, to
claims associated with Year 2000-related issues.
31
<PAGE>
Financial Risk Management
This risk management discussion and the estimated amounts generated from the
sensitivity analyses are forward-looking statements of market risk assuming
certain adverse market conditions occur. Actual results in the future may
differ materially from these projected results due to actual developments in
the global financial markets. The methods used by the Company to assess and
mitigate risk should not be considered projections of future events of losses
or lack of losses.
The Company's investment portfolio consists of fixed income and equity
securities, denominated in both U.S. dollars and non-U.S. currencies.
Accordingly, earnings will be affected by changes in interest rates, equity
prices and foreign currency exchange rates.
An immediate 100 basis point adverse shift in the treasury yield curve would
result in a decrease in total return of 4.6% or $246 million on the Company's
fixed income portfolio as of November 30, 1998.
The Company has short term debt outstanding. Interest rates are LIBOR based.
Accordingly, any changes in interest rates will affect interest expense. The
Company only has open positions on its five year facility. There are three and
a half years remaining before this facility must be renewed.
In evaluating the impact of price changes of the equity portfolio, including
the synthetic portion thereof, the annual volatility (standard deviation
adjusted to an immediate time horizon) of the S&P (Standard and Poor's) Index
and the Morgan Stanley EAFE (European Australia Far East) Index were used as
proxies for U.S. and non-U.S. securities, respectively. Based upon one
standard deviation, total return would be impacted by $12 million. A 10%
change in equity prices would effect total return by approximately $113
million.
Foreign Currency Exposure Management
The Company uses foreign exchange contracts to manage its exposure to the
effects of fluctuating foreign currencies on the value of its non-U.S. dollar
fixed maturities and its non-U.S. dollar equity investments on an overlay
basis. These contracts are not designated as specific hedges for financial
reporting purposes and, therefore realized and unrealized gains and losses
recognized on them are recorded as a component of net realized gains and
losses in the period in which they occur. These contracts generally have
maturities of three months or less. In addition, where the Company's
investment managers are of the opinion that potential gains exist in a
particular currency, a forward contract will not be entered into. At November
30, 1998, forward foreign exchange contracts with notional principal amounts
totaling $322.3 million were outstanding. The fair value of these contracts as
at November 30, 1998, was $308.4 million with unrealized losses of $13.9
million. Gains of $3.8 million were realized during the year. Based on this
value, a 10% appreciation or depreciation of the U.S. dollar as compared to
the level of other currencies under contract at November 30, 1998 would have
resulted in approximately $11.2 million in unrealized gains and $33.2 million
in unrealized losses.
In addition, the Company also enters into foreign exchange contracts to buy
and sell foreign currencies in the course of trading its non-U.S. dollar
investments. These contracts are not designated as specific hedges for
financial reporting purposes, and generally have maturities of weeks or less.
As such, any realized or unrealized gains or losses are recorded in income in
the period in which they occur. At November 30, 1998, the Company had $2.4
million of such contracts outstanding, and had recognized a total of $0.4
million in realized and unrealized losses for the twelve month period. Based
on this value, a 10% appreciation or depreciation of the U.S. dollar as
compared to the level of other currencies under contract at November 30, 1998,
would have had no material effect on income.
The Company attempts to hedge directly the foreign currency exposure of a
portion of its non-U.S. Dollar fixed maturity investments using forward
foreign exchange contracts that generally have maturities of three months or
less, and which are rolled over to provide continuing coverage for as long as
the investments are held. Where an investment is sold, the related foreign
exchange sale contract is closed by entering into an offsetting purchase
contract. At November 30, 1998 the Company had, as hedges, foreign exchange
contracts for the sale of $17.5 million and the purchase of $0.1 million of
foreign currencies at fixed rates, primarily New Zealand Dollars (73% of net
contract value), Danish Kroner (14%) and Swedish Kroner (13%). The market
value of non-U.S. Dollar fixed maturities held by the Company as at November
30, 1998 was $19.0 million.
32
<PAGE>
Unrealized foreign exchange gains or losses on foreign exchange contracts
hedging non-U.S. Dollar fixed maturity investments are deferred and included
in shareholders' equity. As at November 30, 1998, unrealized deferred losses
amounted to $0.1 million, and were offset by corresponding decreases in the
dollar value of the investments. Realized gains and losses on the maturity of
these contracts are also deferred and included in shareholders' equity until
the corresponding investment is sold. As at November 30, 1998, realized
deferred losses amounted to $2.0 million.
In January 1999, eleven Member States of the European Union ("EU") began
their participation in the EU's Economic and Monetary Union pursuant to which
participating Member States currencies were converted into the Euro, the
common currency for the EU. The Company is uncertain as to the impact of the
conversion on its business and financial condition and the Company has not yet
initiated a detailed analysis and plan with respect to the Euro. Although the
Company does not anticipate the costs associated with the conversion to be
material, such costs are not known with precision at this time.
Financial Market Exposure
The Company also invests in a synthetic equity portfolio of S&P Index
futures with an exposure approximately equal in amount to the market value of
underlying assets held in this fund. As at November 30, 1998, the portfolio
held $138.3 million in exposure to S&P 500 Index futures together with fixed
maturities, short-term investments and cash amounting to $139.5 million. Based
on this value, a 10% increase or decrease in the price of these futures would
have resulted in a total value, or exposure, of $152.2 million and $124.5
million, respectively. The value of the futures is updated daily with the
change recorded in income as a realized gain or loss. For the year ended
November 30, 1998, net realized gains from index futures totalled $25.8
million as a result of the 21.5% increase in the S&P Index during the twelve-
month period.
Derivative investments are also utilized to add value to the portfolio where
market inefficiencies are believed to exist. At November 30, 1998, bond and
stock index futures outstanding were $333.4 million, with underlying
investments having a market value of $2.1 billion (all portfolio managers are
prohibited by the Company's investment guidelines from leveraging their
positions). A 10% appreciation or depreciation of these derivative instruments
at this time would have resulted in unrealized gains and losses of $33.3
million, respectively.
Accounting Standards
The Financial Accounting Standards Board ("FASB") issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information",
effective for fiscal years beginning after December 15, 1997. This statement
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to shareholders. It also
established standards for related disclosures about products and services,
geographical areas and major customers. Under SFAS 131, operating segments are
to be determined consistent with the way that management organizes and
evaluates financial information internally for making operating decisions and
assessing performance. The Company has not yet assessed the affect of the
adoption of this accounting standard on its consolidated financial statement
disclosures.
FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," effective for fiscal years beginning after December
15, 1997. This Statement revises employers' disclosures about pensions and
other postretirement benefit plans. This standard is expected to have a
minimal impact on the Company's consolidated financial disclosures.
FASB also issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions
are met, a derivative may be specifically designated as a hedge.
33
<PAGE>
The accounting for changes in fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation. The Company has not yet assessed the affect of the adoption of
this accounting standard on its consolidated financial statement disclosures.
SFAS No. 131 and No. 133 are not expected to have a significant impact on the
Company's overall results but will affect the Company's financial statements
and disclosures.
Current Outlook
The Company believes competition in the property casualty insurance and
reinsurance industry will continue to be strong and may intensify in 1999,
exerting pressure on rates in general across virtually all property and
casualty product lines. Although the Company believes some opportunities will
exist in 1999 for growth in certain product lines, no assurances can be made
that growth in such product lines will be sufficient to offset the competitive
pressures affecting the Company's other product lines.
Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 ("PSLRA") provides a
"safe harbor" for forward-looking statements. This Form 10-K, the Company's
Annual Report to Stockholders, any proxy statement, any Form 10-Q or Form 8-K
of the Company or any other written or oral statements made by or on behalf of
the Company may include forward-looking statements which reflect the Company's
current views with respect to future events and financial performance. Such
statements include forward-looking statements both with respect to the Company
and the insurance and reinsurance sectors in general (both as to underwriting
and investment matters). Statements which include the words "expect",
"intend", "plan", "believe", "project", "anticipate", "will" and similar
statements of a future or forward-looking nature identify forward-looking
statements for purposes of the PSLRA.
All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors that could
cause actual results to differ materially from those indicated in such
statements. The Company believes that these factors include, but are not
limited to, the following: (i) ineffectiveness or obsolescence of the
Company's business strategy due to changes in current or future market
conditions; (ii) increased competition on the basis of pricing, capacity,
coverage terms or other factors; (iii) greater frequency or severity of claims
and loss activity, including as a result of natural or man-made catastrophic
events, than the Company's underwriting, reserving or investment practices
anticipate based on historical experience or industry data; (v) developments
in the world's financial and capital markets which adversely affect the
performance of the Company's investments; (vi) changes in regulation or tax
laws applicable to the Company, its subsidiaries, brokers or customers; (vii)
acceptance of the Company's products and services, including new products and
services; (viii) changes in the availability, cost or quality of reinsurance;
(ix) changes in the distribution or placement of risks due to increased
consolidation of insurance and reinsurance brokers; (x) the impact of Year
2000-related issues on the Company's technology systems and underwriting
exposures; (xi) loss of key personnel; (xii) the effects of mergers,
acquisitions and divestitures; (xiii) changes in rating agency policies or
practices; (xiv) changes in accounting policies or practices; and (xv) changes
in general economic conditions, including inflation, foreign currency exchange
rates, the introduction of the Euro and other factors. The foregoing review of
important factors should not be construed as exhaustive and should be read in
conjunction with other cautionary statements that are included herein or
elsewhere. The Company undertakes no obligation to publicly update or revise
any forward-looking statement, whether as a result of new information, future
developments or otherwise.
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements and Related Notes Page
- ------------------------------------------------------------ ----
<S> <C>
Consolidated Balance Sheets as of November 30, 1998 and 1997.............. 35
Consolidated Statements of Income for the years ended November 30, 1998,
1997 and 1996............................................................ 36
Consolidated Statements of Shareholders' Equity for the years ended
November 30, 1998, 1997 and 1996......................................... 37
Consolidated Statements of Cash Flows for the years ended November 30,
1998, 1997 and 1996...................................................... 38
Notes to Consolidated Financial Statements for the years ended November
30, 1998, 1997 and 1996.................................................. 39
Independent Auditors' Report.............................................. 62
</TABLE>
34
<PAGE>
XL CAPITAL LTD
CONSOLIDATED BALANCE SHEETS AS AT NOVEMBER 30, 1998 AND 1997
(Expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ----------- ----------
<S> <C> <C>
Investments available for sale:
Fixed maturities, available for sale at fair value
(amortized cost:
1998--$5,197,246; 1997--$3,144,642)................ $ 5,212,581 $3,196,872
Equity securities, at fair value (cost: 1998--
$995,873; 1997--$729,888).......................... 1,128,601 837,827
Short-term investments, at fair value (amortized
cost: 1998--$121,177;
1997--$220,138).................................... 121,214 219,969
----------- ----------
Total investments available for sale.............. 6,462,396 4,254,668
Cash and cash equivalents............................. 443,654 394,599
Investment in affiliates (cost: 1998--$140,201; 1997--
$336,680)............................................ 154,044 517,396
Other investments..................................... 41,369 27,244
Accrued investment income............................. 59,699 48,576
Deferred acquisition costs............................ 97,951 22,272
Prepaid reinsurance premiums.......................... 141,385 108,916
Premiums receivable................................... 689,516 254,238
Reinsurance balances receivable....................... 388,954 156,025
Intangible assets..................................... 1,500,404 267,695
Other assets.......................................... 129,278 36,833
----------- ----------
Total assets...................................... $10,108,650 $6,088,462
=========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Unpaid losses and loss expenses....................... $ 3,121,739 $2,342,254
Unearned premiums..................................... 1,010,907 566,911
Premiums received in advance.......................... 19,167 40,706
Accounts payable and accrued liabilities.............. 143,529 40,923
Reinsurance premiums payable.......................... 121,291 69,305
Loans payable......................................... 301,000 141,000
Net payable for investments purchased................. 526,357 382,345
Minority interest..................................... 46,780 25,888
----------- ----------
Total liabilities................................. $ 5,290,770 $3,609,332
----------- ----------
Shareholders' Equity:
Class A ordinary shares (par value $0.01; authorized,
999,990,000 shares including Class B shares; issued
and outstanding, 108,688,081 shares and 84,407,638
shares at November 30, 1998 and 1997, respectively).. 1,087 844
Class B ordinary shares (par value $0.01; authorized,
999,990,000 shares including Class A shares; issued
and outstanding, 3,115,873 shares and nil shares at
November 30, 1998 and 1997 respectively)............. 31 --
Contributed surplus................................... 2,289,456 290,085
Net unrealized appreciation on investments............ 159,953 188,444
Deferred compensation................................. (18,104) (11,362)
Retained earnings..................................... 2,385,457 2,011,119
----------- ----------
Total shareholders' equity........................ $ 4,817,880 $2,479,130
----------- ----------
Total liabilities and shareholders' equity........ $10,108,650 $6,088,462
=========== ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements
35
<PAGE>
XL CAPITAL LTD
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
(Expressed in thousands of U.S. dollars, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Revenues:
Net premiums earned............................ $ 685,200 $ 540,653 $517,892
Net investment income.......................... 279,375 216,552 198,598
Net realized gains on sales of investments..... 191,795 335,939 206,212
Equity in net income of affiliates............. 47,980 65,882 59,249
Fee and other income........................... 13,298 -- --
--------- --------- --------
Total revenues............................... 1,217,648 1,159,026 981,951
--------- --------- --------
Expenses:
Losses and loss expenses....................... 390,483 365,325 405,357
Acquisition costs.............................. 88,596 46,108 35,556
Administration expenses........................ 109,268 52,557 43,920
Interest expense............................... 11,523 7,176 --
Amortization of intangible assets.............. 23,926 5,844 --
--------- --------- --------
Total expenses............................... 623,796 477,010 484,833
--------- --------- --------
Income before minority interest and income tax
expense......................................... 593,852 682,016 497,118
Minority interest in net income of subsidiary.. 826 (30) --
Income tax expense............................. 5,363 5,085 2,805
--------- --------- --------
Net income....................................... $ 587,663 $ 676,961 $494,313
========= ========= ========
Weighted average ordinary shares and ordinary
share equivalents outstanding--basic............ 92,975 85,120 90,734
========= ========= ========
Weighted average ordinary shares and ordinary
share equivalents outstanding--diluted.......... 94,785 86,314 91,328
========= ========= ========
Earnings per ordinary share and ordinary share
equivalent--basic............................... $ 6.32 $ 7.95 $ 5.45
========= ========= ========
Earnings per ordinary share and ordinary share
equivalent--diluted............................. $ 6.20 $ 7.84 $ 5.41
========= ========= ========
</TABLE>
See accompanying notes to Consolidated Financial Statements
36
<PAGE>
XL CAPITAL LTD
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
FOR THE YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
(Expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Ordinary Shares:
Balance-beginning of year................ $ 844 $ 872 $ 473
Issue of shares.......................... 12 3 1
Issue of shares--Mid Ocean acquisition... 303 -- --
Stock dividend........................... -- -- 441
Exercise of stock options................ 3 3 4
Repurchase of treasury shares............ (44) (34) (47)
---------- ---------- ----------
Balance-end of year.................... 1,118 844 872
---------- ---------- ----------
Contributed Surplus:
Balance-beginning of year................ 290,085 282,980 295,209
Issue of shares.......................... 88,959 10,771 7,493
Issue of shares Mid Ocean acquisition.... 2,189,414 -- --
Exercise of stock options................ 9,147 6,277 6,045
Repurchase of treasury shares............ (288,149) (9,943) (25,767)
---------- ---------- ----------
Balance-end of year.................... 2,289,456 290,085 282,980
---------- ---------- ----------
Net Unrealized Appreciation (Depreciation)
on Investments:
Balance-beginning of year................ 188,444 256,430 283,289
Net change in investment portfolio....... (24,194) (82,521) (26,621)
Net change in investment portfolio of
affiliate............................... (4,297) 14,535 (238)
---------- ---------- ----------
Balance-end of year.................... 159,953 188,444 256,430
---------- ---------- ----------
Deferred Compensation:
Balance-beginning of year................ (11,362) (4,169) (1,657)
Issue of restricted shares............... (11,103) (10,387) (3,799)
Amortization............................. 4,361 3,194 1,287
---------- ---------- ----------
Balance-end of year.................... (18,104) (11,362) (4,169)
---------- ---------- ----------
Retained Earnings:
Balance-beginning of year................ 2,011,119 1,579,925 1,428,819
Net income............................... 587,663 676,961 494,313
Cash dividends paid...................... (150,294) (115,372) (86,586)
Repurchase of treasury shares............ (63,031) (130,395) (256,621)
---------- ---------- ----------
Balance-end of year.................... 2,385,457 2,011,119 1,579,925
---------- ---------- ----------
Total shareholders' equity................. $4,817,880 $2,479,130 $2,116,038
========== ========== ==========
Comprehensive Income:
Net income............................... 587,663 676,961 494,313
Change in net unrealized appreciation
(depreciation) of investments........... (28,491) (67,986) (26,859)
---------- ---------- ----------
Comprehensive income................... $ 559,172 $ 608,975 $ 467,454
========== ========== ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements
37
<PAGE>
XL CAPITAL LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
(Expressed in thousands of U.S. dollars)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Cash flows provided by operating
activities:
Net income before minority interest. $ 588,489 $ 676,961 $ 494,313
----------- ----------- ----------
Adjustments to reconcile net income
before minority interest to net cash
provided by operating activities:
Net realized gains on sales of
investments.......................... (191,795) (335,939) (206,212)
Amortization of (discounts) premium on
fixed maturities..................... (12,953) (2,163) 7,021
Equity in net income of affiliates net
of cash received..................... (23,585) (34,395) (44,329)
Amortization of deferred compensation. 4,361 3,194 1,287
Amortization of intangible assets..... 23,926 5,844 --
Unpaid losses and loss expenses....... 179,075 208,565 178,596
Reinsurance balances receivable....... (144,910) (109,581) (45,442)
Unearned premiums..................... (16,751) (178,584) 140,239
Prepaid reinsurance premiums.......... 2,973 (45,449) (61,029)
Premiums received in advance.......... (21,539) 16,450 19,376
Deferred acquisition costs............ (3,818) 17,292 10,571
Premiums receivable................... 21,375 154,521 (111,054)
Reinsurance premiums payable.......... 761 37,958 30,524
Accrued investment income............. 10,691 10,729 (2,580)
Accounts payable and accrued
liabilities.......................... 15,570 2,839 11,188
----------- ----------- ----------
Total adjustments................... (156,619) (248,719) (71,844)
----------- ----------- ----------
Net cash provided by operating
activities......................... 431,870 428,242 422,469
----------- ----------- ----------
Cash flow used in investing activities:
Proceeds from sale of fixed maturities
and short-term investments........... 13,709,343 10,332,277 4,283,613
Proceeds from redemption of fixed
maturities and short-term
investments.......................... 530,415 108,220 119,706
Proceeds from sale of equity
securities........................... 850,748 1,164,483 591,366
Purchases of fixed maturities and
short-term investments............... (14,313,067) (10,078,481) (5,059,795)
Purchases of equity securities........ (964,214) (999,384) (374,565)
Deferred gains on forward contracts... (12,295) 7,049 418
Investments in affiliates............. (1,126) (43,184) (19,131)
Purchase of GCR Holdings Limited...... -- (660,137) --
Cash acquired in purchase of Mid Ocean
Limited.............................. 137,483 -- --
Other investments..................... 1,836 154 (13,736)
Other assets.......................... (8,537) (24,185) (20,208)
----------- ----------- ----------
Net cash used in investing
activities......................... (69,414) (193,188) (492,332)
----------- ----------- ----------
Cash flows used in financing activities:
Issuance of restricted shares......... 514 387 695
Proceeds from exercise of share
options.............................. 7,538 6,280 6,049
Repurchase of treasury shares......... (351,225) (140,372) (282,435)
Dividends paid........................ (150,294) (115,372) (86,145)
Proceeds from loans................... 655,000 530,000 11,000
Repayment of loans.................... (495,000) (400,000) --
Minority interest..................... 20,066 25,888 --
----------- ----------- ----------
Net cash used in financing
activities......................... (313,401) (93,189) (350,836)
----------- ----------- ----------
Increase (decrease) in cash and cash
equivalents............................ 49,055 141,865 (420,699)
Cash and cash equivalents--beginning of
year................................... 394,599 252,734 673,433
----------- ----------- ----------
Cash and cash equivalents--end of year.. $ 443,654 $ 394,599 $ 252,734
=========== =========== ==========
Taxes paid.............................. $ 9,207 $ 2,622 $ 1,571
=========== =========== ==========
Interest paid........................... $ 11,443 $ 5,824 $ --
=========== =========== ==========
</TABLE>
38
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended November 30, 1998, 1997 and 1996
(Expressed in U.S. dollars)
1. Organization
XL Capital Ltd. ("XL" or the "Company") is a holding company organized under
the laws of the Cayman Islands. XL was incorporated on March 16, 1998 as the
successor to EXEL Limited, a Cayman Islands corporation organized in 1986
("EXEL"), in connection with EXEL's merger with Mid Ocean Limited, a Cayman
Islands corporation ("Mid Ocean"). In the merger, which was completed on
August 7, 1998, all of the shares of EXEL and Mid Ocean were exchanged for
shares in the Company pursuant to two schemes of arrangement approved by the
Grand Court of the Cayman Islands in accordance with Section 85 of the
Companies Law (1995 Revision) of the Cayman Islands. The Company operated
under the name "EXEL Limited" from completion of the merger until February 1,
1999, when its current name was approved by the requisite vote of the
Company's shareholders. References herein to "XL" or the "Company" also shall
include EXEL unless the context otherwise requires. Through its subsidiaries,
the Company is a leading provider of insurance and reinsurance, including
coverages relating to certain financial risks, to industrial, commercial and
professional service firms, insurance companies and other enterprises on a
worldwide basis.
XL Insurance Ltd, an insurance company organized under the laws of Bermuda
("XLI"), and its subsidiaries are the Company's principal insurance
subsidiaries. XLI was formed in 1986 in response to a shortage of high excess
liability coverage for Fortune 500 companies in the United States. In 1990,
XLI formed XL Europe Insurance, an insurance company organized under the laws
of the Republic of Ireland ("XLE"), to serve European clients. In 1998, XLI
acquired Folksamerica General Insurance Company (renamed X.L. Insurance
Company of America, Inc.), an insurance company domiciled in the State of New
York and possessing property and casualty insurance licenses in approximately
20 states and reinsurance licenses in approximately 14 states, and formed X.L.
Risk Solutions, Inc., an insurance company domiciled in the State of
Connecticut. XLI also has a representative office in Australia.
The Company's reinsurance operations are conducted primarily through XL Mid
Ocean Reinsurance Ltd, an insurance company organized under the laws of
Bermuda ("XLMORe"), and its subsidiaries. On August 7, 1998, XLMORe was formed
through the merger of X.L. Global Reinsurance Company, Ltd. ("XLGRe") and Mid
Ocean Reinsurance Company Ltd. ("MORe"). XLGRe was formed in November 1997
through the merger of X.L. Reinsurance Company, Ltd. ("XLRe") and Global
Capital Reinsurance Company Limited ("GCRe") following EXEL's acquisition of
GCR Holdings Limited, a Cayman Islands holding company, on June 12, 1997. XLRe
commenced operations on December 1, 1995 to write specialty reinsurance
business. MORe and GCRe were organized in 1992 and 1993, respectively,
initially to write property catastrophe reinsurance following severe
hurricanes which struck the southeastern United States in the late 1980's and
early 1990's. Each of XLRe, MORe and GCRe was organized as an insurance
company under the laws of Bermuda. XLMORe maintains branches in London,
Singapore and a European contact office in Munich.
The Company's operations at Lloyd's are conducted through The Brockbank
Group plc, a company organized under the laws of England, and its subsidiaries
(together, "Brockbank"). Brockbank is a leading Lloyd's managing agency which
manages five Lloyd's syndicates, two of which are dedicated corporate
syndicates ("corporate syndicates") whose capital is provided solely by the
Company and its subsidiaries. Mid Ocean acquired 51% of Brockbank in December
1995 and the remaining 49% in August 1997. The two corporate syndicates, which
commenced operations with effect from January 1, 1996, underwrite property,
marine and energy, aviation, satellite, professional indemnity, U.K. motor and
other specialty lines of insurance and reinsurance to a global client base. In
1998, the aggregate premium limit of the two corporate syndicates was
approximately $340 million, and the total capacity under management by
Brockbank was approximately $900 million. As a managing agency, Brockbank
receives fees and commissions in respect of the underwriting services it
provides to syndicates.
39
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In October 1998, the Company sold its 21% interest in Venton Holdings
Limited, a Bermuda holding company for the Venton managing agency group at
Lloyd's (together, the "Venton Group"). Prior to the sale, subsidiaries of the
Company provided reinsurance coverage to the Venton Group, which writes
principally professional indemnity, directors' and officers' liability and
fiduciary liability insurance coverages.
The Company participates in several joint ventures of strategic importance.
In general, the Company has pursued a strategy of entering into joint ventures
with organizations which possess expertise in lines of business that the
Company wishes to enter. The Company's principal joint ventures are in the
areas of financial guaranty insurance, life insurance for high net worth
individuals, Latin American reinsurance, political risk insurance and currency
overlay and related risk management.
In November 1998, the Company entered into a joint venture with Financial
Security Assurance Holdings Ltd., a New York corporation ("FSA"), to write
certain types of financial guaranty insurance and reinsurance. FSA, through
its subsidiaries, is primarily engaged in the business of providing financial
guaranty insurance on asset-backed and municipal obligations. Under the terms
of the joint venture, each of the Company and FSA formed a Bermuda insurance
company in which it was the majority shareholder and made a minority
investment in the company formed by its co-venturer. The Company formed and
maintains majority ownership of XL Financial Assurance Ltd. ("XLFA"). FSA
formed and maintains a majority ownership of Financial Security Assurance
International Ltd. ("FSAI"). Each of XLFA and FSAI has a capitalization of
approximately $100 million. As part of the joint venture, the Company and FSA
exchanged approximately $80 million of each other's stock, following which the
Company owned approximately 6% of the issued and outstanding common stock of
FSA.
In June 1998, the Company formed Reeve Court Insurance Ltd., an insurance
company organized under the laws of Bermuda, as a joint venture with such
company's management for the purpose of providing life insurance to high net
worth individuals. Reeve Court has a total capitalization of approximately
$100 million.
In October 1997, the Company and Risk Capital Holdings, Inc., a Delaware
corporation ("RCHI") which holds all of the outstanding shares of Risk Capital
Reinsurance Company, a Nebraska corporation ("RCRe"), organized LARC Holdings,
Ltd., a Bermuda corporation ("LARC") which holds all of the shares of Latin
American Reinsurance Company, Ltd., a Bermuda insurance company ("LARe"). LARe
has approximately $100 million in shareholders' equity and provides multi-line
reinsurance to the Latin American reinsurance market, concentrating on short-
tail, multi-peril property reinsurance and, to a lesser extent, casualty,
marine, aviation and other lines of reinsurance on both a treaty and
facultative basis. XLMORe owns approximately 75% of the outstanding shares of
LARC. The Company indirectly owns approximately 28% of RCHI.
In March 1997, XLI became a founding shareholder along with RCHI and another
insurance company of Sovereign Risk Insurance Ltd. ("Sovereign"), a Bermuda-
based managing general agency formed to write selected political risk
insurance coverages. The Company owns 40.5% of Sovereign.
In 1996, the Company acquired approximately 28% of Pareto Partners
("Pareto"), a firm which specializes in foreign currency overlay management
and related services. At December 31, 1998, Pareto had approximately $26
billion of assets under management. The Company works closely with Pareto to
develop new products and ventures, including the F/XL foreign currency
protection product offered by XLI.
2. Operations
(a) Insurance
The Company, through its subsidiaries XLI, XLE, XLIA and XLRS, is a leading
insurer and provides third party general liability insurance, directors and
officers liability insurance, professional liability insurance, employment
practices liability insurance and other liability insurance including,
property insurance, and other
40
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
insurance covers, including political risk insurance and financial products.
The liability insurance is written on an excess basis and the loss experience
is characterized as low frequency and high severity. Property is written on a
pro rata as well as an excess basis. Policies written on a pro rata basis can
attach at much lower levels. As a result, loss experience can be higher
frequency and lower severity.
The insurance subsidiaries have a quota share reinsurance policy with
several U.S. reinsurers, of which one is RCRe, covering general liability
risks only. Under the terms of this reinsurance, the Company will cede either
20% or 25% of each risk depending upon the underlying limit written. The
maximum amount recoverable from the reinsurers will be the ceded percentage of
the original policy limit on a per occurrence basis, with an annual aggregate
of 225% of the total premium ceded. No single reinsurer participates in excess
of 20% of the quota share. All the reinsurers are rated, of which the lowest
as rated by S&P is BBB. Effective September 1, 1997, the insurance
subsidiaries entered into an excess of loss casualty catastrophe reinsurance
contract covering all general liability risks. Under the terms of this policy,
the Company is reinsured for $80 million ultimate net loss each occurrence
excess of a per occurrence retention, subject to an annual aggregate retention
of $110 million. The maximum amount recoverable from the reinsurers will be an
annual aggregate of $250 million. For the year ended November 30, 1998, 97.75%
of this reinsurance has been placed with twenty three reinsurers, all of which
are rated. With the exception of two reinsurers, the lowest as rated by S&P is
A-. The other two reinsurers are rated BBB and BB by S&P, representing 3.5%
participation on this program.
Employment practices liability coverage is reinsured on a quota share basis
one third of the first $75 million to a U.S. insurer and cedes the remaining
excess layer of $25 million to a Bermuda based insurer. Both reinsurers are
rated, of which the lowest as rated by A.M. Best is A.
The Company cedes 25% of all property risks to a quota share reinsurance
treaty purchased from several property reinsurers. GCR and MORe were both
participants of this program. All property reinsurers are rated, of which the
lowest as rated by S& P is A-.
XL Risk Solutions and CIGNA Risk Solutions are a coordinated initiative
between XLI and CIGNA Property & Casualty ("CIGNA"). The product provides
combined capacity for traditional casualty and property coverages provided by
XLI or CIGNA. Available capacity by line of coverage is $60 million to $200
million depending upon the lines selected. Attachment levels may, in certain
situations, be provided below traditional stated levels subject to the
underwriting requirements. A quota share arrangement exists between XLI and
CIGNA based on pre agreed percentages by line of coverage for blended covers
written through XL Risk Solutions. These percentages vary from 12.5% to 90%,
but do not exceed XLI's normal capacity on individual lines of cover. XLI may
underwrite an account 100% without CIGNA participation.
Sovereign issues subscription policies with XLI and the other insurance
company each assuming 50% of each policy written. The Company reinsures 10% of
all risks assumed through Sovereign to RCRe.
XLI also offers insurance and reinsurance solutions for complex financial
risks. These include financial insurance and reinsurance, credit enhancement,
swaps and other collateralized transactions for up to $100 million in limits.
While each of these are unique and are tailored for the specific needs of the
insured, they are typically multi-year policies. Due to the nature of these
types of policies, premium volume as well as profit margin can vary
significantly from period to period. The Company has no formal reinsurance
coverage for these risks, but may cede a portion of some policies to third
parties from time to time.
41
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(b) Reinsurance
The Company, through XLMORe, is a leading reinsurer writing property
catastrophe, property excess of loss, property pro rata, marine and energy,
aviation and satellite and various other reinsurance to insurers on a
worldwide basis. XLMORe maintains branch offices in London and Singapore as
well as a European contact office in Munich, Germany. The London branch
underwrites marine and energy and aviation risks on a worldwide basis. The
Singapore branch underwrites general reinsurance, treaty and facultative
business.
A significant portion of XLMORe's business underwritten consists of large
aggregate exposures to man-made and natural disasters and generally loss
experience is characterized as low frequency and high severity. This may
result in volatility in the Company's financial results. The Company endeavors
to manage its exposures to catastrophic events by limiting the amount of its
exposure in each geographic zone worldwide and requiring that its property
catastrophe contracts provide for aggregate limits and varying attachment
points.
In August 1998, XLMORe placed $200 million of retrocessional property
catastrophe cover in a combination reinsurance and capital market swap
transaction. The transaction was offered in two tranches and covered the upper
layers, with a remote probability of attachment, of XLMORe's hurricane and
earthquake exposure in the United States and its territories and possessions
in the Caribbean. The risk securitization structure provides retrocessional
cover in financial swap form, with claim recovery triggered by catastrophe
losses actually incurred by XLMORe, rather than by a catastrophe index or
industry size event.
LARe provides multi-line reinsurance to the Latin American market,
emphasizing short-tail, multi-peril property reinsurance and, to a limited
extent, casualty, marine, aviation and other lines of reinsurance.
(c) Lloyd's
The Company's wholly owned subsidiary, Brockbank, is a leading Lloyd's
managing agency which manages five syndicates, two of which are dedicated
corporate syndicates whose capital is solely provided by the Company. These
corporate syndicates write property, marine and energy, aviation and
satellite, motor, professional indemnity and other specialty lines, primarily
of insurance but also reinsurance.
3. Significant Accounting Policies
(a) Basis of Preparation
These consolidated financial statements include the accounts of the Company
and all of its subsidiaries and have been prepared in accordance with
accounting principles generally accepted in the United States of America. All
material intercompany accounts and transactions have been eliminated. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The comparative consolidated financial statements are those of EXEL, the
Company's predecessor, as previously discussed in note 1.
Certain amounts in the financial statements for prior years have been
reclassified to conform with the 1998 presentation. All share amounts have
been adjusted for the one-for-one stock dividend paid to shareholders of
record July 26, 1996.
Premiums written are recorded in accordance with the terms of the underlying
policies. Reinsurance premiums assumed are estimated based upon information
received from ceding companies and any subsequent
42
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
differences arising on such estimates are recorded in the period they are
determined. Premiums are earned on a monthly pro-rata basis over the period
the coverage is provided. Unearned premiums represent the portion of premiums
written which is applicable to the unexpired terms of policies in force.
Premiums written under the multi-year alternate rating methodology may be
subject to a mandatory reinstatement premium in the event of a loss. An asset
is accrued to reflect the obligation of the insured's reinstatement premium
and the premium is earned in accordance with the "with or without" method;
that is, the pricing of the premium is evaluated in terms of a no loss
situation and the resultant premium is earned over the remaining term of the
policy. The balance of the reinstatement premium is earned to the extent of
the loss reaching the full policy limit; that is, in the event of a full limit
loss the balance of the reinstatement premium together with any unearned
premium of the underlying cover would be fully earned. Premiums written and
unearned premiums are presented after deductions for reinsurance ceded to
other insurance companies.
Acquisition costs which vary with and are primarily related to the
acquisition of policies, primarily commissions paid to insurance brokers, are
deferred and amortized over the period the premiums are earned. Future earned
premiums and the anticipated losses and other costs related to those premiums
are also considered in determining the level of acquisition costs to be
deferred.
(c) Reinsurance
In the normal course of business, the Company seeks to reduce the loss that
may arise from events that could cause unfavorable underwriting results by
reinsuring certain levels of risk in various areas of exposure with other
insurance enterprises or reinsurers. Reinsurance premiums ceded and the
commissions recorded thereon are expensed and earned on a monthly pro-rata
basis over the period the reinsurance coverage is provided. For those
reinsurance policies that provide coverage to the Company over the term of the
underlying business, the premiums ceded and commissions recorded thereon are
expensed and earned on a monthly pro-rata basis over the estimated term of
those policies. Amounts recoverable from reinsurers are estimated in a manner
consistent with the claim liability associated with the reinsured policy.
(d) Investments
Investments are available for sale and are carried at fair value. The fair
value of investments is based upon quoted market values where available or by
reference to broker or underwriter bid indications. The net unrealized
appreciation or depreciation on investments is included as a separate
component of shareholders' equity.
Short-term investments comprise investments with a maturity equal to or
greater than 90 days but less than one year.
All investment transactions are recorded on a trade date basis. Realized
gains and losses on sales of investments are determined on the basis of
average cost or amortized cost. Investment income is recognized when earned
and includes interest and dividend income together with the amortization of
premium and discount on fixed maturities and short-term investments.
Financial futures and forward currency contracts are marked to market, with
the corresponding realized or unrealized gain or loss included in income,
except in the instance of forward foreign currency contracts that are used to
hedge currency risks on specific investments. Gains and losses from these
contracts are deferred and included in shareholders' equity until the
corresponding asset is sold.
(e) Foreign Currency Translation
The functional and reporting currency of the Company and its subsidiaries is
U.S. dollars. Monetary assets and liabilities denominated in foreign
currencies are translated at the exchange rate in effect at the balance sheet
43
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
date with the resulting foreign exchange gains and losses recognized in
income, unless the foreign currency exposure is directly hedged as discussed
in note 3 (d). Revenue and expense transactions are translated at the average
exchange rates prevailing during the year.
(f) Investments in Affiliates
The Company accounts for its investments in affiliates on the equity basis.
(g) Other Investments
The Company accounts for its other investments on a cost basis as it has no
significant influence over these entities. Assets are written down to their
realizable value where there is a permanent decrease in value. Income is
recorded when received.
(h) Amortization of Intangible Assets
Intangible assets recorded in connection with the Company's business
combinations are amortized on a straight-line basis over the expected life of
the related operations acquired. The Company evaluates the recoverability of
its intangible assets whenever changes in circumstances warrant. If it is
determine that an impairment exists, the excess of the unamortized balance
over the fair value of the intangible asset will be charged to earnings.
(i) Losses and Loss Expenses
Unpaid losses and loss expenses includes reserves for unpaid reported losses
and loss expenses and for losses incurred but not reported. The reserve for
unpaid reported losses and loss expenses has been established by management in
consultation with independent legal counsel and ceding companies, and
represents the estimated ultimate cost of events or conditions that have been
reported to or specifically identified by the Company.
The Company recognizes as a component of loss reserves, the loss experience
accounts of insurers for policies written under the applicable multi-year
alternate rating methodology. Such experience accounts are a percentage of
premiums net of related losses paid. Interest is earned on liable amounts and
charged to investment income. In the event the insured cancels the policy, the
return of the experience account is treated as a commutation if previously
notified of a loss, or as a return premium if there has been no loss
notification.
The reserve for losses incurred but not reported has been estimated by
management in consultation with independent actuaries and is based on loss
development patterns determined by reference to the Company's underwriting
practices, the policy form and the experience of the relevant insurance
industries.
Management believes that the reserves for unpaid losses and loss expenses
are sufficient to pay any claims that may penetrate the minimum attachment
point. However, there can be no assurance that losses will not exceed the
Company's total reserves. The methodology of estimating the reserve is
periodically reviewed to ensure that the assumptions made continue to be
appropriate and any adjustments resulting therefrom are reflected in income of
the year in which the adjustments are made.
(j) Statements of Cash Flows
For purposes of the statements of cash flows, cash equivalents include fixed
interest deposits placed with a maturity of under 90 days when purchased.
44
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(k) Earnings per Ordinary Share and Ordinary Share Equivalent
The Company has adopted Statement of Financial Accounting Standards ("SAFS")
No. 128, "Earnings per Share". SFAS No. 128 replaced primary and fully diluted
earnings per share with basic and diluted earnings per share. Basic earnings
per share is calculated by dividing net income by the weighted average number
of ordinary shares outstanding for each period. Diluted earnings per share
reflects the potential dilution that could occur if the securities to issue
ordinary shares were exercised into ordinary shares. Prior years earnings per
share amounts have been restated to reflect this.
4. Investments
Net investment income is derived from the following sources (U.S. dollars in
thousands):
<TABLE>
<CAPTION>
Year ended November 30,
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Fixed maturities, short-term investments and cash
and cash equivalents............................... $285,797 $220,859 $200,711
Equity securities................................... 13,248 14,516 11,752
-------- -------- --------
Total investment income........................... 299,045 235,375 212,463
Investment expenses............................... 19,670 18,823 13,865
-------- -------- --------
Net investment income............................. $279,375 $216,552 $198,598
======== ======== ========
</TABLE>
The following represents an analysis of realized and the change in
unrealized appreciation (depreciation) on investments (U.S. dollars in
thousands):
<TABLE>
<CAPTION>
Year ended November 30,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net realized gains (losses):
Fixed maturities and short-term investments:
Gross realized gains........................ $ 420,918 $ 177,331 $ 103,830
Gross realized losses....................... (379,974) (168,048) (53,463)
--------- --------- ---------
Net realized gains........................ 40,944 9,283 50,367
Equity securities:
Gross realized gains........................ 605,525 370,949 288,272
Gross realized losses....................... (468,811) (44,293) (132,427)
--------- --------- ---------
Net realized gains........................ 136,714 326,656 155,845
Net realized gain on sale of investment in
affiliate.................................. 14,137 -- --
--------- --------- ---------
Net realized gains on investments......... 191,795 335,939 206,212
--------- --------- ---------
Change in unrealized appreciation
(depreciation):
Fixed maturities and short-term investments. (38,762) 19,391 (58,654)
Equity securities........................... 24,127 (108,961) 31,616
Deferred gains on forward contracts......... (12,295) 7,049 418
Investment portfolio of affiliates.......... (1,561) 14,535 (239)
--------- --------- ---------
Net change in unrealized appreciation
(depreciation) on investments................ (28,491) (67,986) (26,859)
--------- --------- ---------
Total net realized and change in
unrealized appreciation (depreciation) on
investments.............................. $ 163,304 $ 267,953 $ 179,353
========= ========= =========
</TABLE>
45
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The cost (amortized cost for fixed maturities and short-term investments),
market value and related unrealized gains (losses) of investments are as
follows (U.S. dollars in thousands):
<TABLE>
<CAPTION>
Cost or Gross Gross
Amortized Unrealized Unrealized Market
November 30, 1998 Cost Gains Losses Value
- ----------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and Government
agency.......................... $1,564,084 $ 18,592 $ (1,823) $1,580,853
Corporate bonds.................. 3,231,757 65,620 (68,023) 3,229,354
Non-U.S. Sovereign Government
bonds........................... 401,405 16,721 (15,752) 402,374
---------- -------- -------- ----------
Total fixed maturities......... $5,197,246 $100,933 $(85,598) $5,212,581
========== ======== ======== ==========
Short-term investments:
U.S. Government and Government
agency.......................... $ 38,187 $ 224 $ -- $ 38,411
Corporate bonds.................. 66,329 62 (313) 66,078
Non-U.S. Sovereign Government
bonds........................... 16,661 255 (191) 16,725
---------- -------- -------- ----------
Total short-term investments... $ 121,177 $ 541 $ (504) $ 121,214
========== ======== ======== ==========
Total equity securities............ $ 995,873 $208,390 $(75,662) $1,128,601
========== ======== ======== ==========
<CAPTION>
November 30, 1997
- -----------------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and Government
agency.......................... $1,055,581 $ 7,318 $ (612) $1,062,287
Corporate bonds.................. 1,545,473 52,504 (8,095) 1,589,882
Non-U.S. Sovereign Government
bonds........................... 543,588 12,112 (10,997) 544,703
---------- -------- -------- ----------
Total fixed maturities......... $3,144,642 $ 71,934 $(19,704) $3,196,872
========== ======== ======== ==========
Short-term investments:
U.S. Government and Government
agency.......................... $ 9,941 $ 4 $ -- $ 9,945
Corporate bonds.................. 197,770 209 (56) 197,923
Non-U.S. Sovereign Government
bonds........................... 12,427 -- (326) 12,101
---------- -------- -------- ----------
Total short-term investments... $ 220,138 $ 213 $ (382) $ 219,969
========== ======== ======== ==========
Total equity securities........ $ 729,888 $154,177 $(46,238) $ 837,827
========== ======== ======== ==========
</TABLE>
The contractual maturities of fixed maturity securities as of November 30,
1998 and 1997 are shown below (U.S. dollars in thousands). Actual maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
November 30, 1998 November 30, 1997
--------------------- ---------------------
Amortized Market Amortized Market
Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due after 1 through 5 years......... $2,006,607 $2,005,998 $ 966,598 $ 967,571
Due after 5 through 10 years........ 1,104,581 1,111,435 785,625 799,996
Due after 10 through 15 years....... 331,643 344,149 237,296 236,691
Due after 15 years.................. 948,102 936,709 776,202 808,729
Mortgage-backed investments......... 806,313 814,290 378,921 383,885
---------- ---------- ---------- ----------
$5,197,246 $5,212,581 $3,144,642 $3,196,872
========== ========== ========== ==========
</TABLE>
46
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Investment in Affiliates
The Company owned 27.9% of the issued shares of RCHI as at November 30, 1998
and 1997, respectively. Outstanding share warrants if exercised would dilute
the Company's ownership to 22.1% as at November 30, 1998. RCHI commenced
operations on November 6, 1995.
The Company owns 28% of Pareto Partners, a partnership engaged in the
business of providing investment advisory and discretionary management
services.
On November 3, 1998, XL and FSA formed Financial Security Assurance
International Ltd. ("FSAI") under the laws of Bermuda. FSAI was capitalized
with $100 million, of which FSA and XL contributed 80% and 20% respectively.
FSAI will focus on financial guaranty insurance and reinsurance opportunities.
As of November 30, 1998, no contracts were written.
The Company owned 29.1% of the issued voting shares and 24.8% of the total
issued shares of Mid Ocean as at November 30, 1997. The Company accounted for
its share of Mid Ocean's earnings to July 31, 1998 on an equity basis.
Subsequent to this date, Mid Ocean was acquired by the Company (as previously
discussed in note1) and has been consolidated as a wholly owned subsidiary of
XL.
In June 1997, XL acquired 21% of Venton from the Trident Partnership L.P.,
of which XL is a 10.7% limited partner. Venton manages three syndicates at
Lloyd's of London which underwrite non-marine, marine and all main classes of
business, respectively. On October 23, 1998, XL sold its investment in Venton
to an unrelated third party for $ 41.4 million cash, realizing a net gain of
$14.1 million.
6. Intangible Assets
Intangible assets comprises of goodwill arising primarily from the purchase
of Mid Ocean. The purchase price amounted to $ 2.2 billion of which $900
million represented the fair value of its net assets not already owned by the
Company with the balance of $1.3 billion representing goodwill which is being
amortized over 40 years. The balance of the goodwill mostly relates to the GCR
acquisition. This component of goodwill is being amortized over 20 years.
7. Losses and Loss Expenses
Unpaid losses and loss expenses comprise (U.S. dollars in thousands):
<TABLE>
<CAPTION>
Year ended November 30,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Reserve for reported losses and loss
expenses.................................. $1,368,129 $ 862,999 $ 803,893
Reserve for losses incurred but not
reported.................................. 1,753,610 1,479,255 1,295,203
---------- ---------- ----------
Unpaid losses and loss expenses............ $3,121,739 $2,342,254 $2,099,096
========== ========== ==========
Losses and loss expenses incurred comprise (U.S. dollars in thousands):
Loss and loss expense payments............. $ 366,475 $ 267,226 $ 302,642
Change in unpaid losses and loss expenses.. 182,426 206,220 158,670
Reinsurance recoveries..................... (158,418) (108,121) (55,955)
---------- ---------- ----------
Losses and loss expenses incurred.......... $ 390,483 $ 365,325 $ 405,357
========== ========== ==========
</TABLE>
47
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reconciliation of unpaid losses and loss expenses (U.S. dollars in
thousands):
<TABLE>
<CAPTION>
Year ended November 30,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Unpaid losses and loss expenses at beginning
of period.................................. $2,342,254 $2,099,096 $1,920,500
Losses and loss expenses incurred in respect
of losses occurring in:
Current year.............................. 713,059 735,313 436,334
Prior years............................... (164,158) (260,407) 14,465
---------- ---------- ----------
Total (Net of reinsurance 1998:
$390,483--1997: $365,325--1996:
$405,357............................... 548,901 474,906 450,799
---------- ---------- ----------
Interest incurred on experience reserves.. 1,798 886 1,752
Loss reserves acquired.................... 595,261 34,593 28,687
Losses and loss expenses paid in respect of
losses
occurring in:
Current Year.............................. 167,409 34,055 3,177
Prior years............................... 199,066 233,172 299,465
---------- ---------- ----------
Total....................................... 366,475 267,227 302,642
---------- ---------- ----------
Unpaid losses and loss expenses at end of
period..................................... $3,121,739 $2,342,254 $2,099,096
========== ========== ==========
</TABLE>
The 1998 current year losses reflects the inclusion of the operations of Mid
Ocean acquired on August 7, 1998. The results include four months of XLMORe
and three months of Brockbank. These operations incurred $169 million in gross
losses for the reported period. These losses were largely attributable to
Hurricane Georges and the SwissAir airline disaster. In addition, losses for
Brockbank attach at the primary layers and therefore are more frequent in
nature. These losses are also significantly reinsured.
Prior year incurred losses in 1998 were effected in part, by the release of
insurance reserves established for the Company's professional lines. These
reserves were reduced in accordance with actuarial estimates. In addition,
reserves were released on specialty cover policies for the years 1995 through
1997 due to the absence of losses that would affect the Company's layers.
These policies were for a three-year period, written on a claims-made basis
and expired in 1998.
The high level of the 1997 current year incurred losses was due to the fact
that three new 1997 casualty indemnity reserves totaling $145 million were
established. Historically, such losses have not emerged this quickly. Should
actual loss activity prove to be different, these reserves will be adjusted
accordingly.
The 1997 losses were offset by the release of $260 million in reserves that
related to prior years in accordance with actuarial estimates.
8. Commitments and Contingencies
(a) Letters of Credit
In February 1998, subsidiaries of the Company established a $500 million
letter of credit facility with a syndicate of commercial banks led by Mellon
Bank N.A. Letters of credit issued under this facility are collateralized by
pledged securities in XLI's fixed maturity investment portfolio. Letters of
credit totalling approximately $80.6 million and $155.8 million were
outstanding as at November 30, 1998 and 1997, respectively.
Mid Ocean had a $325 million letter of credit facility with Citibank N.A.,
London Branch. Letters of credit issued under this facility are collateralized
by pledged securities in Mid Ocean's investment portfolio. This
48
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
facility remains in place following the merger with Mid Ocean. Letters of
credit totaling approximately $223.0 million were outstanding as at November
30, 1998. This amount includes $169.5 million in respect of the Lloyd's
corporate syndicates which has been issued in lieu of paid in capital.
(b) Financial Instruments with Off-Balance Sheet Risk
The Company invests in derivative instruments, such as foreign currency
forward contracts, and futures for purposes other than trading. These
derivative instruments are used for foreign currency exposure management and
to obtain exposure to specific financial markets.
(i) Foreign Currency Exposure Management
The Company uses foreign exchange contracts to manage its exposure to the
effects of fluctuating foreign currencies on the value of its non-U.S.
dollar fixed maturities and its non-U.S. dollar equity investments on an
overlay basis. The fair value of the Company's non-U.S. dollar denominated
investments as at November 30, 1998 and 1997 was $535.3 million and $566.1
million, respectively. These contracts are not designated as specific
hedges for financial reporting purposes and, therefore, realized and
unrealized gains and losses recognized on them are recorded as a component
of net realized gains and losses in the period in which they occur. These
contracts generally have maturities of three months or less. In addition,
where the Company's investment managers are of the opinion that potential
gains exist in a particular currency, then a forward contract will not be
entered into. At November 30, 1998, forward foreign exchange contracts with
notional principal amounts totalling $322.3 million were outstanding. The
fair value of these contracts as at November 30, 1998, was $308.4 million
with unrealized losses of $13.9 million. Gains of $3.8 million were
realized during the year.
In addition, the Company also enters into foreign exchange contracts to
buy and sell foreign currencies in the course of trading its non-U.S.
dollar investments. These contracts are not designated as specific hedges
for financial reporting purposes, and generally have maturities of two
weeks or less. As such, any realized or unrealized gains or losses are
recorded in income in the period in which they occur. At November 30, 1998,
the Company had a $2.4 million of such contracts outstanding, and had
recognized a total of $0.4 million in realized and unrealized losses for
the year.
The Company attempts to hedge directly the foreign currency exposure of a
portion of its non-U.S. dollar fixed maturity investments using forward
foreign exchange contracts that generally have maturities of three months
or less, and which are rolled over to provide continuing coverage for as
long as the investments are held. Where an investment is sold, the related
foreign exchange sale contract is closed by entering into an offsetting
purchase contract. At November 30, 1998, the Company had, as hedges,
foreign contracts for the sale of $17.5. million and the purchase of $0.1
million of foreign currencies at fixed rates, primarily New Zealand dollars
(73% of net contract value), Danish Kroner (14%) and Swedish Kroner (13%).
The market value of non-U.S. dollar fixed maturities held by the Company as
at November 30, 1998 was $19.0 million.
Unrealized foreign exchange gains or losses on foreign exchange contracts
hedging non-U.S. Dollar fixed maturity investments are deferred and
included in shareholders' equity. As at November 30, 1998, unrealized
deferred gains amounted to $0.1 million, and were offset by corresponding
decreases in the U.S. dollar value of the investments. Realized gains and
losses on the maturity of these contracts are also deferred and included in
shareholders' equity until the corresponding investment is sold. As at
November 30, 1998, realized deferred losses amounted to $2.0 million.
The Company is exposed to credit risk in the event of non-performance by
the other parties to the forward contracts, however the Company does not
anticipate non-performance. The difference between the notional principal
amounts and the associated market value is the Company's maximum credit
exposure.
49
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(ii) Financial Market Exposure
The Company also invests in a synthetic equity portfolio of S&P Index
futures with an exposure approximately equal in amount to the market value
of underlying assets held in this fund. As at November 30, 1998, the
portfolio held $138.3 million in exposure to S&P 500 Index futures together
with fixed maturities, short-term investments and cash amounting to $ 139.5
million. The value of the futures is updated daily with the change recorded
in income as a realized gain or loss. For the year ended November 30, 1998,
net realized gains from index futures totaled $25.8 million.
Derivative investments are also utilized to add value to the portfolio
where market inefficiencies are believed to exist. At November 30, 1998,
bond and stock index futures outstanding were $333.4 million, with
underlying investments having a market value of $ 2.1 billion. All managers
are prohibited by the Company's investment guidelines from leveraging their
positions.
(c) Concentrations of Credit Risk
The Company's investment portfolio is managed by external managers in
accordance with guidelines that have been tailored to meet specific investment
strategies, including standards of diversification which limit the allowable
holdings of any single issue. The Company did not have an aggregate investment
in a single entity, other than the U.S. government, in excess of 10% of
shareholders' equity at November 30, 1998.
(d) Other Investments
The Company has committed to invest in several limited partnerships as part
of its overall corporate strategy. The primary purpose of these partnerships
is to invest capital provided by the partners in various insurance and
reinsurance ventures. The Company had invested $33.3 million and $27.2 million
as at November 30, 1998 and 1997, respectively, with commitments to invest a
further $138.7 million over the next ten years. The Company received income
from its investments of $3.6 million and $4.3 million for the years ended
November 30, 1998 and 1997, respectively. The Company continually reviews the
performance of the partnerships to ensure there is no decrease in the values
of its investments. The Company is a limited partner and, as such, does not
actively participate in the management of the partnerships.
(e) Properties
The Company rents space for its principal executive offices under leases
which expire up to June, 2009. Total rent expense for the years ended November
30, 1998, 1997 and 1996 were approximately $3.7 million, $2.1 million and $1.8
million, respectively. Future minimum rental commitments under existing leases
are expected to be approximately $4.0 million annually. In 1997 the Company
acquired commercial real estate in Hamilton, Bermuda for the purpose of
securing long-term office space to meet its anticipated needs. The Company is
in the process of developing this property and constructing its worldwide
headquarters. The total cost of the development, including the land, is
expected to be approximately $110.0 million, of which $23.7 million has been
spent to date. It is estimated that the development will be completed sometime
in 2001. Upon completion of the headquarters project, it is expected that the
Company's rental commitments will be reduced.
9. Credit Agreements
In 1997, subsidiaries of the Company obtained two unsecured revolving lines
of credit of $250 million each, one for 364 days (short-term) and the other
for 5 years (long-term), from a syndicate of nine major international banks
led by Mellon Bank, N.A. During the year, a total of $505.0 million was
borrowed at a weighted average rate of 5.667%. Total interest expense and
facility costs amounted to $9.5 million and $7.18 million for the years ended
November 30, 1998 and 1997, respectively. As at November 30, 1998, the
outstanding balance was $190.0 million drawn under the long-term facility and
is repayable within the next twelve months.
50
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On June 27, 1996, the Company borrowed $11.0 million from the Bank of
Bermuda (New York) Limited in order to fund its investment in Pareto Partners,
Inc., an investment management company. The loan is repayable in four years.
During the year the weighted average interest rate charged on the loan was
6.02%. Total interest expense amounted to $0.7 million and $0.7 million for
the years ended November 30, 1998 and 1997 respectively.
Mid Ocean had obtained multi-currency committed lines of credit provided by
a syndicate of nine major international banks led by Chase Manhattan Bank,
N.A. which provides for unsecured borrowing up to an aggregate amount of $200
million subject to certain conditions. The Mid Ocean facility is split evenly
between a 364-day and a 5-year facility. These facilities remained in place
following the merger with Mid Ocean. In August 1998, $50 million was borrowed
from this facility and lent to XL in connection with the merger with Mid
Ocean. This was repaid in November 1998. During this period the weighted
average interest rate charged on the loan was 5.760% and the total interest
expense amounted to $0.7 million.
In 1998, XLA obtained an unsecured revolving line of credit of $100 million
for 364 days from Mellon Bank, N.A. During the year the full amount of this
facility was borrowed at a weighted average rate of 5.898%. Total interest
expense and facility costs amounted to $1.3 million for the year ended
November 30, 1998. As at November 30, 1998, the outstanding balance was $100.0
million and is repayable within the next twelve months. This line of credit
was replaced in December 1998 with a $150 million commercial paper funding
facility provided by the same bank. XLI guarantees the indebtedness of XLA
under this facility.
The credit agreements for all facilities contains various financial and non-
financial covenants. The Company and its subsidiaries were in compliance with
all covenants as at November 30, 1998.
10. Share Capital
(a) Authorized and Issued
The authorized share capital is 999,990,000 ordinary shares, par value $0.01
per share, divided into Class A and Class B ordinary shares. Holders of Class
A shares are entitled to one vote for each share held while Class B shares are
not entitled to vote. In all other respects, Class A and B shares rank pari
passu.
The following table is a summary of shares issued and outstanding (in
thousands):
<TABLE>
<CAPTION>
Year ended November 30,
-----------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Balance--beginning of year....................... 84,407.6 87,170.6 94,550.8
Exercise of options.............................. 307.2 342.5 600.9
Issuance of restricted shares.................... 140.2 284.2 224.0
Repurchase of shares............................. (3,243.2) (3,389.7) (8,205.1)
Issuance of Class A shares....................... 27,076.3 -- --
Issuance of Class B shares....................... 3,115.9 -- --
--------- -------- --------
Balance--end of year............................. 111,804.0 84,407.6 87,170.6
========= ======== ========
</TABLE>
The issuances of Class A shares were in exchange for Mid Ocean shares (26.0
million shares) and FSA shares (1.1 million shares). The issuance of Class B
shares was in exchange for the Mid Ocean Class B and Class C shares.
(b) Share Repurchases
The Board of Directors has authorized the repurchase of the Company's
ordinary shares through several buy back programs. During 1998 the Company
repurchased 3.2 million shares at an aggregate cost of $255.2
51
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
million. On March 13, 1998, the Board of Directors discontinued its existing
share repurchase program and authorized a program for $500 million of the
Company's ordinary shares. In August 1998, $300 million of share repurchases
related to the merger with Mid Ocean. In addition, the Company had purchased a
further 732,000 shares at a cost of $51.2 million during the year.
(c) Stock Plans
The Company's executive stock plan, the "1991 Performance Incentive
Program", provides for grants of non qualified or incentive stock options,
restricted stock awards and stock appreciation rights ("SARs"). The plan is
administered by the Company and Compensation Committee of the Board of
Directors. Stock options may be granted with or without SARs. Grant prices are
established at the fair market value of the Company's common stock at the date
of grant. Options and SARs have a life of 10 years and vest annually over
three years from date of grant.
Restricted stock awards issued under the plan vest over a five year period
from the date of grant. These shares contained certain restrictions, for said
period, relating to among other things, forfeiture in the event of termination
of employment and transferability. As the shares are issued, deferred
compensation equivalent to the difference between the issue price and the
estimated fair market value on the date of the grant is charged to
shareholders' equity and subsequently amortized over the five-year restriction
period. Restricted stock issued under the plan totaled 131,936 shares, 274,300
shares and 120,500 shares in 1998, 1997 and 1996, respectively.
The Company also has stock plans in place for its non-employee directors.
The "Stock and Option Plan", issues non-qualified options to the directors--
4,000 shares at the commencement of their directorship and 2,000 shares each
year thereafter. On December 3, 1997, 5,000 options were granted to each
director. All options vest immediately on grant date. Effective April 11,
1997, all options granted to Non-Employee Directors are granted under the 1991
Performance Incentive Program.
Under this plan, directors may also may make an irrevocable election
preceding the beginning of each fiscal year to defer cash compensation that
would otherwise be payable as his or her annual retainer in increments of
$5,000. The deferred payments are credited in the form of share units
calculated by dividing 110% of the deferred payment by the market value of the
Company's stock at the beginning of the fiscal year. Directors also may elect
to receive their annual retainer in the form of shares with a value equal to
the amount of their annual fee. Shares issued under the plan totaled 2,737,
3,048 and 4,048 in 1998, 1997 and 1996, respectively.
A second stock plan, intended to replace the directors' "Retirement Plan for
Non-Employee Directors", provides for the issuance of share units equal to the
amount that would have been credited to the Retirement Plan, divided by the
market price of the Company's stock on December 1 of each year. These units
receive dividends in the form of additional units equal to the cash value
divided by the market price on the payment date. During 1996 the directors
could elect to convert to this plan. Stock units totaling 5,531, 6,716 and
14,960 were provided for in 1998, 1997 and 1996 respectively.
(d) SFAS 123 pro forma disclosure
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation". Had the Company adopted the accounting provisions of SFAS No.
123, compensation costs would have been determined based on the fair value of
the stock option
52
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
awards granted in 1998, 1997 and 1996, and net income and earnings per share
would have been reduced to the pro-forma amounts indicated below (U.S. dollars
in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended November 30,
1998
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income--as reported............................. $587,663 $676,961 $494,313
Net income--proforma................................ $569,516 $672,145 $492,722
Basic earnings per share--as reported............... $ 6.32 $ 7.95 $ 5.45
Basic earnings per share--proforma.................. $ 6.13 $ 7.90 $ 5.43
Diluted earnings per share--as reported............. $ 6.20 $ 7.84 $ 5.41
Diluted earnings per share--proforma................ $ 6.01 $ 7.78 $ 5.40
</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 weighted average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Dividend yield.................................... 2.35% 2.64% 2.66%
Risk free interest rate........................... 5.32% 5.37% 5.96%
Expected volatility............................... 23.57% 18.49% 19.28%
Expected lives.................................... 10 years 10 years 10 years
</TABLE>
The fair value of options granted was $40.7 million, $9.9 million and $4.3
million for the years ended November 30, 1998, 1997 and 1996, respectively.
Total stock based compensation recognized in net income was $4.4 million in
1998, $3.2 million in 1997 and $1.3 million in 1996.
(e) Options
Following is a summary of stock options and related activity:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning
of year................ 2,772,697 $28.04 2,112,148 $21.69 2,228,582 $16.37
Granted................. 1,090,700 $66.53 1,006,990 $37.53 487,400 $31.60
Granted--Mid Ocean
conversion............. 791,573 $72.44 -- -- -- --
Exercised............... (307,215) $29.78 (346,241) $18.07 (600,938) $ 9.21
Canceled................ (4,666) $36.92 (200) $18.75 (2,896) $19.39
--------- --------- ---------
Outstanding--end of
year................... 4,343,089 $45.67 2,772,697 $28.04 2,112,148 $21.69
Options exercisable..... 2,461,042 1,335,798 1,180,482
========= ========= =========
Options available for
grant.................. 2,707,180* 3,943,380* 2,775,670*
========= ========= =========
</TABLE>
- --------
*Available for grant includes shares which may be granted on either stock
options or restricted stock.
(f) Voting
The Company's Articles of Association restrict the voting power of any
person to less than 10% of total voting power.
53
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(g) Share Rights Plan
Rights to purchase Class A Ordinary Shares were distributed as a dividend at
the rate of one Right for each outstanding Class A Ordinary Share held of
record as of the close of business on October 31, 1998. Each Right will
entitle holders of XL Class A Ordinary Shares to buy one ordinary share at an
exercise price of $350.00. The Rights would be exercisable, and would detach
from the Class A Ordinary Shares, only if a person or group were to acquire 20
percent or more of XL's outstanding Class A Ordinary Shares, or were to
announce a tender or exchange offer that, if consumated, would result in a
person or group beneficially owning 20 percent or more of XL's Class A
Ordinary Shares. Upon a person or group without prior approval of the Board
acquiring 20 percent or more of XL's Class A Ordinary Shares, each Right would
entitle the holder (other than such an acquiring person or group) to purchase
XL Class A Ordinary Shares (or, in certain circumstances, Class A Ordinary
Shares of the acquiring person) with a value of twice the Rights exercise
price upon payment of the Rights exercise price. XL will be entitled to redeem
the Rights at $0.01 per Right at any time until the close of business on the
tenth day after the Rights become exercisable. The Rights will expire at the
close of business on September 30, 2008, and do not initially have a fair
value. The Company has initially reserved 119,073,878 Class A Ordinary Shares
being authorized and unissued for issuance upon exercise of the Rights.
11. Contributed Surplus
Under the laws of the Cayman Islands, the use of XL's contributed surplus is
restricted to the issuance of fully paid shares (i.e., stock dividend or stock
split) and the payment of any premium on the redemption of ordinary shares.
12. Premiums
Premiums comprise (U.S. dollars in thousands):
<TABLE>
<CAPTION>
Year ended November 30,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Gross premiums written--
direct..................... $ 505,263 $ 418,372 $ 584,585
Gross premiums written--
assumed.................... 301,598 22,918 144,861
Reinsurance premiums ceded.. (134,817) (124,664) (132,344)
--------- --------- ---------
Net premiums written.... 672,044 316,626 597,102
Change in unearned and
prepaid premiums........... 13,156 224,027 (79,210)
--------- --------- ---------
Net premiums earned..... $ 685,200 $ 540,653 $ 517,892
========= ========= =========
</TABLE>
13. Reinsurance
The Company is liable with respect to reinsurance ceded to the extent that
any reinsurance company fails to meet its obligation to the Company. The
Company regularly monitors the financial condition of its reinsurers and
believes there to be no material unrecoverable reinsurance.
14. Dividends
In 1998, four regular quarterly dividends were paid, three of $0.40 per
share to shareholders of record at February 6, April 16 and July 15, and one
of $0.44 per share to shareholders of record at September 28.
In 1997, four regular quarterly dividends were paid, three of $0.32 per
share to shareholders of record at February 6, April 22 and July 11, and one
of $0.40 per share to shareholders of record at September 25.
In 1996, four regular quarterly dividends were paid, one of $0.20 per share
to shareholders of record at February 2, and three of $0.25 per share to
shareholders of record at April 15, July 12 and October 11.
54
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Taxation
Under current Cayman Islands law, XL will not be obliged to pay any taxes in
the Cayman Islands on its income or gains until May 2006 pursuant to the
provisions of the Tax Concessions Law, as amended.
Bermuda presently imposes no income, withholding or capital gains taxes, and
XL and its Bermuda subsidiaries are exempted until March 2016 from any such
future taxes pursuant to the Bermuda Exempted Undertakings Tax Protection Act
1966, and Amended Act 1987.
X.L. Investments (Barbados), Inc. qualifies as an exempted company under the
provisions of the International Business Companies Act 1991-24 and as such is
subject to a maximum tax rate in Barbados of 2.50%.
XLE has been approved to carry on business in the International Services
Centre in Dublin. Under Section 39 of the Finance Act 1990, XLE is entitled to
benefit from a 10% tax rate on profits (including investment income) until the
year 2005.
Brockbank and XLMORe's London branch office are subject to United Kingdom
corporation taxes. Profits of XLMORe's Singapore branch office are subject to
Singapore corporation taxes. The German subsidiary of XLMORe is subject to
taxation in Germany.
The Company's U.S. subsidiaries are subject to Federal, State and local
corporate income taxes and other taxes applicable to U.S. corporations.
The Company has no material deferred taxes.
16. Statutory Financial Data
The Company's ability to pay dividends is subject to certain regulatory
restrictions on the payment of dividends by its subsidiaries. The Company
relies primarily on cash dividends from XLI and XLMORe. The payment of such
dividends is restricted by applicable law including Bermuda, the United
States, the Republic of Ireland and United Kingdom insurance law and
regulations, and those promulgated by the Society of Lloyd's.
Bermuda
Under The Insurance Act, 1978, (as amended by the Insurance Act Amendment
1995) amendments thereto and related regulations of Bermuda (the "Act"), XLI
and XLMORe are required to prepare statutory financial statements and to file
in Bermuda a statutory financial return. The Act also requires these companies
to maintain certain measures of solvency and liquidity during the year. Other
subsidiaries of the Company based in Bermuda, including XLFA, LARe and Reeve
Court, are also subject to regulation under the Act.
XLI's and XLMORe's statutory capital and surplus, statutory net income and
the minimum statutory capital and surplus required by the Act were as follows
(U.S. dollars in thousands):
<TABLE>
<CAPTION>
Year ended November 30,
---------------------------------------------------------
XLI XLMORe
---------------------------- ----------------------------
1998 1997 1996 1998 1997 1996
---------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Statutory net income.... $ 309,244 $189,281 $367,322 $ 108,290 $ 57,995 $ 21,398
========== ======== ======== ========== ======== ========
Statutory capital and
surplus................ $1,255,284 $882,366 $872,586 $1,966,200 $512,637 $271,398
========== ======== ======== ========== ======== ========
Minimum statutory
capital and surplus
required by the Act.... $ 307,205 $310,240 $302,089 $ 100,000 $100,000 $100,000
========== ======== ======== ========== ======== ========
</TABLE>
55
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The primary difference between statutory net income and statutory capital
and surplus for the Company's subsidiaries as shown above, and net income and
shareholder's equity presented in accordance with generally accepted
accounting principles are deferred acquisition costs.
Under the Act, XLI and XLMORe are classified as a Class 4 insurer and
reinsurer, respectively. Therefore they are restricted to the payment of
dividends in any one financial year of 25% of the prior year's statutory
capital and surplus, unless their directors attest that such dividends will
not cause the company to fail to meet its relevant margins. XLI and XLMORe
have not been affected by this. XLI could legally have paid dividends in the
amount of approximately $1.8 billion, $1.5 billion and $1.1 billion at
November 30, 1998, 1997 and 1996, respectively. XLMORe could legally have paid
dividends in the amount of approximately $1.3 billion, $403.4 million and
$169.5 million at November 30, 1998, 1997 and 1996, respectively.
Republic of Ireland
XLE is permitted to cover risks throughout the European Community (subject
to certain restrictions) pursuant to the "Third Directive" relating to non-
life insurances. Its operations, however, are largely restricted to the
Republic of Ireland and are subject to regulation under Irish regulatory
authority. The principal legislation and regulations governing the insurance
activities of Irish insurance companies are the Companies Act of 1963 to 1990
and a range of Irish Insurance Acts from 1909 through 1995 (the "Irish Acts").
In addition, there is a comprehensive network of regulations and statutory
provisions empowering the making of regulations of which the most relevant are
the European Communities (Non-Life Insurance) Framework Regulations, 1994, the
European Communities (Insurance Undertakings Accounts) Regulations, 1996 and a
range of other European Communities Regulations and administrative rules (the
"Irish Regulations").
XLE's insurance activities are subject to extensive regulation in the
Republic of Ireland, principally under the Irish Acts and Irish Regulations,
which impose on insurers headquartered in the Republic of Ireland minimum
solvency and reserve standards and auditing and reporting requirements and
grant to the Minister for Enterprise, Trade and Employment (the "Irish
Minister") wide powers to supervise, investigate and intervene in the affairs
of such insurers. The Irish Minister's powers and functions are exercised
through the Department of Enterprise, Trade and Employment.
United States
The Company's U.S. insurance subsidiaries are subject to regulatory
oversight under the insurance statutes and regulations of the jurisdictions in
which they conduct business. Brockbank, via Lloyd's, is a licensed insurer in
the states of Illinois, Kentucky and the U.S. Virgin Islands ("USVI"). It is
also an eligible surplus lines writer in all states other than Kentucky and
USVI, and an accredited reinsurer in every state other than Michigan.
Brockbank Insurance Services, Inc., is a California licensed surplus and
special lines broker.
The insurance laws of each state of the United States and of many foreign
countries regulate the sale of insurance within their jurisdictions by alien
insurers, such as XLI and XLMORe. The Company believes it is not in violation
of the insurance laws of any state in the U.S. or any foreign country. From
time to time, various proposals for federal legislation within the United
States have been circulated which could require the Company to, among other
things, register as a surplus lines insurer. The Company believes that
generally it could meet and comply with the requirements to be registered as a
surplus lines insurer and such compliance would not
have a material impact on the ability of the Company to conduct its business.
There can be no assurance, however, that the activities of the Company will
not be challenged in the future or that the Company will be able to
successfully defend against such challenges or that legislation will not be
enacted that will affect the Company's ability to conduct its business.
56
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
United Kingdom
The United Kingdom Financial Services Authority ("UK FSA") regulates
reinsurance entities that are "effecting and carrying on" insurance business
in the United Kingdom. XLMORe, through its London branch, "effects and carries
on" business in the United Kingdom and is therefore regulated by the UK FSA.
Lloyd's
As a result of the Company's ownership of Brockbank, the Company and
Brockbank are subject to the regulatory jurisdiction of the Council of Lloyd's
(the "Council"). Unlike other financial markets in the UK, Lloyd's is not
subject to direct UK government regulation through The Financial Services Act
of 1986 but, instead, is self regulating by virtue of The Lloyd's Act of 1982
through bye-laws, regulations and codes of conduct written by the Council,
which governs the market. Under the Council, there are two boards, the Market
Board and the Regulatory Board. The former is led by working members of the
Council and is responsible for strategy and the provision of services such as
premium and claims handling, accounting and policy signing. The Regulatory
Board is responsible for the regulation of the market, compliance and the
protection of policyholders and capital providers. Under the regulations, the
approval of the Council has to be obtained before any person can be a "major
shareholder" or "controller" of a corporate Name or a managing agency. The
Company has been approved as both a "major shareholder" and a "controller" of
its corporate Names (the "CCVs") and managing agencies.
A person would be viewed by Lloyd's as a "major shareholder" of the CCVs if
such person owns 15% or more of the Company's outstanding capital stock and as
a "controller" if it owns 30% or more of the Company's outstanding capital
stock. Therefore, any person that becomes the owner of 15% or more of the
Company's stock may be required to deliver a declaration and undertaking to
Lloyd's, in the form prescribed by Lloyd's, unless Lloyd's exempts such person
from this requirement.
As a "controller", the Company is required to give certain undertakings,
directed principally towards ensuring that there is no direct interference in
the conduct of the business of the relevant managing agency, but there are no
provisions in The Lloyd's Act of 1982, the bye-laws or the regulations which
provide for any liabilities of the CCVs or the Brockbank group as a whole to
be met by the Company. In addition, a managing agency is required to comply
with various capital and solvency requirements, and to submit to regular
monitoring and compliance procedures. The CCVs, as corporate members of
Lloyd's, are each required to commit a specified amount approximately equal to
50% of their underwriting capacity on the syndicates to support its
underwriting on those syndicates.
The Lloyd's Act of 1982 generally restricts certain direct or indirect
equity cross-ownership between a Lloyd's broker and a Lloyd's managing agent.
Other Regulation
The Company is subject to regulation in Australia, Singapore and Germany as
a result of its representative offices and branches in such jurisdictions.
57
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. Unaudited Quarterly Financial Data
The unaudited quarterly financial data for 1998 and 1997 follows (U.S.
dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1998
Net premiums earned.................... $139,882 $137,787 $155,514 $252,017
Net investment income.................. 57,528 60,452 70,983 90,412
Realized gains (losses)................ 62,951 74,541 (2,837) 57,140
Equity in net income (loss) of
affiliates............................ 15,207 19,728 14,604 (1,559)
Fee and other income................... -- 4,145 2,132 7,021
-------- -------- -------- --------
Total revenues......................... $275,568 $296,653 $240,396 $405,031
======== ======== ======== ========
Income before income tax expense....... $157,191 $171,832 $ 86,621 $178,208
======== ======== ======== ========
Net income............................. $155,410 $170,562 $ 85,830 $175,861
======== ======== ======== ========
Net income per share and share
equivalent--basic..................... $ 1.84 $ 2.02 $ 0.94 $ 1.58
======== ======== ======== ========
Net income per share and share
equivalent--diluted................... $ 1.81 $ 1.98 $ 0.91 $ 1.56
======== ======== ======== ========
1997
Net premiums earned.................... $119,837 $129,817 $138,034 $152,965
Net investment income.................. 51,557 54,160 56,109 54,726
Realized gains (losses)................ 32,613 126,313 116,400 60,613
Equity in net income of affiliates..... 13,155 15,739 16,219 20,769
-------- -------- -------- --------
Total revenues......................... $217,162 $326,029 $326,762 $289,073
======== ======== ======== ========
Income before income tax expense....... $110,711 $211,580 $207,438 $152,055
======== ======== ======== ========
Net income............................. $108,118 $211,580 $206,560 $150,703
======== ======== ======== ========
Net income per share and share
equivalent--basic..................... $ 1.24 $ 2.49 $ 2.45 $ 1.79
======== ======== ======== ========
Net income per share and share
equivalent--diluted................... $ 1.23 $ 2.46 $ 2.41 $ 1.75
======== ======== ======== ========
</TABLE>
18. Accounting Standards
The Financial Accounting Standards Board ("FASB") issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information",
effective for fiscal years beginning after December 15, 1997. This statement
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to shareholders. It also
established standards for related disclosures about products and services,
geographical areas and major customers. Under SFAS No. 131, operating segments
are to be determined consistent with the way that management organizes and
evaluates financial information internally for making operating decisions and
assessing performance. The Company has not yet assessed the affect of the
adoption of this accounting standard on its consolidated financial statement
disclosures.
FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits", effective for fiscal years beginning after December
15, 1997. This Statement revises employers' disclosures about pensions and
other postretirement benefit plans. This standard is expected to have a
minimal impact on the Company's consolidated financial disclosures.
58
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
FASB also issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions
are met, a derivative may be specifically designated as a hedge. The
accounting for changes in fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation. The Company has not yet assessed the affect of the adoption of
this accounting standard on its consolidated financial statement disclosures.
SFAS No. 131 and No. 133 are not expected to have a significant impact on
the Company's overall results but will affect the Company's financial
statements and disclosures.
19. Unaudited Subsequent Events
On December 2, 1998, the Company announced that it has signed a definitive
agreement to acquire all of the outstanding shares of Intercargo Corporation
("Intercargo") for $12 per share, or approximately $88 million. Intercargo,
through its subsidiaries, underwrites specialty insurance products for
companies engaged in international trade, including U.S. customs bonds and
marine cargo insurance. At September 30, 1998, Intercargo had total assets of
$165 million and shareholders' equity of $81 million. The transaction is
subject to approval by Intercargo's shareholders, regulatory approvals and
other customary closing conditions. There can be no assurance that the
transaction will be completed or that the terms of the transaction will not be
modified prior to completion.
On February 16, 1999 the Company announced that it had signed a definitive
merger agreement with NAC Re Corporation ("NAC Re"). Under the terms of the
agreement, shareholders of NAC Re will receive 0.915 Class A XL shares for
each NAC Re share in a tax-free exchange of shares that will be accounted for
as a pooling of interests under U.S. generally accepted accounting principles
("GAAP"). The transaction is subject to the approval of the NAC Re
stockholders, expiration of the applicable waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act, receipt of insurance, regulatory
approvals and other customary closing conditions. There can be no assurance
that the transaction will be completed or that the terms of the transaction
will not be modified prior to completion.
59
<PAGE>
XL CAPITAL LTD
PRO FORMA FINANCIAL INFORMATION
On March 16, 1998, the combination of EXEL and Mid Ocean was announced. The
shareholders of the two companies approved the two schemes of arrangement on
August 3, 1998 and the Grand Court of Cayman approved the arrangements on
August 7, 1998. The Company is the holding company for the new organization,
and the reinsurance operations of both companies were combined on August 7,
1998. The transaction, detailed in the joint proxy statement filed with the
Securities and Exchange Commission on July 2, 1998, resulted in XL issuing
1.0215 shares for each Mid Ocean share (other than Mid Ocean shares held by
EXEL and its subsidiaries), subject to the cash election rights of the two
companies' shareholders described therein. Prior to this transaction, EXEL
owned approximately 25% of Mid Ocean Class A shares.
As a result of the combination, the Company assumed assets of $2.6 billion,
of which invested assets were $1.8 billion, and liabilities if $1.2 billion,
including loss reserves of $595 million.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(U.S. dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
1998 1997
---------- ----------
<S> <C> <C>
Net premiums earned...................................... $1,055,935 $1,033,121
Net investment income.................................... 362,930 319,981
Net realized gains....................................... 225,534 335,538
Equity in affiliate income............................... (1,897) 3,748
Fee and other income..................................... 28,006 24,710
---------- ----------
Total revenues....................................... 1,670,508 1,717,098
---------- ----------
Losses and loss expenses................................. 569,130 587,414
Acquisition costs and administration expenses............ 307,448 234,949
Interest expense......................................... 23,123 24,576
Amortization of intangible assets........................ 45,000 37,192
---------- ----------
Total expenses....................................... 944,701 884,131
---------- ----------
Income before minority interest and income tax expense... 725,807 832,967
Minority interest and income tax......................... 12,703 18,500
---------- ----------
Net income........................................... $ 713,104 $ 814,467
---------- ----------
Net income per share
Basic.................................................. $ 6.42 $ 7.29
Diluted................................................ $ 6.31 $ 7.20
Weighted average shares outstanding (000's)
Basic.................................................. 111,155 111,734
Diluted................................................ 112,964 113,133
</TABLE>
This unaudited condensed pro forma financial information should be read in
conjunction with the following explanatory notes.
60
<PAGE>
XL CAPITAL LTD
NOTES TO THE UNAUDITED PROFORMA COMBINED CONDENSED
FINANCIAL INFORMATION
1. Accounting for the Arrangements
(a) The combination of EXEL and Mid Ocean was accounted for under purchase
accounting rules, in accordance with generally accepted accounting practice,
whereby the total purchase cost is allocated to the assets and liabilities
acquired based on their relative values at the date of acquisition, and the
excess of that total purchase cost over the fair values is recorded as
goodwill. The fair values ascribed to the individual assets and liabilities
are based upon management studies and appraisals.
(b) Included in the pro forma income statements for the year ended November
30, 1998 and 1997 is the financial information of Mid Ocean for the nine
months ended July 31, 1998 and the year ended October 31, 1997, respectively.
No adjustments have been made to take account of these differing period ends
as, in the opinion of management, any such adjustments would not be material.
2. Allocation of Purchase Price Consideration:
The allocation of the purchase price is as follows (U.S. dollars in
thousands):
<TABLE>
<S> <C>
Fair value of assets of Mid Ocean at date of acquisition............. 1,360,760
Equity value of Mid Ocean assets already held........................ (377,214)
---------
Fair value of share of net assets acquired by EXEL................... 983,546
Goodwill relating to acquisition..................................... 1,253,920
---------
2,237,466
---------
The consideration for the arrangements was as follows:
Issue of New EXEL shares............................................. 2,109,804
Issue of New EXEL options............................................ 26,800
Mid Ocean shares purchased for cash.................................. 85,607
Cost of acquisition.................................................. 15,255
---------
2,237,466
---------
</TABLE>
61
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of XL Capital Ltd:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders' equity and comprehensive
income and of cash flows present fairly, in all material respects, the
financial position of XL Capital Ltd and its subsidiaries at November 30, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended November 30, 1998, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 23, 1998
62
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in nor any disagreements with accountants on
accounting and financial disclosure within the twenty-four months ending
November 30, 1998.
PART III
Item 10. Directors and Executive Officers of the Registrant
This item is omitted because a definitive proxy statement which involves the
election of directors will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year pursuant
to Regulation 14A, which proxy statement is incorporated herein by reference.
Item 11. Executive Compensation
This item is omitted because a definitive proxy statement which involves the
election of directors will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year pursuant
to Regulation 14A, which proxy statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This item is omitted because a definitive proxy statement which involves the
election of directors will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year pursuant
to Regulation 14A, which proxy statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
This item is omitted because a definitive proxy statement which involves the
election of directors will be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year pursuant
to Regulation 14A, which proxy statement is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements and Exhibits.
1. Financial Statements
Included in Part II--See Item 8 of this report.
2. Financial Statement Schedules
Included in Part IV of this report:
<TABLE>
<CAPTION>
Schedule
Number Page
-------- ----
<S> <C> <C>
--Auditor's Report on Financial Statement Schedules
included in Form 10-K..................................... 66
--Consolidated Summary of Investments--Other than
Investments in Related Parties, as of November 30, 1998... I 67
--Condensed Financial Information of Registrant, as of
November 30, 1998 and 1997, and for the years ended
November 30, 1998, 1997 and 1996.......................... II 68
--Reinsurance, for the years ended November 30, 1998, 1997
and 1996.................................................. IV 71
--Supplementary Information Concerning Property/Casualty
Insurance Operations for the years ended November 30,
1998, 1997 and 1996....................................... VI 72
</TABLE>
63
<PAGE>
Other Schedules have been omitted as they are not applicable to the Company.
3. Exhibits
<TABLE>
<C> <S>
3.1 Memorandum of Association, incorporated by reference to Annex G to
the Joint Proxy Statement of EXEL Limited and Mid Ocean Limited
dated July 2, 1998.
3.2 Articles of Association, incorporated by reference to Annex G to
the Joint Proxy Statement of EXEL Limited and Mid Ocean Limited
dated July 2, 1998.
4.1 Rights Agreement, dated as of September 11, 1998 between the
Company and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent, incorporated by reference to the Company's Current Report
on Form 8-K dated October 21, 1998.
10.1 Money Accumulation Savings Program, incorporated by reference to
Exhibit 10.15 to the
Company's Registration Statement on Form S-1 (No. 33-40533).
10.2 1991 Performance Incentive Program, incorporated by reference to
Exhibit 10.16 to the Company's Registration Statement on Form S-1
(No. 33-40533).
10.3 1991 Management Incentive Plan, incorporated by reference to
Exhibit 10.17 to the Company's Registration Statement on Form S-1
(No. 33-40533).
10.4 First Amendment to the 1991 Performance Incentive Program,
incorporated by reference to Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the year ended November 30, 1996.
10.5 Retirement Plan for Non-employee Directors of XL Capital Ltd, as
amended, incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended November
30, 1996.
10.6.1 XL Capital Ltd Directors Stock and Option Plan, as amended,
incorporated by reference to Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended November 30, 1996.
10.6.2 Fourth Amendment to EXEL Limited Directors Stock and Option Plan.
10.7 XL Capital Ltd Stock Plan for Nonemployee Directors, incorporated
by reference to Exhibit 10.6 to the Company's Annual Report on
Form 10-K for the year ended November 30, 1996.
10.8 (Intentionally omitted)
10.9.1 Mid Ocean Limited 1993 Long Term Incentive and Share Award Plan
10.9.2 Amendment to Mid Ocean Limited 1993 Long Term Incentive and Share
Award Plan
10.10 Mid Ocean Ltd. Stock & Deferred Compensation Plan for Nonemployee
Directors
10.11.1 Mark E. Brockbank Employment Agreement
10.11.2 Henry C.V. Keeling Employment Agreement
10.11.4 Robert J. Newhouse, Jr. Employment Agreement
10.11.5 Michael A. Butt Employment Agreement
10.12.1 Amendment to Brockbank Service Agreement
10.12.2 Amendment to Keeling Service Agreement
10.12.3 Amendment to Newhouse Service Agreement
10.12.4 Amendment to Butt Service Agreement
10.13 Robert J. Newhouse Consulting Agreement
10.14.1 Credit Agreement (5-Year) between Mid Ocean Limited and The Chase
Manhattan Bank
10.14.2 Amendment No. 1 to Credit Agreement (5-Year) between Mid Ocean
Limited and The Chase Manhattan Bank
10.14.3 Credit Agreement (364-Day) between Mid Ocean Limited and The
Chase Manhattan Bank
10.14.4 Amendment No. 1 to Credit Agreement (364-Day) between Mid Ocean
Limited and The Chase Manhattan Bank
</TABLE>
64
<PAGE>
<TABLE>
<C> <S>
10.14.5 Loan Agreement between X.L. America, Inc. and Three Rivers
Funding Corporation
10.14.6 Letter of Credit Facility and Reimbursement Agreement by and
among X.L. Insurance Company, Ltd. et al. and Mellon Bank, N.A.
10.14.7 First Amendment to Letter of Credit Facility and Reimbursement
Agreement by and among X.L. Insurance Company, Ltd. et al. and
Mellon Bank, N.A.
10.14.8 Second Amendment to Letter of Credit Facility and Reimbursement
Agreement by and among X.L. Insurance Company, Ltd. et al. and
Mellon Bank, N.A.
10.14.9 Short Term Revolving Credit Agreement between X.L. Insurance
Company, Ltd. and Mellon Bank, N.A., incorporated by reference to
Exhibit (b)(1) of Amendment No. 2 to the Schedule 14D-1 (the "GCR
Schedule 14D-1") of EXEL Limited filed with respect to GCR
Holdings Company Limited.
10.14.10 First Amendment to Short Term Revolving Credit Agreement between
X.L. Insurance Company, Ltd. and Mellon Bank, N.A.
10.14.11 Second Amendment to Short Term Revolving Credit Agreement between
X.L. Insurance Company, Ltd. and Mellon Bank, N.A.
10.14.12 Third Amendment to Short Term Revolving Credit Agreement between
X.L. Insurance Company, Ltd. and Mellon Bank, N.A.
10.14.13 Fourth Amendment to Short Term Revolving Credit Agreement between
X.L. Insurance Company, Ltd. and Mellon Bank, N.A.
10.14.14 Revolving Credit Agreement between X.L. Insurance Company, Ltd.
and Mellon Bank, N.A., Incorporated by reference to Exhibit
(b)(2) of the GCR Schedule 14D-1.
10.14.15 First Amendment to revolving Credit Agreement between X.L.
Insurance Company, Ltd. and Mellon Bank, N.A.
10.14.16 Second Amendment to Revolving Credit Agreement between X.L.
Insurance Company, Ltd. and Mellon Bank, N.A.
11.1 Statement regarding computation of per share earnings.
21.1 List of subsidiaries of the Registrant.
23.1 Consent of PriceWaterhouseCoopers
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of fiscal 1998.
65
<PAGE>
AUDITORS' REPORT ON FINANCIAL STATEMENT
SCHEDULES INCLUDED IN FORM 10-K
Our report on the consolidated financial statements of XL Capital Ltd is
included on page 43 of this Form 10-K in connection with our audits of such
financial statements. We have also audited the related financial statement
schedules listed in the index on pages 59 and 60 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as whole,
present fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
New York, New York
February 25, 1999
66
<PAGE>
XL CAPITAL LTD
SUPPLEMENTAL SCHEDULE I
CONSOLIDATED SUMMARY OF INVESTMENTS--OTHER THAN
INVESTMENTS IN RELATED PARTIES
November 30, 1998
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
Amount at
which
shown in
Cost or the
Amortized Market Balance
Type of Investment Cost(1) Value Sheet
- ------------------ ----------- ---------- ----------
<S> <C> <C> <C>
Fixed Maturities:
Bonds and notes:
U.S. government and government agencies and
authorities............................... $1, 564,084 $1,580,853 $1,580,853
Non-U.S. sovereign governments............. 401,405 402,374 402,374
All other corporate........................ 3,231,757 3,229,354 3,229,354
----------- ---------- ----------
Total fixed maturities................... $ 5,197,246 $5,212,581 $5,212,581
----------- ---------- ----------
Equity Securities:
Public utilities/transportation............ $ 29,191 $ 35,799 $ 35,799
Banks, trust and insurance companies....... 65,872 82,944 82,944
Industrial, miscellaneous and all others... 900,810 1,009,858 1,009,858
----------- ---------- ----------
Total equity securities.................. $ 995,873 $1,128,601 $1,128,601
----------- ---------- ----------
Short-term investments......................... $ 121,177 $ 121,214 $ 121,214
----------- ---------- ----------
Total investments.............................. $ 6,314,296 $6,462,396 $6,462,396
=========== ========== ==========
</TABLE>
- --------
(1) Investments in fixed maturities and short-term investments are shown at
amortized cost.
67
<PAGE>
XL CAPITAL LTD
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS--PARENT COMPANY ONLY
For the Years Ended November 30, 1998 and 1997
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
ASSETS
------
<S> <C> <C>
Portfolio Investments:
Fixed maturities at fair value (amortized cost:
1998--$214,923; 1997--$NIL)......................... $ 216,629 $ --
Short-term investments at fair value (amortized cost:
1998--$9,575; 1997--$NIL)........................... 9,719 --
---------- ----------
Total portfolio investments........................ 226,348 --
Investments in subsidiaries............................ 5,316,554 2,123,993
Investment in affiliate (cost: 1998--$NIL; 1997--
$188,137)............................................. -- 358,423
Investments in limited partnership..................... 18,252 19,259
Accrued investment income.............................. 1,367 --
Other assets........................................... 3,288 3,256
---------- ----------
Total assets....................................... $5,565,809 $2,504,931
========== ==========
<CAPTION>
LIABILITIES
-----------
<S> <C> <C>
Amount due to subsidiaries............................. $ 629,943 $ 24,683
Accounts payable and accrued liabilities............... 117,986 1,118
---------- ----------
Total liabilities.................................. $ 747,929 $ 25,801
========== ==========
<CAPTION>
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C>
Ordinary shares........................................ $ 1,118 $ 844
Contributed surplus.................................... 2,289,456 290,085
Net unrealized appreciation on investments............. 159,953 188,444
Deferred compensation.................................. (18,104) (11,362)
Retained earnings...................................... 2,385,457 2,011,119
---------- ----------
Total shareholders' equity......................... $4,817,880 $2,479,130
---------- ----------
Total liabilities and shareholders' equity......... $5,565,809 $2,504,931
========== ==========
</TABLE>
See accompanying notes to Consolidated Financial Statements
68
<PAGE>
XL CAPITAL LTD
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(Continued)
STATEMENT OF INCOME--PARENT COMPANY ONLY
For the Years Ended November 30, 1998, 1997 and 1996
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net investment income............................... $ 2,568 $ 112 $ 568
Net realized gains.................................. 458 -- --
Equity in net income of subsidiaries (Dividends were
$177,900, $186,548 and $302,000 in 1998, 1997 and
1996, respectively)................................ 562,147 617,376 439,361
Equity in net income of affiliate................... 49,878 62,135 59,374
Income from limited partnership..................... 3,599 4,342 --
-------- -------- --------
Total revenues...................................... 618,650 683,965 499,303
Administration expenses............................. 30,987 7,004 4,990
-------- -------- --------
Net income.......................................... $587,663 $676,961 $494,313
======== ======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements
69
<PAGE>
XL CAPITAL LTD
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(Continued)
STATEMENT OF CASH FLOWS--PARENT COMPANY ONLY
For the Years Ended November 30, 1998, 1997 and 1996
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net income.................................. $ 587,663 $ 676,961 $ 494,313
Adjustments to reconcile net income to net
cash provided by operating activities:
Net realized gains from sale of shares in
affiliate................................ (458) -- --
Equity in net income of subsidiaries net
of dividends............................. (574,879) (438,135) (136,106)
Equity in net income of affiliate net of
dividends................................ (31,410) (34,849) (44,592)
Accrued investment income................. (1,367) -- --
Amount due from subsidiaries.............. 605,260 39,091 65,669
Accounts payable and accrued liabilities.. 116,868 478 (1,466)
Amortization of intangible assets......... 10,494 -- --
Amortization of deferred compensation..... 4,361 2,163 1,287
Amortization of discounts on fixed
maturities............................... 335 -- --
--------- --------- ---------
Total adjustments....................... 129,204 (431,252) (115,208)
--------- --------- ---------
Net cash provided by operating
activities............................. 716,867 245,709 379,105
--------- --------- ---------
Cash flows provided by (used in) investing
activities:
Proceeds from sale of fixed maturities and
short-term investments..................... 198,893 -- --
Proceeds from redemption of fixed maturities
and short-term investments................. 49,325 -- --
Purchases of fixed maturities and short-term
investments................................ (472,593) -- --
Other assets................................ (32) (8) (3,081)
Investment in affiliate..................... -- -- (1,620)
Investment in limited partnership........... 1,007 3,376 (12,568)
--------- --------- ---------
Net cash provided (used in) by investing
activities............................. (223,400) 3,368 (17,269)
--------- --------- ---------
Cash flows used in financing activities:
Issuance of restricted shares............... 514 387 695
Proceeds from exercise of options........... 7,538 6,280 6,048
Dividends paid.............................. (150,294) (115,372) (86,145)
Repurchase of treasury shares............... (351,225) (140,372) (282,434)
--------- --------- ---------
Net cash used in financing activities... (493,467) (249,077) (361,836)
--------- --------- ---------
Net change in cash and cash equivalents. -- -- --
--------- --------- ---------
Cash and cash equivalents--beginning of year.. -- -- --
--------- --------- ---------
Cash and cash equivalents--end of year........ $ -- $ -- $ --
========= ========= =========
</TABLE>
See accompanying notes to Consolidated Financial Statements
70
<PAGE>
XL CAPITAL LTD
SCHEDULE IV--REINSURANCE
For the Years Ended November 30, 1998, 1997 and 1996
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
Assumed
Ceded to from
Gross Other other Net
Amount Companies Companies Amount
-------- --------- --------- --------
<S> <C> <C> <C> <C>
1998...................................... $505,263 $134,817 $301,598 $672,044
-------- -------- -------- --------
1997...................................... $418,370 $124,662 $ 22,918 $316,626
-------- -------- -------- --------
1996...................................... $584,585 $132,344 $144,861 $597,102
-------- -------- -------- --------
</TABLE>
71
<PAGE>
XL CAPITAL LTD
SCHEDULE VI
SUPPLEMENTARY INFORMATION
CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
For the Years Ended November 30, 1998, 1997 and 1996
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
Losses and Loss
Expenses Incurred Net
Reserves Reserves Related to Paid Amortization Premiums
Deferred for Losses for Net Net ------------------ Losses of Deferred Written
Acquisition and Loss Unearned Earned Investment Current Prior and Loss Acquisition Prior
Costs Expenses Premiums Premiums Income Year (1) Year (2) Expenses Costs Year (2)
----------- ---------- ---------- -------- ---------- -------- --------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997............ $97,951 $3,121,739 $1,010,907 $685,200 $279,375 $715,059 $(164,158) $366,475 $88,596 $672,044
------- ---------- ---------- -------- -------- -------- --------- -------- ------- --------
1997............ $22,272 $2,342,254 $ 566,911 $540,653 $216,552 $735,313 $(260,407) $267,227 $46,108 $316,626
------- ---------- ---------- -------- -------- -------- --------- -------- ------- --------
1996............ $30,383 $2,099,096 $ 679,535 $517,892 $198,598 $436,334 $ 14,465 $302,642 $35,556 $597,102
------- ---------- ---------- -------- -------- -------- --------- -------- ------- --------
</TABLE>
72
<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.
XL Capital Ltd
/s/ Brian M. O'Hara
By___________________________________
Brian M. O'Hara
President and Chief Executive
Officer
February 25, 1999
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>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Brian M. O'Hara President, Chief Executive February 25, 1999
____________________________________ Officer and Director
Brian M. O'Hara (Principal Executive
Officer)
/s/ Robert R. Lusardi Executive Vice President and February 25, 1999
____________________________________ Chief Financial Officer
Robert R. Lusardi (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Michael P. Esposito, Jr. Director and Chairman of the February 25, 1999
____________________________________ Board of Directors
Michael P. Esposito, Jr.
/s/ Michael A. Butt Director February 25, 1999
____________________________________
Michael A. Butt
/s/ Robert Clements Director February 25, 1999
____________________________________
Robert Clements
/s/ Sir Brian Corby Director February 25, 1999
____________________________________
Sir Brian Corby
/s/ Robert R. Glauber Director February 25, 1999
____________________________________
Robert R. Glauber
/s/ Robert V. Hatcher, Jr. Director February 25, 1999
____________________________________
Robert V. Hatcher, Jr.
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ian R. Heap Director February 25, 1999
____________________________________
Ian R. Heap
/s/ Paul Jeanbart Director February 25, 1999
____________________________________
Paul Jeanbart
/s/ John Loudon Director February 25, 1999
____________________________________
John Loudon
/s/ Robert J. Newhouse, Jr. Director February 25, 1999
____________________________________
Robert J. Newhouse, Jr.
/s/ Robert S. Parker Director February 25, 1999
____________________________________
Robert S. Parker
/s/ Cyril Rance Director February 25, 1999
____________________________________
Cyril Rance
/s/ Alan Z. Senter Director February 25, 1999
____________________________________
Alan Z. Senter
/s/ John T. Thornton Director February 25, 1999
____________________________________
John T. Thornton
/s/ Ellen E. Thrower Director February 25, 1999
____________________________________
Ellen E. Thrower
/s/ John Weiser Director February 25, 1999
____________________________________
John Weiser
</TABLE>
74
<PAGE>
Exhibit 10.6.2
FOURTH AMENDMENT TO EXEL LIMITED
DIRECTORS STOCK & OPTION PLAN
The EXEL Limited Directors Stock & Option Plan (the "Plan") is hereby
amended, effective as of December 1, 1998, as follows:
1. Section 1 of the Plan is hereby amended by deleting "non-
employees directors" therefrom and replacing it with "Directors."
2. Section 2(d) of the Plan is hereby amended to read as follows:
"'Director' means a non-employee member of the Board and any other
member of the Board who is designated by the Board as eligible to
participate in this Plan."
3. Section 6(d) of the Plan is hereby amended to read as follows:
"(d) (A) In the case of units credited to a Director's account prior
to December 1, 1998, if any dividends are payable on Shares during the
deferral period, dividend equivalents equal to the dividend that would have
been payable on the units credited to a Director's account if such units
had constituted Shares shall be paid to the Director in cash at the time
the corresponding dividends are paid on Shares.
(B) In the case of units credited to a Director's account after
December 1, 1998, as of each date on which a cash dividend is paid on
Shares, there shall be credited to each account that number of units
(including fractional units) determined by
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(i) multiplying the amount of such dividend (per Share) by the number of
units in such account; and (ii) dividing the total so determined by the
Fair Market Value of a Share on the date of payment of such cash dividend.
The additions to a Director's account pursuant to this Section 6(d)(B)
shall continue until the Director's account is fully paid."
4. Section 6(e) of the Plan is hereby amended to read as follows:
"(e) (A) In the case of units credited to a Director's account prior
to December 1, 1998, the amount to which a Director is entitled hereunder
that is represented by Share units shall be distributed to the Director,
whether or not the Director's service continues, in the form of one Share
for each Share unit in accordance with the following schedule:
Percentage
of Unit Time of Distribution
------- --------------------
20 1st anniversary of Date Unit Credited
20 2nd anniversary of Date Unit Credited
20 3rd anniversary of Date Unit Credited
20 4th anniversary of Date Unit Credited
20 5th anniversary of Date Unit Credited
(B) In the case of units credited to a Director's account after
December 1, 1998, the account of a Director shall be distributed (in the
form of one Share for each Share unit) either (x) in a lump sum at the time
of termination of the Director's service on the Board or (y) in up to five
annual installments commencing at the time of termination of the director's
service on the Board, as elected by the Director. Each Director's
distribution election must be made in writing within the later of (A) 60
days after December 1, 1998 or (B) 60 days after the Director first becomes
eligible to participate in the Plan; provided, however, that a Director may
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made a new distribution election with respect to the entire portion of his
or her account subject to this Section 6(e)(B) so long as such election is
made at least one year in advance of the Director's termina-
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tion of service on the Board. In the case of an account distributed in
installments, the amount of Shares distributed in each installment shall be
equal to the number of Share units in the Director's account subject to
such installment distribution at the time of the distribution divided by
the number of installments remaining to be paid."
5. The following paragraph (g) is hereby added to Section 6 of the
Plan.
"(g) Each Director may make an election in writing on or prior to each
October 31 to receive the Director's annual retainer fees payable in the
following Fiscal Year in the form of Shares instead of cash. Any Shares
elected shall be payable at the time cash retainer fees are otherwise
payable, and the number of Shares distributed shall be equal to the amount
of the annual retainer fee otherwise payable on such payment date divided
by the Fair Market Value of a Share on such date. Notwithstanding the
foregoing, a Director who is first elected or appointed to the Board may
make an election under this Section 6(g) within 60 days of such election or
appointment in respect of annual retainer fees payable after the date of
the election. Any election made under this Section 6(g) shall remain in
effect unless and until a new election is made in accordance with the
provisions of this Section 6(g)."
6. The following paragraph (h) is hereby added to Section 6 of the
Plan.
"(h) Adjustments. In the event that any dividend in Shares,
-----------
recapitalization, Share split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or
other such change, affects the Shares such that they are increased or
decreased or changed into or exchanged for a different number or kind of
Shares, other securities of the Company or of another corporation or other
consideration, then in order to maintain the proportionate interest of the
Directors and preserve the value of the Directors' Share units,
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there shall automatically be substituted for each Share unit a new unit
representing the number and kind of Shares, other securities or other
consideration into which each outstanding Share shall be changed. The
substituted units shall be subject to the same terms and conditions as the
original Share units."
<PAGE>
Exhibit 10.9.1
MID OCEAN LIMITED
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1993 LONG TERM INCENTIVE AND SHARE AWARD PLAN
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<PAGE>
MID OCEAN LIMITED
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1993 LONG TERM INCENTIVE AND SHARE AWARD PLAN
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<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. Purposes......................................... 1
2. Definitions...................................... 1
3. Administration................................... 7
(a) Authority of the Committee................ 7
(b) Manner of Exercise of Committee
Authority................................. 10
(c) Limitation of Liability................... 10
4. Shares Subject to the Plan....................... 11
5. Specific Terms of Awards......................... 14
(a) General................................... 14
(b) Options................................... 15
(c) SARs...................................... 16
(d) Restricted Shares......................... 18
(e) Restricted Share Units.................... 20
(f) Performance Shares and Performance
Units..................................... 22
(g) Dividend Equivalents...................... 25
(h) Other Share-Based Awards.................. 25
6. Certain Provisions Applicable to Awards.......... 26
(a) Stand-Alone, Additional, Tandem and
Substitute Awards......................... 26
(b) Terms of Awards........................... 27
(c) Form of Payment Under Awards.............. 28
(d) Nontransferability........................ 28
7. Director's Options............................... 29
(a) Annual Grant.............................. 29
(b) Exercisability............................ 29
(c) Time and Method of Exercise............... 29
(d) Nontransferability........................ 30
(e) Adjustments............................... 30
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
(f) Administration...................................... 31
8. Director's Replacement Options............................. 32
9. General Provisions......................................... 32
(a) Compliance with Legal and Exchange
Requirements........................................ 32
(b) No Right to Continued Employment or
Service............................................. 33
(c) Taxes............................................... 34
(d) Changes to the Plan and Awards...................... 35
(e) No Rights to Awards; No Shareholder
Rights.............................................. 36
(f) Unfunded Status of Awards........................... 36
(g) Nonexclusivity of the Plan.......................... 37
(h) Not Compensation for Benefit Plans.................. 37
(i) No Fractional Shares................................ 37
(j) Governing Law....................................... 38
(k) Effective Date; Plan Termination.................... 38
(1) Titles and Headings................................. 39
</TABLE>
-ii-
<PAGE>
MID OCEAN LIMITED
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1993 LONG TERM INCENTIVE AND SHARE AWARD PLAN
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1. Purposes. The purposes of the 1993 Long Term Incentive and Share
--------
Award Plan are to advance the interests of Mid Ocean Limited and its
shareholders by providing a means to attract, retain, and motivate employees and
directors of the Company upon whose judgment, initiative and efforts the
continued success, growth and development of the Company is dependent.
2. Definitions. For purposes of the Plan, the following terms shall
-----------
be defined as set forth below:
(a) "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board or the Committee as a
participating employer under the Plan, provided that the Company directly or
indirectly owns at least 20% of the combined voting power of all classes of
shares of such entity or at least 20% of the ownership interests in such
entity.
(b) "Award" means any Option, SAR, Restricted Share, Restricted Share
Unit, Performance Share, Performance Unit, Dividend Equivalent, or Other
Share-
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Based Award granted to an Eligible Employee under the Plan.
(c) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(d) "Beneficiary" means the person, persons, trust or trusts which
have been designated by such Eligible Employee in his or her most recent
written beneficiary designation filed with the Company to receive the
benefits specified under this Plan upon the death of the Eligible Employee,
or, if there is no designated Beneficiary or surviving designated
Beneficiary, then the person, persons, trust or trusts entitled by will or
the laws of descent and distribution to receive such benefits.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to
include successor provisions thereto and regulations thereunder.
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(g) "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the
Plan; provided, however, that the Committee shall consist of two or more
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directors of the Company, each of whom is a "disinterested person" within the
meaning of Rule 16b-3 under the Exchange Act, to the extent applicable.
(h) "Company" means Mid Ocean Limited, a corporation organized under
the laws of the Cayman Islands, or any successor corporation.
(i) "Director" means a non-employee member of the Board.
(j) "Director's Option" means a NQSO granted to a Director under
Section 7.
(k) "Director's Replacement Option" means a NQSO granted to a Director
under Section 8.
(l) "Dividend Equivalent" means a right, granted under Section 5(g),
to receive cash, Shares, or other property equal in value to dividends paid
with respect to a specified number of Shares. Dividend Equivalents may be
awarded on a free-standing basis or in connec-
<PAGE>
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tion with another Award, and may be paid currently or on a deferred basis.
(m) "Eligible Employee" means an employee or underwriter of, or
underwriting consultant to, the Company or its Subsidiaries and Affiliates,
including any director who is an employee, who is responsible for or
contributes to the management, growth and/or profitability of the business of
the Company, its Subsidiaries or Affiliates.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act
shall be deemed to include successor provisions thereto and regulations
thereunder.
(o) "Fair Market Value" means, with respect to Shares or other
property, the fair market value of such Shares or other property determined
by such methods or procedures as shall be established from time to time by
the Committee. Unless otherwise determined by the Committee in good faith,
the Fair Market Value of Shares as of any given date prior to the existence
of a public market for the Company's Shares shall mean the Company's book
value. Thereafter, unless otherwise deter-
<PAGE>
-5-
mined by the Committee in good faith, the Fair Market Value of Shares shall
mean the mean between the high and low selling prices per Share on the
immediately preceding date (or, if the Shares were not traded on that day,
the next preceding day that the Shares were traded).
(p) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(q) "NQSO" means any Option that is not an ISO.
(r) "Option" means a right, granted under Section 5(b), Section 7 or
Section 8, to purchase Shares.
(s) "Other Share-Based Award" means a right, granted under Section
5(h), that relates to or is valued by reference to Shares.
(t) "Participant" means an Eligible Employee or Director who has been
granted an Award, Director's Option or Director's Replacement Option under
the Plan.
(u) "Performance Share" means a performance share granted under
Section 5(f).
<PAGE>
-6-
(v) "Performance Unit" means a performance unit granted under Section
5(f).
(w) "Plan" means this 1993 Long Term Incentive and Share Award Plan.
(x) "Restricted Shares" means an Award of Shares under Section 5(d)
that may be subject to certain restrictions and to a risk of forfeiture.
(y) "Restricted Share Unit" means a right, granted under Section
5(e), to receive Shares or cash at the end of a specified deferral period.
(z) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(aa) "SAR" or "Share Appreciation Right" means the right, granted
under Section 5(c), to be paid an amount measured by the difference between
the exercise price of the right and the Fair Market Value of Shares on the
date of exercise of the right, with payment to be made in cash, Shares, or
property as specified in the Award or determined by the Committee.
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(bb) "Shares" means ordinary shares, $.20 par value per share, of the
Company.
(cc) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
shares possessing 50% or more of the total combined voting power of all
classes of shares in one of the other corporations in the chain.
3. Administration.
--------------
(a) Authority of the Committee. Except as provided in Section 7,
--------------------------
the Plan shall be administered by the Committee, and the Committee shall have
full and final authority to take the following actions, in each case subject
to and consistent with the provisions of the Plan:
(i) to select Eligible Employees to whom Awards may be
granted;
(ii) to designate Affiliates;
(iii) to determine the type or types of Awards to be
granted to each Eligible Employee;
<PAGE>
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(iv) to determine the type and number of Awards to be granted, the
number of Shares to which an Award may relate, the terms and conditions of
any Award granted under the Plan (including, but not limited to, any
exercise price, grant price, or purchase price, and any bases for
adjusting such exercise, grant or purchase price, any restriction or
condition, any schedule for lapse of restrictions or conditions relating
to transferability or forfeiture, exercisability, or settlement of an
Award, and waiver or accelerations thereof, and waivers of performance
conditions relating to an Award, based in each case on such considerations
as the Committee shall determine), and all other matters to be determined
in connection with an Award;
(v) to determine whether, to what extent, and under what
circumstances an Award may be settled, or the exercise price of an Award
may be paid, in cash, Shares, other Awards, or other property, or an Award
may be canceled, forfeited, exchanged, or surrendered;
<PAGE>
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(vi) to determine whether, to what extent, and under what
circumstances cash, Shares, other Awards, or other property payable with
respect to an Award will be deferred either automatically, at the election
of the Committee, or at the election of the Eligible Employee;
(vii) to prescribe the form of each Award Agreement, which need not
be identical for each Eligible Employee;
(viii) to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(ix) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement, or other instrument
hereunder; and
(x) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem
neces-
<PAGE>
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sary or advisable for the administration of the Plan.
(b) Manner of Exercise of Committee Authority. The Committee shall
-----------------------------------------
have sole discretion in exercising its authority under the Plan. Any action
of the Committee with respect to the Plan shall be final, conclusive, and
binding on all persons, including the Company, Subsidiaries, Affiliates,
Eligible Employees, any person claiming any rights under the Plan from or
through any Eligible Employee, and shareholders. The express grant of any
specific power to the Committee, and the taking of any action by the
Committee, shall not be construed as limiting any power or authority of the
Committee. The Committee may delegate to officers or managers of the Company
or any Subsidiary or Affiliate the authority, subject to such terms as the
Committee shall determine, to perform administrative functions and, with
respect to Awards granted to persons not subject to Section 16 of the
Exchange Act, to perform such other functions as the Committee may determine,
to the extent permitted under Rule 16b-3 (if applicable) and applicable law.
(c) Limitation of Liability. Each member of the Committee shall be
-----------------------
entitled to, in good faith, rely or
<PAGE>
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act upon any report or other information furnished to him or her by any
officer or other employee of the Company or any Subsidiary or Affiliate, the
Company's independent certified public accountants, or other professional
retained by the Company to assist in the administration of the Plan. No
member of the Committee, nor any officer or employee of the Company acting on
behalf of the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to
the Plan, and all members of the Committee and any officer or employee of the
Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company with respect to any such
action, determination, or interpretation.
4. Shares Subject to the Plan.
--------------------------
(a) Subject to adjustment as hereinafter provided, the total number
of Shares reserved for issuance in connection with Awards, Director's Options
and Director's Replacement Options under the Plan shall be 2,250,000. No
Award, Director's Option or Director's Replacement Option may be granted if
the number of Shares to which such Award, Director's Option or Director's
Replacement Option relates, when added to the
<PAGE>
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number of Shares previously issued under the Plan, exceeds the number of
Shares reserved under the preceding sentence. If any Shares subject to an
Award, Director's Option or Director's Replacement Option are forfeited,
cancelled, exchanged or surrendered or such Award, Director's Option or
Director's Replacement Option is settled in cash or otherwise terminates
without a distribution of Shares to the Participant, any Shares counted
against the number of Shares reserved and available under the Plan with
respect to such Award, Director's Option or Director's Replacement Option
shall, to the extent of any such forfeiture, settlement, termination,
cancellation, exchange or surrender, again be available for Awards,
Director's Options or Director's Replacement Options under the Plan;
provided, however, that in the case of forfeiture, cancellation, exchange or
-------- -------
surrender of Restricted Shares or Restricted Share Units with respect to
which dividends or Dividend Equivalents have been paid or accrued, such
number of Shares shall not be available for Awards, Director's Options or
Director's Replacement Options unless, in the case of Shares with respect to
which dividends or Dividend Equivalents were accrued but unpaid, such
dividends and Dividend Equivalents are also forfeited, cancelled, exchanged
or surrendered. Upon the
<PAGE>
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exercise of any Award granted in tandem with any other Awards, such related
Awards shall be cancelled to the extent of the number of Shares as to which
the Award is exercised.
(b) Any Shares distributed pursuant to an Award, Director's Option or
Director's Replacement Option may consist, in whole or in part, of authorized
and unissued Shares or treasury Shares including Shares acquired by purchase
in the open market or in private transactions.
(c) In the event that the Committee shall determine that any dividend
in Shares, recapitalization, Share split, reverse split, reorganization,
merger, consolidation, spin-off, combination, repurchase, or share exchange,
or other similar corporate transaction or event, affects the Shares such that
an adjustment is appropriate in order to prevent dilution or enlargement of
the rights of Eligible Employees under the Plan, then the Committee shall
make such equitable changes or adjustments as it deems appropriate and, in
such manner as it may deem equitable, adjust any or all of (i) the number and
kind of Shares which may thereafter be issued under the Plan, (ii) the number
and kind of Shares issued or issuable in respect of outstanding Awards,
<PAGE>
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and (iii) the exercise price, grant price, or purchase price relating to any
Award; provided, however, in each case that, with respect to ISOs, such
-------- -------
adjustment shall be made in accordance with Section 424(h) of the Code,
unless the Committee determines otherwise. In addition, the Committee is
authorized to make adjustments in the terms and conditions of, and the
criteria and performance objectives included in, Awards in recognition of
unusual or non-recurring events (including, without limitation, events
described in the preceding sentence) affecting the Company or any Subsidiary
or Affiliate or the financial statements of the Company or any Subsidiary or
Affiliate, or in response to changes in applicable laws, regulations, or
accounting principles.
5. Specific Terms of Awards.
------------------------
(a) General. Awards may be granted on the terms and conditions set
-------
forth in this Section 5. In addition, the Committee may impose on any Award
or the exercise thereof, at the date of grant or thereafter (subject to
Section 9(d)), such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine, including terms
regarding forfeiture of Awards or continued exercis-
<PAGE>
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ability of Awards in the event of termination of employment by the Eligible
Employee.
(b) Options. The Committee is authorized to grant Options, which
-------
may be NQSOs or ISOs, to Eligible Employees on the following terms and
conditions:
(i) Exercise Price. The exercise price per Share
--------------
purchasable under an Option shall be determined by the Committee, and
the Committee may, without limitation, set an exercise price that is
based upon achievement of performance criteria if deemed appropriate
by the Committee.
(ii) Time and Method of Exercise. The Committee shall
---------------------------
determine at the date of grant or thereafter the time or times at
which an Option may be exercised in whole or in part (including,
without limitation, upon achievement of performance criteria if deemed
appropriate by the Committee), the methods by which such exercise
price may be paid or deemed to be paid (including, without limitation,
broker-assisted exercise arrangements), the form of such payment
(including, without limitation, cash,
<PAGE>
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Shares, notes or other property), and the methods by which Shares will be
delivered or deemed to be delivered to Eligible Employees.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply
----
in all respects with the provisions of Section 422 of the Code, including
but not limited to the requirement that no ISO shall be granted more than
ten years after the effective date of the Plan.
(c) SARs. The Committee is authorized to grant SARs (Share Appreciation
----
Rights) to Eligible Employees on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Eligible
----------------
Employee to whom it is granted a right to receive with respect to each
Share subject thereto, upon exercise thereof, the excess of (1) the Fair
Market Value of one Share on the date of exercise (or, if the Committee
shall so determine in the case of any such right, including, in the
Committee's discretion, one related to an ISO, the Fair Market Value of
one Share at any time during a specified period before or after the date
of exer-
<PAGE>
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cise) over (2) the exercise price of the SAR as determined by the
Committee as of the date of grant of the SAR (or, in the case of an SAR
granted in tandem with an option, shall be equal to the exercise price of
the underlying Option).
(ii) Other Terms. The Committee shall determine, at the time
-----------
of grant or thereafter, the time or times at which an SAR may be exercised
in whole or in part, the method of exercise, method of settlement, form of
consideration payable in settlement, method by which Shares will be
delivered or deemed to be delivered to Eligible Employees, whether or not
an SAR shall be in tandem with any other Award, and any other terms and
conditions of any SAR. Unless the Committee determines otherwise, an SAR
(1) granted in tandem with an NQSO may be granted at the time of grant of
the related NQSO or at any time thereafter or (2) granted in tandem with
an ISO may only be granted at the time of grant of the related ISO.
<PAGE>
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(d) Restricted Shares. The Committee is authorized to grant Restricted
-----------------
Shares to Eligible Employees on the following terms and conditions:
(i) Issuance and Restrictions. Restricted Shares shall be subject to
-------------------------
such restrictions on transferability and other restrictions, if any, as
the Committee may impose at the date of grant or thereafter, which
restrictions may lapse separately or in combination at such times, under
such circumstances (including, without limitation, upon achievement of
performance criteria if deemed appropriate by the Committee), in such
installments, or otherwise, as the Committee may determine. Except to the
extent restricted under the Award Agreement relating to the Restricted
Shares, an Eligible Employee granted Restricted Shares shall have all of
the rights of a shareholder including, without limitation, the right to
vote Restricted Shares and the right to receive dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the Committee, at
----------
the date of grant or thereafter, upon termination of em-
<PAGE>
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ployment during the applicable restriction period, Restricted Shares and
any accrued but unpaid dividends or Dividend Equivalents that are at that
time subject to restrictions shall be forfeited; provided, however, that
-------- -------
the Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that restrictions or
forfeiture conditions relating to Restricted Shares will be waived in
whole or in part in the event of terminations resulting from specified
causes, and the Committee may in other cases waive in whole or in part the
forfeiture of Restricted Shares.
(iii) Certificates for Shares. Restricted Shares granted under the
-----------------------
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Shares are registered in the name of
the Eligible Employee, such certificates shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such
Restricted Shares, and the Company
<PAGE>
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shall retain physical possession of the certificate.
(iv) Dividends. Dividends paid on Restricted Shares shall be either
---------
paid at the dividend payment date, or deferred for payment to such date as
determined by the Committee, in cash or in unrestricted Shares having a
Fair Market Value equal to the amount of such dividends. Shares
distributed in connection with a Share split or dividend in Shares, and
other property distributed as a dividend, shall be subject to restrictions
and a risk of forfeiture to the same extent as the Restricted Shares with
respect to which such Shares or other property has been distributed.
(e) Restricted Share Units. The Committee is authorized to grant
----------------------
Restricted Share Units to Eligible Employees, subject to the following terms
and conditions:
(i) Award and Restrictions. Delivery of Shares or cash, as the case
----------------------
may be, will occur upon expiration of the deferral period specified for
Restricted Share Units by the
<PAGE>
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Committee (or, if permitted by the Committee, as elected by the Eligible
Employee). In addition, Restricted Share Units shall be subject to such
restrictions as the Committee may impose, if any (including, without
limitation, the achievement of performance criteria if deemed appropriate
by the Committee), at the date of grant or thereafter, which restrictions
may lapse at the expiration of the deferral period or at earlier or later
specified times, separately or in combination, in installments or
otherwise, as the Committee may determine.
(ii) Forfeiture. Except as otherwise determined by the Committee at
----------
date of grant or thereafter, upon termination of employment (as determined
under criteria established by the Committee) during the applicable
deferral period or portion thereof to which forfeiture conditions apply
(as provided in the Award Agreement evidencing the Restricted Share
Units), or upon failure to satisfy any other conditions precedent to the
delivery of Shares or cash to which such Restricted Share Units relate,
all Restricted Share Units that are at
<PAGE>
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that time subject to deferral or restriction shall be forfeited; provided,
--------
however, that the Committee may provide, by rule or regulation or in any
-------
Award Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Restricted Share Units
will be waived in whole or in part in the event of termination resulting
from specified causes, and the Committee may in other cases waive in whole
or in part the forfeiture of Restricted Share Units.
(f) Performance Shares and Performance Units. The Committee is authorized
----------------------------------------
to grant Performance Shares or Performance Units or both to Eligible
Employees on the following terms and conditions:
(i) Performance Period. The Committee shall determine a
------------------
performance period (the "Performance Period") of one or more years and
shall determine the performance objectives for grants of Performance
Shares and Performance Units. Performance objectives may vary from
Eligible Employee to Eligible Employee and shall be based upon such
performance criteria as the Committee may deem appropriate. Per-
<PAGE>
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formance Periods may overlap and Eligible Employees may participate
simultaneously with respect to Performance Shares and Performance Units
for which different Performance Periods are prescribed.
(ii) Award Value. At the beginning of a Performance Period, the
-----------
Committee shall determine for each Eligible Employee or group of Eligible
Employees with respect to that Performance Period the range of number of
Shares, if any, in the case of Performance Shares, and the range of dollar
values, if any, in the case of Performance Units, which may be fixed or
may vary in accordance with such performance or other criteria specified
by the Committee, which shall be paid to an Eligible Employee as an Award
if the relevant measure of Company performance for the Performance Period
is met.
(iii) Significant Events. If during the course of a Performance
------------------
Period there shall occur significant events as determined by the Committee
which the Committee expects to have a substantial effect on a performance
objective
<PAGE>
-24-
during such period, the Committee may revise such objective.
(iv) Forfeiture. Except as otherwise determined by the Committee, at
----------
the date of grant or thereafter, upon termination of employment during the
applicable Performance Period, Performance Shares and Performance Units
for which the Performance Period was prescribed shall be forfeited;
provided, however, that the Committee may provide, by rule or regulation
-------- -------
or in any Award Agreement, or may determine in an individual case, that
restrictions or forfeiture conditions relating to Performance Shares and
Performance Units will be waived in whole or in part in the event of
terminations resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of Performance Shares
and Performance Units.
(v) Payment. Each Performance Share or Performance Unit may be paid
-------
in whole Shares, or cash, or a combination of Shares and cash either as a
lump sum payment or in annual installments, all as the Committee shall
deter-
<PAGE>
-25-
mine, at the time of grant of the Performance Share or Performance Unit or
otherwise, commencing as soon as practicable after the end of the relevant
Performance Period.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
--------------------
Equivalents to Eligible Employees. The Committee may provide, at the date of
grant or thereafter, that Dividend Equivalents shall be paid or distributed
when accrued or shall be deemed to have been reinvested in additional Shares,
or other investment vehicles as the Committee may specify, provided that
Dividend Equivalents (other than freestanding Dividend Equivalents) shall be
subject to all conditions and restrictions of the underlying Awards to which
they relate.
(h) Other Share-Based Awards. The Committee is authorized, subject to
------------------------
limitations under applicable law, to grant to Eligible Employees such other
Awards that may be denominated or payable in, valued in whole or in part by
reference to, or otherwise based on, or related to, Shares, as deemed by the
Committee to be consistent with the purposes of the Plan, including, without
limitation, unrestricted shares awarded purely as a "bonus" and not subject
to any restrictions or
<PAGE>
-26-
conditions, other rights convertible or exchangeable into Shares, purchase
rights for Shares, Awards with value and payment contingent upon performance
of the Company or any other factors designated by the Committee, and Awards
valued by reference to the performance of specified Subsidiaries or
Affiliates. The Committee shall determine the terms and conditions of such
Awards at date of grant or thereafter. Shares delivered pursuant to an Award
in the nature of a purchase right granted under this Section 5(h) shall be
purchased for such consideration, paid for at such times, by such methods,
and in such forms, including, without limitation, cash, Shares, notes or
other property, as the Committee shall determine. Cash awards, as an element
of or supplement to any other Award under the Plan, shall also be authorized
pursuant to this Section 5(h).
6. Certain Provisions Applicable to Awards.
---------------------------------------
(a) Stand-Alone, Additional, Tandem and Substitute Awards. Awards
-----------------------------------------------------
granted under the Plan may, in the discretion of the Committee, be granted to
Eligible Employees either alone or in addition to, in tandem with, or in
exchange or substitution for, any other Award granted under the Plan or any
award granted under any other plan or agreement of the Company, any
Subsidiary
<PAGE>
-27-
or Affiliate, or any business entity to be acquired by the Company or a
Subsidiary or Affiliate, or any other right of an Eligible Employee to
receive payment from the Company or any Subsidiary or Affiliate. Awards may
be granted in addition to or in tandem with such other Awards or awards, and
may be granted either as of the same time as or a different time from the
grant of such other Awards or awards. The per Share exercise price of any
Option, grant price of any SAR, or purchase price of any other Award
conferring a right to purchase Shares which is granted, in connection with
the substitution of awards granted under any other plan or agreement of the
Company or any Subsidiary or Affiliate or any business entity to be acquired
by the Company or any Subsidiary or Affiliate, shall be determined by the
Committee, in its discretion.
(b) Terms of Awards. The term of each Award granted to an Eligible
---------------
Employee shall be for such period as may be determined by the Committee;
provided, however, that in no event shall the term of any ISO or an SAR
-------- -------
granted in tandem therewith exceed a period of ten years from the date of its
grant (or such shorter period as may be applicable under Section 422 of the
Code).
<PAGE>
-28-
(c) Form of Payment Under Awards. Subject to the terms of the Plan
----------------------------
and any applicable Award Agreement, payments to be made by the Company or a
Subsidiary or Affiliate upon the grant, maturation, or exercise of an Award
may be made in such forms as the Committee shall determine at the date of
grant or thereafter, including, without limitation, cash, Shares, or other
property, and may be made in a single payment or transfer, in installments,
or on a deferred basis. The Committee may make rules relating to installment
or deferred payments with respect to Awards, including the rate of interest
to be credited with respect to such payments.
(d) Nontransferability. Awards shall not be transferable by an
------------------
Eligible Employee except by will or the laws of descent and distribution
(except pursuant to a Beneficiary) and shall be exercisable during the
lifetime of an Eligible Employee only by such Eligible Employee or his
guardian or legal representative. An Eligible Employee's rights under the
Plan may not be pledged, mortgaged, hypothecated, or otherwise encumbered,
and shall not be subject to claims of the Eligible Employees creditors.
<PAGE>
-29-
7. Director's Options
------------------
(a) Annual Grant. On the date of each annual meeting of the Company's
------------
shareholders, beginning with the 1994 annual meeting, each Director in office
immediately following the meeting shall automatically be granted a NQSO to
purchase 1,500 Shares with an exercise price equal to 100 percent of the
Market Value of one Share at the date of grant; provided, however, that such
-------- -------
price shall be at least equal to the par value of a Share. For purposes of
Section 7, Market Value shall mean the mean between the high and low selling
prices per Share on the immediately preceding date (or, if the Shares were
not traded on that day, the next preceding day that the Shares were traded).
(b) Exercisability. Each Option granted to a Director under paragraph
--------------
(a) hereof shall become fully exercisable on the date which is six months
after the date of grant, and shall expire on the tenth anniversary of the
date of grant. Exercisability of a Director's Option shall not be dependent
upon the Director's continuing service on the Board.
(c) Time and Method of Exercise. The exercise price of a Director's
---------------------------
Option shall be paid to the Com-
<PAGE>
-30-
pany at the time of exercise either in cash, or in Shares already owned by
the optionee and having a total Market Value equal to the exercise price, or
in a combination of cash and such Shares.
(d) Nontransferability. No Director's Option granted under the Plan
------------------
shall be transferable other than by will or by the laws of descent and
distribution. During the lifetime of the optionee, a Director's Option shall
be exercisable only by him or her or by his or her guardian or legal
representative.
(e) Adjustments. In the event that subsequent to the Effective Date
-----------
any dividend in Shares, recapitalization, Share split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other such change, affects the Shares such that they are
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company or of another corporation,
then in order to maintain the proportionate interest of the Director and
preserve the value of the Director's Option, (i) there shall automatically be
substituted for each Share subject to an unexercised Director's Option and
each Share to be issued under Section 7(a) subsequent to such event the
<PAGE>
-31-
number and kind of shares or other securities into which each outstanding
Share shall be changed or for which each such Share shall be exchanged, and
(ii) the exercise price shall be increased or decreased proportionately so
that the aggregate purchase price for the Shares subject to any unexercised
Director's Option shall remain the same as immediately prior to such event.
(f) Administration. To the extent the Plan relates to Director's
--------------
Options or Director's Replacement Options, it is intended to operate
automatically and not require administration. However, to the extent that
administration is necessary with respect to such grants, the Plan shall be
administered by the Secretary of the Company. Since the Director's Options
and Director's Replacement Options are awarded automatically, this function
will be limited to ministerial matters. The plan administrator will have no
discretion with respect to the selection of Director optionees, the
determination of the exercise price of Director's Options or Director's
Replacement Options, the timing of such grants or number of Shares covered by
the Director's Options or Director's Replacement Options.
<PAGE>
-32-
8. Director's Replacement Options.
------------------------------
On the closing date of the exchange of shares of Mid Ocean Reinsurance
Company Ltd. ("Mid Ocean Reinsurance") for Shares, each Director shall be
granted a Director's Replacement Option (with a tandem stock appreciation right)
to purchase 1,500 Shares at a price equal to U.S. $16.67 per Share in
replacement of his existing option (and tandem stock appreciation right) to
purchase common stock of Mid Ocean Reinsurance (such existing option and tandem
stock appreciation right is referred to herein as a "Mid Ocean Reinsurance
Option"). Such a Director's Replacement Option (and tandem stock appreciation
right) shall be exercisable immediately at the time of grant, shall expire on
November 4, 2002, and shall otherwise have substantially the same terms as the
Mid Ocean Reinsurance Option it replaces, except that the exercise price of the
Director's Replacement option shall not be adjusted as a result of dividends
(other than dividends paid in Shares).
9. General Provisions.
------------------
(a) Compliance with Legal and Trading Requirements. The Plan, the
----------------------------------------------
granting and exercising of Awards, Director's Options and Director's
Replacement Options thereunder, and the other obligations of the Company
under the Plan and any Award Agreement, shall
<PAGE>
-33-
be subject to all applicable Cayman Islands and U.S. federal and state laws,
rules and regulations and to such approvals by any regulatory or governmental
agency as may be required. The Company, in its discretion, may postpone the
issuance or delivery of Shares under any Award, Director's Option or
Director's Replacement Option until completion of such stock exchange or
market system listing or registration or qualification of such Shares or
other required action under any Cayman Islands or U.S. state or federal law,
rule or regulation as the Company may consider appropriate, and may require
any Participant to make such representations and furnish such information as
it may consider appropriate in connection with the issuance or delivery of
Shares in compliance with applicable laws, rules and regulations. No
provisions of the Plan shall be interpreted or construed to obligate the
Company to register any Shares under Cayman Islands or U.S. federal or state
law.
(b) No Right to Continued Employment or Service. Neither the Plan nor
-------------------------------------------
any action taken thereunder shall be construed as giving any employee or
director the right to be retained in the employ or service of the Company or
any of its Subsidiaries or Affiliates, nor
<PAGE>
-34-
shall it interfere in any way with the right of the Company or any of its
Subsidiaries or Affiliates to terminate any employee's or director's
employment or service at any time.
(c) Taxes. The Company or any Subsidiary or Affiliate is authorized
-----
to withhold from any Award granted, any payment relating to an Award under
the Plan, including from a distribution of Shares, or any payroll or other
payment to an Eligible Employee, amounts of withholding and other taxes due
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and Eligible
Employees to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Shares or other property and to make cash
payments in respect thereof in satisfaction of an Eligible Employee's tax
obligations.
(d) Changes to the Plan and Awards. The Board may amend, alter,
------------------------------
suspend, discontinue, or terminate the Plan or the Committee's authority to
grant Awards under the Plan without the consent of shareholders of the
Company or Participants, except that any such
<PAGE>
-35-
amendment, alteration, suspension, discontinuation, or termination shall be
subject to the approval of the Company's shareholders within one year after
such Board action if such shareholder approval is required by any Cayman
Islands or U.S. federal law or regulation (including Rule 16b-3, if
applicable) or the rules of any stock exchange or automated quotation system
on which the Shares may then be listed or quoted; provided, however, that,
-------- -------
without the consent of an affected Participant, no amendment, alteration,
suspension, discontinuation, or termination of the Plan may impair the rights
or, in any other manner, adversely affect the rights of such Participant
under any Award, Director's Option or Director's Replacement Option
theretofore granted to him or her. The Committee may waive any conditions or
rights under, or amend, alter, suspend, discontinue, or terminate any Award
theretofore granted any Award Agreement relating thereto; provided, however,
-------- -------
that, without the consent of an affected Eligible Employee, no such
amendment, alteration, suspension, discontinuation, or termination of any
Award may impair or adversely affect the rights of such Eligible Employee
under such Award. Notwithstanding the other provisions of this paragraph,
Section 7, Section 8 and the other provisions of this Plan applicable to
Direc-
<PAGE>
-36-
tor's Options or Director's Replacement Options may not be amended more than
once every six months other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
(e) No Rights to Awards; No Shareholder Rights. No Eligible Employee
------------------------------------------
or employee shall have any claim to be granted any Award under the Plan, and
there is no obligation for uniformity of treatment of Eligible Employees and
employees. No Award shall confer on any Eligible Employee any of the rights
of a shareholder of the Company unless and until Shares are duly issued or
transferred to the Eligible Employee in accordance with the terms of the
Award.
(f) Unfunded Status of Awards. The Plan is intended to constitute an
-------------------------
"unfunded" plan for incentive compensation. With respect to any payments not
yet made to a Participant pursuant to an Award, Director's Option or
Director's Replacement Option, nothing contained in the Plan or any Award,
Director's Option or Director's Replacement Option shall give any such
Participant any rights that are greater than those of a general creditor of
the Company; provided, however, that the Committee may authorize the creation
-------- -------
of trusts
<PAGE>
-37-
or make other arrangements to meet the Company's obligations under the Plan
to deliver cash, Shares, other Awards, or other property pursuant to any
Award, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with
the consent of each affected Participant.
(g) Nonexclusivity of the Plan. Neither the adoption of the Plan by
--------------------------
the Board nor its submission to the shareholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of options and other awards otherwise than
under the Plan, and such arrangements may be either applicable generally or
only in specific cases.
(h) Not Compensation for Benefit Plans. No Award payable under this
----------------------------------
Plan shall be deemed salary or compensation for the purpose of computing
benefits under any benefit plan or other arrangement of the Company for the
benefit of its employees or directors unless the Company shall determine
otherwise.
<PAGE>
-38-
(i) No Fractional Shares. No fractional Shares shall be issued or
--------------------
delivered pursuant to the Plan or any Award or Director's Option. In the case
of Awards to Eligible Employees, the Committee shall determine whether cash,
other Awards, or other property shall be issued or paid in lieu of such
fractional Shares or whether such fractional Shares or any rights thereto
shall be forfeited or otherwise eliminated. In the case of Director's
Options, cash shall be paid in lieu of such fractional shares.
(j) Governing Law. The validity, construction, and effect of the
-------------
Plan, any rules and regulations relating to the Plan, and any Award Agreement
shall be determined in accordance with the laws of New York without giving
effect to principles of conflict of laws.
(k) Effective Date; Plan Termination. The Plan shall become effective
--------------------------------
as of _______________________, (the "Effective Date") upon approval by the
affirmative votes of the holders of a majority of voting securities of the
Company. The Plan shall terminate as to future awards on the date which is
ten (10) years after the Effective Date, or, if earlier, at such time as no
Shares remain available for issuance pursuant to Sec-
<PAGE>
-39-
tion 4 and the Company has no further obligations with respect to any Award,
Director's Option or Director's Replacement Option granted under the Plan.
(l) Titles and Headings. The titles and headings of the sections in
-------------------
the Plan are for convenience of reference only. the text of the Plan, rather
than such titles or headings, shall control.
<PAGE>
Exhibit 10.9.2
AMENDMENT TO MID OCEAN LIMITED
1993 LONG TERM INCENTIVE AND SHARE AWARD PLAN
The Mid Ocean Limited 1993 Long Term Incentive and Share Award Plan
(the "Plan") is hereby amended, effective as of December 4, 1996, as follows;
provided, however, that this amendment shall be contingent upon approval by the
- -------- -------
affirmative votes of the holders of a majority of voting securities of Mid Ocean
Limited at a meeting duly held during calendar year 1997.
1. Section 2(g) of the Plan is hereby amended to read as follows:
"'Committee' shall mean the entire Board or the Compensation
Committee of the Board, or such other committee of the Board as may be
designated by the Board to administer the Plan."
2. Section 2(m) of the Plan is hereby amended to read as follows:
"'Eligible Employee' means any employee or underwriter of, or
underwriting consultant to, the Company or its Subsidiaries or
Affiliates and any member of the Board (whether or not an employee of
the Company) who, in the judgment of the Committee, is responsible for
or contributes to the management, growth and/or profitability of the
business of the Company, its Subsidiaries or Affiliates."
3. The third sentence of Section 4(a) of the Plan is amended by
deleting the proviso at the end thereof.
<PAGE>
-2-
4. Section 6(d) of the Plan is amended by adding the following at the
beginning thereof: "Except as otherwise determined by the Committee and set
forth in the applicable Award Agreement,"
5. Section 7(a) of the Plan is hereby amended by adding the following
sentence at the end thereof:
"Notwithstanding the foregoing, effective as of December 4, 1996,
no additional Directors Options will be granted under this Section
7(a)."
6. Section 7(d) of the Plan is amended to read as follows:
"Nontransferability. Except as otherwise determined by the
------------------
Committee and set forth in the applicable Award Agreement, no
Director's Option granted under the Plan shall be transferable other
than by will or the laws of descent and distribution, and during the
lifetime of the optionee, a Director's Option shall be exercisable
only by him or her or by his or her guardian or legal representative."
7. Section 9(d) of the Plan is amended by deleting the last sentence
thereof.
<PAGE>
EXHIBIT 10.10
MID OCEAN LIMITED
STOCK & DEFERRED COMPENSATION PLAN
FOR NONEMPLOYEE DIRECTORS
SECTION 1. Introduction.
------------
The Mid Ocean Limited Stock & Deferred Compensation Plan for
Nonemployee Directors (the "Plan") provides an opportunity for nonemployee
directors of Mid Ocean Limited to defer their annual retainer fees and have them
deemed invested in Shares. It also provides for the payment of annual retainer
fees of Directors in the form of Shares. The Plan is intended to encourage
qualified individuals to accept nominations as directors of Mid Ocean Limited
and to strengthen the mutuality of interest between the nonemployee directors
and Mid Ocean Limited's other shareholders.
SECTION 2. Definitions.
-----------
For purposes of the Plan, the following terms shall be defined as set
forth below.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to include
successor provisions thereto and regulations thereunder.
(c) "Company" means Mid Ocean Limited, a corporation organized under
the laws of the Cayman Islands, or any successor corporation.
(d) "Director" means a member of the Board who is not employed by the
Company or any of its subsidiaries.
(e) "Fair Market Value" means, with respect to Shares on any day, the
following:
(i) if the Shares are at the time listed or admitted to trading
on any stock exchange, then the Fair Market Value shall be the closing
selling price per share of Shares on the day preceding the date in question
on the stock exchange which is the primary market for the Shares, as such
is officially quoted on such exchange, and if there is no reported sale of
Shares on such exchange on such date, then the Fair Market Value shall be
the closing
<PAGE>
-2-
selling price on the exchange on the last preceding date for which such
quotation exists; and
(ii) if the Shares are not at the time listed or admitted to
trading on any stock exchange but are traded in the over-the-counter
market, the Fair Market Value shall be the closing selling price per share
of Shares on the day preceding the date in question, as such price is
reported by the National Association of Securities Dealers through the
NASDAQ National Market System or any successor system, and if there is no
reported closing selling price for Shares on such date, then the closing
selling price on the last preceding date for which such quotation exists
shall be determinative of Fair Market Value.
(f) "Plan" means this Stock & Deferred Compensation Plan for
Nonemployee Directors.
(g) "Plan Benefits" means the benefits described in Sections 5 and 6
hereof.
(h) "Plan Year" means the calendar year.
(i) "Shares" means Class A Ordinary Shares, $0.20 par value per
share, of the Company.
SECTION 3. Administration.
--------------
The Plan shall be administered by the Board. The Board shall have
full authority to construe and interpret the Plan, and any action of the Board
with respect to the Plan shall be final, conclusive, and binding on all persons.
SECTION 4. Annual Retainer Paid In Shares.
------------------------------
After the Effective Date of this Plan, each Director's annual retainer
fee shall, subject to any deferral election made pursuant to Section 5 below, be
paid in the form of Shares on a quarterly basis, in arrears. The number of
Shares paid on each quarterly payment date shall be the number of Shares having
an aggregate Fair Market Value (on the payment date) equal to one fourth of the
Director's annual retainer fee. Fractional Share certificates will not be
issued, and cash will be paid in lieu of fractional Shares at the time of
termination of the Director's service on the Board. Shares distributed shall be
vested in full on the payment date.
<PAGE>
-3-
SECTION 5. Share Unit Accounts.
-------------------
The Company shall maintain a Share unit account (an "Account") for
each Director. Share units will be credited to each such Account as follows:
(a) Each Director may make an irrevocable election on or before the
December 31 immediately preceding the beginning of a Plan Year by written notice
to the Company, to defer payment of all of the compensation otherwise payable as
his or her annual retainer fee for service as a Director for the Plan Year.
Notwithstanding the foregoing, a Director may make such an election within 70
days after first becoming eligible to participate in the Plan, with respect to
compensation payable after the effective date of the election. All compensation
which a Director elects to defer pursuant to this Section 5(a) shall be credited
in the form of Share units to the Director's Account. The number of units
(including fractional units) so credited will be equal to the number of Shares
(including fractional Shares) having an aggregate Fair Market Value (on the date
the compensation would otherwise have been paid) equal to the amount by which
the Director's compensation was reduced pursuant to the deferral election.
Deferrals of compensation hereunder shall continue until the Director notifies
the Company in writing, on or prior to the December 31 immediately preceding the
commencement of any Plan Year, that the Director wishes his or her compensation
for such Plan Year and succeeding periods to be paid on a current basis.
(b) As of each date on which a cash dividend is paid on Shares, there
shall be credited to each Account that number of Share units (including
fractional units) determined by (i) multiplying the amount of such dividend (per
share) by the number of Share units in such Account; and (ii) dividing the total
so determined by the Fair Market Value of a Share on the date of payment of such
cash dividend. The additions to a Director's Account pursuant to this Section
5(b) shall continue until the Director's Plan Benefit is fully paid.
<PAGE>
-4-
SECTION 6. Plan Benefits.
-------------
(a) Form. The Plan Benefit of a Director shall consist of Shares
----
equal in number to the Share units in the Director's Account. Any fractional
Share unit shall be paid in cash.
(b) Distribution.
------------
(i) The Plan Benefit of a Director shall be distributed in a
lump sum at the time of termination of the Director's service on the Board.
(ii) In the case of the death of a Director, the Director's
Plan Benefit shall be distributed, within a reasonable time as determined
by the Company, after the Director's death to the Director's beneficiary or
beneficiaries, as specified by the Director on a form furnished by and
filed with the Secretary of the Company. If no beneficiary has been
designated by the Director or if no beneficiary survives the Director, the
undistributed balance of his or her Plan Benefit shall be distributed to
the Director's surviving spouse as beneficiary if such spouse is still
living or, if not living, in equal shares to the then living children of
the Director as beneficiaries or, if none, to the Director's estate as
beneficiary.
SECTION 7. General.
-------
(a) Nontransferability. Except as provided in Section 6(b)(ii), no
------------------
payment of any Plan Benefit of a Director shall be anticipated, assigned,
attached, garnished, optioned, transferred or made subject to any creditor's
process, whether voluntarily or involuntarily or by operation of law. Any act in
violation of this subsection shall be void.
(b) Compliance with Legal and Trading Requirements. The Plan shall
----------------------------------------------
be subject to all applicable laws, rules and regulations, including, but not
limited to, federal and state laws, rules and regulations, and to such approvals
by any regulatory or governmental agency as may be required.
(c) Taxes. The Company is authorized to withhold from any payment
-----
made under this Plan any amounts of withholding and other taxes due in
connection therewith, and to take such other action as the Company may deem
advisable to enable the Company and a Director to satisfy obligations for the
payment of any withholding taxes and other tax obligations relating thereto.
<PAGE>
-5-
(d) Amendment. The Board may amend, alter, suspend, discontinue, or
---------
terminate the Plan without the consent of shareholders of the Company or
individual Directors; provided, however, that, without the consent of an
affected Director, no amendment, alteration, suspension, discontinuation, or
termination of the Plan may impair the rights or, in any other manner, adversely
affect the rights of such Director hereunder.
(e) Unfunded Status of Awards. This Plan (other than Section 4
-------------------------
hereof) is intended to constitute an "unfunded" plan of deferred compensation.
With respect to any payments not yet made to a Director, nothing contained in
the Plan shall give any such Director any rights that are greater than those of
a general creditor of the Company; provided, however, that the Company may
authorize the creation of trusts or make other arrangements to meet the
Company's obligations under the Plan to deliver cash, or other property pursuant
to any award, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Company otherwise determines with the
consent of each affected Director.
(f) Nonexclusivity of the Plan. The adoption of the Plan by the
--------------------------
Board shall not be construed as creating any limitations on the power of the
Board to adopt such other compensation arrangements as it may deem desirable,
including, without limitation, the granting of options on Shares and other
awards otherwise than under the Plan, and such arrangements may be either
applicable generally or only in specific cases.
(g) Adjustments. In the event that subsequent to the Effective Date
-----------
any dividend in Shares, recapitalization, Share split, reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other such change, affects the Shares such that they are
increased or decreased or changed into or exchanged for a different number or
kind of Shares, other securities of the Company or of another corporation or
other consideration, then in order to maintain the proportionate interest of the
Directors and preserve the value of the Directors' Share units, there shall
automatically be substituted for each Share unit a new unit representing the
number and kind of Shares, other securities or other consideration into which
each outstanding Share shall be changed or for which each such Share shall be
exchanged. The substituted units shall be subject to the same terms and
conditions as the original Share units.
(h) No Right to Remain on the Board. Neither the Plan nor the
-------------------------------
crediting of Share units under the Plan shall be deemed to give any individual a
right to remain a director of the Company or create any obligation on the part
of the Board to nominate any Director for reelection by the shareholders of the
Company.
<PAGE>
-6-
(i) Governing Law. The validity, construction, and effect of the
--------- ---
Plan shall be determined in accordance with the laws of the State of New York
without giving effect to principles of conflict of laws.
(j) Effective Date. The Plan shall become effective as of January 1,
--------------
1997 (the "Effective Date").
(k) Titles and Headings. The titles and headings of the Sections in
-------------------
the Plan are for convenience of reference only. In the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
<PAGE>
Exhibit 10.11.1
EMPLOYMENT AGREEMENT
MARK E. BROCKBANK
<PAGE>
INDEX
-----
1. Service Agreement, dated 1st January, 1995.
2. Addendum to Service Agreement, dated 9th March, 1995
3. Letter to amend the Service Agreement, dated 29th September, 1995.
4. Letter to amend the Contract of Employment, dated 13th December, 1995
(operation of notice and restriction period).
5. Letter referring to restrictions on use of name and non-competition clause,
dated 13th December, 1995.
<PAGE>
1ST JANUARY 1995
(1) THE BROCKBANK GROUP PLC
(2) ME BROCKBANK
________________________
SERVICE AGREEMENT
________________________
The Brockbank Group Plc
Fitzwilliam House
10 St. Mary Axe
LONDON
EC3A 8BS
<PAGE>
I hereby relinquish my five year rolling Service Agreement dated 28th September
1988 and accept the attached Service Agreement as a replacement with immediate
effect.
Signed ________________________________________
ME BROCKBANK
Dated 9th March 1995.
<PAGE>
THIS AGREEMENT is made on 1st January 1995 BETWEEN
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(1) THE BROCKBANK GROUP PLC (registered in England under number 1844295) whose
registered office is at Fitzwilliam House, 10 St. Mary Axe., London EC3A
8BS ("the Company"); and
(2) ME BROCKBANK of 48 Gloucester Square, London W23TQ ("the Executive")
1. APPOINTMENT
1.1 The Company hereby appoints the Executive and the Executive hereby
agrees to serve the Company as Chief Executive Officer and as a
director of such Group Company as the Company shall from time to time
nominate and notify in writing to the Executive upon the terms and
conditions hereinafter contained.
1.2 The Company shall employ the Executive and the Executive shall serve
the Company and any applicable Group Company (subject to the
provisions of Clause 12) as from the Commencement Date unless and
until either party shall give to the other not less than twelve
months' written notice.
1.3 The Executive's written period of continuous employment with the
Company began on 01 October 1980.
<PAGE>
2. DUTIES
2.1 The Executive shall perform such duties as are consistent with his
position and exercise such powers in relation to the business of the
Company and any Group Company as from time to time may be assigned to
or vested in him by the Board. Such duties may relate to the Company
or any Group Company and will be performed by the Executive subject to
such restrictions consistent as aforesaid as the Board may from time
to time impose.
2.2 During the term of his engagement hereunder the Executive (unless
prevented by ill-health or accident or during any permitted holiday
absences) shall devote to his duties hereunder substantially his full
time attention and abilities for the proper discharge of his duties.
2.3 The Executive shall in all respects conform to and comply with the
directions and regulations from time to time given or made by the
Board and shall well and faithfully serve the Company and the Group
Companies and shall use his best endeavours to promote and develop the
respective interests thereof.
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2.4 The Executive shall comply with all regulatory requirements of Lloyd's
applicable to him and all Group Companies to the extent consistent
with his responsibilities from time to time in force.
2.5 The Company shall be under no duty to provide the Executive with any
work during any notice period hereunder and, during such period, may
require the Executive to perform his duties from his home address.
3. REMUNERATION
3.1 The Company shall pay to the Executive during the term of his
engagement a salary at the rate of (Pounds)300,000 per annum or such
higher rate as may from time to time be agreed or determined by the
Board and notified to the Executive in writing. Such salary shall be
paid in equal monthly installments in arrears on the 26th day of each
month and shall be subject to review (with no obligation to award an
increase in salary) annually by the Board.
3.2 Payments to be made to the Executive pursuant to the provisions of
Clause 3.1 shall be deemed to accrue from day to day and the Executive
shall be entitled to a rateable proportion of his salary for any
broken
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<PAGE>
period in the event of the engagement commencing or terminating during
any month.
3.3 The Executive shall be entitled to receive his full salary during
permitted holiday periods and also in respect of any period for which
he is prevented by illness, accident or other incapacity from properly
performing his duties hereunder, provided that where the absence is
due to illness, accident or other incapacity the Executive shall if
required by the Board furnish evidence thereof satisfactory to the
Board and the Executive shall give credit to the Company for the
amount of any sums he shall be entitled to claim by way of social
security benefits and any scheme for the time being in force of which
the Executive is a member by virtue of his engagement by the Company
is consequence of such illness accident or other incapacity.
3.4 In the event that the Executive shall be required to perform any
duties or exercise any powers in relation to any Group Company in
accordance with the provisions of Clause 2.1 such proportion as the
Board may determine having regard to the nature and extent of such
duties of the Executive's remuneration may be
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<PAGE>
paid by the Group Company or Group Companies shall be accepted by the
Executive pro tanto in satisfaction of the obligation of the Company
to remunerate him under the provisions of Clause 3.1.
4. EXPENSES
The Company shall reimburse the Executive all reasonable out of pocket
expenses properly incurred by him in the performance of his duties
hereunder including traveling, subsistence and entertainment expenses
and he shall provide the Company with vouchers or other evidence of
such expenses.
5. MOTOR CAR/CAR ALLOWANCE
5.1 Subject to and in accordance with the "Company's Car Scheme" from time
to time in force, the Company shall provide the Executive with the use
of a motor car or monthly car allowance solely at the Company's
discretion. The full policy document is held by the Group Personnel
Manager.
6. RETIREMENT, PENSION AND INSURANCE BENEFITS
6.1 In any event and without prior notice this Agreement shall terminate
on the last day of the month in which the Executive attains the age of
65 years.
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6.2 The Executive shall during the duration of this Agreement be entitled
to:
6.2.1 Remain a member of the Company's contributory pension scheme
(Brockbank Group Pension Scheme established by an interim deed dated
30th June 1980) subject to and in accordance with the rules of that
scheme, full particulars of which have been supplied to the Executive.
There is a contracting out certificate in force in respect of the
Executive's employment; or
6.2.2 Receive equivalent payments to a personal pension plan.
6.3 The Company shall pay premiums on behalf of the Executive for private
medical health insurance for himself, his spouse and minor children in
accordance with the rules from time to time of the Company in which
the Executive is entitled to be a participant or such other private
health insurance scheme as the Company shall adopt.
6.4 The Company will provide a death insurance benefit equal to the four
times your annual salary, subject to Inland Revenue Limits, and; the
company will provide permanent health insurance.
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7. HOLIDAY ENTITLEMENT
7.1 The Executive shall be entitled to 25 working days holiday in each
calendar year (as well as the customary public and statutory holidays)
to be taken at such time or times as may be agreed with the Board.
7.2 On the termination of the Executive's appointment his holiday
entitlement for the calendar year in which such termination takes
place shall be in direct proportion to the length of service in that
year and he shall be paid his salary in lieu of any such holiday
entitlement not taken as at the date of termination.
8. PLACE OR WORK
8.1 The Executive's normal place of work (excluding business traveling)
shall be at Fitzwilliam House, 10 St. Mary Axe, London EC3A 8BS or at
such other place within the United Kingdom as the Company may from
time to time determine.
8.2 The Executive shall undertake such travel both within and outside the
United Kingdom as may be necessary for the proper performance of his
duties.
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9. AUTHORITY/REPRESENTATIONS
9.1 The Executive shall not within the prior consent of the Board (as
evidenced by a resolution of the Board);
9.1.1 incur any capital expenditure in excess of such sum as may be
authorised from time to time; or
9.1.2 enter into on behalf of the Company or any company in the Group any
commitment, contract or arrangement outside the normal course of
business or the scope of his normal duties or of an unusual or onerous
or long term nature.
9.2 The Executive shall not at any time make any untrue statement in
relation to the Company or any Group Company and in particular shall
not after the termination of his employment hereunder wrongfully
represent himself as being employed by or connected with the Company
or any Group Company.
10. BUSINESS INTERESTS AND CONFIDENTIALITY
10.1 During the continuance of his appointment hereunder the Executive
shall not, without the prior written consent of the Board, directly or
indirectly engage or be concerned or interested in any other business
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<PAGE>
of a similar nature to which would or might compete with the business
for the time being carried on by the Company or any Group Company
either alone or jointly with or as a director, manager, agent or
servant of any other person firm company or organisation, provided
that nothing in this clause shall preclude the Executive from holding
or being interested in investments representing not more than 5
percent of the issued investments of any class of a company any part
of whose share or loan capital is quoted or dealt in on The Stock
Exchange or the Unlisted Securities Market.
10.2 The Executive shall not either during the continuance of his
appointment hereunder (except in the proper performance of his duties)
nor at any time after the termination hereof make use of or divulge or
communicate to any person, firm, company or organisation any of the
trade secrets or other confidential information of the Company or any
Group Company or of any of the respective Names or Syndicates
represented or managed by the Company and the Group Companies which
may heretofore or hereafter have been entrusted to him or have come to
his knowledge at any time while
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<PAGE>
in the service of the Company or any Group Company (whether under this
Agreement or otherwise).
11. DIRECTORSHIP
11.1 The Executive shall not prior to the termination of this Agreement
resign or be subject to retirement by rotation as a director of any
Group Company (unless the Articles of Association of the relevant
Group Company as amended from time to time so provide) save as herein
otherwise provided.
11.2 If the Executive shall cease for any reason whatsoever to be a
director of any Group Company this Agreement shall (unless the parties
otherwise agree in writing) thereupon automatically terminate but if
such cessation is caused by any act or omission of either party
without the consent, concurrence or complicity of the other such act
or omission shall be deemed a breach of this Agreement and
determination hereunder shall be without prejudice to any claim for
damages in respect of such breach provided that the Executive shall be
treated as the party in breach if he is removed from office in
circumstances which justify termination under Clause 12.
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<PAGE>
11.3 Upon the termination of this Agreement for whatsoever reason the
Executive shall at the request of the Company resign forthwith without
claim for compensation from all offices held by him in any Group
Company or from any position which he occupies as a trustee in
relation to the business of the Company or any Group Company and in
the event of his failing so to do within seven days after the making
of such request the Company is hereby irrevocably authorised to
appoint its secretary for the time being as the agent of the Executive
in his name and on his behalf to give notice of such resignation and
to do all other things requisite to give effect thereto.
12. TERMINATION ON THE HAPPENING OF CERTAIN EVENTS
12.1 The Company shall have the right to terminate this Agreement without
liability for compensation or damages:
12.1.1 by not less than 3 months' notice in writing given at any time while
the Executive is incapacitated by illness or accident or otherwise
from properly performing his duties hereunder and shall have been so
incapacitated for a period or periods in the aggregate
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exceeding 180 days in any period of 12 consecutive months; or
12.1.2 forthwith by notice in writing in the Executive shall:
12.1.2.1 become bankrupt or make any arrangement or composition with his
creditors or take advantage of any statute for the time being in force
affording relief for insolvent debtors; or
12.1.2.2 be convicted or any criminal offence other than an offence under the
Road Traffic Acts not involving a sentence of imprisonment; or
12.1.2.3 commit any material breach of any term of this Agreement which is
incapable of remedy to the satisfaction of the Company within 28 days
of being requested so to do by the Company; or
12.1.2.4 be guilty of material misconduct or material default in the course of
his employment or commit any serious breach or (after warning) any
repeated or continued breach of any of his duties and obligations as
employee; or
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12.1.2.5 wilfully neglect to perform or prove to be incapable of performing his
duties hereunder (otherwise than as a result of illness, accident or
other such incapacity); or
12.1.2.6 refuse or neglect to comply with any lawful orders or directions given
to him by the Company; or
12.1.2.7 be guilty of conduct (whether or not connected with his employment)
tending to bring himself or the Company into disrepute; or
12.1.2.8 be disqualified from being a director of the Company or any company
under any legislation; or
12.1.2.9 become of unsound mind or has a receiver appointed under the Mental
Health Acts; or
12.1.2.10 be precluded by the direction or regulation of the Council or
Committee of Lloyd's or an authorised officer of Lloyd's from acting
(otherwise than by an order of Administrative Suspension) as a
director of a Lloyd's underwriting agent; or
12.1.2.11 commit a disciplinary offence for which he is censured in Lloyd's
disciplinary proceedings which cen-
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sure materially affects his ability to perform his duties hereunder;
or
12.1.3 forthwith without notice if the Executive shall die.
12.2 The Executive shall have no claim against the Company arising out of
the termination of this Agreement or his appointment hereunder if:
12.2.1 such termination is by reason of reconstruction or amalgamation,
whether by winding up the Company or otherwise, and the Executive
shall be offered employment with any company, concern or undertaking
resulting from such reconstruction or amalgamation of a similar nature
to his appointment hereunder on terms no less favourable to him than
those contained in this Agreement; or
12.2.2 the Executive shall refuse or fail to agree to accept employment on
terms no less favourable to him than those contained in this Agreement
by a company concern or undertaking which has acquired or agreed
directly or indirectly the whole or substantially the whole of the
undertaking and assets of the Company or the whole or not less than 90
per cent of the issued equity share capital of the Company and the
Company
<PAGE>
shall terminate this Agreement within one month after such refusal or
failure to agree.
13. OTHER TERMS AND CONDITIONS APPLICABLE ON TERMINATION
Upon the termination of the Executive's appointment howsoever occasioned he
shall forthwith deliver to the Company (without retaining copies of the
same) all correspondence, drawings, specifications, accounts, documents and
papers of any description relating to the affairs and business of the
Company or any Group Company whether or not the same were prepared by him
or were originally supplied by the Company or a Group Company and all other
property of the Company or any Group Company within his possession or under
his control.
14. GRIEVANCE PROCEDURE
If the Executive is dissatisfied with any disciplinary decision or if he
has any grievance relating to this appointment hereunder he should follow
the procedure set out in the Staff Handbook.
15. SURVIVAL OF COVENANTS
Notwithstanding the termination of this Agreement it shall remain in full
force and effect to the extent that the obligations of the Executive which
are expressed to operate thereafter or are of a continuing nature are
con-
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cerned and may be enforced against the Executive accordingly.
16. INCORPORATION OF SCHEDULES
The provisions of the First Schedule hereto form part of this Agreement and
are incorporated herein.
17. GOVERNING LAW
This Agreement shall be governed by the Laws of England and Wales and the
parties hereto submit to the exclusive jurisdiction of the courts of
England and Wales.
18. DEFINITIONS
In this Agreement the following expressions shall, unless the context
otherwise requires, have the following meanings:
18.1 "Commencement Date" 1st January 1995
18.2 "Board" the Board of Directors of the Company (or any director or
committee of directors duly authorised by the Board);
18.3 "working days" weekdays but excluding Saturdays, bank or other public
holidays;
18.4 "calendar year" a year commencing 1st January;
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18.5 "Group Company" any company which is for the time being a subsidiary
of the Company or a holding company of the Company or any subsidiary
of such holding company within the meaning of section 736 Companies
Act 1985 (as amended);
18.6 "Lloyd's" the Society and Corporation of Lloyd's created and governed
by the Lloyd's Acts 1971-1982; and
18.7 "Names" and "Syndicates" the meanings ascribed to such expressions in
paragraph 1 of the First Schedule hereto.
19. NOTICES
Any notice to be given hereunder shall be in writing and may be served in
the case of the Executive by being delivered personally to him or left for
his or sent by registered post addressed to him at his usual or last known
address or in the case of the Company by being delivered at or sent by
registered post or recorded delivery addressed to its registered office for
the time being.
20. PRIOR AGREEMENTS
This Agreement:
20.1 shall take effect in substitution for all previous agreements and
arrangements whether written oral or
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<PAGE>
implied between the Company or any Group Company and the Executive
relating to the service of the Executive all of which agreements and
arrangements shall be deemed to have been terminated by mutual consent
as from the Commencement Date;
20.2 contains the whole of the terms agreed in respect of the Executive's
employment as from the Commencement Date; and
20.3 shall only be capable of being varied by a supplemental agreement or
memorandum in writing signed by or on behalf of the parties hereto.
EXECUTED AS A DEED by the Company )
in the presence of: )
Director_____________________________
Secretary____________________________
SIGNED AS A DEED and DELIVERED )
by the EXECUTIVE in the presence of )
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<PAGE>
THE FIRST SCHEDULE
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RESTRICTIVE COVENANTS
---------------------
1. DEFINITIONS
In the Schedule unless the context otherwise required the following
expressions shall have the following meanings:
1.1 "Brockbank" Brockbank Group plc and any of its subsidiaries;
1.2 "Brockbank Syndicates" any Syndicates from time to time managed by
Brockbank;
1.3 "the Business" the business of a Managing Agency as Lloyd's or corporate
syndicate at Lloyd's and its ancillary activities or any part thereof
carried on by any Group Company as at the Termination Date and the period
of 12 months prior thereto within England and Wales and the business of any
Group Company at the Termination Date to which the Executive has rendered
services or by which he has been engaged at any time during the period of
12 months prior to the Termination Date;
1.4 "directly or indirectly" (without prejudice to the generality of the
expression) whether as principal or agent either alone or jointly or in
partnership with any other person firm company or (except as the holder of
securi-
<PAGE>
ies listed dealt in or traded on a recognised Stock Exchange, not xceeding
3% in nominal value of the securities of that class) as a shareholder in
any other company being concerned or interested in any other person firm
or company and whether as a director principal partner consultant employee
or otherwise;
1.5 "Senior Executive" a person who is or was at any time while the Executive
was employed by the Company or engaged by any Group Company:
1.5.1 engaged or employed as an employee, director or consultant of that
company; and
1.5.2 engaged in a capacity in which he obtained Information; and
1.5.3 entitled to emoluments (including commission if any) exceeding the annual
rate of (Pounds)50,000; and
1.5.4 so engaged at any time during the period of 12 months prior to the
Termination Date;
1.6 "Council" the Council of Lloyd's which includes its delegates and persons
by whom it acts;
1.7 "Information" information or knowledge of a confidential nature concerning
and relating to the goodwill of the
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Business including (without prejudice to the generality of the foregoing)
information and know-how as to proposed policy wordings or proposed
insurance policies to be offered by Brockbank but which are not available
at Lloyd's during the Restriction Period, suppliers, Lloyd's Brokers,
Members' Agents, business policy and expansion or forward planning
programmes which the Executive shall have acquired before the Termination
Date;
1.8 "Lloyd's Adviser" a person who is listed on the register of Lloyd's
Advisers maintained under the Lloyd's Advisers Byelaw (No. 19 of 1993);
1.9 "Lloyd's Broker" a partnership or body corporate permitted by the Council
to broke insurance business at Lloyd's;
1.10 "Members' Agent" an underwriting agent which is listed as a members' agent
on the register of underwriting agents maintained under the Underwriting
Agents Byelaw (No. 4 of 1984);
1.11 "Names" underwriting members of Lloyd's;
1.12 "the Restriction Period" the period of 12 months from the Termination Date;
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1.13 "Syndicate" shall have the same meaning as contained in the Underwriting
Agents Byelaw (No. 4 of 1984); and
1.14 "Termination Date" the date which actually terminates the Executive's
employment hereunder.
2. The parties hereto agree and acknowledge that it is reasonable and
necessary for the protection of goodwill and trade connections of the
Business that the Executive should be restrained in the terms of the
covenants contained herein from making available or using for the benefit
of himself or a competitor or potential competitor Information which he has
obtained and is likely to obtain in the course of his employment as an
Executive of the Company.
3. The Executive accordingly covenants with the Company that in view of the
circumstances referred to in paragraph 2 of this Schedule, he will not
(other than for and on behalf of the Company or any Group Company) without
the prior written consent of the Board (such consent to be withheld only so
far as may be reasonably necessary to protect the legitimate interests of
the Company and any Group Company) directly or indirectly:
3.1 at any time during the Restriction Period:
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3.1.1 be engaged or concerned or interested or participate in a business the
same as or in competition with the Business in the City of London;
3.1.2 in relation to a business which may in any way be in competition with the
Business, canvass, solicit or entice the custom of or approach or cause
to be canvassed, solicited, enticed or approached or deal with or supply
any services to any person who at the date hereof or at any time during
the period of two years prior to the Termination Date has been a Members'
Agent or Lloyd's Adviser providing as agent for and on behalf of its
Names capacity of at least (Pounds)5 million to one or more of the
Brockbank Syndicates; or
3.1.3 in relation to a business which may in any way be in competition with the
Business, offer employment to or employ or offer to conclude any contract
for services with any Senior Executive or procure or facilitate the
making of such an offer by any person, firm or company who shall be in
competition with the Business within such Restriction Period; or
3.1.4 solicit or entice any Senior Executive to leave his employment with the
Company or any Group Company;
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3.1.5 knowingly assist any competitor of the Company or any Group Company or
any of its subsidiaries to a material extent in carrying on or developing
any business which may in any way be the same as or similar to or in
competition with the Business;
3.2 at any time solicit or entice or endeavour to solicit or entice any
person to breach his contract of employment or contract for services with
the Company or any Group Company or procure or facilitate such by any
person firm or company;
3.3 except as required by law at any time do or say anything likely or
calculated to lead any person, firm or company to withdraw from or cease
to continue offering to the Company or any Group Company any rights then
enjoyed by it or in any other way to cease to do business or reduce the
amount of business it transacts with any member of the Company or any
Group Company;
3.4 at any time:
3.4.1 disclose to any person (except as required by law) or use to the
detriment of the Company or any Group Company any Information which he
has acquired before the Termination Date;
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3.4.2 falsely represent himself as being connected with or interested in the
Company or any Group Company or in the Business;
3.4.3 at any time carry on a business under the name "Brockbank" or any similar
or other name likely to confuse or mislead any part of the public.
4. The Executive hereby acknowledges and agrees with the Company that:
4.1 each of the sub-clauses contained in paragraph 3 of this Schedule
constitutes an entirely separate severable and independent covenant and
restriction on him;
4.2 the duration, extent and application of each of the restrictions
contained in paragraph 3 are no greater than is necessary for the
protection of the goodwill and trade connections of the Business; and
4.3 in the event that any restriction on him contained in paragraph 3 of this
Schedule shall be found void but would be valid if some part thereof were
deleted such restriction shall apply with any such deletion as may be
necessary to make it valid and effective.
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ADDENDUM TO SERVICE AGREEMENT BETWEEN M.E. BROCKBANK AND
THE BROCKBANK GROUP plc DATED 1 JANUARY 1995
Sub-Clause 3(b)
You will be entitled to 15% of all net retained profit commission received by
the managing agencies within the Group for the 1992, 1993 and 1994 years of
account only. This arrangement ceases with effect from the 1995 year of account
in accordance with the terms of the buy-out agreement dated 30 December 1994.
(Net retained profit commission is defined as profit commission received less
introducers profit commissions payable).
Signed on behalf of the Company
Director
Signed by Executive
9 March 1995
<PAGE>
BROCKBANK
The Brockbank Group plc
Fitzwilliam House
10 St. Mary Axe, London
EC3A 8BS
Telephone 0171-3902101
Fax 0171-3902102
Attn: M.E. Brockbank
29th September 1995
Dear Mark,
You are invited to accept the amendments, set out below, to your Service
Agreement dated 1st January 1995.
On agreeing to and accepting these changes your Service Agreement, together with
this statement and the Company Handbook, will form your terms and conditions of
employment.
The words defined in your service agreement shall have the same meaning when
used in this statement.
1. The period of time for which any restrictive covenants in your service
agreement are expressed to apply after the Termination Date shall be
reduced by the amount of time, if any, which you are placed on "gardening
leave" prior to the Termination Date under your service agreement.
2. With regard to the restrictive covenants contained in the first schedule to
your service agreement, the Company confirms that insofar as the Board
refuse consent pursuant to paragraph 3 of that Schedule or give such
consent on a qualified basis which effectively prohibits you from working
during the Restriction Period, the Company shall pay you monthly in arrears
during the Restriction Period an amount equal to your monthly salary
pursuant to clause 3.1 of your service agreement immediately prior to the
Termination Date.
<PAGE>
Provided always that:
a) The Company shall have no obligation to pay you pursuant to this
letter if your employment with the Company shall have been terminated
pursuant to clause 12.1.2 of your service agreement;
b) you continue to observe the obligations in your service agreement
which survive the Termination Date; and
c) you shall not be entitled to any other benefits during any such
Restriction Period including but not limited to pension and insurance
benefits.
The remainder of your terms and conditions of employment are unaltered.
To confirm your agreement to these amendments please sign, date and return to me
the enclosed copy of this letter.
Yours sincerely,
KJ ALLEN
I accept the amendments to the Service Agreement set out in this statement.
Signed: _________________________________
Dated: _________________________________
<PAGE>
Brockbank Underwriting Limited
10 St. Mary Axe
London EC3A 8BS
Registered in England and Wales no. 3108265
To: Mark Brockbank Esq.
13th December, 1995
Dear Mark,
Your Contract of Employment
---------------------------
This letter is to record the amendments which we have agreed shall be
made to your contract of employment with effect from Completion (as defined in
the Subscription and Shareholders' Agreement of today's date between The
Brockbank Group plc, Mid Ocean Limited, Mid Ocean Reinsurance Company Limited
and Baltusrol Holdings Ltd.).
Rather than your contract being terminable on 12 months' notice by
either party expiring at any time, your contract is not terminable on 12 months'
notice by either party, such notice not to expire before the third anniversary
of Completion. In addition, the "Restriction Period" referred to in your
written contract shall be a period of 2 years. In all other respects your
current contract of employment (as amended prior to the date hereof) shall
continue in full force and effect.
Please confirm your agreement to the above by signing below.
Yours sincerely,
__________________________
for and on behalf of
Brockbank Underwriting
Limited
Agreed
_________________________
Mark Brockbank
13th December, 1995
<PAGE>
To: Mid-Ocean Reinsurance Company Ltd.
Brockbank Holdings Limited
Brockbank Underwriting Limited
From: Mark Brockbank
13th December, 1995
Dear Sirs,
Use of Names
------------
I refer to the Subscription and Shareholders' Agreement between
Brockbank Group Plc ("Brockbank Group"), Mid-Ocean Limited, Mid-Ocean
Reinsurance Company Ltd. and Balrusrol dated today (the "Shareholders
Agreement") and the Agreement for the Sale and Purchase dated yesterday of the
business and assets of Brockbank Group between Brockbank Group and Brockbank
Underwriting Limited (the "Hivedown Agreement").
I hereby undertake that for the period of 5 (five) years from the date
of completion of the Shareholders Agreement I shall not carry on any business
which competes or is likely to compete with the business of Brockbank
Underwriting or any holding company or subsidiary of Brockbank Underwriting (the
"Restricted Business") under or by reference to the name (and/or trade mark)
"Brockbank" and shall not directly or indirectly assist or be involved in any
business which conducts the Restricted Business. I further agree for such
period not to licence or purport to license the "Brockbank" name to any person
in connection with any Restricted Business.
I recognise that this restriction is reasonable in connection with the
transactions contemplated by the agreements referred to above and that any use
of the name Brockbank which would breach or infringe the undertaking given by me
above would not be legitimate or bona fide.
This document is intended to create a legally binding undertaking and
shall be construed in accordance with English law.
I intend this document to be a deed and execute and deliver it as a
deed.
Signed as a Deed by Mark Brockbank ______________________________________
in the presence of:_____________________________________
<PAGE>
Exhibit 10.11.2
MID
OCEAN
R e i n s u r a n c e
EMPLOYMENT
AGREEMENT
HENRY C.V. KEELING
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
(amended and restated as of August 19, 1996)
AGREEMENT, made and entered into this 19th day of August, 1996 by
and between Mid Ocean Reinsurance Company Ltd., a Bermuda corporation (the
"Company"), and Henry C. V. Keeling (the "Executive").
WHEREAS, on November 1, 1995, the Company and the Executive
entered into an employment agreement (the "Prior Agreement") pursuant to
which the Company agreed to employ the Executive, and the Executive agreed
to serve, as resident Senior Vice President and Chief Underwriting Officer,
subject to the terms and conditions of such Prior Agreement; and
WHEREAS, the Company desires to amend and restate the Prior
Agreement as set forth herein; and
WHEREAS, the Executive wishes to continue such employment under
the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration,
the Company and the Executive (the "Parties") agree as follows:
<PAGE>
-2-
1. EMPLOYMENT.
----------
The Company hereby employs the Executive, and the Executive
hereby accepts employment with the Company, for the term of this Agreement
as set forth in Section 2, below, in the position with duties and
responsibilities set forth in Section 3, below, and upon such other terms
and conditions as are hereinafter stated.
2. TERM OF EMPLOYMENT.
------------------
The term of employment under this Agreement shall commence on
August 19, 1996 (the "DATE OF THE AGREEMENT") and shall continue through
the close of business on the third anniversary of the Date of the
Agreement, subject to earlier termination as provided in Section 9, below.
Thereafter such term shall automatically be renewed for successive one-year
periods unless the Company gives notice in writing to the Executive or the
Executive gives notice in writing to the Company at least 60 days prior to
the then scheduled expiration date that the term is not to so renew.
3. POSITIONS, DUTIES AND RESPONSIBILITIES.
--------------------------------------
(a) GENERAL. The Executive shall be employed as Resident Chief
-------
Underwriting Officer and Executive Vice President for the Company, with
such duties and responsi-
<PAGE>
-3-
bilities, including but not limited to underwriting, as may be assigned to
him by the President and Chief Executive Officer or his successor. In
carrying out his duties and responsibilities, the Executive shall report to
the President and Chief Executive Officer. During the term of this
Agreement, the Executive shall devote his full business time to the
business and affairs of the Company, including any corporation, partnership
or other venture in which the Company owns, directly or indirectly, 50
percent or more of the stock or, in the case of any entity or venture other
than a corporation, 50 percent or more of the equity interest (an
"AFFILIATE"), and shall use his best efforts, skills and abilities to
promote the Company's interests.
(b) PERFORMANCE OF SERVICES. The Executive shall be stationed in
-----------------------
Bermuda and his services under this Agreement shall be generally performed
in Bermuda unless the Executive and the Company's Board of Directors (the
"BOARD") mutually agree in writing to the performance of such duties in
another location outside the United States.
(c) PERMITTED ACTIVITIES. Anything herein to the contrary
--------------------
notwithstanding, nothing shall preclude the Executive from (i) serving on
the boards of directors of a
<PAGE>
-4-
reasonable number of other corporations or the boards of a reasonable
number of trade associations and/or charitable organizations, (ii) engaging
in charitable activities and community affairs and (iii) managing his
personal investments and affairs, provided such activities do not
materially interfere with the proper performance of his duties and
responsibilities as resident chief Underwriting Officer for the Company.
4. BASE SALARY.
-----------
The Executive shall be paid a Base Salary by the Company at an
annual rate of US$325,000, payable in accordance with the Company's regular
pay practices. Such Base Salary shall be subject to annual review and may
be increased at the discretion of the Executive Committee of the Board.
5. ANNUAL BONUS.
------------
In addition to the Base Salary provided for in Section 4, above,
the Executive may be awarded such annual bonuses as may be determined by
the Executive Committee of the Board, based on whatever incentive programs
have been adopted by the Company for senior executives of the Company, and
Parent (as defined below) as well as the performance of the Executive and
the performance of the Com-
<PAGE>
-5-
pany. Any bonus shall be paid in cash in a lump sum promptly following
determination thereof. In any event, each annual bonus shall be at least
$50,000.
6. STOCK OPTION.
------------
The Executive will be awarded Stock Options ("OPTIONS") under the
1993 Long-Term Incentive and Share Award Plan (the "PLAN") of the Company's
parent, Mid Ocean Limited, a Cayman Islands corporation (the "PARENT")
periodically as appropriate on the terms set forth in the Plan.
7. EMPLOYEE BENEFIT PROGRAMS.
-------------------------
During the term of the Executive's employment under this
Agreement, the Executive shall be entitled to participate in all employee
benefit programs of the Company and Parent as are in effect from time TO
time and in which senior executives of the Company and Parent an eligible
to participate.
8. BUSINESS EXPENSE REIMBURSEMENT AND FRINGE BENEFITS.
--------------------------------------------------
(a) EXPENSE REIMBURSEMENT. During the term of the Executive's
---------------------
employment under this Agreement, the Executive shall be entitled to receive
reimbursement by the Company or Parent for all reasonable out-of-pocket
travel ex-
<PAGE>
-6-
penses, entertainment expenses and other expenses incurred by him in
performing services under this Agreement, provided that the Executive
submits reasonable documentation with respect to such expenses. This shall
include, without limitation, reimbursement of any such costs for air fare
(which the Executive shall be entitled to on a first-class basis), hotel
accommodations and meals.
(b) FRINGE BENEFITS. During the term of the Executive's employment
---------------
under this Agreement, the Executive shall be entitled to participate in any
of the Company's and Parent's executive fringe benefits in accordance with
the terms and conditions of such arrangements as are in effect from time to
time for the Company's and Parent's senior executives. In all events, the
Executive shall be entitled during the period he is employed to the
following:
(i) a living allowance of up to US$8,000 per month (to be
prorated for partial months) while the services are generally
performed in Bermuda,
(ii) use of an automobile in Bermuda,
<PAGE>
-7-
(iii) reimbursement of the cost (including initiation fees
and annual dues) of membership in two clubs in Bermuda,
(iv) reimbursement by the Company for the reasonable cost
of financial and tax planning, such reimbursement not to exceed
US$10,000 per year; and
(v) air fare for up to three round-trip first-class non-
business trips per year between London and Bermuda by the Executive
and such members of his family as may accompany him (the benefit under
this Section 8(b)(iv) being in addition to any reimbursement of air
fare described in Section 8(a)).
9. TERMINATION OF EMPLOYMENT.
-------------------------
(a) TERMINATION DUE TO DEATH.
------------------------
In the event the Executive dies during the term of employment,
the Executive's spouse or, if she does not survive him, the estate or other
legal representative of the Executive shall be entitled to receive the
Executive's Base Salary as provided in Section 4, above, at the rate in
effect immediately prior to termination, through the
<PAGE>
-8-
end of the month in which the Executive dies. In addition to the above, the
estate or other legal representative of the Executive shall be entitled to:
(i) any annual bonus awarded but not yet paid under Section 5,
above,
(ii) a pro rata bonus for the year of death, if the Executive
Committee of the Board so determines,
(iii) the rights under any options as provided in Section 6,
above, in accordance with the terms thereof, and
(iv) any other rights and benefits available under employee
compensation or benefit programs of the Company, or their equivalent,
as provided in Section 7, above, and under business expense
reimbursement and fringe benefit programs as described in Section 8,
above, determined in accordance with the applicable terms and
provisions of such programs.
(b) TERMINATION DUE TO DISABILITY.
-----------------------------
<PAGE>
-9-
In the event the Executive's employment with the Company is
terminated due to his disability, as determined under the Company's long-
term disability plan, the Executive shall be entitled to:
(i) the Base Salary as provided in Section 4, above, through
the end of the month in which the Executive's employment terminates
due to disability,
(ii) any annual bonus awarded but not yet paid under Section 5,
above,
(iii) the rights under the Options as provided in Section 6,
above, in accordance with the terms thereof,
(iv) any other rights and benefits available under employee
benefit programs of the Company, or their equivalent, as provided in
Section 7, above, including, without limitation, the terms of any
long-term disability plan, and under the business expense
reimbursement and fringe benefit programs as described in Section 8,
above, determined in accordance
<PAGE>
-10-
with the applicable terms and provisions of such programs.
(c) TERMINATION FOR CAUSE.
---------------------
(i) The employment of the Executive under this Agreement
may be terminated by the Company for Cause. For this purpose, "Cause"
shall mean:
(A) conviction of the Executive of a felony involving
moral turpitude, or
(B) the Executive, in carrying out his duties for the
Company under this Agreement, has been guilty of (I) gross
neglect or (II) gross misconduct.
(ii) In the event of a termination for Cause under Section
9(c)(i), above, the Executive shall be entitled only to:
(A) Base Salary as provided in Section 4, above, at
the rate in effect at the time of his termination of
employment for Cause, through the date on which termination
for Cause occurs,
<PAGE>
-11-
(B) the rights, if any, under the Options as provided in
Section 6, above, determined in accordance with the terms
thereof, and
(C) any other rights and benefits, if any, available under
employee benefit programs of the Company, or their equivalent, as
provided in Section 7, above, and under the business expense
reimbursement and fringe benefit programs as described in Section
8, above, determined in accordance with the applicable terms and
provisions of such programs.
(d) TERMINATION WITHOUT-CAUSE.
-------------------------
(i) Anything in this Agreement to the contrary notwithstanding,
the Executive's employment may be terminated without Cause as provided
in this Section 9(d). A termination due to disability, as described in
Section 9(b), above, or a termination for Cause, as described in
Section 9(c), above, shall not be deemed a termination without Cause
under this Section 9(d).
<PAGE>
-12-
(ii) In the event the Executive's employment is terminated
without Cause (x) prior to a "CHANGE IN CONTROL" of Parent (as defined in
Exhibit A hereto) or (y) following the first anniversary of a Change of
Control, the Executive shall be entitled to:
(A) Base Salary as provided in Section 4, above, at the
rate in effect in accordance with Section 4, above, immediately
prior to such termination, payable in equal monthly installments
for a period of 12 months following the date of such termination,
(B) any annual bonus awarded but not yet paid under
Section 5, above,
(C) the rights under any Options as provided in Section 6,
above, in accordance with the terms thereof,
(D) continued coverage under the employee benefit programs
of the Company and Parent, or their equivalent, as provided in
Section 7, above, in which the Executive was participating at the
time of his termination of employment for the period of salary
con-
<PAGE>
-13-
tinuation or, if longer, for the period provided in such programs;
provided, however, that any such continued coverage shall be offset by
-------- -------
comparable coverage provided to the Executive in connection with
subsequent full-time employment and, to the extent the Company or
Parent is unable to continue such coverage, the Company or Parent
shall provide the Executive with economically equivalent benefits
determined on an after-tax basis, and
(E) any other rights and benefits available under employee
benefit programs of the Company or Parent, or their equivalent, as
provided in Section 7, above and under the business expense
reimbursement and fringe benefit programs as described in Section 8,
above, determined in accordance with the applicable terms and
provisions of such programs.
(iii) In the event the Executives employment is terminated by the
Company without Cause within the 12 month period following a Change in
Control (the "POST-CHANGE Period"), or the
<PAGE>
-14-
Executive terminates his employment with the Company for "GOOD REASON"
(as defined in Exhibit B hereto) during the Post-Change Period, the
Executive shall be entitled to:
(A) Base Salary as provided in Section 4, above, at the rate in
effect in accordance with Section 4, above, immediately prior to such
termination, payable in equal monthly installments for a period of 24
months following the date of such termination,
(B) an amount equal to two times the largest annual bonus awarded to
the Executive in the three year period prior to the year in which a Change
of Control occurs, paid in equal monthly installments for the period of
Base Salary continuation,
(C) an amount equal to the annual bonus that would have been awarded
to Executive in respect of the year in which the Change in Control occurs,
multiplied by a fraction, the numerator of which is the number of months or
fraction thereof in which the Executive was employed by the Company in such
year, and the denominator of which is 12.
<PAGE>
-15-
(D) the rights under any Options as provided in Section 6, above, in
accordance with the terms thereof,
(E) continued coverage under the employee benefit programs of the
Company or Parent, or their equivalent, as provided in Section 7, above, in
which the Executive was participating at the time of his termination of
employment for the period of Base Salary continuation or, if longer, for
the period provided in such programs; provided, however, that any such
-------- -------
continued coverage shall be offset by comparable coverage provided to the
Executive in connection with subsequent full-time employment and, to the
extent the Company or Parent is unable to continue such coverage, the
Company or Parent shall provide the Executive with economically equivalent
benefits determined on an after-tax basis, and
(F) any other rights and benefits available under employee benefit
programs of the Company or Parent, or their equivalent, as provided in
Section 7, above, and under the business expense reimbursement and fringe
benefit programs as described in Section 8, above, determined in accordance
with the applicable terms and provisions of such programs.
<PAGE>
-16-
(iv) If, at any time during the term of the Executive employment
hereunder, the Executive fails to be appointed (or re-appointed, as
appropriate) as resident Chief Underwriting Officer for the Company, the
Executive shall have the right to terminate his employment and such
termination, if prior to a Change in Control, shall be deemed a termination
by the Company without Cause under Section 9(d)(ii), above, or, if
following a Change in Control, shall be deemed a termination by the Company
without Cause under Section 9(d)(iii), above, provided the Executive shall
have given the Company written notice of his decision and shall not within
10 business days thereafter have been reinstated to the relevant position.
(e) VOLUNTARY TERMINATION BY THE EXECUTIVE.
--------------------------------------
The Executive may voluntarily terminate his employment prior to
the expiration of the term of this Agreement. Such termination shall
constitute a voluntary termination and, except as provided in Section
9(d)(iii) above, in such event the Executive shall be limited to the same
rights and benefits as applicable to a termination by
<PAGE>
-17-
the Company or Parent for Cause as provided in Section 9(c), above. A
voluntary termination under this Section 9(e) shall not be deemed a breach
of this Agreement. A termination of the Executive's employment due to
disability as described in Section 9(b), above, termination by the
Executive which the Executive is entitled to treat as a termination by the
Company or Parent pursuant to Section 9(d), above, or a termination by
Executive under Section 9(d)(iii), above, shall not be deemed a voluntary
termination within the meaning of this Section 9(c).
10. NO MITIGATION: NO OFFSET.
------------------------
In the event of any termination of employment under Section 9
above, the Executive shall be under no obligation to seek other employment,
and there shall be no offset against amounts due the Executive under this
Agreement on account of any remuneration attributable to any subsequent
employment that he may obtain.
11. NON-COMPETITION AND NONSOLICITATION.
-----------------------------------
<PAGE>
-18-
(a) NONCOMPETITION. During the term of his employment and for a
--------------
period of 12 months thereafter, the Executive shall not engage in any
activities in Bermuda if such activities involve business that is
competitive with that being conducted by the Company or Parent. For
purposes of this Section 11, the Company or Parent shall be deemed to
include any entity that was an Affiliate of the Company or Parent during
the period of the Executive's employment as well as the time in question.
(b) NONSOLICITATION. During the term of the Executive's employment
---------------
under this Agreement, and for a period of 12 months following termination
of employment, the Executive was not encourage any other employee of the
Company or Parent to leave the employ of the Company or Parent.
12. CONFIDENTIAL INFORMATION.
------------------------
The Executive covenants that he shall not, without the prior
written consent of the Board or a person authorized by the Board, disclose
to any person, other than an employee of the Company or Parent or other
person to whom disclosure is necessary to the performance by the Executive
of his duties in the employ of the Company or Parent, any confidential
proprietary information about the
<PAGE>
-19-
Company Parent or an Affiliate or their respective businesses, unless and
until such information has become known to the public generally (other than
as a result of unauthorized disclosure by the Executive) or unless he is
required to disclose such information by a court or by a governmental body
with apparent authority to require such disclosure. The foregoing covenant
by the Executive shall be without limitation as to time and geographic
application.
13. WITHHOLDING.
-----------
Anything in this Agreement to the contrary notwithstanding, all
payments required to be made by the Company or Parent hereunder to the
Executive shall be subject to withholding of such amounts relating to taxes
as the Company or Parent may reasonably determine it should withhold
pursuant to any applicable law or regulation. In lieu of withholding such
amounts, in whole or in part, the Company or Parent may, in its sole
discretion, accept any other provision for payment of taxes as required by
law, provided it is satisfied that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
14. ENTIRE AGREEMENT.
----------------
<PAGE>
-20-
This Agreement, together with the Exhibits, contains the entire
agreement between the Parties concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations
and undertakings, whether written or oral, between the Company and the
Executive with respect thereto.
15. ASSIGNABILITY; BINDING NATURE.
-----------------------------
This Agreement shall be binding upon and inure to the benefit of
the Parties and their respective successors, heirs and assigns. No rights
or obligations of the Executive under this Agreement may be assigned or
transferred by the Executive other than his rights to competition and
benefits hereunder, which may be transferred by will or operation of law
subject to the limitations of this Agreement. No rights or obligations of
the Company under this Agreement may be assigned or transferred by the
Company except that such rights or obligations may be assigned or
tranferred pursuant to a merger or consolidation in which the Company is
not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company, provided that the assignee
or transferee is the successor to all or substantially all of the assets of
the Company and such assignee or transferee assumes the liabilities,
obligations and duties of the Com-
<PAGE>
-21-
pany, as contained in this Agreement, either contractually or as a matter
of law.
16. INDEMNIFICATION.
---------------
The Executive shall be provided indemnification by the Company to
the maximum extent permitted under the laws of Bermuda and the Memorandum
of Association and By-Laws of the Company. In addition, he shall be
covered by a directors and officers' liability policy with coverage for him
to the extent of US$50,000,000.
17. SETTLEMENT OF DISPUTES.
----------------------
Any dispute between the Parties arising from or relating to the
terms of this Agreement or the Executive's employment with the Company
shall be resolved by arbitration held in New York City in accordance with
the rules of the American Arbitration Association. All costs associated
with any arbitration, including all legal expenses, for both Parties shall
be borne by the Company.
18. AMENDMENT OR, WAIVER.
--------------------
No provision in this Agreement may be amended unless such
amendment is agreed to in writing, signed by the Executive and by a duly
authorized officer of the Company. No waiver by either Party of any breach
by the other Party of any condition or provision of this Agree-
<PAGE>
-22-
ment to be performed by such other Party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same or any prior or
subsequent time. Any waiver must be in writing and signed by the Executive
or a duly authorized officer of the Company, as the case may be.
19. NOTICES.
-------
Any notices required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or sent by courier, or by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the
Party concerned at the address indicated below or to such changed address
as such Party may subsequently by similar process give notice of:
If to the Company: Mid Ocean Reinsurance Company Ltd.
Richmond House,
12 Par-la-Ville Road
Hamilton, HM EX
Bermuda
If to the Parent: Mid Ocean Limited
Richmond House,
12 Par-la-Ville Road
Hamilton, HM EX
Bermuda
<PAGE>
-23-
If to the Executive: Henry C.V. Keeling
Bredon House
3 Nantucket Lane
Smiths Parish FL 05
Bermuda
20. SEVERABILITY.
------------
In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole
or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
21. SURVIVORSHIP.
------------
The respective rights and obligations of the Parties shall
survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
22. REFERENCES.
----------
In the event of the Executive's death or a judicial determination
of his incompetence, reference in this Agreement to the Executive shall be
deemed, where appropriate, to refer to his estate or other legal
representative.
<PAGE>
-24-
23. GOVERNING LAW.
-------------
This Agreement shall be governed by and construed and interpreted
in accordance with the laws of the State of New York without reference to
the principles of conflict of laws.
24. HEADINGS.
--------
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control of affect the meaning
or construction of any provision of this Agreement.
25. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts.
<PAGE>
-25-
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date first written above.
Mid Ocean Reinsurance Company Ltd.
By: _____________________________
Mid Ocean Limited
By: _____________________________
_____________________________
Henry C. V. Keeling
<PAGE>
EXHIBIT A
---------
CHANGE IN CONTROL
-----------------
A "Change in Control" shall be deemed to have occurred if:
(i) on or after the date hereof, any person (which, for all
purposes hereof, shall include, without limitation, an
individual, sole proprietorship, partnership, unincorporated
association, unincorporated syndicate, unincorporated
organization, trust, body corporate and a trustee, executor,
administrator or other legal representative), or any group
(within the meaning of Section 13(d)(3) of the United States
Securities Exchange Act of 1934, as amended), becomes the
beneficial owner, directly or indirectly, of securities of the
Parent representing, or acquires the right to control or direct,
or to acquire through the conversion or exchange of securities
or the exercise of warrants or other rights to acquire
securities ("Beneficial Owner"), 20% or more of the combined
voting power of the Parent's then outstanding securities
("Significant Owner")
<PAGE>
-2-
(excluding any person who or group which, together with all affiliates and
associates of such person or group, would on the date of this Agreement
but for this clause be a Significant Owner as long as such person or group
does not subsequently become the Beneficial Owner of any additional
securities of the Parent in my manner other than a change in the aggregate
number of the outstanding securities of the Parent, and other than
pursuant to any purchase or acquisition permitted by the first full
paragraph of the second page of that Standstill Agreement dated June 2,
1995 between Parent and EXEL Limited) and, for the purposes hereto "voting
power" means the right to vote for the election of directors; or
(ii) at any time subsequent to the execution of this contract there
shall be elected or appointed to the Parents Board of Directors (the
"Parent Board") any director or directors whose appointment or election by
the Parent's shareholders was not approved by a vote of at least a
majority of the directors then still in office who were either directors
at the date
<PAGE>
-3-
hereof or whose election or appointment or nomination for election was
previously so approved.
The determination to be made pursuant to clause (i) above shall
be made on the basis that (x) all securities beneficially owned by the
person or group or over which control or direction is exercised by the
person or group which are convertible or exchangeable into securities
carrying voting rights have been converted or exchanged and all options,
warrants, exchange rights or other rights which may be exercised to acquire
securities beneficially owned by the person or group or over which control
or direction is exercised by the person or group have been exercised, and
(y) no such convertible or exchangeable securities have been converted or
exchanged by any other person and no such options, warrants, exchange
rights or other rights have been exercised by any other person.
<PAGE>
EXHIBIT B
---------
GOOD REASON
For purposes of this Agreement, "Good Reason" shall mean any of
the following (without Executive's express prior written consent)"
(i) (A) The assignment to Executive of duties materially
inconsistent with Executive's position (including duties,
responsibilities, status, titles or offices as set forth in Section 2
hereof); or (B) any elimination or reduction of Executive's duties or
responsibilities except in connection with the termination of Executive's
employment for Cause, disability or as a result of Executive's death or by
Executive other than for Good Reason;
(ii) The (A) reduction in Executive's Base Salary from the
level in effect immediately prior to, or (B) Payment of an annual bonus in
an amount less than the most recent annual bonus paid prior to the Change
in Control;
(iii) The figure by the Company or Parent to obtain the
specific assumption of this Agreement by any successor or assign of Parent
<PAGE>
-2-
or the Company or any person acquiring substantially all of the Company's
or Parents assets;
(iv) Any material breach by the Company or Parent of any provision
of this Agreement or any agreements entered into pursuant thereto;
(v) Requiring Executive to be based at any office or location other
than those described in Section 2(a) hereof except for travel reasonably
required in the performance of the Executives responsibilities; or
(vi) During the twelve month period following a Change in Control,
(A) the failure to continue in effect any compensation plan in which
Executive participates at the time of the Change in Control unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan providing Executive with substantially similar benefits) has been
made with respect to such plan in connection with the Change in Control,
or the failure to continue Executive's participation therein on
substantially the same basis, both in terms of the amount of benefits
provided and the level of
<PAGE>
-3-
his participation relative to other participants, as existed at the time
of the Change in Control; or (B) the failure to continue to provide
Executive with benefits at least as favorable in the aggregate as those
enjoyed by him under any of the Company's or Parent's pension, life
insurance, medical, health and accident, disability, defferred
compensation or savings plans in which he was participating at the time of
the Change of Control, the taking of any action which would directly or
indirectly materially reduce any of such benefits or deprive Executive of
any fringe benefit enjoyed by him at the time of the Change of Control, or
the failure to provide him with the number of paid vacation days to which
he was entitled on the basis of the Company's practice with respect to him
as in effect at the time of the Change of Control.
<PAGE>
Exhibit 10.11.4
EMPLOYMENT AGREEMENT
--------------------
ROBERT J. NEWHOUSE, JR.
-----------------------
<PAGE>
SERVICE AGREEMENT
-----------------
(amended and restated as of August 19, 1996)
AGREEMENT, made and entered into this 19/th/ day of August, 1996 by
and between Mid Ocean Reinsurance Company Ltd., a Bermuda corporation (the
"COMPANY"), Mid Ocean Limited, a Cayman Islands corporation (the "PARENT"), and
Robert J. Newhouse, Jr. (the "EXECUTIVE").
WHEREAS, on November 1, 1992, the Company and the Executive entered
into a Service Agreement (the "1992 AGREEMENT") pursuant to which the Company
agreed to have the Executive serve, and the Executive agreed to serve, as
Chairman of its Board of Directors (the "BOARD") and a member of its Executive
Committee, subject to the terms and condition of the 1992 Agreement; and
WHEREAS, on June 23, 1993, the Company, Parent and the Executive
agreed to amend the 1992 Agreement (as amended, the "PRIOR AGREEMENT") to
provide, among other things, that Executive would serve as Chairman of Parent's
Board of Directors (the "PARENT BOARD"), subject to the terms and conditions of
the Prior Agreement;
<PAGE>
-3-
WHEREAS, the Company, Parent and Executive desire to amend and restate
the Prior Agreement as set forth herein;
WHEREAS, the Executive wishes to continue to serve as Chairman of the
Board and the Parent Board and a member of the Executive Committees of the Board
and the Parent Board under the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the Company, the
Executive and the Parent (the "PARTIES") agree as follows:
1. TERM OF SERVICE.
----------------
The term of service under this Agreement shall commence on August 19,
1996 (the "DATE OF THE AGREEMENT") and shall continue through the close of
business on the third anniversary of the Date of the Agreement, subject to
earlier termination as provided in Section 8, below. Thereafter such term shall
automatically be renewed for successive one-year periods unless the Company and
Parent give notice in writing to the Executive or the Executive gives notice in
writing to the Company and Parent at least six months prior to the then
scheduled expiration date that the term is not to so renew.
<PAGE>
-4-
2. POSITIONS, DUTIES AND RESPONSIBILITIES.
--------------------------------------
(A) GENERAL. It is the intention of the Parties that the
-------
Executive shall serve throughout his term of service hereunder as Chairman of
the Board and a member of the Executive Committee of the Board with the duties,
responsibilities and authorities normally associated with those positions. It is
understood that the Executive will not become a resident of Bermuda. The amount
of time the Executive will spend in Bermuda and Europe shall be in the
discretion of the Executive, except for the amount of time necessary for him to
attend meetings of the Board and of committees of the Board of which he is a
member. The Executive's services under this Agreement shall be performed outside
the United States.
(B) ADDITIONAL DUTIES. In addition to the positions, duties and
-----------------
responsibilities of the Executive with respect to his positions at the Company
as set forth in the preceding paragraph (a), the Executive shall also serve
throughout his term of service hereunder as Chairman of the Parent Board and a
member of the Executive Committee of the Parent Board, with the duties,
responsibilities and authorities normally associated with those positions. It
is understood that the Executive will not become a resident of the Cayman
Islands.
<PAGE>
-5-
(C) PERMITTED ACTIVITIES. Anything herein to the contrary
--------------------
notwithstanding, nothing shall preclude the Executive from (i) serving on the
boards of directors of a reasonable number of other corporations or the boards
of a reasonable number of trade associations and/or charitable organizations,
(ii) engaging in charitable, community and other business affairs and (iii)
managing his personal investments and affairs, provided such activities do not
materially interfere with the proper performance of his duties and
responsibilities as the Company's Chairman of the Board and Parent's Chairman of
the Board.
3. BASE FEE.
--------
The Executive shall be paid a Base Fee by the Company at an annual
rate of US$325,000, payable in accordance with the Company's regular pay
practices. Such Base Fee shall be subject to review for Increase at the
discretion of the Executive Committee of the Parent Board.
4. ANNUAL BONUS.
------------
In addition to the Base Fee provided for in Section 3, above, the
Executive may be awarded such annual bonuses as may be determined by the
Executive Committee of the Parent Board, based on whatever incentive programs
have been adopted
<PAGE>
-6-
by the Company or Parent for senior executives of the Company or Parent, as well
as the performance of the Executive and the performance of the Company or
Parent. Any bonus shall be paid in cash in a lump sum promptly following
determination thereof.
5. SHARE PURCHASE OPTION.
---------------------
Concurrently with the execution of the 1992 Agreement, the Company and
the Executive entered into a Share Purchase Option in the form attached thereto
as Exhibit A (the "OPTION"), granting to the Executive the right to purchase
those shares of Outstanding Stock (as defined in such Exhibit A) as described
herein.
6. EMPLOYEE BENEFIT PROGRAMS.
-------------------------
During the term, of the Executive's service under this Agreement, the
Executive shall be entitled to participate in all employee benefit programs of
the Company or Parent as are in effect from time to time and in which senior
executives of the Company or Parent are eligible to participate except that he
shall not be entitled to participate in any pension plan. To the extent the
Executive is not eligible to participate in any such program (other than the
pension plan) he shall be provided with the after-tax economic equivalent of the
benefits provided under the program in which he is unable to par-
<PAGE>
-7-
ticipate. In addition, if necessary, the Executive shall be provided interim
coverage until such time as the Company or Parent has adopted a program of
employee benefit coverages. Coverage may, in the discretion of the Company or
Parent, be provided through purchase of separate insurance contracts, through
self-insurance or, to the extent the Executive is permitted to continue to
maintain on a contributory basis the benefits he presently receives from Marsh &
McLennan Companies, Inc., by reimbursing the Executive for the cost thereof on a
basis that keeps the Executive whole after taxes.
7. BUSINESS EXPENSE REIMBURSEMENT AND FRINGE
BENEFITS.
-----------------------------------------
(A) EXPENSE REIMBURSEMENT. During the term of the Executive's service
---------------------
under this Agreement, the Executive shall be entitled to receive reimbursement
by the Company or Parent for all reasonable out-of-pocket travel expenses,
entertainment expenses and other expenses incurred by him in performing services
under this Agreement, provided that the Executive submits reasonable
documentation with respect to such expenses. This shall include, without
limitation, reimbursements of any such costs for air fare (which the Executive
shall be entitled to on a first-class basis), hotel accommodations and meals.
<PAGE>
-8-
(B) FRINGE BENEFITS. During the term of the Executive's service under
---------------
this Agreement, the Executive shall be entitled to participate in any of the
Company's or Parent's executive fringe benefits in accordance with the terms and
conditions of such arrangements as are in effect from time to time for the
Company's or Parent's senior executives. In all events, the Executive shall be
entitled during the term of his service to the following:
(i) reimbursement of the cost (including initiation fees and annual
dues) of membership in one club in Bermuda,
(ii) air fare for up to 12 round-trip first-class non-business trips
per year by the Executive or members of his family between New York, New
York, Newark, New Jersey or Nantucket, Massachusetts and Bermuda and for up
to four round-trip first-class non-business trips by the Executive or his
wife between New York, Newark, Nantucket or Bermuda and London, England
(the benefit under this Section 7(b)(ii) being in addition to any
reimbursement of airfare described in Section 7(a), above), and
(iii) reimbursement by the Company for the reasonable cost of
financial and tax planning, such reimbursement not to exceed US$10,000 per
year.
<PAGE>
-9-
8. TERMINATION OF SERVICE.
----------------------
(A) TERMINATION DUE TO DEATH. In the event the Executive dies
-------------------------
during the term of his service under this Agreement, the Executive's spouse, if
she survives him, shall be entitled to receive the Executive's Base Fee as
provided in Section 3, above, at the rate in effect immediately prior to
termination, through the end of the month in which the Executive dies and
thereafter shall be entitled to receive payments at the rate of US$162,500 per
year (or, if greater, one half the Base Fee at the rate in effect at the time of
his death) for a period of three years from the date of his death. In the event
the Executive's spouse dies during such three-year period, such payments shall
thereafter be made to the beneficiary designated by the Executive or, in the
absence of such designation, to the estate or other legal representative of the
Executive. In the event that the Executive's spouse does not survive him, the
estate or other legal representative of the Executive shall be entitled to
receive the Base Fee as provided in Section 3, above, at the rate in effect at
the time of his death, through the end of the month in which the Executive dies.
In addition to the above, the estate or other legal representative of the
Executive shall be entitled to:
<PAGE>
-10-
(i) any annual bonus awarded but not yet paid under Section 4, above,
(ii) a pro rata bonus for the year of death, if the Executive
Committee of the Board so determines,
(iii) the rights under the Option as provided in Section 5, above, in
accordance with the terms thereof except to the extent the Option has been
transferred, and
(iv) any other rights and benefits available to him under employee
benefit programs of the Company and Parent, or their equivalent, as
provided in Section 6, above, and under business expense reimbursement and
fringe benefit programs as described in Section 7, above, determined in
accordance with the applicable terms and provisions of such programs.
(B) TERMINATION DUE TO DISABILITY. In the event the Executive's
-----------------------------
service with the Company or Parent is terminated due to his disability, as
determined under the Company's or Parent's long-term disability plan, the
Executive shall be entitled to:
(i) the Base Fee as provided in Section 3, above, through the end of
the month in which the Executive's service terminates due to disability.
<PAGE>
-11-
(ii) any annual bonus awarded but not yet paid under Section 4, above,
(iii) the rights under the Option as provided in Section 5, above, in
accordance with the terms thereof except to the extent the Option has been
transferred, and
(iv) any other rights and benefits available to him under employee
benefit programs of the Company and Parent, or their equivalent, as
provided in Section 6, above, including, without limitation, the terms of
any Long Term Disability Plan, and under the business expense reimbursement
and fringe benefit programs as described in Section 7, above, determined in
accordance with the applicable terms and provisions of such programs.
(C) TERMINATION FOR CAUSE.
---------------------
(i) The service of the Executive under this Agreement may be
terminated by Parent or the Company for Cause. For this purpose "CAUSE"
shall mean:
(A) conviction of the Executive of a felony involving moral
turpitude, or
(B) the Executive, in carrying out his duties for the Company or
Parent under this Agreement has
<PAGE>
-12-
been guilty of (I) gross neglect or (III) gross misconduct; provided,
however, that any act, or failure to act, by the Executive shall not
constitute Cause for purposes of this Section 8(c)(i)(B) if such act,
or failure to act, was committed, or omitted, by the Executive in good
faith and in a manner he reasonably believed to be in the best
interests of the Company or Parent.
(ii) In the event of a termination for Cause under Section 8(c)(i),
above, the Executive shall be entitled only to:
(A) the Base Fee as provided in Section 3, above, at the rate in
effect at the time of his termination of service for Cause, through
the date on which termination for Cause occurs,
(B) the rights, if any, under the Option as provided in Section 5,
above, determined in accordance with the terms thereof except to the
extent the Option has been transferred, and
(C) other rights and benefits, if any, available to him under
employee benefit programs of the Company and Parent, or their
equivalent, as provided
<PAGE>
-13-
in Section 6, above, and under business expense reimbursement and
fringe benefit programs as described in Section 7, above, determined
in accordance with the applicable terms and provisions of such
programs.
(D) TERMINATION WITHOUT CAUSE.
-------------------------
(i) Anything in this Agreement to the contrary notwithstanding, the
Executive's service may be terminated without Cause as provided in this
Section 8(d). A termination due to disability, as described in Section
8(b), above, or a termination for Cause, as described in Section 8(c),
above, shall not be deemed a termination without Cause under this Section
8(d).
(ii) In the event the Executive's service is terminated without Cause
(X) prior to a "Change in Control" of Parent (as defined in Exhibit A
hereto) or (y) following the first anniversary of a Change in Control, the
Executive shall be entitled to:
(A) the Base Fee as provided in Section 3, above, at the rate in
effect in accordance with Section 3, above, immediately prior to such
termination, payable in equal monthly installments for a period of 24
months following the date of such termination,
<PAGE>
-14-
(B) any annual bonus awarded but not yet paid under Section
4, above,
(C) the rights under the Option as provided in Section 5,
above, in accordance with the terms thereof except to the extent
the Option has been transferred,
(D) continued coverage under the employee benefit programs
of the Company and Parent, or their equivalent, as provided in
Section 6, above, in which the Executive was participating at the
time of his termination of service for the period of Base Fee
continuation; provided, however, that any such continued coverage
shall be offset by comparable coverage provided to the Executive
in connection with subsequent employment or other service and, to
the extent the Company or Parent is unable to continue such
coverage, the Company shall provide the Executive with
economically equivalent benefits determined on an after-tax
basis, and
(E) other rights and benefits available to him under
employee benefit programs of the Company and Parent, or their
equivalent, as provided in Section 6, above, and under business
expense reimbursement
<PAGE>
-15-
and fringe benefit programs as described in Section 7, above,
determined in accordance with the applicable terms and provisions
of such programs.
(iii) In the event the Executive's service hereunder is
terminated by the Company or Parent without Cause within the 12 month
period following a Change in Control (the "POST-CHANGE PERIOD") or the
Executive terminates his employment for "GOOD REASON" (as defined in
Exhibit B hereto) during the Post-Change Period, the Executive shall
be entitled to:
(A) the Base Fee as provided in Section 3, above, at the
rate in effect in accordance with Section 3, above, immediately
prior to such termination, payable in equal monthly installments
for a period of 24 months following the date of such termination,
(B) an amount equal to two times the largest bonus awarded
to the Executive in the three-year period prior to the year in
which a Change in Control occurs, paid in equal monthly
installments for the period of Base Fee continuation,
(C) an amount equal to the annual bonus that would have
been awarded to the Executive in respect
<PAGE>
-16-
of the year in which the Change in Control occurs, multiplied by
a fraction, the numerator of which is the number of months or
fraction thereof in which the Executive was employed by the
Company and Parent in such year, and the denominator of which is
12,
(D) the rights under the Option as provided in Section
5, above, in accordance with the terms thereof except to the
extent the Option has been transferred,
(E) continued coverage under the employee benefit programs
of the Company and Parent, or their equivalent, as provided in
Section 6, above, in which the Executive was participating at the
time of his termination of service for the period of Base Fee
continuation; provided, however, that any such continued coverage
shall be offset by comparable coverage provided to the Executive
in connection with subsequent employment or other service and, to
the extent the Company or Parent is unable to continue such
coverage, the Company or Parent shall provide the Executive with
economically equivalent benefits determined on an after-tax
basis, and
<PAGE>
-17-
(F) other rights and benefits available to him under
employee benefit programs of the Company or Parent, or their
equivalent, as provided in Section 6, above, and under business
expense reimbursement and fringe benefit programs as described in
Section 7, above, determined in accordance with the applicable
terms and provisions of such programs.
(iv) If, at any time during the term of the Executive's
service hereunder, the Executive fails to be elected (or re-elected,
as appropriate) as Chairman of the Board and the Parent Board, or is
otherwise removed from the Board and the Parent Board involuntarily,
or fails to be appointed (or reappointed, as appropriate) to the
Executive Committee of the Board and the Parent Board, the Executive
shall have the right to terminate his service, and, if prior to a
Change in Control, such termination shall be deemed a termination by
the Company and Parent without Cause under Section 8(d)(ii), above,
or, if following a Change in Control, such termination shall be deemed
a termination without Cause under Section 8(d)(iii), above, provided
the Executive, in either case, shall have given the Company and Parent
written notice of his decision and shall not within 10 business days
thereafter have been reinstated to the relevant positions.
<PAGE>
-18-
(E) VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may
--------------------------------------
voluntarily terminate his service prior to the expiration of the term of his
service under this Agreement. Such termination shall constitute a voluntary
termination and, except as provided in Section 8(d)(iii), in such event the
Executive shall be limited to the same rights and benefits as applicable to a
termination by the Company for Cause as provided in Section 8(c), above. A
voluntary termination under this Section 8(e) shall not be deemed a breach of
this Agreement. A termination of the Executive's service due to disability as
described in Section 8(b), above, a termination by the Executive which the
Executive is entitled to treat as & termination by the Company pursuant to
Section 8(d)[ or 8(e)], above, or a termination by the Executive under Section
8(d)(iii), above, shall not be deemed a voluntary termination within the meaning
of this Section 8(e).
9. NO-MITIGATION; NO OFFSET.
------------------------
In the event of any termination of service under Section 8, above, the
Executive shall be under no obligation to seek other employment, and there shall
be no offset against amounts due the Executive under this Agreement on account
of any remuneration attributable to any subsequent employment that he may
obtain.
<PAGE>
-19-
10. NONCOMPETITION AND NONSOLICITATION.
----------------------------------
(A) NONCOMETITION. During the term of his service and, except in
-------------
the case of a termination of the term of his service pursuant to Section 8(d) or
(e), above, for a period of 12 months thereafter, the Executive shall not,
directly or indirectly, whether as an employee, consultant, partner, principal,
agent, distributor, representative or stockholder (except as a less than one
percent stockholder of a publicly traded company or a less than five percent
stockholder of a privately held company), engage in any activities within the
United States or Bermuda if such activities involve insurance or reinsurance of
United States based entities or exposures that are competitive with the
businesses that (i) are then being conducted by the Company or Parent and (ii)
during the period of the Executive's service were either being conducted by the
Company or Parent or actively being developed by the Company or Parent. The
Executive's service as a director of any company in the insurance, reinsurance
or related businesses shall not be deemed engaging in any activity that is
competitive within the meaning of the preceding sentence. For purposes of this
Section 10, the Company or Parent shall be deemed to include any entity that was
affiliated with the Company or Parent during the period of the Executive's
service as well as the time in question (meaning any entity 50% of the equity in
<PAGE>
-20-
which is owned by the Company or Parent during the period of the Executive's
service as well as the time in question).
(B) NONSOLICITATION. During the term of the Executive's service under
---------------
this Agreement, and for a period of 12 months following termination of service,
the Executive shall not encourage any employee of the Company or Parent to leave
the employ of the Company or Parent except as may be in the interests of the
Company or Parent during the course of carrying out his duties under Section 2,
above.
11. CONFIDENTIAL INFORMATION.
------------------------
The Executive covenants that he shall, not, without the prior written
consent of the Board or Parent Board or a person authorized by the Board or
Parent Board, disclose to any person, other than an employee of the Company or
Parent or other person to whom disclosure is necessary to the performance by the
Executive of his duties in the service of the Company or Parent, any
confidential proprietary information about the Company or Parent or their
business, unless and until such information has become known to the public
generally (other than as a result of unauthorized disclosure by the Executive)
or unless he is required to disclose such information by a court or by a
governmental body with apparent authority to require such dis-
<PAGE>
-21-
closure. The foregoing covenant by the Executive shall be without limitation as
to time and geographic application.
12. WITHHOLDING.
-----------
Anything in this Agreement to the contrary notwithstanding, all
payments required to be made by the Company or Parent hereunder to the Executive
shall be subject to withholding of such amounts relating to taxes as either the
Company or Parent may reasonably determine it should withhold pursuant to any
applicable law or regulation. In lieu of withholding such amounts, in whole or
in part, either the Company or Parent may, in its sole discretion, accept other
provision for payment of taxes as required by law, provided it is satisfied that
all requirements of law affecting in its responsibilities to withhold such taxes
have been satisfied.
13. PARENT SERVICES.
---------------
(A) LIABILITY. The Parent hereby agrees to be jointly and
---------
severally liable together with the Company for the payment to the Executive of
his Base Fee, bonus, business expense reimbursement and termination of
employment provisions of this Agreement.
<PAGE>
-22-
(B) RESPONSIBILITY. All of the other terms and provisions of
--------------
this Agreement relating to the Executive's employment by the Company shall
likewise apply mutatis mutandis to the Executive's employment by the Parent,
------- --------
including, without limitation, Sections 1, 6, 7, 8, 9, 10, 11, 12, 17 and 18, it
being understood that if the Executive terminates his service under the Service
Agreement he shall be required to do so with respect to both the Company and the
Parent and that a termination of the Executive's services by the Company or the
Parent shall be deemed a termination by both.
14. ENTIRE AGREEMENT.
----------------
This Agreement, together with the Exhibits, contains the entire
agreement between the Parties concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the Company, Parent and the
Executive with respect thereto.
15. ASSIGNABILITY; BINDING NATURE.
-----------------------------
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs and assigns. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive
<PAGE>
-23-
other than his rights to compensation and benefits hereunder, which may be
transferred by will or operation of law subject to the limitations of this
Agreement. The Parties recognize that the Executive also may transfer his rights
under the Option as therein provided. No rights or obligations of the Company or
Parent under this Agreement may be assigned or transferred by the Company or
Parent except that such rights or obligations may be assigned or transferred
pursuant to a merger or consolidation in which the Company or Parent is not the
continuing entity, or the sale or liquidation of all or substantially all of the
assets of the Company or Parent, provided that the assignee or transferee is the
successor to all or substantially all of the assets of the Company or Parent and
such assignee or transferee assumes the liabilities, obligations and duties of
the Company or Parent, as contained in this Agreement, either contractually or
as a matter of law.
16. INDEMNIFICATION.
---------------
The Executive shall be provided indemnification by each of Parent and
the Company to the maximum extent permitted under the laws of their respective
jurisdictions of incorporation and their respective charter documents. In
addition, he shall be covered by a directors' and officers' liability policy
with coverage for him to the extent of US$50,000,000.
<PAGE>
-24-
17. EXCISE TAX ADJUSTMENT PAYMENTS.
------------------------------
(A) PAYMENTS. In the event that it is determined bait any
--------
payment or distribution by the Company or Parent to or for the benefit of
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, other than any payment pursuant to
this Section 17(a) (a "PAYMENT"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1996, as amended (the "CODE"), or
any interest or penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "EXCISE TAX"), then Executive shall be entitled to receive
from the Company or Parent, within 15 days following the determination described
in Section 17(b), below, an additional payment ("EXCISE TAX ADJUSTMENT PAYMENT")
in an amount such that after payment by Executive of all applicable Federal,
state and local taxes (computed at the maximum marginal rates and including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax, imposed upon the Excise Tax Adjustment Payment, Executive retains an amount
of the Excise Tax Adjustment Payment equal to the Excise Tax imposed upon the
Payments.
<PAGE>
-25-
(B) DETERMINATIONS. All determinations required to be made under this
--------------
Section 17, including whether an Excise Tax Adjustment Payment is required and
the amount of such Excise Tax Adjustment Payment, shall be made by KPMG Peat
Marwick LLP, or such other national accounting firm as the Company or Parent may
designate prior to a Change of Control, which shall provide detailed supporting
calculations to the Company and the Executive within 15 business days of the
date of termination of Executive's employment. Except as hereinafter provided,
any determination by KPMG Peat Marwick LLP, or such other national accounting
firm as the Company or Parent may designate prior to a Change of Control, shall
be binding upon the Company, Parent and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination hereunder, it is possible that (x) certain Excise Tax
Adjustment Payments will not have been made by the Company or Parent which
should have been made (an "UNDERPAYMENT"), or (y) certain Excise Tax Adjustment
Payments will have been made which should not have been made (an "OVERPAYMENT"),
consistent with the calculations required to be made hereunder. In the event of
an Underpayment, such Underpayment shall be promptly paid by the Company or
Parent to or for the benefit of the Executive. In the event that the Executive
discovers that an Overpayment shall have occurred, the
<PAGE>
-26-
amount thereof shall be promptly repaid to the Company or Parent.
18. SETTLEMENT OF DISPUTES.
----------------------
Any dispute between the Parties arising from or relating to the terms
of this Agreement or the Executive's service with the Company or Parent shall be
resolved by arbitration held in New York City in accordance with the rules of
the American Arbitration Association. All costs associated with any
arbitration, including all legal expenses, for both Parties shall be borne by
the Company and Parent.
19. Amendment or Waiver.
-------------------
No provision in this Agreement may be amended unless such amendment is
agreed to in writing, signed by the Executive and by a duly authorized officer
of the Company and Parent. No waiver by any Party of any breach by any other
Party of any condition or provision of this Agreement to be performed by such
other Party shall be deemed a waiver of a similar or dissimilar condition or
provision at the same or any prior or subsequent time. Any waiver must be in
writing and signed by the Executive or a duly authorized officer of the Company
and Parent, as the case may be.
<PAGE>
-27-
20. NOTICES.
-------
Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally or sent by courier, or by certified or registered mail, postage
prepaid, return receipt requested, duly addressed to the Party concerned at the
address indicated below or to such changed address as such Party may
subsequently by similar process give notice of:
If to the Company: Mid Ocean Reinsurance Company, Ltd.
Richmond House,
12 Par-la-Ville Road
2 Church Street
Hamilton, HM EX
Bermuda
If to the Parent: Mid Ocean Limited
Richmond House
12 Par-la-Ville Road
Hamilton HM EX
Bermuda
If to the Executive: Robert J. Newhouse, Jr.
15 Chestnut Place
Short Hills, New Jersey 07078
21. SEVERABILITY.
------------
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain
<PAGE>
-28-
in full force and effect to the fullest extent permitted by law.
22. SURVIVORSHIP.
------------
The respective rights and obligations of the Parties shall survive any
termination of this Agreement to the extent necessary to the intended
preservation of such rights and obligations.
23. REFEREES.
--------
In the event of the Executive's death or a judicial determination of
his incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to his estate or other legal representative.
24. GOVERNING LAW.
-------------
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of New York without reference to the
principles of conflict of law.
25. HEADINGS.
--------
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to con-
<PAGE>
-29-
trol or affect the meaning or construction of any provision of this Agreement.
26. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts.
<PAGE>
-30-
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
MID OCEAN REINSURANCE COMPANY LTD.
By:_____________________________
MID OCEAN LIMITED
By:_____________________________
________________________________
ROBERT J. NEWHOUSE, JR.
<PAGE>
EXHIBIT A
---------
CHANGE IN CONTROL
-----------------
A "Change in Control" shall be deemed to have occurred if:
(i) on or after the date hereof, any person (which, for all purposes
hereof, shall include, without limitation, an individual, sole
proprietorship, partnership, unincorporated association,
unincorporated syndicated unincorporated organization, trust,
body corporate and a trustee, executor, administrator or other
legal representative), or any group (within the meaning of
Section 13(d)(3) of the United States Securities Exchange Act of
1934, as amended), becomes the beneficial owner, directly or
indirectly, of securities of the Parent representing, or acquires
the right to control or direct, or to acquire through the
conversion or exchange of securities or the exercise of warrants
or other rights to acquire securities ("Beneficial Owner"), 20%
or more of the combined voting power of the Parent's then
outstanding securities ("Significant Owner") (excluding any
person who or group which, together with all affiliates and
associates of such
<PAGE>
-2-
person or group, would on the date of this Agreement but for this
clause be a Significant Owner as long as such person or group
does not subsequently become the Beneficial Owner of any
additional securities of the Parent in any manner other than a
change in the aggregate number of the outstanding securities of
the Parent and other than a change to any purchase or acquisition
permitted by the first full paragraph of the second page of that
Standstill Agreement dated June 2, 1995 between Parent and EXEL
Limited) and, for the purposes hereof "voting power" means the
right to vote for the election of directors; or
(ii) at any time subsequent to the execution of this contract there
shall be elected or appointed to the Parent Board any director or
directors whose appointment or election by the Parent's
shareholders was not approved by a vote of at least a majority of
the directors then still in office who were either directors at
the date hereof or whose election or appointment or nomination
for election was previously so approved.
<PAGE>
Exhibit 10.11.5
EMPLOYMENT
AGREEMENT
----------
MICHAEL A. BUTT
---------------
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
(amended and restated as of August 19, 1996)
AGREEMENT, made and entered into as of the 19th day of August, 1996 by
and between Mid Ocean Reinsurance Company Ltd., a Bermuda corporation (the
"COMPANY"), Mid Ocean Limited, a Cayman Islands Corporation (the "PARENT") and
Michael A. Butt (the "EXECUTIVE").
WHEREAS, on May 1, 1993, the Company and the Executive entered into an
employment agreement (the "MAY 1 AGREEMENT") pursuant to which the Company
agreed to employ the Executive, and the Executive agreed to serve, as Vice
Chairman, subject to the terms and conditions of the May 1 Agreement; and
WHEREAS, on May 21, 1993, the Company, Parent and Executive agreed to
amend the May 1 Agreement (as amended, the "MAY 21 AGREEMENT") to provide, among
other things, that the Parent would employ, and Executive would serve, as
President and Chief Executive Officer of Parent, subject to the terms and
conditions of the May 21 Agreement; and
WHEREAS, the Company and the Parent desire to amend and restate the
May 21 Agreement as set forth herein; and
WHEREAS, the Executive wishes to continue such employment with the
Company and Parent under the terms and conditions of this Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the Company, the
Parent and the Executive (the "PARTIES") agree as follows:
1. EMPLOYMENT.
----------
The Company and Parent hereby employ the Executive, and the Executive
hereby accepts employment with the Company and Parent, for the term of this
Agreement as set forth in Section 2, below, in the position and with duties and
responsibilities set forth in Section 3, below, and upon such other terms and
conditions as are hereinafter stated.
2. TERM OF EMPLOYMENT.
------------------
The term of employment under this Agreement shall commence on August
19, 1996 (the "DATE OF THE AGREEMENT") and shall continue through the close Of
business on the third anniversary of the Date of the Agreement, subject to
earlier termination as provided in Section 9, below. Thereafter such term shall
automatically be renewed for successive one-year periods unless the Company and
Parent give notice in writing to the Executive or the Executive gives notice in
writing to the Company and Parent at least six months prior to the then
scheduled expiration date that the term is not to so renew.
-2-
<PAGE>
3. POSITIONS, DUTIES AND RESPONSIBILITIES.
--------------------------------------
(A) GENERAL. The Executive shall be employed as President and Chief
-------
Executive Officer of the Company and Parent, with such duties and
responsibilities, including but not limited to general management
responsibilities over the business and operations of the Company and the Parent,
as may be assigned to him by the Chairman of the Board of Directors of the
Company (the "BOARD") or the Chairman of the Board of Directors of the Parent
(the "PARENT BOARD"), as the case may be. In carrying out his duties and
responsibilities, the Executive shall report to the Chairman of the Board or to
the Chairman of the Parent Board, as the case may be. During the term of this
Agreement, the Executive shall devote his full business time to the business and
affairs of the Company and Parent, including any corporation, partnership or
other venture in which the Company or Parent owns, directly or indirectly, 50
percent or more of the stock or, in the case of any entity or venture other than
a corporation, 50 percent or more of the equity interest (an "AFFILIATE"), and
shall use his best efforts, skills and abilities to promote the Company's and
Parent's interests.
(B) MEMBERSHIPS. It is the intention of the Parties that the
-----------
Executive shall be nominated and elected and shall thereafter serve as a member
of the Board, as member of the Parent Board and as a member of the Executive
Committee of the
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<PAGE>
Board and as a member of the Executive Committee of the Parent Board.
(C) PERFORMANCE OF SERVICES. The Executive's services under this
-----------------------
Agreement shall be performed outside the United States and generally in Bermuda
unless the Executive and the Board and the Parent Board mutually agree in
writing to the performance of such services in another location outside the
United States.
(D) PERMITTED ACTIVITIES. Anything herein to the contrary
--------------------
notwithstanding, nothing shall preclude the Executive from (i) serving on the
boards of directors of a reasonable number of other corporations or the boards
of a reasonable number of trade associations and/or charitable organizations,
(ii) engaging in charitable activities and community affairs and (iii) managing
his personal investments and affairs, provided such activities do not materially
interfere with the proper performance of his duties and responsibilities as the
Company's Vice Chairman and the Parent's President and chief Executive Officer.
4. BASE SALARY.
-----------
The Executive shall be paid a Base Salary by the Company at an annual
rate of US$460,000, payable in accordance with the Company's regular pay
practices. Such Base Salary
-4-
<PAGE>
shall be subject to annual review and may be increased at the discretion of the
Executive Committee of the Parent Board (the "EXECUTIVE COMMITTEE").
5. BONUSES.
-------
In addition to the Base Salary provided for in Section 4, above, the
Executive may be awarded such annual bonuses as may be determined by the
Executive Committee pursuant to the Annual Short Term Bonus Plan approved by the
Executive Committee, with a minimum guaranteed bonus of US$75,000. Any annual
bonus shall be paid in cash in a lump sum promptly following determination
thereof. The Executive shall also be eligible to participate in the Long Term
Incentive Plan to be adopted by the Company.
6. SHARE PURCHASE OPTION.
---------------------
Concurrently with the execution of the May 21 Agreement, the Company
and the Executive entered into a Share Purchase Option, granting to the
Executive the right to purchase Outstanding Stock (as defined in Exhibit A
thereto) as described therein. The Parties agreed that the Option shall be
amended to read as set forth in the form attached hereto as Exhibit A thereto
(the "OPTION"). The Option shall be 100% exercisable upon a "CHANGE IN CONTROL"
(as defined in Exhibit A hereto).
-5-
<PAGE>
7. EMPLOYMENT BENEFIT PROGRAMS.
---------------------------
During the term of the Executive's employment under this Agreement,
the Executive shall be entitled to participate in all employee benefit programs
of the Company and Parent as are in effect from time to time and in which senior
executives of the Company and Parent are eligible to participate, including
medical, hospitalization, life, travel and accident insurance, disability
protection and retirement benefits.
8. BUSINESS EXPENSE REIMBURSEMENT AND
FRINGE BENEFITS.
----------------------------------
(A) EXPENSE REIMBURSEMENT. During the term of the Executive's
---------------------
employment under this Agreement, the Executive shall be entitled to receive
reimbursement by the Company and Parent for all reasonable out-of-pocket travel
expenses, entertainment expenses and other expenses incurred by him in
performing his duties under this Agreement, provided that the Executive submits
reasonable documentation with respect to such expenses. This shall include,
without limitation, reimbursements of any such costs for air fare (which the
Executive shall be entitled to on a first-class basis), hotel accommodations and
meals.
(B) FRINGE BENEFITS. During the term of the Executive's employment
---------------
under this Agreement, the Executive shall be entitled to participate in any of
the Company's and Parent's
-6-
<PAGE>
executive fringe benefits in accordance with the terms and conditions of such
arrangements as are in effect from time to time for the Company's and Parent's
senior executives. In all events, the Executive shall be entitled during the
period he is employed to the following:
(i) a living allowance of up to US$10,000 per month (to be
prorated for partial months) while his services are performed in Bermuda,
(ii) use of an automobile in Bermuda,
(iii) reimbursement of the cost (including initiation fees and
annual dues) of membership in three clubs in Bermuda,
(iv) reimbursement by the Company for the reasonable cost of
financial and tax planning, such reimbursement not to exceed US$10,000 per
year; and
(v) air fare for up to four round-trip first-class non-business
trips per year by the Executive or members of his family between London and
Bermuda (the benefit under this Section 8(b)(iv) being in addition to any
reimbursement of air fare described in Section 8(a)), above.
-7-
<PAGE>
9. TERMINATION OF EMPLOYMENT.
-------------------------
(A) TERMINATION DUE TO DEATH. In the event the Executive dies during
------------------------
the term of employment, the Executive's spouse, if she survives him, shall be
entitled to receive the Executive's Base Salary as provided in Section 4, above,
at the rate in effect immediately prior to termination, through the end of the
month in which the Executive dies. In the event that the Executive's spouse
does not survive him, the estate or other legal representative of the Executive
shall be entitled to receive the Base Salary as provided in Section 4, above, at
the rate in effect at the time of his death, through the end of the month in
which the Executive dies. In addition to the above, the estate or other legal
representative of the Executive shall be entitled to:
(i) any annual bonus awarded but not yet paid under Section 5,
above,
(ii) a pro rata bonus for the year of death, if the Executive
Committee so determines,
(iii) the rights under the Option and any other options held by
the Executive to purchase equity securities of the Company or Parent as
provided in Section 6, above, or otherwise, determined in accordance with
the terms thereof, and
-8-
<PAGE>
(iv) any other rights and benefits available under employee
compensation or benefit programs of the Company and Parent, or their
equivalent, as provided in Section 7, above, and under business expense
reimbursement and fringe benefit programs as described in Section 8, above,
determined in accordance with the applicable terms and provisions of such
programs.
(B) TERMINATION DUE TO DISABILITY. In the event the Executive's
-----------------------------
employment with the Company or Parent is terminated due to his disability, as
determined under the Company's or Parent's long-term disability plan, the
Executive shall be entitled to:
(i) the Base Salary as provided in Section 4, above, through the
end of the month in which the Executive's employment terminates due to
disability,
(ii) any annual bonus awarded but not yet paid under Section 5,
above,
(iii) the rights under the Option and any other options held by
the Executive to purchase equity securities of the Company or Parent as
provided in Section 6, above, or otherwise, determined in accordance with
the terms thereof, and
-9-
<PAGE>
(iv) any other rights and benefits available under employee benefit
programs of the Company and Parent, or their equivalent, as provided in
Section 7, above, including, without limitation, the terms of any Long-Term
Disability Plan, and under the business expense reimbursement and fringe
benefit program as described in Section 8, above, determined in accordance
with the applicable terms and provisions of such program.
(C) TERMINATION FOR CAUSE.
---------------------
(i) The employment of the Executive under this Agreement may be
terminated by the Parent or the Company for Cause. For this purpose, "CAUSE"
shall mean:
(A) conviction of the Executive of a felony involving moral
turpitude, or
(B) the Executive, in carrying out his duties for the Company or
Parent under this Agreement, has been guilty of (I) gross neglect or (II)
gross misconduct.
(ii) In the event of a termination for Cause under Section 9(c)(i),
above, the Executive shall be entitled only to:
(A) Base Salary as provided in Section 4, above, at the rate in
effect at the time of his termination of em-
-10-
<PAGE>
ployment for Cause, through the date on which termination for Cause occurs,
(B) the rights, if any, under the Option or any other option to
purchase equity securities of the Company and Parent as provided in Section
6, above, or otherwise determined in accordance with the terms thereof, and
(C) any other rights and benefits, if any, available under employee
benefit program of the Company and Parent, or their equivalent, as provided
in Section 7, above, and under the business expense reimbursement and
fringe benefits programs as described in Section 8, above, determined in
accordance with the applicable terms and provisions of such programs.
(D) TERMINATION WITHOUT CAUSE.
-------------------------
(i) Anything in this Agreement to the contrary notwithstanding, the
Executive's employment may be terminated without Cause as provided in this
Section 9(d). A termination due to disability, as described in Section 9(b),
above, or a termination for Cause, as described in Section 9(c), above, shall
not be deemed a termination without Cause under this Section 9(d).
(ii) In the event the Executive's employment is terminated without
Cause (x) prior to a Change in Control or (y)
-11-
<PAGE>
following the first anniversary of a Change in Control, the Executive shall be
entitled to:
(A) Base Salary as provided in Section 4, above, at the rate in effect
in accordance with Section 4, above, immediately prior to such termination,
payable in equal monthly installments for a period of 12 months following
the date of such termination,
(B) any annual bonus awarded but not yet paid under Section 5, above,
(C) the rights under the Option as provided in Section 6, above, in
accordance with the terms thereof,
(D) continued coverage under the employee benefit programs of the
Company and Parent, or their equivalent, as provided in Section 7, above,
in which the Executive was participating at the time of his termination of
employment for the period of salary continuation; provided, however, that
-------- -------
any such continued coverage shall be offset by comparable coverage provided
to the Executive in connection with subsequent full-time employment and, to
the extent the Company or Parent is unable to continue such coverage, the
Company or Parent shall provide the Executive with economically equivalent
benefits determined on an after-tax basis, and
-12-
<PAGE>
(E) any other rights and benefits available under employee benefit
programs of the Company and Parent, or their equivalent, as provided in
Section 7, above, and under the business expense reimbursement and fringe
benefits programs as described in Section 8, above, determined in
accordance with the applicable terms and provisions of such programs.
(iii) In the event the Executive's employment is terminated by the
Company or Parent without Cause within the 12 month period following a Change in
Control (the "POST-CHANGE PERIOD") or the Executive terminates his employment
for "GOOD REASON" (as defined in Exhibit B hereto) during the Post-Change
Period, the Executive shall be entitled to:
(A) Base Salary as provided in Section 4, above, at the rate in
effect in accordance with Section 4, above, immediately prior to such
termination, payable in equal monthly installments for a period of 36
months following the date of such termination,
(B) an amount equal to three times the largest annual bonus awarded
to the Executive in the three year period prior to the year in which a
Change in Control occurs, paid in equal monthly installments for the period
of Base Salary continuation,
-13-
<PAGE>
(C) an amount equal to the annual bonus that would have been awarded
to Executive in respect of the year in which the Change in Control occurs,
multiplied by a fraction, the numerator of which is the number of months or
fraction thereof in which the Executive was employed by the Company or
Parent in such year, and the denominator of which is 12,
(D) the rights under the Option, and any other options held by the
Executive to purchase equity securities of the Company or Parent as
provided in Section 6, above, or otherwise, determined in accordance with
the terms thereof,
(E) continued coverage under the employee benefit programs on the
Company and Parent, or their equivalent, as provided in Section 7, above,
in which the Executive was participating at the time of his termination of
employment for the period of Base Salary continuation; provided, however,
-------- -------
that any such continued coverage shall be offset by comparable coverage
provided to the Executive in connection with subsequent full-time
employment and, to the extent the Company and Parent is unable to continue
such coverage, the Company and Parent shall provide the Executive with
economically equivalent benefits determined on an after-tax basis,
-14-
<PAGE>
(F) any other rights and benefits available under employee benefit
programs of the Company and Parent, or their equivalent, as provided in
Section 7, above, and under the business expense reimbursement and fringe
benefits programs as described in Section 8, above, determined in
accordance with the applicable terms and provisions of such programs, and
(G) full and immediate vesting under the Company's pension plans as
of the date of termination, to the extent permitted by applicable law.
(iv) If, at any time during the term of the Executive's employment
hereunder, the Executive fails to be elected (or re-elected, as appropriate) to
the Board or the Parent Board, or is otherwise removed from the Board or the
Parent Board, or fails to be appointed (or re-appointed, as appropriate) to the
Executive Committee of the Board or the Parent Board involuntarily, the
Executive shall have the right to terminate his employment and such termination,
if prior to a Change in Control, shall be deemed a termination by the Company
and Parent without Cause under Section 9(d)(ii), above, or, if following a
Change in Control, shall be deemed a termination without Cause under Section
9(d)(iii), above, provided the Executive, in either case, shall have given the
Company and Parent written notice of his decision and shall not within 10
-15-
<PAGE>
business days thereafter have been reinstated to the relevant positions.
(E) VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may
--------------------------------------
voluntarily terminate his employment prior to the expiration of the term of this
Agreement. Such termination shall constitute a voluntary termination and,
except as provided in Section 9(d)(iii), above, in such event the Executive
shall be limited to the same rights and benefits as applicable to a termination
by the Company or Parent for Cause as provided in Section 9(c), above. A
voluntary termination under this Section 9(e) shall not be deemed a breach of
this Agreement. A termination of the Executive's employment due to disability
as described in Section 9(b), above, a termination by the Executive which the
Executive is entitled to treat as a termination by the Company or Parent
pursuant to Section 9(d), above, or a termination by the Executive under Section
9(d)(iii), above, shall not be deemed a voluntary termination within the meaning
of this Section 9(e).
10. NO MITIGATION; NO OFFSET.
------------------------
In the event of any termination of employment under Section 9, above,
the Executive shall be under no obligation to seek other employment, and there
shall be no offset against amounts due the Executive under this Agreement on
account of
-16-
<PAGE>
any remuneration attributable to any subsequent employment that he may obtain.
11. NONCOMPETITION AND NONSOLICIATION.
---------------------------------
(A) NONCOMPETITION. During the term of his employment and for a
--------------
period of 24 months thereafter, the Executive shall not, directly or indirectly,
whether as an employee, consultant, partner, principal, agent, distributor,
representative or stockholder (except as a less than one percent stockholder of
a publicly traded company or a less than five percent stockholder of a privately
held company), engage in any activities in Bermuda if such activities are
competitive with the businesses that (i) are then being conducted by the Company
or Parent and (ii) during the period of the Executive's employment were either
being conducted by the Company or Parent or actively being developed by the
Company or Parent. For purposes of this Section 11, the Company or Parent shall
be deemed to include any entity that was an Affiliate of the Company or Parent
during the period of the Executive's employment as well as the time in question.
(B) NONSOLICITATION. During the term of the Executive's employment
---------------
under this Agreement, and for a period of 24 months following termination of
employment, the Executive shall not (i) encourage any other employee of the
Company or Parent to leave the employ of the Company or Parent except as may be
-17-
<PAGE>
in the interests of the Company or Parent during the course of carrying out his
duties under Section 3 above or (ii) seek to obtain or solicit business from any
person, firm or company which is (so long as the Executive is employed by the
Company or Parent) or at the time of the termination of the Executive's
employment was a customer of or in the habit of dealing with the Company or
Parent.
12. CONFIDENTIAL INFORMATION.
------------------------
The Executive covenants that he shall not, without the prior written
consent of the Board or Parent Board or a person authorized by the Board or
Parent Board, disclose to any person, other than an employee of the Company or
Parent or other person to whom disclosure is necessary to the performance by the
Executive of his duties in the employ of the Company or Parent, any confidential
proprietary information about the Company or Parent or their business, unless
and until such information has become known to the public generally (other than
as a result of unauthorized disclosure by the Executive) or unless he is
required to disclose such information by a court or by a governmental body with
apparent authority to require such disclosure. The foregoing covenant by the
Executive shall be without limitation as to time and geographic application.
-18-
<PAGE>
13. WITHHOLDING.
-----------
Anything in this Agreement to the contrary notwithstanding, all
payments required to be made by the Company or Parent hereunder to the Executive
shall be subject to withholding of such amounts relating to taxes as the Company
or Parent may reasonably determine either should withhold pursuant to any
applicable law or regulation. In lieu of withholding such amounts, in whole or
in part, the Company or Parent may, in its sole discretion, accept other
provision for payment of taxes as required by law, provided it is satisfied that
all requirements of law affecting its responsibilities to withhold such taxes
have been satisfied.
14. PARENT SERVICES.
---------------
(A) LIABILITY. The Parent hereby agrees to be jointly and severally
---------
liable together with the Company for the payment to the Executive of his Base
Salary, bonus, business expense reimbursement and termination of employment
provisions of this Agreement.
(B) RESPONSIBILITY. All of the other terms and provisions of this
--------------
Agreement relating to the Executive's employment by the Company shall likewise
apply mutatis mutandis to the Executive's employment by the Parent including,
------- --------
without limitation, Sections 1, 2, 7, 8, 9, 10, 11, 12, 13 and 18, it
-19-
<PAGE>
being understood that if the Executive terminates his employment, he shall be
required to do so with respect to both the Company and the Parent and that a
termination of the employment of the Executive by both the Company or the Parent
shall be deemed a termination by both.
15. ENTIRE AGREEMENT.
----------------
This Agreement, together with the Exhibits, contains the entire
agreement between the Parties concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the Company, Parent and the
Executive with respect thereto.
16. ASSIGNABILITY; BINDING NATURE.
-----------------------------
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs and assigns. No rights or
obligations of the Executive under this Agreement may be assigned or transferred
by the Executive other than his right to compensation and benefits hereunder,
which may be transferred by will or operation of law subject to the limitations
of this Agreement. No rights or obligations of the Company or Parent under this
Agreement may be assigned or transferred by the Company or Parent except that
such rights or obligations may be assigned or transferred pursuant to a merger
or consolidation in which the Company or Parent is not the con-
-20-
<PAGE>
tinuing entity, or the sale or liquidation of all or substantially all of the
assets of the Company or Parent, provided that the assignee or transferee is the
successor to all or substantially all of the assets of the Company or Parent and
such assignee or transferee assumes the liabilities, obligations and duties of
the Company or Parent, as contained in this Agreement, either contractually or
as a matter of law.
17. INDEMNIFICATION.
---------------
The Executive shall be provided indemnification by each of Parent and
the Company to the maximum extent permitted under the laws of their respective
jurisdictions of incorporation and their respective charter documents. In
addition, he shall be covered by a directors' and officers' liability policy
with coverage for him to the extent of US$50,000,000.
18. SETTLEMENT OF DISPUTES.
----------------------
Any dispute between the Parties arising from or relating to the terms
of this Agreement or the Executive's employment with the Company or Parent shall
be resolved by arbitration held in New York City in accordance with the rules of
the American Arbitration Association. All costs associated with any
arbitration, including all legal expenses, for both Parties shall be borne by
the Company and Parent.
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<PAGE>
19. AMENDMENT OR WAIVER.
-------------------
No provision in this Agreement may be amended unless such amendment is
agreed to in writing, signed by the Executive and by a duly authorized officer
of the Company and Parent. No waiver by any Party of any breach by the other
Party of any condition or provision of this Agreement to be performed by such
other Party shall be deemed a waiver of a similar or dissimilar condition or
provision at the same or any prior or subsequent time. Any waiver must be in
writing and signed by the Executive or a duly authorized officer of the Company
and Parent, as the case may be.
20. NOTICES.
-------
Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally or sent by courier, or by certified or registered mail, postage
prepaid, return receipt requested, duly addressed to the Party concerned at the
address indicated below or to such changed address as such Party may
subsequently by similar process give notice of:
If to the Company: Mid Ocean Reinsurance Company Ltd.
Richmond House
12 Par-la-Ville Road
Hamilton HM EX, Bermuda
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<PAGE>
If to the Parent: Mid Ocean Limited
Richmond House
12 Par-la-Ville Road
Hamilton HM EX, Bermuda
If to the Executive: Michael A. Butt
"Chan Mar"
41 Tucker's Town Road
Bermuda
21. SEVERABILITY.
------------
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
22. SURVIVORSHIP.
------------
The respective rights and obligations of the Parties shall survive any
termination of this Agreement to the extent necessary to the intended
preservation of such rights and obligations.
23. REFERENCE.
---------
In the event of the Executive's death or a judicial determination of
his incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to his estate or other legal representative.
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<PAGE>
24. GOVERNING LAW.
-------------
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of New York without reference to the
principles of conflict of laws.
25. HEADINGS.
--------
The heading of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
26. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
MID OCEAN REINSURANCE COMPANY LTD.
By: _____________________________
MID OCEAN LIMITED
By: _____________________________
_____________________________
Michael A. Butt
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<PAGE>
EXHIBIT A
---------
CHANGE IN CONTROL
A "Change in Control" shall be deemed to have occurred if:
(i) on or after the date hereof, any person (which, for all purposes
hereof, shall include, without limitation, an individual, sole
proprietorship, partnership, unincorporated association,
unincorporated syndicate, unincorporated organization, trust, body
corporate and a trustee, executor, administrator or other legal
representative), or any group (within the meaning of Section
13(d)(3) of the United States Securities Exchange Act of 1934, as
amended), becomes the beneficial owner, directly or indirectly, of
securities of the Parent representing, or acquires the right to
control or direct, or to acquire through the conversion or exchange
of securities or the exercise of warrants or other rights to acquire
securities ("Beneficial Owner"), 20% or more of the combined voting
power of the Parent's then outstanding securities ("Significant
Owner") (excluding any person who or group which, together with all
affiliates and associates of such person or group, would on the
<PAGE>
date of this Agreement but for this clause be a Significant Owner as
long as such person or group does not subsequently become the
Beneficial Owner of any additional securities of the Parent in any
manner other than a change in the aggregate number of the
outstanding securities of the Parent, and other than pursuant to any
purchase or acquisition permitted by the first full paragraph of the
second page of that Standstill Agreement dated June 2, 1995 between
Parent and EXEL Limited) and, for the purposes hereof, "voting
power" means the right to vote for the election of directors; or
(ii) at any time subsequent to the execution of this contract there shall
be elected or appointed to the Parent Board any director or
directors whose appointment or election by the Parent's shareholders
was not approved by a vote of at least a majority of the directors
then still in office who were either directors at the date hereof or
whose election or appointment or nomination for election was
previously so approved.
The determination to be made pursuant to clause (i) above shall be made on the
basis that (x) all securities beneficially owned by the person or group or over
which control or direction is exercised by the person or group which are
convertible or ex-
-2-
<PAGE>
changeable into securities carrying voting rights have been converted or
exchanged and all options, warrants, exchange rights or other rights which may
be exercised to acquire securities beneficially owned by the person or group or
over which control or direction is exercised by the person or group have been
exercised, and (y) no such convertible or exchangeable securities have been
converted or exchanged by any other person and no such options, warrants,
exchange rights or other rights have been exercised by any other person.
-3-
<PAGE>
EXHIBIT B
---------
GOOD REASON
For purposes of this Agreement, "Good Reason" shall mean any of the
following (without Executive's express prior written consent):
(i) (A) The assignment to Executive of duties materially inconsistent
with Executive's position (including duties, responsibilities,
status, titles or offices as set forth in Section 2 hereof); or (B)
any elimination or reduction of Executive's duties or
responsibilities except in connection with the termination of
Executive's employment for Cause, disability or as a result of
Executive's death or by Executive other than for Good Reason;
(ii) The (A) reduction in Executive's Base Salary from the level in
effect immediately prior to, or (B) payment of an annual bonus in
an amount less than the most recent annual bonus paid prior to the
Change in Control;
(iii) The failure by the Company or Parent to obtain the specific
assumption of this Agreement by any successor or assign of Parent
or the Company or any person acquiring substantially all of the
Company's or Parent's assets;
(iv) Any material breach by the Company or Parent of any provision of
this Agreement or any agreements entered into pursuant thereto;
(v) Requiring Executive to be based at any office or location other
than those described in Section 2(a) hereof, except for travel
reasonably required in the performance of the Executive's
responsibilities; or
(vi) During the twelve month period following a Change in Control, (A)
the failure to continue in effect any compensation plan in which
Executive participates at the time of the Change in Control unless
an equitable arrangement (embodied in an ongoing substitute or
alternative plan providing Executive
<PAGE>
with substantially similar benefits) has been made with respect to
such plan in connection with the Change in Control, or the failure
to continue Executive's participation therein on substantially the
same basis, both in terms of the amount of benefits provided and
the level of his participation relative to other participants, as
existed at the time of the Change in Control; or (B) the failure to
continue to provide Executive with benefits at least as favorable
in the aggregate as those enjoyed by him under any of the Company's
or Parent's pension, life insurance, medical, health and accident,
disability, deferred compensation or savings plans in which he was
participating at the time of the Change in Control, the taking of
any action which would directly or indirectly materially reduce any
of such benefits or deprive Executive of any fringe benefit enjoyed
by him at the time of the Change in Control, or the failure to
provide him with the number of paid vacation days to which he was
entitled on the basis of the Company's practice with respect to him
as in effect at the time of the Change in Control.
-2-
<PAGE>
Exhibit 10.12.1
AMENDMENT TO SERVICE AGREEMENT
------------------------------
AMENDMENT TO AGREEMENT, made as of March 16, 1998, by and among The
Brockbank Group plc (registered in England under number 1844295) (the "Company")
and Exel Merger Company Ltd. ("Newco") (collectively, the "Entities"), and Mark
E. Brockbank (the "Executive").
WHEREAS, the Company and the Executive have entered into a Service
Agreement, dated 1st January, 1995 ("Service Agreement"), supplemented by an
Addendum to Service Agreement, dated 9th March, 1995; a letter to amend Service
Agreement, dated 29th September, 1995; a letter to amend Contract of Employment,
dated 13th December, 1995; and a letter on restriction of use of name and non-
competition clause, dated 13th December, 1995; and
WHEREAS, Mid Ocean Limited, EXEL Limited and Newco have entered into
an Agreement and Plan of Amalgamation, dated as of March 16, 1998; and
WHEREAS, the Entities wish to have the Executive continue his
employment with the Company following the consummation of such amalgamation, and
the Executive wishes to continue such employment with the Company.
<PAGE>
-2-
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the Entities and the
Executive hereby agree to amend the Service Agreement as follows:
1. Clause 1.2 of the Service Agreement is hereby amended by deleting
the clause in its entirety, and adding the following in lieu thereof:
The Company shall employ the Executive and the Executive shall
serve the Company and any applicable Group Company (subject to
the provisions of Clause 12) as and from the Commencement Date
unless and until either party shall give to the other not less
than twelve months' written notice; provided, that, except as
--------
otherwise set forth in this Agreement, such notice shall not
expire before the second anniversary of the consummation of the
amalgamations (the "Transactions") contemplated by the Agreement
and Plan of Amalgamation among Mid Ocean Limited, EXEL Limited
and Exel Merger Company Ltd., dated as of March 16, 1998 (the
"Amalgamation Agreement") (such consummation date, the "Effective
Date" hereunder).
2. Clause 3 of the Service Agreement is hereby amended by adding a
new Clause 3.5 as follows:
As of the Effective Date, the Executive will be awarded a Stock
Option for 40,000 shares of Common Stock of Exel Merger Company
Ltd. (the "Option") pursuant to the terms of the EXEL Limited
1991 Performance Incentive Program (the "Option Plan") at an
exercise price equal to fair market value on the date of grant.
The Option shall vest 33 1/3 per cent per year on each of the
first three anniversaries of the Effective Date, and shall be
subject to
<PAGE>
-3-
the terms and conditions generally applicable to options granted under the
Option Plan.
3. A new Clause 21 is hereby added to the Service Agreement to read
as follows:
With respect to 50% of the Executive's unvested stock options and
shares of restricted stock of Mid Ocean Limited outstanding as of
the Effective Date and granted under the Mid Ocean Limited 1993
Long Term Incentive and Share Award Plan, the Executive hereby
waives on a pro rata basis, to the extent applicable, accelerated
exercisability and vesting as a result of the Transactions
(including shareholder approval of the Transactions) and agrees
that such options and restricted stock shall continue to vest
pursuant to their normal schedule; provided, that upon a
--------
termination of Executive's employment due to Executive's death or
by the Company other than pursuant to Clause 12, the remaining
balance of such options and shares of restricted stock for which
accelerated exercisability or vesting was waived shall become
immediately exercisable and/or vested. The Executive's Restricted
Mid Ocean Ordinary Shares offered under the Restricted Mid Ocean
Ordinary Share Alternative shall be replaced by restricted shares
of Exel Merger Company Ltd. upon the Effective Date pursuant to
the terms and conditions of the Amalgamation Agreement, and all
restrictions applicable to such shares shall otherwise continue.
4. This amendment to the Service Agreement shall take effect as of
the Effective Date, and shall in no event take effect in the event of the
termination and abandonment of the Amalgamation Agreement.
<PAGE>
-4-
IN WITNESS WHEREOF, the parties hereto have executed this amendment to
the Agreement as of the year and day first above written.
The Brockbank Group plc
By: _____________________________
Exel Merger Company Ltd.
By: _____________________________
__________________________________
Mark E. Brockbank
-4-
<PAGE>
EXHIBIT 10.12.2
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
AMENDMENT TO AGREEMENT, made as of March 16, 1998, by and among, Mid
Ocean Reinsurance Company Ltd., a Bermuda Corporation (the "Company"), Mid Ocean
Limited, a Cayman islands Corporation (the "Parent") and Exel Merger Company
Ltd. ("Newco") (collectively, the "Entities") and Henry C.V. Keeling (the
"Executive").
WHEREAS, on August 19, 1996, the Company and the Parent, and the
Executive entered into an amended and restated employment agreement (the
"Agreement");
WHEREAS, the Parent, EXEL Limited and Newco, have entered into an
Agreement and Plan of Amalgamation, dated as of March 16, 1998; and
WHEREAS, the Entities wish to have the Executive continue his
employment with the Company following the consummation of such amalgamation, and
the Executive wishes to continue such employment with the Company.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the Entities and the
Executive hereby agree to amend the Agreement as follows:
1. Section 2 of the Agreement is hereby amended by deleting the
first sentence, and adding the following sentence in lieu thereof:
The term of employment under this Agreement shall commence upon
the consummation of the transactions (the "Transactions")
contemplated by the Agreement and Plan of Amalgamation, by and
among Parent, EXEL Limited and Exel Merger Company Ltd., dated as
of March 16, 1998 (such consummation date, the "Effective Date"),
and shall continue through the close of business on the third
anniversary of the Effective Date, subject to earlier termination
as provided in Section 9 below.
<PAGE>
2. Section 3(a) of the Agreement is hereby amended by deleting the
first sentence in its entirety, and adding the following in lieu thereof:
The Executive shall be employed as President and Chief Executive
Officer of the Company, with such duties and responsibilities,
including but not limited to general management responsibilities
over the business and operations of the Company, as are customary
to such positions and shall undertake such additional duties and
responsibilities as may be reasonably assigned to him by the
Board of the Company.
3. Section 6 of the Agreement is hereby amended by deleting the
Section in its entirety, and adding the following in lieu thereof:
As of the Effective Date, the Executive will be awarded a Stock
Option for 40,000 shares of Common Stock of Exel Merger Company
Ltd. (the "Option") pursuant to the terms of the EXEL Limited
1991 Performance Incentive Program Plan (the "Option Plan") an
exercise price equal to fair market value on the date of grant.
The Option shall vest 33 1/3 per cent per year on each of the
first three anniversaries of the Effective Date, and shall be
subject to the terms and conditions generally applicable to
options granted under the Option Plan.
4. Section 9(d)(ii)(A) of the Agreement is hereby amended to read in
its entirety as follows:
(A)(1) Base Salary as provided in Section 4, above, at the rate
in effect in accordance with Section 4, above, immediately prior
to such termination, payable in equal monthly installments for
the greater of (A) 12 months following such termination or (B)
the balance of the term of employment; and (2) to the extent not
otherwise provided by the annual bonus plan, an amount equal to
the largest annual bonus awarded to the Executive in the three
year period prior to the year in which the date of termination
occurs, times the number of years (with partial years treated as
full years) remaining in the term of employment,
-2-
<PAGE>
5. The Executive hereby waives the application of Section 9(d)(iii)
of the Agreement in connection with the Transactions.
6. A new sentence is added at the end of Paragraph 11(b) to read as
follows:
During the term of the Executive's employment, and for a period
of 12 months following Executive's termination of employment with
the Company (other than a termination by the Company without
Cause or a termination by the Executive for Good Reason), the
Executive or any entity controlled by the Executive shall not
(except in the course of his duties under this Agreement) call
on, solicit or take away as a client or customer any person,
firm, association, partnership, corporation, or other entity that
is or was a client or customer of the Company, Parent or Exel
Merger Company Ltd. or any of their affiliates, including
actively sought prospective clients or customers, during the term
of the Agreement. In the event of the Company's termination of
Executive's employment for Cause or Executive's voluntary
termination of employment without Good Reason, the immediately
preceding sentence shall only apply if the Executive is paid
severance under Section 9(d)(ii) of the Agreement.
7. Section 19 is hereby amended by adding the following at the end
thereof:
If to Exel Merger Company Ltd.:
Exel Merger Company Ltd.
Cumberland House
One Victoria Street
Hamilton HM 11 Bermuda
Attn: General Counsel
8. A new Section 26 is hereby added to this Agreement to read as
follows:
With respect to 50% of the Executive's outstanding unvested stock
options and shares of restricted stock as of the Effective Date,
the Executive hereby waives on a pro rata basis, to the extent
applicable, accelerated exercisability and vesting as a result of
the Transactions (including shareholder approval of the
Transactions) and agrees that such options and restricted stock
shall continue to vest pursuant to their normal schedule;
-3-
<PAGE>
provided, that upon a termination of Executive's employment due
to Executive's death or disability (as described in Section
9(b)), or a termination by the Company without Cause, the
remaining balance of such options and shares of restricted stock
for which accelerated exercisability or vesting was waived shall
become immediately exercisable and/or vested.
9. This amendment to the Agreement shall take effect as of the
Effective Date, and shall in no event take effect in the event of the
termination and abandonment of the Amalgamation Agreement. In the event that the
Effective Date has not occurred on or prior to March 31, 1999, the parties will
enter into good faith negotiations with respect to the modification of this
amendment to the Agreement, to the extent requested by any of the parties
hereto.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this amendment to
the Agreement as of the year and day first above written.
Mid-Ocean Reinsurance Company Ltd.
By:_________________________________
Mid-Ocean Limited
By:_________________________________
Exel Merger Company Ltd.
By:_________________________________
____________________________________
Henry C. V. Keeling
-5-
<PAGE>
Exhibit 10.12.3
AMENDMENT TO SERVICE AGREEMENT
------------------------------
AMENDMENT TO AGREEMENT, made as of March 16, 1998, by and among Mid
Ocean Reinsurance Company Ltd., a Bermuda corporation (the "Company"), Mid Ocean
Limited (the "Parent"), and Exel Merger Company Ltd. ("Newco") (collectively,
the "Entities") and Robert J. Newhouse, Jr. (the "Executive").
WHEREAS, on August 19, 1996, the Company and the Parent, and the
Executive entered into an amended and restated service agreement (the
"Agreement");
WHEREAS, the Parent, EXEL Limited, and Newco have entered into an
Agreement and Plan of Amalgamation, dated as of March 16, 1998; and
WHEREAS, the Entities wish to have the Executive continue his
employment through October 31, 1998 and to perform services as a consultant to
the Company commencing November 1, 1998, and the Executive wishes to continue
such employment and then perform services as a consultant to the Company.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the Entities and the
Executive hereby agree to amend the Agreement as follows:
<PAGE>
-2-
1. Section 1 of the Agreement is hereby amended by detecting the
Section in its entirety, and adding the following in lieu thereof:
The term of service as an employee under this Agreement shall
commence on August 19, 1996 (the "DATE OF THE AGREEMENT") and
shall continue until October 31, 1998; provided, that Executive
--------
will cease being Chairman of the Board and a member of the
Executive Committee of the Company upon the consummation of the
amalgamations contemplated by the Agreement and Plan of
Amalgamation, by and among the Parent, EXEL Limited and Exel
Merger Company Ltd., dated as of March 16, 1998 (such
consummation date, the "EFFECTIVE DATE"). Commencing upon the
later of (i) the Effective Date or (ii) November 1, 1998 (such
later date, the "COMMENCEMENT DATE"), the Executive shall cease
his status as an employee and shall serve the Company as
Consultant for Strategic Projects including Mergers and
Acquisitions until the second anniversary of the Commencement
Date. Executive shall also be elected to the Board of Directors
of Exel Merger Company Ltd. upon the Effective Date.
2. Notwithstanding any other provision of the Agreement, in full
satisfaction of Section 8 of the Agreement for Executive's termination of
employment, Executive and the Company agree that the Company shall provide
Executive (i) as a severance payment, with a cash amount equal to (a)
US$1,400,000, payable in 24 equal monthly installments beginning on the
Commencement Date and (b) if Executive is terminated prior to the Commencement
Date under the circumstances described in Section 8(d)(iii) of the Agreement, a
pro rata annual bonus to the extent provided under Section 8(d)(iii)(C) of
<PAGE>
-3-
the Agreement, and (ii) Executive's severance benefits under Sections
8(d)(iii)(E) and (F), to the extent not paid as a severance payment, will
continue for such 24-month period pursuant to the terms of such paragraphs
(provided, that the 12 round-trip first-class non-business trips per year by
--------
Executive or members of his family (described in Section 7(b)(ii) of the
Agreement) shall be reduced to 4 round-trip first-class non-business trips and
shall be limited to Executive or his wife; the 4 round-trip first-class non-
business trips per year by Executive or his wife (as described in Section
7(b)(ii) of the Agreement) shall be reduced to 2 round-trip first-class non-
business trips; and Executive shall not receive the benefits under Section
7(b)(iii) of the Agreement beyond the US$10,000 reimbursement for 1998). In the
event of Executive's death, any remaining installments under (i) above shall be
paid to his spouse (or other designated beneficiaries).
3. Section 2(a) of the Agreement is hereby amended by adding the
following sentence to the end thereof:
Prior to the Commencement Date, Executive will continue his
employment as described in Section 1 and shall assist in
integration issues. Beginning on the Commencement Date, Executive
hereby agrees to provide such consulting services to the Company,
Exel Merger Company Ltd. and their affiliates as the Chief
Executive Officer of Exel Merger Company Ltd. or his designee
shall reasonably request. Such consulting services shall be
performed at a mutually agreeable location,
<PAGE>
-4-
4. Sections 2(b), (c), and (d), 4, 6 and 7(b) of the Agreement shall
have no further effect as of the Commencement Date, except to the extent any
benefits under such Sections are provided as severance benefits under this
amendment to the Agreement.
5. Section 3 of the Agreement is hereby amended by deleting the
Section in its entirety and adding the following:
Beginning on the Commencement Date, during his consultancy
hereunder, the Executive shall be paid a Base Fee by the Company
at an annual rate of US$250,000, payable in accordance with the
Company's regular pay practices.
6. Section 8 of the Agreement is hereby amended to read in its
entirety follows:
(a) TERMINATION DUE TO DEATH. In the event the Executive dies during
------------------------
the term of his service under this Agreement, the Executive's spouse, if
she survives him, shall be entitled to receive the Executive's Base Fee as
provided in Section 3, above, at the rate in effect immediately prior to
termination, through the end of the month in which the Executive dies.
Upon Executive's death, whether it occurs during or after his service under
this Agreement, provided only that his spouse survives him, she will
receive payments of $187,500 per year for three years
<PAGE>
-5-
in equal monthly installments. In the event the Executive's spouse dies
during the period of such payments, such payments shall thereafter be made
to the beneficiary designated by the Executive or, in the absence of such
designation, to the estate or other legal representative of the Executive.
In the event that the Executive's spouse does not survive him, the estate
or other legal representative of the Executive shall be entitled to receive
the Base Fee as provided in Section 3, above, at the rate in effect at the
time of his death, through the end of the month in which the Executive
dies.
(b) TERMINATION DUE TO DISABILITY. In the event the Executive's
-----------------------------
service with the Company or Parent is terminated due to his disability, as
determined pursuant to the definition under the Company's or Parent's long-
term disability plan, the Executive shall be entitled to the Base Fee as
provided in Section 3, above, through the end of the month in which the
Executive's service terminates due to disability.
(C) TERMINATION FOR CAUSE; VOLUNTARY TERMINATION.
--------------------------------------------
(i) The service of the Executive under this Agreement may be
terminated by the Parent or the Com-
<PAGE>
-6-
pany for Cause or may be voluntarily terminated by the Executive. For
this purpose, "CAUSE" shall mean:
(A) conviction of the Executive of a felony involving moral
turpitude, or
(B) the Executive, in carrying out his duties for the
Company or Parent under this Agreement has been guilty of (I)
gross neglect or (II) gross misconduct; provided, however, that
-------- -------
any act, or failure to act, by the Executive shall not constitute
Cause for purposes of this Section 8(c)(i)(B) if such act, or
failure to act, was committed, or omitted, by the Executive in
good faith and in a manner he reasonably believed to be in the
best interests of the Company or Parent.
(ii) In the event of a termination for Cause by the Company or
Parent or a voluntary termination by the Executive under Section
8(c)(i), above, the Executive shall be entitled only to the Base Fee
as provided in Section 3, above, at the rate in effect at the time of
his termination of service for Cause or his voluntary termination,
through the date on
<PAGE>
-7-
which termination for Cause or the voluntary termination occurs.
(d) TERMINATION WITHOUT CAUSE.
-------------------------
(i) Anything in this Agreement to the contrary notwithstanding,
the Executive's service may be terminated without Cause as provided in
this Section 8(d). A termination due to disability, as described in
Section 8(b), above, or a termination for Cause, as described in
Section 8(c), above, shall not be deemed a termination without Cause
under this Section 8(d).
(ii) In the event the Executive's service is terminated without
Cause, Executive shall be entitled to the Base Fee as provided in
Section 3, above, at the rate in effect in accordance with Section 3,
above, immediately prior to such termination, payable in equal monthly
installments until the end of the scheduled term.
7. Paragraph 10(b) of the Agreement is hereby amended to add the
following sentence to the end thereof:
During the term of the Executive's consultancy, and for a period of 12
months following termination of his consultancy, the Executive or any
entity con-
<PAGE>
-8-
trolled by the Executive shall not call on, solicit or take away as a
client or customer any person, firm, association, partnership, corporation,
or other entity that is or was a client or customer of the Company, Parent
or Exel Merger Company Ltd. or any of their affiliates, including actively
sought prospective clients or customers, during the term of the Agreement.
8. Section 20 of the Agreement is hereby amended by adding the
following at the end:
If to Exel Merger Company Ltd.:
Exel Merger Company Ltd.
Cumberland House
One Victoria Street
Hamilton HM 11 Bermuda
Attn: General Counsel
9. This amendment to the Agreement shall take effect as of the
Effective Date, and shall in no event take effect in the event of the
termination and abandonment of the Amalgamation Agreement. In the event that
the Effective Date has not occurred on or prior to March 31, 1999, and the
immediately preceding sentence is not applicable, the parties will enter into
good faith negotiations with respect to the modification of this amendment to
the Agreement, to the extent requested by any of the parties hereto.
<PAGE>
-9-
IN WITNESS WHEREOF, the parties hereto have executed this amendment to
the Agreement as of the year and day first above written.
Mid-Ocean Reinsurance Company Ltd.
By: _____________________________
Mid-Ocean Limited
By: _____________________________
Exel Merger Company Ltd.
By: _____________________________
__________________________________
Robert J. Newhouse, Jr.
<PAGE>
Exhibit 10.12.4
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
AMENDMENT TO AGREEMENT, made as of March 16, 1998, by and among Mid
Ocean Reinsurance Company Ltd., a Bermuda Corporation (the "Company"), Mid Ocean
Limited (the "Parent") and Exel Merger Company Ltd. ("Newco") (collectively, the
"Entities") and Michael A. Butt (the "Executive").
WHEREAS, on August 19, 1996, the Company and the Parent, and the
Executive entered into an amended and restated service agreement (the
"Agreement");
WHEREAS, the Parent, EXEL Limited and Newco have entered into an
Agreement and Plan of Amalgamation, dated as of March 16, 1998; and
WHEREAS, the Entities wish to have the Executive continue his
employment through December 31, 1998 and to perform services as a consultant to
the Company commencing January 1, 1999, and the Executive wishes to continue
such employment and then perform services as a consultant to the Company.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the Entities and the
Executive hereby agree to amend the Agreement as follows:
<PAGE>
-2-
1. Section 2 of the Agreement is hereby amended by deleting the
Section in its entirety, and adding the following in lieu thereof:
The term of service as an employee under this Agreement shall
commence on August 19, 1996 (the "DATE OF THE AGREEMENT") and
shall continue until December 31, 1998. Upon the consummation of
the amalgamations contemplated by the Agreement and Plan of
Amalgamation by and among Parent, EXEL Limited and Exel Merger
Company Ltd., dated as March 16, 1998 (such consummation date,
the "EFFECTIVE DATE"), Executive shall cease his positions as
President and Chief Executive Officer of the Company and the
Parent and shall continue as an employee of the Company and the
Parent, and shall be elected to the Board of Directors of Exel
Merger Company Ltd. and be a member of the management committee
of Exel Merger Company Ltd. Commencing upon the later of the (i)
Effective Date or (ii) January 1, 1999 (the "COMMENCEMENT DATE"),
the Executive shall cease his employment under this Agreement and
shall serve the Company as a consultant until the first
anniversary of the Commencement Date.
2. Notwithstanding any other provision of the Agreement, in full
satisfaction of Section 9 of the Agreement for Executive's termination of
employment, Executive and the Company agree that the Company shall provide
Executive (i) as a severance payment, with a cash amount equal to (a)
US$3,537,000, payable in 36 equal monthly installments beginning on the
Commencement Date, and (b) if Executive is terminated prior to the Commencement
Date under the circumstances described in Section 9(d)(iii) of the Agreement, a
pro rata an-
<PAGE>
-3-
nual bonus to the extent provided under Section 9(d)(iii)(C) of the Agreement,
(ii) that Executive's severance benefits under Sections 9(d)(iii)(E) and (F), to
the extent not paid as a severance payment, will continue for such 36-month
period pursuant to the terms of such paragraphs, and (iii) with vesting upon the
Effective Date of fifty (50%) of all of Executive's equity awards that otherwise
vest upon a Change in Control and, unless Executive voluntarily terminates
employment before such date other than for Good Reason, vesting of the remaining
50% of such equity awards on the Commencement Date. In the event of Executive's
death, any remaining installment payments under (i) above shall be paid to his
spouse (or other designated beneficiaries).
3. Section 3(a) of the Agreement is hereby amended by adding the
following sentences to the end thereof:
Prior to the Commencement Date, Executive will continue his
employment as described in Section 2 and shall assist in
integration issues. Beginning on the Commencement Date, Executive
hereby agrees to provide such consulting services to the Company,
Exel Merger Company Ltd. and their affiliates as the Chief
Executive Officer of Exel Merger Company Ltd. or his designee
shall reasonably request. Such consulting services would occupy
about 50% of Executive's business time and shall be performed at
the corporate offices of the Company in Bermuda or at any other
mutually agreeable location. Executive will be provided with an
appropriate office and secretary.
<PAGE>
-4-
4. Sections 3(b), (c) and (d), 5, 7, and 8(b) of the Agreement shall
have no further effect as of the Commencement Date, except to the extent any
benefits under such Sections are provided as severance benefits under this
amendment to the Agreement.
5. Section 4 of the Agreement is hereby amended by adding the
following sentence to the end thereof:
Beginning on the Commencement Date, during his consultancy
hereunder, the Executive shall be paid a Base Fee by the Company
at an annual rate equal to US$535,000, payable in accordance with
the Company's regular pay practices.
6. Section 9 of the Agreement is hereby amended to read in its
entirety as follows:
(a) TERMINATION DUE TO DEATH. In the event the Executive dies during
------------------------
the term of his service under this Agreement the Executive's spouse, if she
survives him, shall be entitled to receive the Executive's Base Fee as
provided in Section 3, above, at the rate in effect immediately prior to
termination, through the end of the month in which the Executive dies and
thereafter shall be entitled to receive payments at the rate of 50% of the
Base Fee per year until the end of the scheduled term. In the event the
Executive's spouse dies during such remaining
<PAGE>
-5-
period of the term, such payments shall thereafter be made to the
beneficiary designated by the Executive or, in the absence of such
designation, to the estate or other legal representative of the Executive.
In the event that the Executive's spouse does not survive him, the estate
or other legal representative of the Executive shall be entitled to receive
the Base Fee as provided in Section 4, above, at the rate in effect at the
time of his death, through the end of the month in which the Executive
dies.
(b) TERMINATION DUE TO DISABILITY. In the event the Executive's
-----------------------------
service with the Company or Parent is terminated due to his disability, as
determined pursuant to the definition under the Company's or Parent's long-
term disability plan, the Executive shall be entitled to the Base Fee as
provided in Section 4, above, through the end of the month in which the
Executive's service terminates due to disability.
(c) TERMINATION FOR CAUSE; VOLUNTARY TERMINATION.
--------------------------------------------
(i) The service of the Executive under this Agreement may be
terminated by the Parent or the Company for Cause or may be
voluntarily terminated by the Executive. For this purpose, "Cause"
shall mean:
<PAGE>
-6-
(A) conviction of the Executive of a felony involving moral
turpitude, or
(B) the Executive, in carrying out his duties for the
Company or Parent under this Agreement, has been guilty of (I)
gross neglect or (II) gross misconduct; provided, however, that
-------- -------
any act, or failure to act, by the Executive shall not constitute
Cause for purposes of this Section 9(c)(i)(B) if such act, or
failure to act, was committed, or omitted, by the Executive in
good faith and in a manner he reasonably believed to be in the
best interests of the Company or Parent.
(ii) In the event of a termination for Cause by the Company or
Parent or a voluntary termination by the Executive under Section
9(c)(i), above, the Executive shall be entitled only to the Base Fee
as provided in Section 4, above, at the rate in effect at the time of
his termination of service for Cause or his voluntary termination,
through the date on which termination for Cause or the voluntary
termination occurs.
<PAGE>
-7-
(d) TERMINATION WITHOUT CAUSE.
-------------------------
(i) Anything in this Agreement to the contrary notwithstanding,
the Executive's service may be terminated without Cause as provided in
this Section 9(d). A termination due to disability, as described in
Section 9(b), above, or a termination for Cause, as described in
Section 9(c), above, shall not be deemed a termination without Cause
under this Section 9(d).
(ii) In the event the Executive's service is terminated without
Cause, Executive shall be entitled to the Base Fee as provided in
Section 4, above, at the rate in effect in accordance with Section 4,
above, immediately prior to such termination, payable in equal monthly
installments until the end of the scheduled term.
7. Paragraph 11(a) of the Agreement is hereby amended to add the
following to the end thereof:
During the term of the Executive's consultancy, and for a period
of 24 months following termination of his consultancy, the
Executive or any entity controlled by the Executive shall not
call on, solicit or take away as a client or customer any person,
firm, association, partnership, corporation, or other entity that
is or was a client or customer of the Company, Parent or Exel
Merger Company Ltd. or
<PAGE>
-8-
any of their affiliates, including actively sought prospective
clients or customers. For purposes of Section 11, "employment"
shall also refer to Executive's "consultancy" under this
Agreement.
8. Section 20 of the Agreement is hereby amended by adding the
following at the end thereof:
If to Exel Merger Company Ltd.
Exel Merger Company Ltd.
Cumberland House
One Victoria Street
Hamilton HM 11 Bermuda
Attn: General Counsel
9. This amendment to the Agreement shall take effect as of the
Effective Date, and shall in no event take effect in the event of the
termination and abandonment of the Amalgamation Agreement. In the event that the
Effective Date has not occurred on or prior to March 31, 1999, and the
immediately preceding sentence is not applicable, the parties will enter into
good faith negotiations with respect to the modification of this amendment to
the Agreement, to the extent requested by any of the parties hereto.
<PAGE>
-9-
IN WITNESS WHEREOF, the parties hereto have executed this amendment to
the Agreement as of the year and day first above written.
Mid-Ocean Reinsurance Company Ltd.
By: _____________________________
Mid-Ocean Limited
By: _____________________________
Exel Merger Company Ltd.
By: _____________________________
__________________________________
Michael A. Butt
<PAGE>
Exhibit 10.13
XL
AMERICA, INC.
Mr. Robert J. Newhouse, Jr.
5 North Pond Drive
Short Hills, New Jersey 07078
Dear Bob:
As we have previously agreed, we are pleased to confirm the offer by X.L.
America, Inc. (the "Company) to retain you as a consultant for a two-year period
on the terms and conditions of the Agreement as specified below:
1. Term. The Company agrees to engage you as a consultant for a 24-month
----
period commencing on November 1, 1998 and ending on October 31, 2000 (the
"Term").
2. Duties. From time to time during the Term, as and when requested by the
------
Chairman of the Company, you will be available to act as a consultant to
the Company and to work on special insurance and/or reinsurance projects as
may be assigned to you by him, which will utilize your managerial and
executive skills subject to your reasonable convenience and other business
activities.
The consulting services to be performed by you shall be as an independent
contractor, not as an employee of the Company. As such, you shall not be
entitled to any employee benefits from the Company, and the Company will
not exercise any control or direction of your performance of the above
described services, but will require that the result to be accomplished be
acceptable.
It is agreed that, except as may be agreed in writing by the Company, you
will not undertake any other consulting services for other clients during
the Term, but you will be able to act as an officer and/or director of
companies not in competition with the Company.
3. Payment for Services. As consideration for your consulting services
--------------------
hereunder, the Company shall compensate you as follows:
A. The Company will provide you with an office (including secretarial and
other services provided by the
<PAGE>
-2-
landlord) at HQ Business Centers, located at 55 Madison Avenue,
Morristown, New Jersey 07960.
B. The Company will reimburse you for any expenses, including travel,
entertainment and out-of-pocket expenses incurred in connection with
your services hereunder.
C. The Company shall pay you fees for your consulting services on
projects as may be agreed to by the Company and yourself.
D. Payment as agreed under this Agreement shall be made by the Company.
4. Prohibition an Disclosure of Information. You recognize and acknowledge
----------------------------------------
that the confidential or proprietary information of the Company and its
affiliates, including such trade secrets as may exist from time to time,
and information as to the identity of clients of the Company and its
affiliates, are valuable, special and unique assets of the Company's
business. You will not, during or after the Term, in whole or in part
disclose such secrets or confidential or proprietary information to any
person, firm, corporation, association or other entity for any reason or
purpose whatsoever, nor shall you make use of any such property for your
own purposes or for the benefit of any person, firm, corporation or other
entity (except the Company and its affiliates) under any circumstances,
during or after the Term.
5. Entire Agreement. This Agreement contains the entire agreement of the
----------------
parties with respect to the matters set forth herein and supersedes all
prior written or oral agreements with respect to such matters. It may be
changed only by an amendment in writing signed by the party against whom
enforcement is sought.
6. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of New York.
<PAGE>
-3-
If the terms of this letter are acceptable, kindly execute the enclosed
duplicate copy and return it to us.
Very truly yours,
X.L. America, Inc.
By: ________________________
AGREED TO AND ACCEPTED:
____________________________
Robert J. Newhouse, Jr.
<PAGE>
Exhibit 10.14.1
==============================================
MID OCEAN LIMITED
____________________
CREDIT AGREEMENT (5-YEAR)
Dated as of September 2, 1997
____________________
$100,000,000
____________________
THE CHASE MANHATTAN BANK
as Administrative Agent
==============================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitions and Accounting Matters . ................................................ 1
1.01 Certain Defined Terms................................................................ 1
1.02 Accounting Terms; GAAP'.............................................................. 15
1.03 Currencies and Types of Loans . ..................................................... 16
Section 2. Commitments, Loans and Prepayments................................................... 16
2.01 Loans................................................................................ 16
2.02 Borrowings of Loans.................................................................. 17
2.03 Changes of Commitments; Reduction of Maximum Loan Amounts............................ 17
2.04 Fees................................................................................. 17
2.05 Lending Offices...................................................................... 18
2.06 Several Obligations; Remedies Independent............................................ 18
2.07 Evidence of Debt..................................................................... 18
2.08 Optional Prepayments................................................................. 18
2.09 Mandatory Prepayments................................................................ 19
Section 3. Payments of Principal and Interest................................................... 21
3.01 Repayment of Loans................................................................... 21
3.02 Interest............................................................................. 21
Section 4. Payments; Pro Rata Treatment; Computations; Etc...................................... 22
4.01 Payments............................................................................. 22
4.02 Pro Rata Treatment................................................................... 23
4.03 Computations......................................................................... 24
4.04 Minimum Amounts...................................................................... 24
4.05 Certain Notices...................................................................... 25
4.06 Non-Receipt of Funds by the Administrative Agent..................................... 26
4.07 Sharing of Payments, Etc............................................................. 27
Section 5. Yield Protection. Etc................................................................ 28
5.01 Additional Costs..................................................................... 28
5.02 Limitation on Types and Currencies of Loans.......................................... 30
5.03 Treatment of Affected Loans.......................................................... 31
5.04 Compensation......................................................................... 31
5.05 Taxes................................................................................ 32
5.06 Replacement of Banks................................................................. 33
Section 6. Conditions Precedent................................................................. 34
6.01 Initial Loan......................................................................... 34
6.02 Initial and Subsequent Loans......................................................... 35
</TABLE>
-i-
Credit Agreement
----------------
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7. Representations and Warranties ...................................................... 36
7.01 Corporate Existence.................................................................. 36
7.02 Financial Condition.................................................................. 36
7.03 Litigation........................................................................... 37
7.04 No Breach............................................................................ 37
7.05 Action............................................................................... 37
7.06 Approvals............................................................................ 37
7.07 Use of Credit........................................................................ 38
7.08 ERISA................................................................................ 38
7.09 Taxes................................................................................ 38
7.10 Investment Company Act............................................................... 38
7.11 Public Utility Holding Company Act................................................... 38
7.12 Environmental Matters................................................................ 38
7.13 Subsidiaries, Etc.................................................................... 39
7.14 Stamp Taxes.......................................................................... 39
7.15 Legal Form........................................................................... 39
7.16 True and Complete Disclosure......................................................... 39
7.17 Withholding of Taxes................................................................. 40
Section 8. Covenants of the Company............................................................. 40
8.01 Financial Statements, Etc............................................................ 40
8.02 Existence, Etc....................................................................... 42
8.03 Insurance............................................................................ 43
8.04 Prohibition of Fundamental Changes................................................... 43
8.05 Limitation on Liens.................................................................. 44
8.06 Certain Financial Covenants.......................................................... 45
8.07 Ratings.............................................................................. 45
8.08 Use of Proceeds...................................................................... 45
8.09 Transactions with Affiliates......................................................... 46
8.10 Compliance with Laws................................................................. 46
8.11 Payment of Obligations............................................................... 46
8.12 Indebtedness......................................................................... 46
8.13 Capital and Surplus of Mid Ocean Reinsurance......................................... 46
Section 9. Events of Default.................................................................... 46
Section 10. The Administrative Agent............................................................. 49
10.01 Appointment, Powers and Immunities................................................... 49
10.02 Reliance by Administrative Agent..................................................... 50
10.03 Defaults............................................................................. 50
10.04 Rights as a Bank..................................................................... 50
10.05 Indemnification...................................................................... 51
10.06 Non-Reliance on Administrative Agent and Other Banks................................. 51
</TABLE>
-ii-
Credit Agreement
----------------
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
10.07 Failure to Act....................................................................... 51
10.08 Resignation of Administrative Agent.................................................. 52
Section 11. Miscellaneous........................................................................ 52
11.01 Waiver............................................................................... 52
11.02 Notices.............................................................................. 52
11.03 Expenses, Etc........................................................................ 53
11.04 Amendments, Etc...................................................................... 53
11.05 Successors and Assigns............................................................... 54
11.06 Assignments and Participations....................................................... 54
11.07 Survival............................................................................. 57
11.08 Captions............................................................................. 57
11.09 Counterparts......................................................................... 57
11.10 Governing Law; Submission to Jurisdiction............................................ 57
11.11 Waiver of Jury Trial................................................................. 58
11.12 Confidentiality...................................................................... 58
11.13 Judgment Currency.................................................................... 59
11.14 European Monetary Union.............................................................. 59
</TABLE>
SCHEDULE I - Subsidiaries
SCHEDULE II - Commitments
SCHEDULE III - Liens
SCHEDULE IV - Indebtedness
EXHIBIT A-I - Form of Opinion of Special Cayman Islands Counsel to the Company
EXHIBIT A-2 - Form of Opinion of Special Bermuda Counsel to the Company
EXHIBIT A-3 - Form of Opinion of Special New York Counsel to the Company
EXHIBIT B - Form of Opinion of Special New York Counsel to Chase
EXHIBIT C - Form of Confidentiality Agreement
EXHIBIT D - Form of Assignment and Acceptance
EXHIBIT E - Form of Promissory Note
-iii-
Credit Agreement
----------------
<PAGE>
CREDIT AGREEMENT (5-YEAR) dated as of September 2, 1997, between:
MID OCEAN LIMITED. a corporation duly organized and validly existing
under the laws of the Cayman Islands (the "Company");
-------
Each of the lenders that is a signatory hereto identified under the
caption "BANKS" on the signature pages hereto or that pursuant to Section
11.06(b) hereof shall become a "Bank" hereunder; and
THE CHASE MANHATTAN BANK, a New York banking corporation, as
administrative agent for the Banks (in such capacity, together with its
successors in such capacity, the "Administrative Agent").
--------------------
The Company has requested that the Banks make loans to it in an
aggregate principal amount not exceeding $100,000,000 at any one time
outstanding in U.S. Dollars and in certain other foreign currencies, and the
Banks are prepared to make such loans upon the terms and conditions hereof.
Accordingly, the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
----------------------------------
1.01 Certain Defined Terms. As used herein, the following terms shall
---------------------
have the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):
---- -----
"Administrative Agent's Account" shall mean, for each Currency, an
------------------------------
account in respect of such Currency designated by the Administrative Agent in a
notice to the Company and the Banks.
"Administrative Questionnaire" shall mean an Administrative
----------------------------
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" shall mean any Person that directly or indirectly
---------
controls, or is under common control with, or is controlled by, the Company and,
if such Person is an individual, any member of the immediate family (including
parents, spouse, children and siblings) of such individual and any trust whose
principal beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such member or trust.
As used in this definition, "control" (including, with its correlative meanings,
controlled by" and "under common control with") shall mean possession, directly
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise), provided that, in any event, any
-------- ----
Person that owns directly or indirectly securities having 25% or more of the
voting power for the election of directors or other governing body of a
corporation or 25% or more of the partnership or other ownership interests of
any other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person. Notwithstanding the
foregoing, (a) no individual shall be an
Credit Agreement
-----------------
<PAGE>
-2-
Affiliate solely by reason of his or her being a director, officer or employee
of the Company or any of its Subsidiaries, (b) the Company and its Subsidiaries
shall not be Affiliates of each other, and (c) neither the Administrative Agent
nor any Bank shall be an Affiliate.
"Agreed Foreign Currency" shall mean at any time any of Australian
-----------------------
Dollars, English Pounds Sterling, Japanese Yen, New Zealand Dollars and, with
the agreement of each Bank, any other Foreign Currency, so long as at such time
(a) such Currency is dealt with in the London (or, in the case of English Pounds
Sterling, Paris) interbank deposit market, (b) such Currency is freely
transferable and convertible into Dollars in the London foreign exchange market
and (c) no central bank or other governmental authorization in the country of
issue of such Currency is required to permit use of such Currency by any Bank
for making any Loan hereunder and/or to permit the Company to borrow and repay
the principal thereof and to pay the interest thereon, unless such authorization
has been obtained and is in full force and effect.
"Assumed Reinsurance" shall mean reinsurance assumed by any Insurance
-------------------
Subsidiary from another Person (other than from another Insurance Subsidiary).
"Applicable Facility Fee Rate" and "Applicable Margin" shall mean,
----------------------------------------------------
during any period when any Rating Group set forth below is applicable, with
respect to any facility fee payable hereunder or any Type of Loan outstanding
hereunder, the percentage set forth below opposite such fee or Type of Loan
under such Rating Group:
<TABLE>
<CAPTION>
==============================================================
Rating Rating Rating
Fee or Loan Group Group Group
I II III
--------------------------------------------------------------
<S> <C> <C> <C>
Facility Fee 0.070% 0.100% 0.150%
--------------------------------------------------------------
Eurocurrency
Loans 0.155% 0.225% 0.325%
--------------------------------------------------------------
Base Rate Loans 0.0O0% 0.000% 0.000%
==============================================================
</TABLE>
For the purposes of this Agreement, any change in the Applicable Facility Fee
Rate or Applicable Margin for any facility fee or any outstanding Loans by
reason of (a) a change in the Standard & Poor's Rating shall become effective on
the date of announcement or publication of a change in such rating or, in the
absence of such announcement or publication, on the effective date of such
changed rating and (b) any other change in the Rating Group shall become
effective on the date of the occurrence of the event that resulted in such
change in the Rating Group.
Credit Agreement
-----------------
<PAGE>
-3-
"Applicable Insurance Regulatory Authority" shall mean, with respect
-----------------------------------------
to any Insurance Subsidiary, the insurance department or similar insurance
regulatory or administrative authority or agency of the jurisdiction in which
such Insurance Subsidiary is domiciled.
"Applicable Lending Office" shall mean, for each Bank and for each
-------------------------
Type and Currency of Loan, the "Lending Office" of such Bank (or of an Affiliate
of such Bank) designated for such Type and Currency of Loan in the
Administrative Questionnaire submitted by such Bank or such other office of such
Bank (or of an Affiliate of such Bank) as such Bank may from time to time
specify to the Administrative Agent and the Company as the office by which its
Loans of such Type and Currency are to be made and maintained.
"Assignment and Acceptance" shall mean an assignment and acceptance
-------------------------
entered into by a Bank and an assignee (with the consent of any Person whose
consent is required by Section 11.06(b) hereof), and accepted by the
Administrative Agent, in the form of Exhibit D hereto or any other form approved
by the Administrative Agent.
"Bank" shall mean each of the lenders that is a signatory hereto
----
identified under the caption "BANKS" on the signature pages hereto or that,
pursuant to Section 11.06(b) hereof, shall become a "Bank" hereunder.
"Base Rate" means, for any day, a rate per annum equal to the higher
---------
of (a) the Prime Rate in effect on such day and (b) the Federal Funds Rate in
effect on such day plus 1/2 of 1%. Any change in the Base Rate due to a change
in the Prime Rate or the Federal Funds Rate shall be effective from and
including the effective date of such change in the Prime Rate or the Federal
Funds Rate respectively.
"Base Rate Loans" shall mean Loans denominated in Dollars that bear
---------------
interest at rates based upon the Base Rate.
"Basle Accord" shall mean the proposals for risk-based capital
------------
framework described by the Basle Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended, modified
and supplemented and in effect from time to time or any replacement thereof.
"Best Rating" shall mean, as at any date, the rating of Mid Ocean
-----------
Reinsurance most recently published by A.M. Best Company, Inc.
"Board of Directors" shall mean the Board of Directors of the Company
------------------
or any duly authorized committee thereof.
Credit Agreement
----------------
<PAGE>
-4-
"Board Resolution" shall mean a copy of a resolution certified by the
----------------
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors, and to be in full force and effect on the date of the
certificate and delivered to the Administrative Agent.
"Business Day" shall mean any day (a) on which commercial banks are
------------
not authorized or required to close in New York City, (b) if such day relates to
a borrowing of, a payment or prepayment of principal of or interest on, or the
Interest Period for, a Eurocurrency Loan or a notice by the Company with respect
to any such borrowing, payment, prepayment or Interest Period, that is also a
day on which dealings in deposits denominated in the Currency of such Loan are
carried out in the London interbank market and (c) if such day relates to a
borrowing of, a payment or prepayment of principal of or interest on, or the
Interest Period for, any Loan denominated in any Foreign Currency or a notice by
the Company with respect to any such borrowing, payment, prepayment or Interest
Period, that is also a day on which commercial banks settle payments in the
Principal Financial Center for the Currency in which such Loan is denominated
and in which the London foreign exchange market settles payments in such
Currency.
"Capital and Surplus" shall mean, as at any date for any Person, the
-------------------
aggregate amount of policyholders surplus (determined in accordance with SAP) of
such Person.
"Capital Lease Obligations" shall mean, for any Person, all
-------------------------
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Ceded Reinsurance" shall mean reinsurance ceded by any Insurance
-----------------
Subsidiary to any other Person (other than to another Insurance Subsidiary),
other than Surplus Relief Reinsurance.
"Change of Control" shall mean (a) the acquisition of ownership,
-----------------
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of the
SEC thereunder as in effect on the date hereof) of shares representing more than
35% of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Company; or (b) occupation of a majority of the
seats (other than vacant seats) on the Board of Directors by Persons who were
neither (i) nominated by the Board of Directors nor (ii) appointed by directors
so nominated.
Credit Agreement
----------------
<PAGE>
-5-
"Chase" shall mean The Chase Manhattan Bank.
-----
"Class" shall have the meaning assigned to such term in Section 1.03
-----
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
----
time to time.
"Commitment" shall mean, as to each Bank, the obligation of such Bank
----------
to make Loans pursuant to Section 2.01 hereof in an aggregate principal amount
at any one time outstanding up to but not exceeding the amount set opposite such
Bank's name on Schedule II hereto under the caption "Commitment" (as the same
may at any time or from time to time be reduced pursuant to Section 2.03 hereof
or be increased or reduced pursuant to Section 11.06 hereof).
"Commitment Termination Date" shall mean September 2, 2002;
---------------------------
provided that, if such date is not a Business Day, the Commitment Termination
Date shall be the next preceding Business Day.
"Company Jurisdiction" shall mean (a) Bermuda, (b) the Cayman
--------------------
Islands and (c) any other country (i) where the Company is licensed or qualified
to do business or (ii) from which payments hereunder are made by the Company.
"Currency" shall mean Dollars or any Foreign Currency.
--------
"Debt" shall mean Indebtedness referred to in clauses (a) through (c)
----
inclusive, in the definition of the term Indebtedness.
"Default" shall mean an Event of Default or an event that with
-------
notice or lapse of time or both would become an Event of Default.
"Deferred Acquisition Expenses" shall mean, as at any date,
-----------------------------
the average of the deferred acquisition expenses for the Company and its
Subsidiaries (determined on a consolidated basis, without duplication, in
accordance with GAAP) for the four most recent Fiscal Dates.
"Derivative Transaction" shall mean (a) any "swap agreement"
----------------------
as defined in Section 10l(53B) of the Bankruptcy Code (other than a spot foreign
exchange transaction), (b) any equity swap, floor, collar, cap or option
transaction, (c) any option to enter into any of the foregoing and (d) any
combination of the foregoing.
Credit Agreement
----------------
<PAGE>
-6-
"Dollar Equivalent" shall mean, with respect to any Loan denominated
-----------------
in any Foreign Currency, the amount of Dollars that would be required to
purchase the amount of the Foreign Currency of such Loan on the date such Loan
is requested (or (i) in the case of any determination made under Section 2.01(e)
hereof, on the date of any borrowing referred to in said Section 2.01(c) and
(ii) in the case of any determination made under Section 2.09 or redenomination
under the last sentence of Section 4.01 hereof, on the date of determination or
redenomination therein referred to), based upon the spot selling rate at which
Chase offers to sell such Foreign Currency for Dollars in the London foreign
exchange market at approximately 11:00 a.m. London time for delivery two
Business Days later.
"Dollars" and "$" shall mean lawful money of the United States of
------- -
America.
"Environmental Laws" shall mean any and all present and future
------------------
Federal, state, local and foreign laws, rules or regulations, and any orders or
decrees, in each case as now or hereafter in effect, relating to the regulation
or protection of the environment or to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or toxic or hazardous
substances or wastes into the indoor or outdoor environment, including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or toxic or hazardous substances or wastes.
"Equity Rights" shall mean, with respect to any Person, any
-------------
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including, without limitation, any stockholders' or
voting trust agreements) for the issuance, sale, registration or voting of, or
outstanding securities convertible into, any additional shares of capital stock
of any class, or partnership or other ownership interests of any type in, such
Person.
"ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended from time to time, and the regulations promulgated and the
rulings issued thereunder.
"ERISA Affiliate" shall mean any corporation or trade or business that
---------------
is a member of any group of organizations (i) described in Section 414(b) or (c)
of the Code of which the Company is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11)
of the Code and the lien created under Section 302(f) of ERISA and Section
412(n) of the Code, described in Section 414(m) or (o) of the Code, of which
the Company is a member.
Credit Agreement
----------------
<PAGE>
-7-
"ERISA Plan" shall mean any "employee benefit plan" (as
----------
defined in Section 3(3) of ERISA) or any "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA that is or, within the preceding five years has
been, established or maintained, or to which contributions are or, within the
preceding five years have been, made or required to be made, by the Company or
any ERISA Affiliates or with respect to which the Company or an ERISA Affiliate
may have liability.
"Eurocurrency Base Rate" shall mean, with respect to any
----------------------
Eurocurrency Loan in Dollars or any Agreed Foreign Currency for the Interest
Period therefor:
(a) the arithmetic mean, as calculated by the Administrative
Agent of the respective rates per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) of the rates appearing on the
Screen at approximately 11:00 a.m. London time (or as soon thereafter
as practicable) two Business Days prior to the first day of the
Interest Period for such Loan as LIBOR for such Currency having a term
comparable to such Interest Period; or
(b) if the Screen shall cease to report such LIBOR or, in the
reasonable judgment of the Majority Banks, shall cease accurately to
reflect such LIBOR (as reported by any publicly available source of
similar market data selected by the Majority Banks that, in the
reasonable judgment of the Majority Banks, accurately reflects LIBOR
for such Currency), the Eurocurrency Base Rate shall mean, with respect
to such Eurocurrency Loan for such Interest Period the rate per annum
(rounded upwards if necessary, to the nearest 1/16 of 1%), as
determined by the Administrative Agent quoted by the Reference Bank at
approximately 11:00 a.m. London time (or as soon thereafter as
practicable) two Business Days prior to the first day of the Interest
Period for such Eurocurrency Loan for the offering by the Reference
Bank to leading banks in the London (or, in the case of Loans
denominated in English Pounds Sterling, Paris) interbank market of
deposits denominated in such Currency having a term comparable to such
Interest Period and in an amount equal to $1,000,000 (or the Foreign
Currency Equivalent thereof).
"Eurocurrency Loans" shall mean Loans made to the Company in
------------------
Dollars or any Agreed Foreign Currency, which Loans bear interest at rates based
on rates referred to in the definition of "Eurocurrency Base Rate" in this
Section 1.01.
"Eurocurrency Rate" shall mean, for any Eurocurrency Loan for
-----------------
the Interest Period therefor, a rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) determined by the Administrative Agent to be equal
to the Eurocurrency Base Rate for such Loan for such Interest Period multiplied
by the Reserve Rate (if any) for such Interest Period.
Credit Agreement
----------------
<PAGE>
-8-
"Event of Default" shall have the meaning assigned to such
----------------
term in Section 10 hereof.
"Federal Funds Rate" shall mean, for any day, the rate per
------------------
annum (rounded upwards, if necessary, to the nearest 1/100 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, provided that (a) if the day for which such rate is to
be determined 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 (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to Chase on such Business Day on such
transactions as determined by the Administrative Agent.
"Fiscal Dates" shall mean, with respect to the Company,
------------
January 31, April 30, July 31 and October 31 in each year.
"Foreign Benefit Plan" shall mean any plan, fund (including,
--------------------
without limitation, any superannuation fund) or other similar program
established or maintained outside the United States by the Company or a
Subsidiary thereof, with respect to which the Company or such Subsidiary has an
obligation to contribute, for the benefit of employees of the Company or the
Subsidiary, which plan, fund or other similar program provides, or results in
the type of benefits described in Section 3(1) or 3(2) of ERISA, and which plan
is not subject to ERISA or the Code.
"Foreign Currency" shall mean at any time any Currency other
----------------
than Dollars.
"Foreign Currency Equivalent" shall mean, with respect to any
---------------------------
amount in Dollars, the amount of any Foreign Currency that could be purchased
with such amount of Dollars using the reciprocal of the foreign exchange rate(s)
specified in the definition of the term "Dollar Equivalent", as determined by
the Administrative Agent.
"FRB" shall mean the Board of Governors of the Federal Reserve
---
System (or any successor thereto).
"GAAP" shall mean generally accepted accounting principles in
----
the United States of America.
"Governmental Authority" means the United States of America or
----------------------
any other nation, or any political subdivision of any thereof (whether state or
local), and any government, agency, authority, instrumentality, regulatory body,
court, central bank or other
Credit Agreement
----------------
<PAGE>
-9-
entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.
"Guarantee" shall mean a guarantee, an endorsement a
---------
contingent agreement to purchase or to furnish funds for the payment or
maintenance of, or otherwise to be or become contingently liable under or with
respect to, the Indebtedness, other obligations, net worth, working capital or
earnings of any Person, or a guarantee of the payment of dividends or other
distributions upon the stock or equity interests of any Person, or an agreement
to purchase, sell or lease (as lessee or lessor) Property, products, materials,
supplies or services primarily for the purpose of enabling a debtor to make
payment of such debtor's obligations or an agreement to assure a creditor
against loss, and including, without limitation, causing a bank or other
financial institution to issue a letter of credit or other similar instrument
for the benefit of another Person, but excluding endorsements for collection or
deposit in the ordinary course of business. The terms "Guarantee" and
---------
"Guaranteed" used as a verb shall have a correlative meaning.
----------
"Indebtedness" shall mean, for any Person: (a) indebtedness
------------
created, incurred or assumed by such Person for borrowed money or obligations of
such Person evidenced by bonds, debentures, promissory notes or similar
instruments; (b) obligations of such Person to pay the deferred purchase or
acquisition price of Property or services, other than trade accounts payable
(other than for borrowed money) arising and accrued expenses incurred, in the
ordinary course of business; (c) Capital Lease Obligations of such Person; (d)
Indebtedness of others secured by a Lien on the Property of such Person, whether
or not the respective indebtedness so secured has been assumed by such Person;
(e) obligations of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for
account of such Person (other than letters of credit and banker's acceptances
arising in the ordinary course of such Person's business); and (f) Guarantees by
such Person of Indebtedness of others; provided that Indebtedness shall include
Surplus Relief Reinsurance but shall not include (i) obligations with respect to
insurance policies underwritten by, or Assumed Reinsurance underwritten by, or
Reinsurance Agreements entered into by, an Insurance Subsidiary in the ordinary
course of its business and (ii) commissions or other amounts payable in the
ordinary course of business to agents or to other representatives of any of the
Insurance Subsidiaries.
"Insurance Subsidiary" shall mean any Subsidiary of the
--------------------
Company that is licensed to conduct an insurance business by an Applicable
Insurance Regulatory Authority and provides capital to underwrite insurable
risks.
Credit Agreement
----------------
<PAGE>
-10-
"Interest Period" shall mean:
---------------
(a) with respect to any Eurocurrency Loan, the period
commencing on the date such Loan is made and ending on the numerically
corresponding day in the first, second, third, or sixth calendar month
thereafter, as the Company may select as provided in Section 4.05
hereof, except that each Interest Period that commences on the last
Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent
calendar month:
(b) with respect to any Base Rate Loan, the period commencing
on the date such Base Rate Loan is made and ending on the earlier of
the first Quarterly Date thereafter or the Commitment Termination Date.
Notwithstanding the foregoing: (i) if any Interest Period for any Loan would
otherwise end after the Commitment Termination Date in existence at the time
such Interest Period is selected, such Interest Period shall not be available
hereunder; (ii) each Interest Period that would otherwise end on a day that is
not a Business Day shall end on the next succeeding Business Day (or, in the
case of an Interest Period for a Eurocurrency Loan, if such next succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day); and (iii) notwithstanding clauses (i) and (ii) above, no Interest
Period for any Eurocurrency Loan shall have a duration of less than one month
and, if the Interest Period for any Eurocurrency Loan would otherwise be a
shorter period, such Interest Period shall not be available hereunder.
"LIBOR" shall mean, for any Currency, the rate at which
-----
deposits in such Currency are offered to lending banks in the London (or, in the
case of English Pounds Sterling, Paris) interbank market.
"Lien" shall mean, with respect to any Property, any mortgage,
----
deed of trust, lien, pledge, charge or security interest (as defined in Section
1-201(37) of the Uniform Commercial Code as in effect in the State of New York)
of any kind in respect of such Property (it being understood that a banker's
right of setoff, banker's lien or any similar right of a bank is not a Lien).
"Loans" shall mean Loans provided for by Section 2.01 hereof
-----
which may be Base Rate Loans or Eurocurrency Loans.
"Local Time" shall mean, with respect to any Loan denominated
----------
in or any payment to be made in any Currency, the local time in the Principal
Financial Center for the Currency in which such Loan is denominated or such
payment is to be made.
Credit Agreement
----------------
<PAGE>
-11-
"Majority Banks" shall mean Banks having more than 50% of the
--------------
aggregate amount of the Commitments or if the Commitments shall have
terminated. Banks holding more than 50% of the aggregate unpaid principal amount
of the Loans.
"Margin Stock" shall mean "margin stock" within the meaning of
------------
Regulations G, U and X.
"Material Adverse Effect" shall mean a material adverse effect
-----------------------
on (a) the business, assets, property, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries taken as a whole or (b) the
validity or enforceability of this Agreement or the rights and remedies of the
Administrative Agent or any Bank hereunder.
"Material Insurance Subsidiary" shall mean, at any time. (i)
-----------------------------
Mid Ocean Reinsurance and (ii) any other Insurance Subsidiary that is a Material
Subsidiary.
"Material Subsidiary" shall mean, at any time, each Subsidiary
-------------------
of the Company that as of such time meets the definition of a "significant
subsidiary" contained as of the date hereof in Regulation S-X of the SEC.
"Mid Ocean Reinsurance" shall mean Mid Ocean Reinsurance
---------------------
Company Limited, a Wholly-Owned Insurance Subsidiary of the Company.
"NAIC" shall mean the National Association of Insurance
----
Commissioners and any successor thereto.
"Net Worth" shall mean, as at any date, the amount of total
---------
shareholders' equity for the Company and its Subsidiaries (determined on a
consolidated basis without duplication in accordance with GAAP).
"Officer" shall mean the Chairman of the Board, the President
-------
or any Vice President of the Company.
"Officer's Certificate" shall mean a certificate signed by any
---------------------
Officer.
"Person" shall mean any individual, corporation, company,
------
voluntary association, partnership, limited liability company, joint venture,
trust, unincorporated organization or government (or any agency, instrumentality
or political subdivision thereof).
"Post-Default Rate" shall mean, in respect of any principal of
-----------------
any Loan or any other amount under this Agreement that is not paid when due
(whether at stated maturity, by acceleration, by optional or mandatory
prepayment or otherwise), a rate per annum equal to
Credit Agreement
----------------
<PAGE>
-12-
2% plus the Base Rate as in effect from time to time (provided that, if the
--------
amount so in default is principal of a Eurocurrency Loan and the due date
thereof is a day other than the last day of such Interest Period therefor, the
"Post-Default Rate" for such principal shall be. for the period from and
including such due date to but excluding the last day of such Interest Period,
2% Plus the interest rate for such Loan as provided in Section 3.02 hereof and
thereafter, the rate provided for above in this definition).
"Prime Rate" shall mean the rate of interest from time to time
----------
announced by Chase at its principal office in New York, New York as its prime
commercial lending rate.
"Principal Financial Center" shall mean, in the case of an"
--------------------------
Currency, the principal financial center of the country that issues such
Currency as determined by the Administrative Agent.
"Property" shall mean any right or interest in or to property
--------
of any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Quarterly Dates" shall mean the last Business Day of January,
---------------
April, July and October in each year, the first of which shall be the first such
day after the date hereof
"Rating Group" shall mean any of Rating Group I, Rating Group
------------
II or Rating Group III.
"Rating Grout I" shall mean (a) no Event of Default has
--------------
occurred and is continuing and the Standard & Poor's Rating is at or above AA:
"Rating Grout II" shall mean (a) Rating Group I is not in effect and (b) no
Event of Default has occurred and is continuing and (c) the Standard & Poor's
Rating is at or above A; and "Rating Group III" shall mean neither Rating Group
I nor Rating Group II is in effect.
"Reference Bank" shall mean Chase.
--------------
"Resister" shall have the meaning assigned to such term in
--------
Section 11.06 hereof.
"Regulations A. D. G. U and X" shall mean, respectively,
----------------------------
Regulations A, D, G, U and X of the FRB, as the same may be modified and
supplemented and in effect from time to time.
"Regulatory Change" shall mean, with respect to any Bank, any
-----------------
change after the date hereof in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or
Credit Agreement
----------------
<PAGE>
-13-
request applying to a class of banks including such Bank of or under any
Federal, state or foreign law or regulations (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Reinsurance Agreement" shall mean any agreement contract,
---------------------
treaty or other arrangement providing for Ceded Reinsurance by any Insurance
Subsidiary or any Subsidiary of such Insurance Subsidiary.
"Reserve Rate" shall mean a fraction (expressed as a decimal),
------------
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special emergency or supplemental reserves) expressed as a decimal
established by the FRB to which member banks of the Federal Reserve System in
New York City with deposits exceeding $1,000,000,000 are subject with respect
to eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D). Such reserve percentages shall include those imposed pursuant to
Regulation D. The Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"SAP" shall mean the accounting procedures and practices
---
prescribed or permitted by the Applicable Insurance Regulatory Authority or the
NAIC.
"Screen" shall mean, for any Currency the relevant display
------
page for LIBOR for such Currency (as determined by the Administrative Agent) on
the Dow Jones Markets Service; provided that, if the Administrative Agent
determines that there is no such relevant display page for LIBOR for such
Currency. "Screen" shall mean the relevant display page for LIBOR for such
Currency (as determined by the Administrative Agent) on the Reuter Monitor Money
Rates Service.
"SEC" shall mean the Securities and Exchange Commission or any
---
governmental authority succeeding to its principal functions.
"Standard & Poor's" shall mean Standard & Poor's Ratings
-----------------
Services, a division of The McGraw-Hill Companies, Inc. or any successor
thereto.
"Standard and Poor's Rating" shall mean, as at any date, the
--------------------------
claims-paying rating of Mid Ocean Reinsurance most recently published by
Standard & Poor's.
"Statutory Statement" shall mean, as to any Insurance
-------------------
Subsidiary, a statement of the condition and affairs of such Insurance
Subsidiary prepared in accordance with
Credit Agreement
----------------
<PAGE>
-14-
statutory accounting practices required or permitted by the Applicable Insurance
Regulatory Authority, and filed with the Applicable Insurance Regulatory
Authority.
"Subsidiary" shall mean, with respect to any Person, any
----------
corporation partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have-voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
"Surplus Relief Reinsurance" shall mean any transaction in
--------------------------
which any Insurance Subsidiary or any Subsidiary of such Insurance Subsidiary
cedes business under a reinsurance agreement that would be considered a
"financing-type" reinsurance agreement as determined by the independent
certified public accountants of the Company in accordance with principles
published by the Financial Accounting Standards Board or the Second Edition of
the AICPA Audit Guide for Stock Life Insurance Companies (pp. 91-92), as the
same may be revised from time to time.
"Tangible Net Worth" shall mean, as at any date, the sum for
------------------
the Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following:
(a) Net Worth. minus
-----
(b) the sum of the following (without duplication of
deductions in respect of items already deducted in arriving at Net
Worth): cost of treasury shares and the book value of all assets which
should be classified as intangibles but in any event including
goodwill, minority interests, trademarks, trade names, copyrights,
patents and franchises, unamortized debt discount and expense, Deferred
Acquisition Expenses and any write-up in the book value of assets
resulting from a revaluation thereof subsequent to December 31, 1996.
"Taxes" shall have the meaning assigned to such term in
-----
Section 5.05(a) hereof.
"Total Capital" shall mean the sum of (i) Total Debt and (ii)
-------------
Net Worth.
Credit Agreement
----------------
<PAGE>
-15-
"Total Debt" shall mean the aggregate principal amount of all
----------
Debt of the Company and its Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP).
"Type" shall have the meaning assigned to such term in Section
----
1.03 hereof.
"Wholly Owned Subsidiary" shall mean, with respect to any
-----------------------
Person, any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation or other similar legal entity, directors qualifying shares or
shares held by residents of the jurisdiction in which such corporation or other
similar legal entity is organized as required by the law of such jurisdiction)
are directly or indirectly owned or controlled by such Person or one or more
Wholly Owned Subsidiaries of such Person or by such Person and one or more
Wholly Owned Subsidiaries of such Person.
1.02 Accounting Terms: GAAP.
----------------------
(a) Except as otherwise expressly provided herein, all terms
of an accounting or financial nature shall be construed in accordance with GAAP
or SAP, as the case may be, as in effect on the date hereof.
(b) The Company shall deliver to the Banks at the same time as
the delivery of any annual or quarterly financial statement under Section 8.01
hereof (i) a description in reasonable detail of any material variation between
the application of GAAP or SAP, as the case may be, employed in the preparation
of such statement and the application of GAAP or SAP, as the case may be, as in
effect on the date hereof and (ii) reasonable estimates of the difference in
covenant compliance arising as a consequence thereof.
1.03 Currencies and Types of Loans. Loans hereunder are
-----------------------------
distinguished by "Currency" and by "Type". The "Currency" of a Loan refers to
the Currency in which such Loan is denominated. The "Type" of a Loan refers to
whether such Loan is a Base Rate Loan or a Eurocurrency Loan, each of which
constitutes a Type. Loans may be identified by one or more of their Currency and
Type.
Section 2. Commitments, Loans and Prepayments.
----------------------------------
2.01 Loans.
-----
(a) Each Bank severally agrees, on the terms and conditions of
this Agreement, to make loans to the Company in Dollars or in any Agreed Foreign
Currency during the period from and including the date hereof to but not
including the Commitment Termination
Credit Agreement
----------------
<PAGE>
-16-
Date in an aggregate principal amount at any one time outstanding up to but not
exceeding the amount of the Commitment of such Bank as in effect from time to
time. Subject to the terms and conditions of this Agreement during such period
the Company may borrow, prepay, repay and reborrow the amount of the
Commitments.
(b) If, after giving effect to any Loan to be made under this
Section 2.01. more than four separate Interest Periods in respect of Loans
denominated in any single Currency would be outstanding at the same time (for
which purpose Interest Periods described in different lettered clauses of the
definition of the term "Interest Period" shall be deemed to be different
Interest Periods even if they are coterminious), then such Loan shall not be
required to be made hereunder.
(c) For purposes of determining (i) whether the amount of any
borrowing of Loans, together with all other Loans then outstanding, would exceed
the aggregate amount of Commitments, (ii) under Section 2.03(b) hereof, the
aggregate unutilized amount of the Commitments and (iii) under Section 6.02
hereof, the outstanding aggregate principal amount of Loans, the outstanding
principal amount of any Loan that is denominated in any Foreign Currency shall
be deemed to be the Dollar Equivalent (determined as of the date of borrowing of
such Loan) of the amount in the Foreign Currency of such Loan of the amount in
the Currency of such Loan.
2.02 Borrowings of Loans. The Company shall give the
-------------------
Administrative Agent notice of each borrowing of Loans hereunder as provided in
Section 4.05 hereof. Not later than 11:00 a.m. Local Time on the date specified
for each borrowing of Loans hereunder each Bank shall make available the amount
of the Loan or Loans to be made by it on such date to the Administrative Agent,
at the Administrative Agent's Account for the Currency in which such Loan is
denominated, in immediately available funds, for account of the Company. The
amount so received by the Administrative Agent shall, subject to the terms and
conditions of this Agreement, be made available to the Company by depositing the
same, in immediately available funds, in an account of the Company designated by
the Company.
2.03 Chances of Commitments: Reduction of Maximum Loan
-------------------------------------------------
Amounts.
-------
(a) The aggregate amount of the Commitments shall be
automatically reduced to zero on the Commitment Termination Date.
(b) The Company shall have the right at any time or from time
to time (i) so long as no Loans are (or at the time will be) outstanding, to
terminate the Commitments and (ii) to reduce the aggregate unutilized amount of
the Commitments; provided that (x) the Company shall give notice of each such
--------
termination or reduction as provided in Section 4.05
Credit Agreement
----------------
<PAGE>
-17-
hereof and (y) each partial reduction of Commitments shall be in an aggregate
amount at least equal to $ 10,000,000 (or a larger integral multiple of
$1.000.000).
(c) The Commitments once terminated or reduced may not be reinstated.
2.04 Fees.
----
(a) Facility Fee. The Company shall pay to the Administrative Agent
------------
for account of each Bank a facility fee on the daily average amount of such
Bank's Commitment (whether used or unused), for the period from and including
the date hereof to but not including the earlier of the date such Commitment is
terminated and ~he Commitment Termination Date, at a rate per annum equal to the
Applicable Facility Fee Rate. Accrued facility fee shall be payable on each
Quarterly Date and on the earlier of the date the Commitments are terminated and
the Commitment Termination Date.
(b) Utilization Fee. The Company shall pay to the Administrative Agent
---------------
for account of each Bank, during any period that the aggregate outstanding
principal amount of Loans exceeds 50% of the aggregate amount of the
Commitments, a utilization fee on the daily average aggregate outstanding
principal amount of such Bank's Loans at a rate per annum equal to 0.025% per
annum. Accrued utilization fee shall be payable on each Quarterly Date and on
the earlier of the date Commitments are terminated and the Commitment
Termination Date interest on such Bank's Loans are payable.
2.05 Lending Offices. The Loans of each Type and Currency made by each
---------------
Bank shall be made and maintained at such Bank's Applicable Lending Office for
Loans of such Type and Currency.
2.06 Several Obligations. The failure of any Bank to make any Loan to
-------------------
be made by it on the date specified therefor shall not relieve any other Bank of
its obligation to make its Loan on such date, and neither any Bank nor the
Administrative Agent shall be responsible for the failure of any other Bank to
make a Loan to be made by such other Bank.
2.07 Evidence of Debt.
----------------
(a) Each Bank shall maintain in accordance with its usual practice an
account or accounts evidencing, with respect to each Loan made by such Bank to
the Company, the amounts of principal of and interest on such Loan payable and
paid to such Bank from time to time hereunder.
(b) The Administrative Agent shall maintain accounts in which it shall
record (i) the amount of each Loan made hereunder, the Type and Currency thereof
and the Interest
Credit Agreement
----------------
<PAGE>
-18-
Period applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Company to each Bank hereunder and
(iii) the amount of any sum received by the Administrative Agent hereunder for
account of the Banks and each Bank's share thereof.
(c) The entries made in the accounts maintained pursuant to
clause (a) or (b) of this Section 2.07 shall be prima facie evidence of the
----- ----- -----
existence and amounts of the obligations recorded therein; provided that the
failure of any Bank or the Administrative Agent to maintain such accounts or any
error therein shall not in any manner affect the obligation of the Company to
repay the principal of, interest on and other amounts in respect of Loans in
accordance with the terms of this Agreement.
(d) Any Bank may request that Loans made by it be evidenced by a
a promissory note of the Company. In such event the Company shall prepare,
execute and deliver to such Bank a promissory note payable to the order of such
Bank and in substantially the form of Exhibit E hereto.
2.08 Optional Prepayments. Subject to Sections 3.02, 4.04 and 5.04
--------------------
hereof, Loans may be prepaid at any time or from time to time, provided that,
--------
the Company' shall give the Administrative Agent notice of each such prepayment
as provided in Section 4.05 hereof (and, upon the date specified in any such
notice of prepayment the amount to be prepaid shall become due and payable
hereunder).
2.09 Mandatory Prepayments.
---------------------
(a) Upon the receipt by the Administrative Agent of a Currency
Valuation Notice (as defined below) and on each Quarterly Date, the
Administrative Agent shall promptly determine the aggregate outstanding
principal amount of all Loans (for which purpose the outstanding principal
amount of any Loan that is denominated in any Foreign Currency shall be deemed
to be the Dollar Equivalent (determined as of the Business Day on which the
Administrative Agent shall have received such Currency Valuation Notice prior to
11:00 a.m. New York time (or, if received by the Administrative Agent after such
time on any' Business Day, as of the next succeeding Business Day) or as of such
Quarterly Date, as the case may be, of the amount in the Foreign Currency of
such Loan). Upon making such determination, the Administrative Agent shall
promptly notify the Banks and the Company thereof.
(b) If, on the date of such determination the aggregate outstanding
principal amount of all Loans exceeds 105% of the aggregate amount of the
Commitments as then in effect, the Company shall, if requested by the Majority
Banks (through the Administrative Agent), prepay the Loans in an amount so that
after giving effect thereto the aggregate
Credit Agreement
----------------
<PAGE>
-19-
outstanding principal amount of the Loans does not exceed the Commitments:
provided that any such payment shall be accompanied by any amounts payable
- --------
under Sections 3.02 and 5.04 hereof.
For purposes of this Section 2.09, "Currency Valuation Notice" shall
-------------------------
mean a notice given by the Majority Banks to the Administrative Agent stating
that such notice is a "Currency Valuation Notice" and requesting that the
Administrative Agent determine the aggregate outstanding principal amount of all
Loans.
Anything in this Section 2.09 to the contrary notwithstanding. The
Administrative Agent shall not be required to make more than one valuation
determination pursuant to Currency Valuation Notices within any rolling three
month period.
Section 3.01 Payments of Principal and Interest.
----------------------------------
3.01 Repayment of Loans. The Company hereby promises to pay to
------------------
the Administrative Agent for account of each Bank the principal of each Loan
made by such Bank to the Company, and each Loan shall mature, on the last day of
the Interest Period therefor.
3.02 Interest. The Company hereby promises to pay to the
--------
Administrative Agent for account of each Bank interest on the unpaid principal
amount of each Loan made by such Bank to the Company for the period from and
including the date of such Loan to but excluding the date such Loan shall be
paid in full, at the following rates per annum:
(a) if such Loan is a Base Rate Loan, the Base Rate (as in effect from
time to time);
(b) if such Loan is a Eurocurrency Loan, the Eurocurrency Rate for
such Loan for the Interest Period therefor plus the Applicable Margin.
Notwithstanding the foregoing, the Company hereby promises to pay to the
Administrative Agent for account of each Bank interest at the applicable
Post-Default Rate on any principal of any Loan made by such Bank and on any
other amount payable by the Company hereunder to or for account of such Bank
that shall not be paid in full when due (whether at stated maturity, by
acceleration, by mandatory prepayment or otherwise), for the period from and
including the due date thereof to but excluding the date the same is paid in
full. Accrued interest on each Loan shall be payable (i) on the last day of the
Interest Period therefor and, if such Interest Period is longer than three
months (in the case of a Eurocurrency Loan), at three-month intervals following
the first day of such Interest Period, and (ii) in the case of
Credit Agreement
----------------
<PAGE>
-20-
any Loan. upon the payment or prepayment thereof (but only on the principal
amount so paid or prepaid), except that interest payable at the Post-Default
Rate shall be payable from time to time on demand. Promptly after the
determination of any interest rate provided for herein or any change therein,
the Administrative Agent shall give notice thereof to the Banks to which such
interest is payable and to the Company.
Section 4. Payments: Pro Rata Treatment: Computations: Etc.
-----------------------------------------------
4.01 Payments.
--------
(a) Except to the extent otherwise provided herein, all
payments of principal and interest on any Loan and other amounts to be paid by
the Company under this Agreement shall be made in the Currency in which such
Loan or other amount is denominated, in immediately available funds, without
deduction, set-off or counterclaim, to the Administrative Agent at the
Administrative Agent's Account for the Currency in which such Loan or other
amount is denominated, not later than 11:00 a.m. Local Time on the date on which
such payment shall become due (each such payment made after such time on such
due date to be deemed to have been made on the next succeeding Business Day),
provided that if a new Loan is to be made by any Bank to the Company on a date
- --------
the Company is to repay any principal of an outstanding Loan of such Bank and in
the same Currency, such Bank shall apply the proceeds of such new Loan to the
payment of the principal to be repaid and only an amount equal to the difference
between the principal to be borrowed and the principal to be repaid shall be
made available by such Bank to the Administrative Agent as provided in Section
2.02 hereof or paid by the Company to the Administrative Agent pursuant to this
Section 4.01. as the case may be. All amounts owing under this Agreement
(including facility fees and utilization fees, but not including principal of,
and interest on. Loans denominated in any Foreign Currency) are payable in
Dollars. Notwithstanding the foregoing, if the Company shall fail to pay any
principal of any Loan when due (whether at stated maturity, by acceleration, by
mandatory prepayment or otherwise), the unpaid portion of such Loan shall, if
such Loan is not denominated in Dollars, automatically be redenominated in
Dollars on the due date thereof (or, if such due date is a day other than the
last day of the Interest Period therefor. on the last day of such lnterest
Period) in an amount equal to the Dollar Equivalent thereof on the date of such
redenomination and such principal shall be payable on demand; and if the Company
shall fail to pay any interest on any Loan that is not denominated in Dollars,
such interest shall automatically be redenominated in Dollars on the due date
thereof (or, if such due date is a day other than the last day of the Interest
Period therefor. on the last day of such Interest Period) in an amount equal to
the Dollar Equivalent thereof on the date of such redenomination and such
interest shall be payable on demand.
(b) Subject to the proviso to the first sentence of Section 4.01(a)
above, any Bank for whose account any such payment is to be made may (but shall
not be obligated to)
Credit Agreement
----------------
<PAGE>
-21-
debit the amount of any such payment that is not made by such time to any
ordinary deposit account of the Company with such Bank (with notice to the
Company and the Administrative Agent).
(c) The Company shall, at the time of making each payment
under this Agreement for account of any Bank, specify to the Administrative
Agent (which shall so notify the intended recipient(s) thereof) the Loans or
other amounts payable by the Company hereunder to which such payment is to be
applied (and in the event that the Company fails to so specify, or if an Event
of Default has occurred and is continuing, the Administrative Agent may
distribute such payment to the Banks for application in such manner as it or the
Majority Banks, subject to Section 4.02 hereof, may determine to be
appropriate).
(d) Each payment received by the Administrative Agent under this
Agreement for account of any Bank shall be paid by the Administrative Agent
promptly to such Bank, in immediately available funds, for account of such
Bank's Applicable Lending Office for the Loan or other obligation in respect of
which such payment is made.
(e) If the due date of any payment under this Agreement would
otherwise fall on a day that is not a Business Day, such date shall be extended
to the next succeeding Business Day, and interest shall be payable for any
principal so extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent otherwise provided
------------------
herein:
(a) each borrowing under Section 2.01 hereof shall be made from the
Banks pro rata according to their respective Commitments;
(b) each payment of facility fee under Section 2.04(a) hereof shall be
made for account of the Banks, and each termination or reduction of the
amount of the Commitments under Section 2.03 hereof shall be applied to the
respective Commitments of the Banks, pro rata according to the amounts of
their respective Commitments;
(c) Eurocurrency Loans denominated in the same Currency and having the
same Interest Period shall (other than as provided in Section 5.03 hereof)
be allocated pro rata among the Banks according to their respective
Commitments;
(d) each payment or prepayment by the Company of principal of Loans of
any Type and denominated in any Currency shall be made for account of the
Banks pro rata in accordance with the respective unpaid principal amounts
of the Loans of such Type and denominated in such Currency held by them;
and
Credit Agreement
----------------
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(e) each payment by the Company of interest and utilization fees on
Loans of any Type and denominated in any Currency shall be made for account
of the Banks pro rata in accordance with the amounts of interest and
utilization fees on Loans of such Type and denominated in such Currency
then due and payable to them.
4.03 Computations. Interest on Eurocurrency Loans (other than Loans in
------------
English Pounds Sterling), facility fee and utilization fee shall be computed on
the basis of a year of 360 days and actual days elapsed (including the first day
but excluding the last day) occurring in the period for which payable and
interest on Base Rate Loans and Eurocurrencv Loans in English Pounds Sterling
shall be computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable. Notwithstanding the foregoing, for
each day that the Base Rate is calculated by reference to the Federal Funds
Rate, interest on Base Rate Loans shall be computed on the basis of a year of
360 days and actual days elapsed.
4.04 Minimum Amounts. Except for mandatory prepayments made pursuant
---------------
to Section 2.09 hereof, each borrowing and partial prepayment of principal of
Loans shall be in an aggregate amount at least equal to $5,000,000 or a larger
integral multiple of $1,000,000 or, in the case of Eurocurrency Loans
denominated in any Agreed Foreign Currency. the Foreign Currency Equivalent
thereof (rounded downwards to the nearest 1.000 units of such Foreign Currency).
Borrowings or prepayments of Loans of different Types or denominated in
different Currencies or, in the case of Eurocurrency Loans, having different
Interest Periods at the same time hereunder shall be deemed separate borrowings
and prepayments for purposes of this Section 4.04, one for each Type. Currency
or Interest Period. In addition, the aggregate principal amount of Eurocurrency
Loans having the same Interest Period shall be in an amount at least equal to
$5,000,000 or a larger integral multiple of $1,000,000 or, in the case of
Eurocurrency Loans denominated in any Agreed Foreign Currency. the Foreign
Currency Equivalent thereof (rounded downwards to the nearest 1,000 units of
such Foreign Currency) and, if (i) any Eurocurrency Loans denominated in Dollars
would otherwise be in a lesser principal amount for any period, such Loans shall
be Base Rate Loans during such period and (ii) any Eurocurrency Loans
denominated in any Foreign Currency would otherwise be in a lesser principal
amount for any period, such Loans shall be unavailable hereunder.
4.05 Certain Notices. Notices by the Company to the Administrative
---------------
Agent of terminations or reductions of the Commitments, of reductions of
borrowings and optional prepayments of Loans, of Types and Currencies of Loans
and of the duration of Interest Periods shall be irrevocable and shall be
effective only if received by the Administrative Agent not later than 10:00 a.m.
New York time (or. in the case of borrowings or prepayment of, or duration of
Interest Periods for, Eurocurrency Loans denominated in a Foreign Currency,
London time) on the number of Business Days prior to the date of the relevant
Credit Agreement
----------------
<PAGE>
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termination, reduction, borrowing or prepayment or the first day of such
Interest Period specified below:
Number of
Business
Notice Days Prior
------ ----------
Borrowing or prepayment of
Base Rate Loans same day
Borrowing or prepayment of
or duration of Interest
Period for, Eurocurrency Loans
denominated in Dollars 3
Borrowing or prepayment of,
or duration of Interest
Period for, Eurocurrency Loans
denominated in a Foreign
Currency 5
Each such notice of termination or reduction of the Commitments shall specify
the amount of the Commitments to be terminated or reduced. Each such notice of
borrowing or optional prepayment shall specify the Loans to be borrowed or
prepaid and the amount (subject to Section 4.04 hereof), Type and Currency of
each Loan to be borrowed or prepaid, the date of borrowing or optional
prepayment (which shall be a Business Day), the Interest Period of the Loans to
be borrowed or prepaid. The Administrative Agent shall promptly notify the Banks
of the contents of each such notice.
4.06 Non-Receipt of Funds by the Administrative Agent. Unless the
------------------------------------------------
Administrative Agent shall have been notified by a Bank or the Company (the
"Payor") prior to the date on which the Payor is to make payment to the
Administrative Agent of (in the case of a Bank) the proceeds of a Loan to be
made by such Bank hereunder or (in the case of the Company) a payment to the
Administrative Agent for account of one or more of the Banks hereunder (such
payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Administrative Agent, the Administrative Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient(s) on such date; and, if the Payor has not in fact made the
Required Payment to the Administrative Agent, the recipient(s) of such payment
shall, on demand, repay to the Administrative Agent the amount so made
Credit Agreement
----------------
<PAGE>
-24-
available together with interest thereon in respect of each day during the
period commencing on the date (the "Advance Date") such amount was so made
------------
available by the Administrative Agent until but not including the date the
Administrative Agent recovers such amount at a rate per annum equal to the
greater of (a) the Federal Funds Rate for such day and (b) a rate determined by
the Administrative Agent in accordance with banking industry rules on interbank
compensation and, if such recipient(s) shall fail promptly to make such payment,
the Administrative Agent shall be entitled to recover such amount, on demand,
from the-Payor. together with interest as aforesaid, provided that if neither
--------
the recipient(s) nor the Payor shall return the Required Payment to the
Administrative Agent within three Business Days of the Advance Date, then,
retroactively to the Advance Date, the Payor and the recipient(s) shall each be
obligated to pay interest on the Required Payment as follows:
(i) if the Required Payment shall represent a payment to be made by
the Company to the Banks, the Company and the recipient(s) shall each be
obligated retroactively to the Advance Date to pay (without duplication)
interest in respect of the Required Payment at the Post-Default Rate
(without duplication of the obligation of such Company under Section 3.02
hereof to pay interest on the Required Payment at the Post-Default Rate),
it being understood that the return by the recipient(s) of the Required
Payment to the Administrative Agent shall not limit such obligation of the
Company under said Section 3.02 to pay interest at the Post-Default Rate in
respect of the Required Payment; and
(ii) if the Required Payment shall represent proceeds of a Loan to be
made by the Banks to the Company, the Payor and the Company shall each be
obligated retroactively to the Advance Date to pay (without duplication)
interest in respect of the Required Payment at the rate applicable to such
Loan pursuant to Section 3.02 hereof. it being understood that the return
by the Company of the Required Payment to the Administrative Agent shall
not limit any claim the Company may have against the Payor in respect of
such Required Payment.
4.07 Sharing of Payments. Etc.
------------------------
(a) The Company agrees that, in addition to (and without limitation
of) any right of set-off, banker's lien or counterclaim a Bank may otherwise
have, each Bank shall be entitled, at its option (to the fullest extent
permitted by law), to set-off and apply any deposit (general or special, time or
demand, provisional or final), or other indebtedness, held by it for the credit
or account of the Company at any of such Bank's offices, in Dollars or in any
other currency, against any principal of or interest on any of such Bank's Loans
or any other amount payable to such Bank hereunder, that is not paid when due
(regardless of whether such deposit or other indebtedness is then due to the
Company), in which case it shall
Credit Agreement
----------------
<PAGE>
-25-
promptly notify the Company and the Administrative Agent thereof, provided that
--------
such Bank's failure to give such notice shall not affect the validity thereof.
(b) If any Bank shall obtain from the Company payment of any principal
of or interest on any Loan and denominated in any Currency owing to it or
payment of any other amount under this Agreement through the exercise of any
right of set-off, banker's lien or counterclaim or similar right or otherwise
(other than from the Administrative Agent, as provided herein), and, as a result
of such payment, such Bank shall have received a greater percentage of the
principal of or interest on the Loans denominated in such Currency (the
"Applicable Loans") or such other amounts then due hereunder by the Company' to
----------------
such Bank than the percentage received by any other Bank to which principal of
or interest on the Applicable Loans or such other amounts is then due hereunder
by the Company. it shall promptly purchase from such other Banks participations
in (or. if and to the extent specified by such Bank, direct interests in) the
Applicable Loans or such other amounts, respectively. owing to such other Banks
(or in interest due thereon, as the case may be) in such amounts. and make such
other adjustments from time to time as shall be equitable, to the end that all
such Banks shall share the benefit of such excess payment (net of any expenses
that may be incurred by such Bank in obtaining or preserving such excess
payment) pro rata in accordance with the unpaid principal of and/or interest on
the Applicable Loans or such other amounts, respectively, owing to each of such
Banks. To such end all such Banks shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if such payment
is rescinded or must otherwise be restored.
(c) The Company agrees that any Bank so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans or other amounts (as the case may
be) owing to such Bank in the amount of such participation (or direct interest).
(d) Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of the Company. If, under any applicable bankruptcy, insolvency or
other similar law, any Bank receives a secured claim in lieu of a set-off to
which this Section 4.07 applies, such Bank shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Banks entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.
Credit Agreement
----------------
<PAGE>
-26-
Section 5. Yield Protection. Etc.
----------------------
5.01 Additional Costs.
----------------
(a) The Company shall pay (but without duplication, including by
reason of Section 5.05(a) hereof) directly to each Bank from time to time such
amounts as such Bank may reasonably determine to be necessary to compensate
such Bank for any costs incurred by such Bank that such Bank reasonably
determines are attributable to its making or maintaining of any Eurocurrency
Loans to the Company or its obligation to make any Eurocurrencv Loans to the
Company hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any of such Loans or such obligation resulting from any
Regulatory Change that:
(i) shall subject such Bank (or its Applicable Lending Office for any
of such Loans) to any tax, duty or other charge in respect of such Loans or
changes the basis of taxation of any amounts payable to such Bank under
this Agreement in respect of any of such Loans (excluding changes in the
rate of tax on the net income of such Bank or of such Applicable Lending
Office by any jurisdiction in which such Bank is organized or has its
principal office or in which such Applicable Lending Office is located or
carrying on business); or
(ii) imposes or increases any reserve, special deposit or similar
requirements (other than the reserve requirement utilized in the
determination of the Eurocurrency Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Bank (including, without limitation, any of such Loans
or any deposits referred to in the definition of "Eurocurrency Base Rate"
in Section 1.01 hereof), or any commitment of such Bank (including, without
limitation, the Commitment of such Bank hereunder); or
(iii) imposes any other material condition affecting this Agreement
(or any of such extensions of credit or liabilities) or its Commitment
(such increases in costs and reductions in amounts receivable being herein
called "Additional Costs").
----------------
If any Bank requests compensation from any Company under this Section 5.01(a),
the Company may, by notice to such Bank (with a copy to the Administrative
Agent), suspend the obligation of such Bank thereafter to make Eurocurrency
Loans to such Company until the Regulatory Change giving rise to such request
ceases to be in effect (in which case the provisions of Section 5.03 hereof
shall be applicable), provided that such suspension shall not affect the right
--------
of such Bank to receive the compensation so requested.
Credit Agreement
----------------
<PAGE>
-27-
(b) Without limiting the effect of the provisions of paragraph (a) of
this Section 5.01, in the event that, by reason of any Regulatory Change any
Bank either (i) incurs Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of such Bank that includes deposits by reference to which the
interest rate on Eurocurrency Loans denominated in an Currency as determined as
provided in this Agreement or a category of extensions of credit or other assets
of such Bank that includes Eurocurrency Loans denominated in such Currency or
(ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets that it may hold then, if such Bank so elects by notice
to the Company (with a copy to the Administrative Agent), the obligation of such
Bank to make Eurocurrency Loans in such Currency hereunder shall be suspended
until such Regulatory Change ceases to be in effect (in which case the
provisions of Section 5.03 hereof shall be applicable).
(c) Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), the Company shall pay directly to each
Bank from time to time on request such amounts as such Bank may reasonably
determine to be necessary to compensate such Bank (or, without duplication, the
bank holding company of which such Bank is a subsidiary) for any costs that it
reasonably determines are attributable to the maintenance by such Bank (or any
Applicable Lending Office or such bank holding company) of capital in respect of
its Commitment or Loans pursuant to any law or regulation or any interpretation,
directive or request (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful) of any court or governmental or
monetary authority (i) following any Regulatory Change or (ii) implementing any
risk-based capital guideline or other requirement (whether or not having the
force of law and whether or not the failure to comply therewith would be
unlawful) hereafter issued by any government or governmental or supervisory
authority implementing at the national level the BasIc Accord (such compensation
to include, without limitation, an amount equal to any reduction of the rate of
return on assets or equity of such Bank (or any Applicable Lending Office or
such bank holding company) to a level below that which such Bank (or any
Applicable Lending Office or such bank holding company) could have achieved but
for such law, regulation, interpretation, directive or request).
(d) Each Bank shall notify the Company of any event occurring after
the date hereof entitling such Bank to compensation under paragraph (a) or (c)
of this Section 5.01 as promptly as practicable, but in any event within 90
days, after such Bank obtains actual knowledge thereof; provided that (i) if any
--------
Bank fails to give such notice within 90 days after it obtains actual knowledge
of such an event, such Bank shall, with respect to compensation payable pursuant
to this Section 5.01 in respect of any costs resulting from such event, only be
entitled to payment under this Section 5.01 for costs incurred from and after
the date 90 days prior to the date that such Bank does give such notice and (ii)
each Bank will designate a different Applicable Lending Office for the Loans of
such Bank affected by such
Credit Agreement
----------------
<PAGE>
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event if such designation will avoid the need for, or reduce the amount of such
compensation and will not, in the sole opinion of such Bank, be disadvantageous
to such Bank. except that such Bank shall have no obligation to designate an
Applicable Lending Office located in the United States of America. Each Bank
will furnish to the Company a certificate setting forth in reasonable detail the
basis and amount of each request by such Bank for compensation under paragraph
(a) or (c) of this Section 5.01. Determinations and allocations by any Bank for
purposes of this Section 5.01 of the effect of any Regulatory Change pursuant
to paragraph (a) or (b) of this Section 5.01, or of the effect of capital
maintained pursuant to paragraph (c) of this Section 5.01, on its costs or rate
of return of maintaining Loans or its obligation to make Loans, or on amounts
receivable by it in respect of Loans. and of the amounts required to compensate
such Bank under this Section 5.01. shall be conclusive absent manifest error, so
long as such determinations and allocations are made on a reasonable basis.
5.02 Limitation on Types and Currencies of Loans. Anything herein to
-------------------------------------------
the contrary notwithstanding, if, on or prior to the determination of any
Eurocurrency Base Rate for any Interest Period pursuant to clause (b) of the
definition of "Eurocurrency Base Rate" in Section 1.01 hereof:
(a) the Administrative Agent determines, which determination shall be
conclusive, that quotations of interest rates for the relevant deposits
referred to in clause (b) of the definition of "Eurocurrency Base Rate" in
Section 1.01 hereof are not being provided by the Reference Bank in the
relevant amounts or Currencies or for the relevant maturities for purposes
of determining rates of interest for Eurocurrency Loans referred to in said
clause (b) as provided herein; or
(b) the Majority Banks determine, which determination shall be
conclusive, and notify (or notifies, as the case may be) the Administrative
Agent that the relevant rates of interest referred to in clause (b) of the
definition of "Eurocurrency Base Rate" in Section 1.01 hereof upon the
basis of which the rate of interest for Eurocurrency Loans denominated in
any Currency for such Interest Period is to be determined are not likely
adequately to cover the cost to such Banks (or to such quoting Bank) of
making or maintaining Eurocurrency Loans denominated in such Currency for
such Interest Period;
then the Administrative Agent shall give the Company and each Bank prompt notice
thereof and, so long as such condition remains in effect, the Banks shall be
under no obligation to make additional Eurocurrency Loans denominated in such
Currency.
5.03 Treatment of Affected Loans. If the obligation of any Bank to
---------------------------
make Eurocurrency Loans denominated in Dollars shall be suspended pursuant to
Section 5.01 hereof, then, unless and until such Bank gives notice as provided
below that the circumstances
Credit Agreement
----------------
<PAGE>
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specified in Section 5.01 hereof that gave rise to such suspension no longer
exist, all Loans that would otherwise be made by such Bank as Eurocurrency Loans
denominated in Dollars shall be made instead as Base Rate Loans. If the
obligation of any Bank to make Eurocurrency Loans denominated in any Agreed
Foreign Currency to the Company shall be suspended pursuant to Section 5.01
hereof, then, unless and until such Bank gives notice as provided below that the
circumstances specified in Section 5.01 hereof that gave rise to such suspension
no longer exist, all Loans that would otherwise be made by such Bank to the
Company as Eurocurrency Loans denominated in such Agreed Foreign Currency
shall, except as provided in the immediately preceding sentence, be made instead
as Eurocurrency Loans denominated in Dollars.
5.04 Compensation. The Company shall pay to the Administrative Agent
------------
for account of each Bank, upon the request of such Bank through the
Administrative Agent. such amount or amounts as shall be sufficient (in the
reasonable opinion of such Bank) to compensate it for any loss, cost or expense
that such Bank reasonably determines is attributable to:
(a) any payment or mandatory or optional prepayment, of a Eurocurrency
Loan to such Bank for any reason (including, without limitation, the
acceleration of the Loans pursuant to Section 9 hereof) on a date other
than the last day of the Interest Period for such Loan; or
(b) any failure by the Company for any reason (including, without
limitation. the failure of any of the conditions precedent specified in
Section 6 hereof to be satisfied) to borrow a Eurocurrency Loan from such
Bank on the date for such borrowing specified in the relevant notice of
borrowing given pursuant to Section 2.02 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid or
not borrowed for the period ("Relevant Period") from the date of such payment,
---------------
prepayment or failure to borrow to the last day of the then current Interest
Period for such Loan (or, in the case of a failure to borrow, the Interest
Period for such Loan that would have commenced on the date specified for such
borrowing) at the applicable rate of interest for such Loan provided for herein
over (ii) the amount of interest that otherwise would have accrued on such
principal amount at a rate equal to the arithmetic mean, as reasonably
determined by such Bank, of the respective rates per annum (rounded upward, if
necessary, to the nearest 1/16 of 1%) of the bid rates for deposits in the
Currency in which such Loan is denominated for the period approximately equal to
the Relevant Period appearing on the Screen or other publicly available source
(as described in the definition of the term "Eurocurrency Base Rate" in Section
1.01 hereof); provided that if
--------
Credit Agreement
----------------
<PAGE>
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the Screen is not publicly available, then the provisions of paragraph (b) of
the definition of the term "Eurocurrency Base Rate" in Section 1.01 hereof shall
apply herein mutatis mutandis.
------- --------
5.05 Taxes.
-----
(a) The Company agrees to pay to each Bank such additional amounts as
are necessary in order that the net payment of any amount due to such Bank
hereunder, after deduction for or withholding in respect of any Taxes imposed
with respect to such payment (or in lieu thereof, payment of such Taxes by such
Bank) will not be less than the amount stated herein to be then due and payable,
provided that the foregoing obligation to pay such additional amounts shall not
- --------
apply:
(i) to any payment to any Bank hereunder unless such Bank is, on the
date hereof (or on the date it becomes a Bank hereunder as provided in
Section 11.06(b) hereof) and on the date of any change in the Applicable
Lending Office of such Bank. entitled to a complete (or, in the case of an
assignee or participant pursuant to paragraph (b) or (e) of Section 11.06
hereof, at least to the extent of the assignor or applicable Bank at the
time of such assignment or participation) exemption from withholding or
deduction by the Company of Taxes on all amounts to be received by such
Bank hereunder in respect of the Loans made by such Bank to the Company, or
(ii) to any Taxes required to be deducted or withheld solely by reason
of the failure by such Bank, after being requested by the Company, to
comply with applicable certification, information, documentation or other
reporting requirements specifically identified by the Company in such
request concerning the nationality, residence, identity or connections with
any Company Jurisdiction if such compliance is required by treaty, statute
or regulation as a precondition to relief or exemption from such Taxes.
For the purposes of this Section 5.05(a), "Taxes" shall mean with respect to the
-----
Company all present or future income, franchise and other taxes and levies,
imposts, deductions, charges, and withholdings whatsoever, and all interest,
penalties or similar amounts with respect thereto, now or hereafter imposed,
assessed, levied or collected by any Governmental Authority of any Company
Jurisdiction on or in respect of payments of principal, interest, fees or other
amounts payable under this Agreement, or any promissory notes evidencing the
Loans made hereunder, including (without limitation) payments under this Section
5.05(a) Provided, however, that Taxes shall not include (x) income or franchise
-------- -------
taxes imposed on or measured by the net income or capital of a Bank (or its
Applicable Lending Office) by any Company Jurisdiction as a result of (i) such
Bank being organized under the laws of such Company Jurisdiction, (ii) such Bank
having its chief executive office in such Company Jurisdiction or (iii) its
Applicable Lending Office being located or carrying on business in
Credit Agreement
----------------
<PAGE>
-31-
such Company Jurisdiction (v) interest, penalties or additions to tax not
attributable to any act, failure to act or misrepresentation of the Company
(other than any act or failure to act permitted or contemplated hereunder) and
(z) any tax other than a withholding tax unless the Bank's interest in the Loan
became subject thereto solely by reason of such Bank's participation in the
transactions contemplated hereby.
(b) Within 30 days after paying any amount to the Administrative Agent
or any Bank from which it is required by law to make any deduction or
withholding and within 30 days after it is required by law to remit such
deduction or withholding to any relevant taxing or other authority, the Company
shall deliver to the Administrative Agent for delivery to such Bank evidence
satisfactory to such Bank of such deduction, withholding or payment (as the case
may be).
5.06 Replacement of Banks. If any Bank requests compensation pursuant
--------------------
to Section 5.01 or 5.05 hereof, or any Bank's obligation to make Loans of any
Type or denominated in any Currency shall be suspended pursuant to Section 5.01
hereof (any such Bank requesting such compensation, or whose obligations are so
suspended, being herein called a "Requesting Bank"), the Company, upon three
---------------
Business Days' notice to the Administrative Agent, may require that such
Requesting Bank transfer all of its right, title and interest under this
Agreement to any bank or other financial institution identified by the Company
that is satisfactory to the Administrative Agent in its reasonable determination
(a) if such bank or other financial institution (a "Proposed Bank") agrees to
-------------
assume all of the obligations of such Requesting Bank hereunder, and to purchase
all of such Requesting Bank's Loans hereunder for consideration equal to the
aggregate outstanding principal amount of such Requesting Bank's Loans, together
with interest thereon to the date of such purchase and (b) if such Requesting
Bank has requested compensation pursuant to Section 5.01 or 5.05 hereof, such
Proposed Bank's aggregate requested compensation, if any, pursuant to said
Section 5.01 or 5.05 with respect to such Requesting Bank's Loans is lower than
that of the Requesting Bank. Subject to the provisions of Section 11.06(b)
hereof, such Proposed Bank shall be a "Bank" for all purposes hereunder.
Without prejudice to the survival of any other agreement of the Company
hereunder the agreements of the Company contained in Sections 5.01, 5.05 and
11.03 (without duplication of any payments made to such Requesting Bank by the
Company or the Proposed Bank) shall survive for the benefit of such Requesting
Bank under this Section 5.06 with respect to the time prior to such replacement.
Section 6. Conditions Precedent.
--------------------
6.01 Initial Loan. The obligation of any Bank to make its
------------
initial Loan hereunder is subject to the condition precedent that the
Administrative Agent shall have received the following documents (with
sufficient copies for each Bank), each of which shall
Credit Agreement
<PAGE>
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be satisfactory to the Administrative Agent (and to the extent specified below,
to each Bank) in form and substance:
(a) Corporate Documents. Certified copies of the organizational
-------------------
documents of the Company and of all corporate authority for the Company
(including, without limitation, board of director resolutions and evidence
of the incumbency and specimen signature of officers) with respect to the
execution, delivery and performance of this Agreement and each other
document to be delivered by the Company from time to time in connection
herewith and with the Loans hereunder (and each of the Administrative Agent
and each Bank may conclusively rely on such certificate of incumbency
until it receives notice in writing from the Company to the contrary).
(b) Opinions of Counsel to the Company. An opinion, dated the date
----------------------------------
hereof of (i) Conyers, Dill & Pearman, Cayman Islands counsel to the
Company, substantially in the form of Exhibit A-I hereto and covering such
other matters as the Administrative Agent or any Bank may reasonably
request, (ii) Conyers, Dill & Pearman, Bermuda counsel to the Company,
substantially in the form of Exhibit A-2 hereto and covering such other
matters as the Administrative Agent or any Bank may reasonably request and
(iii) Cahill Gordon & Reindel, special New York counsel to the Company,
substantially in the form of Exhibit A-3 hereto and covering such other
matters as the Administrative Agent or any Bank may reasonably request (and
the Company hereby instructs each such counsel to deliver such opinions to
the Banks and the Administrative Agent).
(c) Opinion of Special New York Counsel to Chase. An opinion, dated
--------------------------------------------
the date hereof, of Milbank, Tweed, Hadley & McCloy special New York
counsel to Chase substantially in the form of Exhibit B hereto (and Chase
hereby instructs such counsel to deliver such opinion to the Banks).
(d) Other Documents. Such other documents as the Administrative Agent
---------------
or any Bank or special New York counsel to Chase may reasonably request.
The obligation of any Bank to make its initial extension of credit hereunder is
also subject to the payment or delivery by the Company of such fees as the
Company shall have agreed to pay or deliver to any Bank or an affiliate thereof
or the Administrative Agent in connection herewith, including, without
limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy.
special New York counsel to Chase. in connection with the negotiation,
preparation, execution and delivery of this Agreement and each other document to
be delivered by the Company and the extensions of credit hereunder (to the
extent that statements for such fees and expenses have been delivered to the
Company).
Credit Agreement
-----------------
<PAGE>
-33-
6.02 Initial and Subsequent Loans. The obligation of any Bank
----------------------------
to make any Loan hereunder (including such Bank's initial Loan) is subject to
the further conditions precedent that, both immediately prior to the making of
such Loan and also after giving effect thereto and to the intended use thereof:
(a) if such borrowing will increase the Dollar Equivalent of the
aggregate outstanding principal amount of the Loans of the Banks hereunder,
no Default shall have occurred and be continuing; and
(b) if such borrowing will increase the Dollar Equivalent of the
aggregate outstanding principal amount of the Loans of the Banks hereunder,
the representations and warranties made by the Company in Section 7 hereof
(other than the last sentence of Section 7.02 (a) hereof) shall be true and
complete in all material respects on and as of the date of the making of
such Loan with the same force and effect as if made on and as of such date
(or, if any such representation or warranty is expressly stated to have
been made as of a specific date, as of such specific date).
Each notice of borrowing by the Company hereunder shall constitute a
certification by the Company to the effect set forth in the preceding sentence
(both as of the date of such notice and as of the date of such borrowing).
Section 7. Representations and Warranties. The Company represents and
------------------------------
warrants to the Administrative Agent and the Banks that:
7.01 Corporate Existence. Each of the Company and its Material
-------------------
Subsidiaries: (a) is a corporation, partnership or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization; (b) has all requisite corporate or other power, and has all
material governmental licenses, authorizations, consents and approvals necessary
to own its assets and carry on its business as now being or as proposed to be
conducted; and (c) is qualified to do business and is in good standing in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify would have (either
individually or in the aggregate) a Material Adverse Effect.
7.02 Financial Condition.
-------------------
(a) The Company has heretofore furnished to each of the Banks
(a) the consolidated balance sheet of the Company and its Subsidiaries as at
October 31, 1996 and the related consolidated statements of operations and cash
flows of the Company and its Subsidiaries for the fiscal year ended on said
date, with the opinion thereon of KPMG Peat Marwick and (b) the unaudited
consolidated balance sheet of the Company and its
Credit Agreement
---------------
<PAGE>
-34-
Subsidiaries as at April 30, 1997 and the related consolidated statements of
operations and cash flows of the Company and its Subsidiaries for the three-
month period ended on said date, All such financial statements present fairly,
in all material respects. the financial position of the Company and its
Subsidiaries as at said dates and the results of their operations for the fiscal
year and three-month period ended on said dates (subject in the case of such
financial statements as at April 30, 1997 to normal year-end audit adjustments),
all in conformity with generally accepted accounting principles in the United
States of America. None of the Company nor any of its Subsidiaries has on the
date hereof any material contingent liabilities, liabilities for taxes, unusual
forward or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or provided for in
said financial statements (or in the notes thereto) as at said dates. Since
October 31, 1996, there has been no material adverse change in the consolidated
business, operations or financial condition of the Company and its Subsidiaries
taken as a whole from that set forth in said financial statements as at said
dates.
(b) The Company has heretofore furnished to each of the Banks the
annual and quarterly Statutory Statements of each of its Material Insurance
Subsidiaries for the fiscal year ended October 31, 1996 and for the quarterly
fiscal period ended April 30, 1997 as filed with the Applicable Insurance
Regulatory Authority. All such Statutory Statements present fairly, in all
material respects, the financial condition of each Insurance Subsidiary.
respectively, as at the respective dates thereof and its results of operations
through fiscal year ended on October 31, 1996 and the quarterly fiscal period
ended April 30, 1997, in accordance with statutory accounting practices
prescribed or permitted by the Applicable Insurance Regulatory Authority.
7.03 Litigation. There are no legal or arbitral proceedings, or any
----------
proceedings by or before any Governmental Authority, now pending or (to the
knowledge of the Company) threatened against the Company or any of its
Subsidiaries that, either individually or in the aggregate, is reasonably likely
to have a Material Adverse Effect.
7.04 No Breach. None of the execution and delivery of this Agreement
---------
and each other document to be delivered by the Company from time to time in
connection herewith and with the Loans hereunder, the consummation of the
transactions herein contemplated or compliance with the terms and provisions
hereof will conflict with or result in a breach of, or require any consent
(other than action by the board of directors of the Company that has already
been taken) under, (a) the charter or by-laws of the Company, (b) any applicable
law or regulation, (c) any agreement or instrument to which the Company or any
of its Material Subsidiaries is a party' or by which any of them or any of their
Property is bound or to which any of them is subject, or constitute a default
under any such agreement or instrument or (d) any judgment, order, injunction or
decree of any
Credit Agreement
----------------
<PAGE>
-35-
Governmental Authority by which the Company or any of its Material Subsidiaries
or any of their Property is bound or to which any of them is subject.
7.05 Action. The Company has all necessary corporate power, authority
------
and legal right to execute, deliver and perform its obligations under this
Agreement and each other document to be delivered by the Company from time to
time in connection herewith and with the Loans hereunder; the execution,
delivery and performance by the Company of this Agreement have been duly
authorized by all necessary corporate action on its part; and this Agreement has
been duly and validly executed and delivered by the Company and constitutes its
legal, valid and binding obligation, enforceable under the law of the State of
New York against the Company in accordance with its terms, except as such
enforceability may be limited (a) by bankruptcy, insolvency, reorganization,
moratorium or similar laws of general applicability affecting the enforcement of
creditors' rights or (b) the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or law).
7.06 Approvals. No authorizations, approvals or consents of,
---------
and no filings or registrations with, any Governmental Authority are necessary
for the execution, delivery or performance by the Company of this Agreement or
for the legality, validity or enforceability hereof.
7.07 Use of Credit. No part of the proceeds of the Loans hereunder
-------------
will be used to buy or carry any Margin Stock.
7.08 ERISA. Neither the Company nor any of its Subsidiaries
-----
maintains, or has incurred any material obligation in connection with, an ERISA
Plan. Neither the Company nor any of its Subsidiaries is, or has been within the
preceding five years, an ERISA Affiliate of any Person. All contributions
required to be made by the Company or any of its Subsidiaries with respect to a
Foreign Benefit Plan have been timely made. Each Foreign Benefit Plan has been
maintained in substantial compliance with its terms and with the requirements of
any and all applicable laws and has been maintained, where required, in good
standing with applicable Governmental Authorities. Neither the Company nor any
of its Subsidiaries has incurred any material obligation in connection with the
termination, withdrawal from, or payment of benefits under any Foreign Benefit
Plan.
7.09 Taxes. The Company and its Subsidiaries have filed all income tax
-----
returns and all other material tax returns that are required to be filed by them
and have paid all taxes due pursuant to such returns or pursuant to any
assessment received by the Company or any of its Subsidiaries, except for any
such tax being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained. The charges, accruals
Credit Agreement
----------------
<PAGE>
-36-
and reserves on the books of the Company and its Subsidiaries in respect of
taxes and other governmental charges are, in the opinion of the Company
adequate.
7.10 Investment Company Act. Neither the Company nor any of its
----------------------
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940
as amended.
7.11 Public Utility Holding Company Act. Neither the Company
----------------------------------
nor any of its Subsidiaries is a "holding company", or an "affiliate" of a
"holding company" or a "subsidiary company" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
7.12 Environmental Matters. Each of the Company and its
---------------------
Material Subsidiaries has obtained all environmental, health and safety permits,
licenses and other authorizations required under all Environmental Laws from
time to time in effect to carry on its business as now being or as proposed to
be conducted, except to the extent failure to have any such permit, license or
authorization would not (either individually or in the aggregate) have a
Material Adverse Effect.
7.13 Subsidiaries. Etc.
-----------------
(a) Set forth in Schedule I hereto is a complete and correct list, as
of the date of this Agreement of all of the Material Subsidiaries of the
Company, together with, for each such Subsidiary, (i) the jurisdiction of
organization of such Subsidiary, (ii) each Person holding ownership interests in
such Subsidiary and (iii) the nature of the ownership interests held by each
such Person and the percentage of ownership of such Subsidiary represented by
such ownership interests. Except as disclosed in Schedule I hereto, as of the
date of this Agreement (x) each of the Company and its Subsidiaries owns, free
and clear of Liens, and has the unencumbered right to vote, all outstanding
ownership interests in each Person shown to be held by it in Schedule I hereto,
(y) all of the issued and outstanding capital stock of each such Person
organized as a corporation is validly issued, fully paid and nonassessable and
(z) there are no outstanding Equity Rights with respect to such Person.
(b) None of the Subsidiaries of the Company is, on the date hereof,
subject to any indenture, agreement instrument or other arrangement that,
directly or indirectly, prohibits or restrains, or has the effect of prohibiting
or restraining, or imposes materially adverse conditions upon, the incurrence or
payment of Indebtedness, the declaration or payment of dividends, or the making
of loans, advances or investments.
7.14 Stamp Taxes. To ensure the legality, validity, enforceability or
-----------
admissibility in evidence of this Agreement or any promissory notes evidencing
Loans made
Credit Agreement
----------------
<PAGE>
-37-
(or to be made), it is not necessary that this Agreement or such promissory
notes or any other document be filed or recorded with any Governmental Authority
or that any stamp or similar tax be paid on or in respect of this Agreement or
such promissory notes or any other document other than such filings and
recordations that have already been made and such stamp or similar taxes that
have already been paid.
7.15 Legal Form. Each of this Agreement and any promissory
----------
notes evidencing Loans made (or to be made) is in proper legal form under the
laws of any Company Jurisdiction for the admissibility thereof in the courts of
such Company Jurisdiction.
7.16 True and Complete Disclosure. The information reports financial
----------------------------
statements, exhibits and schedules furnished in writing by or on behalf of the
Company to the Administrative Agent or any Bank in connection with the
negotiation preparation or delivers of this Agreement or included herein or
delivered pursuant hereto, when taken as a whole do not contain any statement of
material fact that is materially untrue or omit to state any material fact
necessary to make the statements herein, in light of the circumstances under
which they were made, not materially misleading.
7.17 Withholding of Taxes. As of the date of this Agreement the
--------------------
payments of the principal of and interest of the Loans, the fees under Section
2.04 hereof and all other amounts payable hereunder will not be subject by
withholding or deduction, to any Taxes imposed by any Company Jurisdiction.
Section 8. Covenants of the Company. The Company covenants and
------------------------
agrees with the Banks and the Administrative Agent that so long as any
Commitment is outstanding and until payment in full of all of the principal of
and interest on each Loan and all fees payable under Section 2.04 hereof;
8.01 Financial Statements. Etc. The Company shall deliver to each of
-------------------------
the Banks:
(a) as soon as available and in any event within 50 days after the end
of each of the first three quarterly fiscal periods of each fiscal year of the
Company, consolidated statements of operations and cash flows of the Company and
its Subsidiaries for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related consolidated
balance sheet of the Company and its Subsidiaries as at the end of such period,
setting forth in each case in comparative form the corresponding consolidated
and consolidating figures for the corresponding period (except in the case of
the balance sheet to the last day of) in the preceding fiscal year (it being
understood that delivery to the Banks of the Company's Report on Form 10-Q filed
with the SEC shall satisfy the financial statement delivery requirements of this
Section 8.01(a) so long as the financial information
Credit Agreement
----------------
<PAGE>
-38-
required to be contained in such Report is substantially' the same as the
financial information required under this Section 8.01(a)), accompanied by an
Officer's Certificate, which certificate shall state that said consolidated
financial statements present fairly, in all material respects, the consolidated
financial condition and results of operations of the Company and its
Subsidiaries in accordance with generally accepted accounting principles (except
for the absence of footnotes), consistently applied, as at the end of, and for,
such period (subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 95 days after
the end of each fiscal year of the Company, consolidated statements of
operations and cash flows of the Company and its Subsidiaries for such fiscal
year and the related consolidated balance sheet of the Company and its
Subsidiaries as at the end of such fiscal year, setting forth in each case in
comparative form the corresponding consolidated figures for the preceding fiscal
year (it being understood that delivery to the Banks of the Company's Report on
Form 10-K filed with the SEC shall satisfy the financial statement delivery
requirements of this Section 8.01(b) so long as the financial information
required to be contained in such Report is substantially the same as the
financial information required under this Section 8.01(b)), and accompanied by a
report thereon of KPMG Peat Marwick or any other independent certified public
accountants of recognized national standing, which report shall state (without a
"going concern" or like qualification or exception and without qualification or
exception as to the scope of its audit) that said consolidated financial
statements present fairly, in all material respects, the consolidated financial
condition and results of operations of the Company and its Subsidiaries as at
the end of, and for, such fiscal year in accordance with generally accepted
accounting principles in the United States of America, and a certificate of such
accountants addressed to the Banks stating that, in making the examination
necessary for their opinion, nothing came to their attention that caused them to
believe that the Company had failed to comply with any of its obligations under
Sections 8.04 to 8.07 (inclusive) or that any Default specified in paragraph (b)
or (e) through (i), inclusive, of Section 9 hereof had occurred, except as
specifically stated (which certificate may be limited to the extent required by
accounting rules and guidelines);
(c) within 5 days after filing with the Applicable lnsurance
Regulatory Authority and in any event within 55 days after the end of each of
the first three quarterly fiscal periods of each fiscal year of the Company the
quarterly Statutory Statement of each Material Insurance Subsidiary for such
fiscal period, together with a certificate of a senior financial officer of the
Company or of such Subsidiary stating that such Statutory Statement fairly
presents, in all Material respects, the financial condition of each Material
Insurance Subsidiary, respectively, for such quarterly fiscal period in
accordance with statutory accounting practices required or permitted by the
Applicable Insurance Regulatory Authority.
Credit Agreement
----------------
<PAGE>
-39-
(d) within 5 days after filing with the Applicable Insurance
Regulatory Authority and in any event within 55 days after the end of each
fiscal year of the Company the annual Statutory Statement of each Material
Insurance Subsidiary for such year, together with an Officer's Certificate
stating that such annual Statutory Statement fairly presents, in all material
respects, the financial condition of each Material Insurance Subsidiary,
respectively, for such fiscal year in accordance with statutory accounting
practices required or permitted by the Applicable Insurance Regulatory
Authority.
(e) promptly upon their becoming available, copies of all
registration statements (other than those on Form S-8) and regular periodic
reports, if any, which the Company shall have filed with the SEC or any national
securities exchange;
(f) promptly upon the mailing thereof to the shareholders of
the Company generally, copies of all financial statements, reports and proxy
statements so mailed:
(g) promptly after the Company knows that any Default has
occurred and is continuing, a notice of such Default specifying that such notice
is a "Notice of Default" and describing the same in reasonable detail and,
together with such notice or as soon thereafter as possible, a description of
the action that the Company has taken or proposes to take with respect thereto;
(h) the Company will promptly give to each Bank notice of any legal or
arbitral proceedings, or any proceedings before any Governmental Authority,
pending or (to the knowledge of the Company) threatened, against the Company or
any of its Subsidiaries that either individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect; and
(i) from time to time such other information regarding the
financial condition, operations or business of the Company or any of its
Subsidiaries as the Administrative Agent may reasonably request.
The Company will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, an Officer's
Certificate (i) to the effect that no Default has occurred and is continuing
(or, if any Default has occurred and is continuing, describing the same in
reasonable detail and describing the action that the Company has taken or
proposes to take with respect thereto) and (ii) setting forth in reasonable
detail the computations necessary to determine whether the Company is in
compliance with Sections 8.05(g), 8.05(h) and 8.06 hereof as of the end of the
respective quarterly fiscal period or fiscal year.
Credit Agreement
----------------
<PAGE>
-40-
8.02 Existence Etc. The Company will, and will cause each of its
--------------
Material Subsidiaries to:
(a) preserve and maintain its legal existence and all of its
material rights. privileges, licenses and franchises (Drovided that
nothing in this Section 8.02 shall prohibit any transaction permitted
under Section 8.04 hereof);
(b) comply with the requirements of all applicable laws,
rules, regulations and orders of governmental or regulatory authorities
if failure to comply with such requirements is reasonably likely
(either individually or in the aggregate) to have a Material Adverse
Effect;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any
of its Property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and
against which, in the opinion of the Company, adequate reserves are
being maintained in accordance with GAAP;
(d) keep adequate records and books of account, in which
complete entries will be made in accordance with generally accepted
accounting principles consistently applied;
(e) maintain all of its material Properties used or useful in
its business in good working order and condition, ordinary wear and
tear excepted; and
(f) permit representatives of any Bank of the Administrative
Agent during normal business hours to examine or inspect any of its
Properties, and to discuss its business and affairs with its officers,
all to the extent reasonably requested by such Bank of the
Administrative Agent (as the case may be).
8.03 Insurance. The Company will, and will cause each of its
---------
Material Subsidiaries to, (a) maintain fidelity and liability insurance with
financially sound and reputable insurance companies (or through self-insurance
programs so long as such self-insurance is administered in accordance with sound
business practices), and with respect to risks of a character (other than
insurance written or reinsurance assumed by the Company or its Subsidiaries)
usually maintained by corporations engaged in the same or similar business
similarly situated, against loss, damage and liability of the kinds and in the
amounts customarily maintained by such corporations and carry such other
insurance as is usually carried by such corporations and (b) furnish to the
Administrative Agent, upon written request full information as to such
insurance carried.
Credit Agreement
----------------
<PAGE>
-41-
8.04 Prohibition of Fundamental Changes. The Company will
----------------------------------
not, nor will it permit any of its Material Subsidiaries to, enter into any
transaction of merger or consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution).
The Company will not, nor will it permit any of its Material
Subsidiaries to convey, sell, lease, transfer or otherwise dispose of any
capital stock of any of its Material Insurance Subsidiaries, whether now owned
or hereafter acquired, unless, after giving effect to such Disposition at least
95% of the capital stock of such Material Insurance Subsidiary is directly or
indirectly owned and controlled by the Company.
Notwithstanding the foregoing provisions of this Section 8.04:
(a) any Material Subsidiary may be merged or consolidated with
or into: (i) the Company if the Company shall be the continuing or
surviving corporation or (ii) any other Subsidiary of the Company;
provided that (x) if any such transaction shall be between a Subsidiary
--------
and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the
continuing or surviving corporation; and
(b) the Company or any Material Subsidiary may merge or
consolidate with any other Person if (i) in the case of a merger or
consolidation of the Company, the Company is the surviving corporation
and, in any other case, the surviving corporation is after giving
effect to such merger or consolidation, a Wholly-Owned Subsidiary of
the Company and (ii) after giving effect thereto no Default would exist
hereunder.
8.05 Limitation on Liens.
-------------------
The Company will not, nor will it permit Mid Ocean Reinsurance, any
Affiliate or Subsidiary of the Company having direct or indirect ownership of
Mid Ocean Reinsurance or any Subsidiary of Mid Ocean Reinsurance to create,
incur, assume or suffer to exist any Lien upon any of their respective
Properties, whether now owned or hereafter acquired, except:
(a) Liens in existence on the date hereof and listed on Schedule III
hereto;
(b) Liens imposed by any Governmental Authority for taxes, assessments
or charges not yet due or which are being contested in good faith and by
appropriate proceedings, unless the amount thereof is material with respect to
it or its financial condition, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP;
Credit Agreement
----------------
<PAGE>
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(c) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary' course of business which are not
overdue for a period of more than 30 days or which are being contested in good
faith and by appropriate proceedings and Liens securing judgments but only to
the extent for an amount and for a period not resulting in an Event of Default
under Section 9(h) hereof;
(d) pledges or deposits under worker's compensation unemployment
insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business:
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on the use
of Property or minor imperfections in title thereto which, in the aggregate, are
not material in amount, and which do not in any case materially detract from the
value of the Property subject thereto or interfere with the ordinary conduct of
the business of the Company;
(g) Liens upon real and/or tangfble personal Property acquired after
the date hereof (by purchase, construction or otherwise) by the Company, each of
which Liens either existed on such Property before the time of its acquisition
and was not created in anticipation thereof or was created solely for the
purpose of securing Indebtedness incurred to finance, refinance, or refund the
cost (including the cost of construction) of such Property; provided that (i) no
--------
such Lien shall extend to or cover any Property of the Company other than the
Property so acquired and improvements thereon and (ii) the principal amount of
Indebtedness secured by any such Lien shall not exceed 80% of the fair market
value (as determined in good faith by a senior financial officer of the Company)
of such Property at the time it was acquired (by purchase, construction or
otherwise);
(h) Liens to secure reimbursement obligations of Mid Ocean Reinsurance
or any such Subsidiary or Affiliate of the Company or any Subsidiary of Mid
Ocean Reinsurance in respect of letters of credit caused to be issued in the
ordinary course of business;
(i) additional Liens created after the date hereof so long as
the Indebtedness secured thereby and incurred after the date hereof does not
exceed $5,000,000 in the aggregate at any one time outstanding; and
Credit Agreement
----------------
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(j) any extension, renewal or replacement of the foregoing: provided
--------
that the Liens permitted by this paragraph shall not extend to or cover any
additional lndebtedness or Property (other than a substitution of like
Property).
Notwithstanding anything contained herein to the contrary the Company will not,
and will not permit any of its Subsidiaries to, create, incur, assume or suffer
to exist any Lien on any of the capital stock of Mid Ocean Reinsurance or any
Subsidiary of Mid Ocean Reinsurance.
8.06 Certain Financial Covenants.
---------------------------
(a) Tangible Net Worth. The Company will not, at any time, permit
------------------
Tangible Net Worth to be less than $800,000,000.
(b) Total Debt to Total Capital. The Company shall, at all
---------------------------
times, maintain a ratio of Total Debt to Total Capital of not more than
0.30 to 1.
80.7 Ratings. The Company will not allow the Standard and Poor's
-------
Rating or the Best Rating to be less than A.
8.08 Use of Proceeds. The Company will use the proceeds of the
---------------
Loans hereunder for general corporate purposes (in compliance with all
applicable legal and regulatory requirements, including, without limitation,
Regulations G, U and X and the Securities Act of 1933 and the Securities
Exchange Act of 1934 and the regulations thereunder); provided that neither the
--------
Administrative Agent nor any Bank shall have any responsibility as to the use of
any of such proceeds.
8.09 Transactions with Affiliates. The Company will not, and
----------------------------
will not permit any of its Subsidiaries to, sell, lease or otherwise transfer
any Property to, or purchase, lease or otherwise acquire any Property from, or
otherwise engage in any other transactions with, any of its Affiliates, except
at prices and on terms and conditions not less favorable to the Company or such
Subsidiary than could be obtained on an arm's-length basis from unrelated third
parties.
8.10 Compliance with Laws. The Company will, and will cause
--------------------
each of its Subsidiaries to, comply with all laws, rules, regulations and orders
of any Governmental Authority applicable to it or its Property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
8.11 Payment of Obligations. The Company will, and will cause
----------------------
each of its Subsidiaries to, pay its obligations that, if not paid, could result
in a Material Adverse Effect before the same shall become delinquent or in
default, except where (a) the validity or amount
Credit Agreement
----------------
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thereof is being contested in good faith by appropriate proceedings, (b) the
Company or such Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect.
8.12 Indebtedness. The Company will not permit Mid Ocean
------------
Reinsurance any Affiliate or Subsidiary of the Company having direct or
indirect ownership of Mid Ocean Reinsurance or any Subsidiary of Mid Ocean
Reinsurance to, create, incur or suffer to exist any Debt or any Guarantee of
Indebtedness of any other Person, except for Debt or Guarantees of Indebtedness
outstanding on the date hereof and listed in Schedule IV hereto.
8.13 Capital and Surplus of Mid Ocean Reinsurance. The Company will
--------------------------------------------
not permit the Capital and Surplus of Mid Ocean Reinsurance to be less than
$800,000,000 at any time.
Section 9. Events of Default. If one or more of the following events
-----------------
(herein called "Events of Default") shall occur and be continuing:
-----------------
(a) The Company shall: (i) default in the payment of any principal of
any Loan when due (whether at stated maturity or at mandatory or
optional prepayment or otherwise); or (ii) default in the payment of
any interest on any Loan or any facility fee or utilization fee payable
under Section 2.04 hereof and such default shall continue unremedied
for two or more Business Days or (iii) default in the payment of any
other amount payable by it hereunder when due and such default shall
have continued unremedied for five or more days; or
(b) The Company or any of its Subsidiaries shall default in the
payment when due of any principal of or interest on any Indebtedness
aggregating $5,000,000 or more, or any event specified in any note,
agreement, indenture or other document evidencing or relating to any such
Indebtedness shall occur if the effect of such event is to cause, or (with
the giving of any notice or the lapse of time or both) to permit the holder
or holders of such Indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause such Indebtedness to become due, or to be
prepaid in full (whether by redemption, purchase, offer to purchase or
otherwise), prior to its stated maturity or to have the interest rate
thereon reset to a level so that securities evidencing such Indebtedness
trade at a level specified in relation to the par value thereof; or any
Obligor shall default in the payment when due of any amount in excess of
$5,000,000 under any Derivative Transaction; or any event specified in any
Derivative Transaction to which any Obligor is a party shall occur if the
effect of such event is to cause, or (with the giving of any notice or the
lapse of time or both) to
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permit, termination or liquidation payment or payments in excess of $5,000,000
to become due; or
(c) Any representation, warranty or certification made or deemed made
herein or in any other document to be delivered by the Company in connection
herewith and with the Loans hereunder (or in any modification or supplement
hereto or thereto) by the Company, or any certificate furnished to any Bank or
the Administrative Agent pursuant to the provisions hereof or thereof, shall
prove to have been false or misleading as of the time made or deemed made or
furnished in any material respect: or
(d) The Company shall default in the performance of its obligations
under Sections 8.01(g), 8.04 through 8.07, 8.12, or 8.13 hereof (inclusive); or
the Company shall default in the performance of any of its other obligations in
this Agreement or in any other document to be delivered by the Company in
connection herewith and with the Loans hereunder and such default shall continue
unremedied for a period of thirty or more days after notice thereof to the
Company by the Administrative Agent or any Bank (through the Administrative
Agent); or
(e) The Company or any of its Material Subsidiaries shall admit in
writing its inability to, or be generally unable to, pay its debts as such debts
become due; or
(f) The Company or any of its Material Subsidiaries shall (i) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian trustee, examiner or liquidator of itself or of all or a
substantial part of its Property, (ii) make a general assignment for the benefit
of its creditors, (iii) file, or consent by answer or otherwise fail to
controvert in a timely and appropriate manner the filing against it of, a
petition seeking relief or to take advantage of any law relating to bankruptcy,
insolvency, reorganization, liquidation, dissolution, arrangement or winding-up,
or composition or readjustment of debts or (iv) take any corporate action for
the purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application
or consent of the Company or any of its Material Subsidiaries, in any court or
governmental regulatory authority of competent jurisdiction, seeking (i) its
reorganization, liquidation, dissolution, arrangement or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a receiver,
custodian, trustee, examiner, liquidator or the like of the Company or such
Subsidiary or of all or any substantial part of its Property or (iii) similar
relief in respect of the Company or such Subsidiary under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment
of debts, and such proceeding or case shall
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continue undismissed for a period of 60 or more days or an order judgment
or decree approving or ordering any of the foregoing shall be entered; or
(h) A judgment or judgments for the payment of money in excess of
$5,000,000 in the aggregate (exclusive of judgment amounts fully covered by
insurance where the insurer has admitted liability in respect of such
judgment) shall be rendered by one or more courts, administrative tribunals
or other bodies having jurisdiction against the Company or any of its
Subsidiaries and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof shall not be
procured, within 60 days from the date of entry thereof and the Company or
the relevant Subsidiary shall not, within said period of 60 days, or such
longer period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal: or
(i) A Change of Control shall occur;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 9 with respect to the Company (A) the
Administrative Agent may and, upon request of the Majority Banks, shall, by
notice to the Company, terminate the Commitments and they shall thereupon
terminate, and (B) the Administrative Agent may and, upon request of Banks
holding more than 50% of the aggregate unpaid principal amount of the Loans,
shall, by notice to the Company declare the principal amount then outstanding
of, and the accrued interest on, the Loans and all other amounts payable by the
Company hereunder (including, without limitation, any amounts payable under
Section 5.04 hereof) to be forthwith due and payable, whereupon such amounts
shall be immediately due and payable without presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Company: and (2) in the case of the occurrence of an Event of Default referred
to in clause (f) or (g) of this Section 9 with respect to the Company, the
Commitments shall automatically be terminated and the principal amount then
outstanding of and the accrued interest on, the Loans and all other amounts
payable by the Company hereunder (including, without limitation, any amounts
payable under Section 5.04 hereof) shall automatically become immediately due
and payable without notice, presentment, demand, protest or other formalities of
any kind, all of which are hereby expressly waived by the Company.
Section 10. The Administrative Agent.
------------------------
10.01 Appointment Powers and Immunities. Each Bank hereby appoints and
---------------------------------
authorizes the Administrative Agent to act as its agent hereunder with such
powers as are specifically delegated to the Administrative Agent by the terms of
this Agreement, together with such other powers as are reasonably incidental
thereto. The Administrative Agent
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(which term as used in this sentence and in Section 10.05 and the first sentence
of Section 10.06 hereof shall include reference to its affiliates and its own
and its affiliates' officers, directors, employees and agents):
(a) shall have no duties or responsibilities except those expressly
set forth in this Agreement, and shall not by reason of this Agreement be a
trustee for any Bank.
(b) shall not be responsible to the Banks for any recitals,
statements. representations or warranties contained in this Agreement, or
in any certificate or other document referred to or provided for in, or
received by any of them under, this Agreement. or for the value, validity,
effectiveness, genuineness. enforceability or sufficiency of this Agreement
or any other document referred to or provided for herein or for any failure
by the Company to perform any of its obligations hereunder or thereunder;
(c) shall not be required to initiate or conduct any litigation or
collection proceedings hereunder; and
(d) shall not be responsible for any action taken or omitted to be
taken by it hereunder or under any other document or instrument referred to
or provided for herein or in connection herewith, except for its own gross
negligence or willful misconduct.
The Administrative Agent may employ agents and attorneys-in-fact and shall not
be responsible for the negligence or misconduct of any such agents or attorneys-
in-fact selected by it in good faith. The Administrative Agent may deem and
treat the payee of any promissory note evidencing any Loans hereunder as the
holder thereof for all purposes hereof unless and until an Assignment and
Acceptance relating to such Loans shall have been filed with the Administrative
Agent. together with the consent of the Company thereto (to the extent provided
in Section 11.06(b) hereof).
10.02 Reliance by Administrative Agent. The Administrative Agent
--------------------------------
shall be entitled to rely upon any certification, notice or other communication
(including, without limitation, any thereof by telephone. telecopy, telegram or
cable) believed by it to be genuine and correct and to have been signed or sent
by or on behalf of the proper Person or Persons, and upon advice and statements
of legal counsel, independent accountants and other experts selected by the
Administrative Agent. As to any matters not expressly provided for by this
Agreement, the Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder in accordance with instructions
given by the Majority Banks (or. if so provided in Section 11.04 hereof, all of
the Banks), and such instructions of the
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Majority Banks (or all of the Banks as the case may be) and any action taken or
failure to act pursuant thereto shall be binding on all of the Banks.
10.03 Defaults. The Administrative Agent shall not be deemed to have
--------
knowledge or notice of the occurrence of a Default unless the Administrative
Agent has received notice from a Bank or the Company specifying such Default and
stating that such notice is a "Notice of Default". In the event that the
Administrative Agent receives such a notice of the occurrence of a Default the
Administrative Agent shall give prompt notice thereof to the Banks. The
Administrative Agent shall (subject to Sections 10.01 and 10.07 hereof) take
such action with respect to such Default as shall be directed by the Majority
Banks, provided that, unless and until the Administrative Agent shall have
--------
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action or refrain from taking such action, with respect
to such Default as it shall deem advisable in the best interest of the Banks
except to the extent that this Agreement expressly requires that such action be
taken, or not be taken, only with the consent or upon the authorization of the
Majority Banks or all of the Banks.
10.04 Rights as a Bank. With respect to its Commitment and the Loans
----------------
made by it, Chase (and any successor acting as Administrative Agent) in its
capacity as a Bank hereunder shall have the same rights and powers hereunder as
any other Bank and may exercise the same as though it were not acting as the
Administrative Agent, and the term "Bank" or "Banks" shall, unless the context
otherwise indicates, include the Administrative Agent in its individual
capacity. Chase (and any successor acting as Administrative Agent) and its
Affiliates may (without having to account therefor to any Bank) accept deposits
from, lend money to, make investments in and generally engage in any kind of
banking, trust or other business with the Company (and any of its Subsidiaries
or Affiliates) as if it were not acting as the Administrative Agent, and Chase
(and any other successor acting as Administrative Agent) and its Affiliates may
accept fees and other consideration from the Company for services in connection
with this Agreement or otherwise without having to account for the same to the
Banks.
10.05 Indemnification. The Banks agree to indemnify the
---------------
Administrative Agent (to the extent not reimbursed under Section 11.03 hereof,
but without limiting the obligations of the Company under said Section 11.03)
ratably in accordance with their respective Commitments, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Administrative Agent (including
by any Bank) arising out of or by reason of any investigation in or in any way
relating to or arising out of this Agreement or any other documents contemplated
by or referred to herein or the transactions contemplated hereby (including,
without limitation, the costs and expenses that the Company is obligated to pay
under Section 11.03 hereof but excluding (i) normal
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administrative costs and expenses incident to the performance of its agency
duties hereunder and (ii) the costs and expenses of the Administrative Agent in
connection with the negotiation and preparation of this Agreement) or the
enforcement of any of the terms hereof or of any such other documents, provided
--------
that no Bank shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the party to be indemnified.
10.06 Non-Reliance on Administrative Agent and Other Banks. Each Bank
----------------------------------------------------
agrees that it has, independently and without reliance on the Administrative
Agent or any other Bank, and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Company and its
Subsidiaries and decision to enter into this Agreement and that it will
independently and without reliance upon the Administrative Agent or any other
Bank, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own analysis and decisions in taking or not
taking action under this Agreement. The Administrative Agent shall not be
required to keep itself informed as to the performance or observance by the
Company of this Agreement or any other document referred to or provided for
herein or to inspect the Properties or books of the Company or any of its
Subsidiaries. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Administrative Agent
hereunder, the Administrative Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the affairs,
financial condition, operations, business, Properties, liabilities or prospects
of the Company or any of its Subsidiaries (or any of their Affiliates) that may
come into the possession of the Administrative Agent or any of its Affiliates.
10.07 Failure to Act. Except for action expressly required of the
--------------
Administrative Agent hereunder. the Administrative Agent shall in all cases be
fully justified in failing or refusing to act hereunder unless it shall receive
further assurances to its satisfaction from the Banks of their indemnification
obligations under Section 10.05 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.
10.08 Resignation of Administrative Agent. Subject to the appointment
-----------------------------------
and acceptance of a successor Administrative Agent as provided below, the
Administrative Agent may resign at any time by giving notice thereof to the
Banks and the Company. Upon any such resignation, the Majority Banks shall have
the right (with, so long as no Default shall have occurred and be continuing,
the consent of the Company, which consent shall not be unreasonably withheld or
delayed) to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within 30 days after the retiring
Administrative Agent's giving of notice of resignation of the retiring
Administrative Agent, then the retiring
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Administrative Agent may, on behalf of the Banks. (with. so long as no Default
shall have occurred and be continuing, the consent of the Company, which consent
shall not be unreasonably withheld or delayed) appoint a successor
Administrative Agent. that shall be a Bank that has an office in New York, New
York with a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights. powers, privileges and duties
of the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Section 10 shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Administrative Agent.
Section 11. Miscellaneous.
-------------
11.01 Waiver. No failure on the part of the Administrative Agent or
------
any Bank to exercise and no delay in exercising. and no course of dealing with
respect to. any' right, power or privilege under this Agreement shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege under this Agreement preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.
11.02 Notices. All notices, requests and other communications
-------
provided for herein (including, without limitation, any modifications of or
waivers, requests or consents under, this Agreement) shall be given or made in
writing (including, without limitation, by telecopy) to the intended recipient
at (a) if to any Company or the Administrative Agent, the "Address for Notices"
specified below its name on the signature pages hereof or (b) if to any Bank,
the address (or telecopy number) set forth in its Administrative Questionnaire;
or, as to any party, at such other address as shall be designated by such party
in a notice to each other party. Except as otherwise provided in this Agreement,
all such communications shall be deemed to have been duly given when transmitted
by telecopier or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid.
11.03 Expenses. Etc. The Company agrees to pay or reimburse each of
--------------
the Banks and the Administrative Agent for: (a) all reasonable out-of-pocket
costs and expenses of the Administrative Agent (including, without limitation,
the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy. special New
York counsel to Chase) in connection with the negotiation or preparation of any
modification, supplement or waiver of any of the terms of this Agreement
(whether or not consummated); (b) all reasonable out-of-pocket costs and
expenses of the Banks and the Administrative Agent (including, without
limitation, the reasonable fees and expenses of legal counsel) in connection
with (i) any Default and any
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enforcement or collection proceedings resulting therefrom, including, without
limitation, all manner of participation in or other involvement with (x)
bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation
proceedings, (y) judicial or regulatory proceedings and (z) workout,
restructuring or other negotiations or proceedings (whether or not the workout,
restructuring or transaction contemplated thereby is consummated) and (ii) the
enforcement of this Section 11.03; and (c) all transfer, stamp, documentary,
recording or other similar taxes. assessments or charges levied by any
governmental or revenue authority in respect of this Agreement or any other
document referred to herein.
The Company hereby agrees to indemnify the Administrative Agent and
each Bank and their respective directors, officers, employees, attorneys and
agents from, and hold each of them harmless against, any and all losses,
liabilities, claims, damages or expenses (without duplication of anything
covered by Section 5 hereof) incurred by any of them (including, without
limitation, any and all losses, liabilities, claims, damages or expenses
incurred by the Administrative Agent to any Bank, whether or not the
Administrative Agent or any Bank is a party thereto) arising out of or by reason
of any investigation or litigation or other proceedings (including any
threatened investigation or litigation or other proceedings) relating to the
Loans hereunder or any actual or proposed use by the Company or any of its
Subsidiaries of the proceeds of any of the Loans hereunder, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified).
11.04 Amendments. Etc. Except as otherwise expressly provided in this
---------------
Agreement, any provision of this Agreement may be modified or supplemented only
by an instrument in writing signed by the Company and the Majority Banks, or by
the Company and the Administrative Agent acting with the consent of the Majority
Banks, and any provision of this Agreement may be waived by the Majority Banks
or by the Administrative Agent acting with the consent of the Majority Banks;
provided that (a) no such modification, supplement or waiver shall: (i)
- --------
increase, or extend the term of the Commitment of any Bank, or extend the time
or waive any requirement for the reduction or termination of such Commitment,
without the written consent of such Bank; (ii) extend the date fixed for the
payment of principal of or interest on any Loan or any fee hereunder, without
the written consent of each Bank affected thereby; (iii) reduce the amount of
any such payment of principal, without the written consent of each Bank affected
thereby; (iv) reduce the rate at which interest is payable thereon or any fee is
payable hereunder, without the written consent of each Bank affected thereby;
(v) alter the rights or obligations of the Company to prepay Loans, without the
written consent of each Bank affected thereby; (vi) alter the terms of Sections
4.02 or 4.07(b) hereof or this Section 11.04, without the written consent of
each Bank; or (vii) modify the definition of the terms "Agreed Foreign Currency"
or "Majority Banks" or modify in any other manner the
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number or percentage of the Banks required to make any determinations or waive
any rights hereunder or to modify any provision hereof, without the written
consent of each Bank; and (b) any modification of any of the rights or
obligations of the Administrative Agent hereunder shall require the consent of
the Administrative Agent.
11.05 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
11.06 Assignments and Participations.
------------------------------
(a) The Company may not assign any of its rights or obligations
hereunder without the prior consent of all of the Banks and the Administrative
Agent.
(b) Any Bank may assign to one or more assignees all or a portion of
its rights and obligations under this Agreement (including all or a portion of
its Commitment and the Loans at the time owing to it) subject to the following;
(i) except in the case of an assignment to a Bank or an affiliate of a Bank,
each of the Company and the Administrative Agent shall have given their prior
written consent to such assignment (which consent shall not be unreasonably
withheld), (ii) except in the case of an assignment to a Bank or an affiliate of
a Bank or an assignment of the entire remaining amount of the assigning Bank's
Commitment the amount of the Commitment of the assigning Bank subject to each
such assignment (determined as of the date the Assignment and Acceptance with
respect to such assignment is delivered to the Administrative Agent) shall not
be less than $5,000,000 unless each of the Company and the Administrative Agent
otherwise consent, (iii) each partial assignment shall be made as an assignment
of a proportionate part of all the assigning Bank's rights and obligations under
this Agreement, (iv) the parties to each assignment shall execute and deliver to
the Administrative Agent an Assignment and Acceptance, together with a
processing and recordation fee of $3,000, and (v) the assignee, if it shall not
be a Bank, shall (x) be entitled to an exemption from withholding or deduction
by the Company of Taxes on all amounts to be received by it hereunder at least
the same extent as the assignor and (y) deliver to the Administrative Agent an
Administrative Questionnaire; provided further that any consent of the Company
-------- -------
otherwise required under this Section shall not be required if an Event of
Default under paragraph (f) or (g) of Section 9 has occurred and is continuing
with respect to the Company. Subject to acceptance and recording thereof
pursuant to paragraph (d) of this Section, from and after the effective date
specified in each Assignment and Acceptance the assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and
Acceptance, have the rights and obligations of a Bank under this Agreement, and
the assigning Bank thereunder shall, to the extent of the interest assigned by
such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of the
assigning Bank's rights and obligations under this Agreement, such Bank shall
cease to be a party hereto but shall
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continue to be entitled to the benefits of Sections 5.01. 5.04. 5.05 and 11.03).
Any assignment or transfer by a Bank of rights or obligations under this
Agreement that does not comply with this paragraph shall be treated for purposes
of this Agreement as a sale by such Bank of a participation in such rights and
obligations in accordance with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an agent of
the Company, shall maintain at one of its offices in The City of New York a copy
of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Banks, and the Commitment of, and
principal amount of the Loans owing to each Bank pursuant to the terms hereof
from time to time (the "Register"). The entries in the Register shall be
--------
conclusive, and the Company and the Banks may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Bank hereunder for
all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Company and any Bank, at any
reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Bank and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Bank
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Bank may without the consent of the Company, sell
participations to one or more banks or other entities (a "Participant") in all
or a portion of such Bank's rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided that (i) such Bank's obligations under this Agreement shall remain
- --------
unchanged, (ii) such Bank shall remain solely responsible to the other parties
hereto for the performance of such obligations and (iii) the Company and the
other Banks shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement. Any
agreement or instrument pursuant to which a Bank sells such a participation
shall provide that such Bank shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement; provided that such agreement or instrument may provide that
--------
such Bank will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the proviso to Section 11.04 that
affects such Participant. Subject to paragraph (f) of this Section the Company
agrees that each Participant shall be entitled to the benefits of Sections 5.01,
5.04 and 5.05 to the same extent as if it were a Bank and had
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acquired its interest by assignment pursuant to paragraph (b) of this Section.
To the extent permitted by law, each Participant also shall be entitled to the
benefits of Section 4.07(a) as though it were a Bank, provided that any exercise
by any Participant of any such benefits shall constitute the agreement of such
Participant to be subject to Section 4.07(b) as though it were a Bank.
(f) A Participant shall not be entitled to receive any greater
payment under Section 5.01 or 5.05 than the applicable Bank would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Company's prior written consent. A Participant shall not be entitled to the
benefits of Section 5.05 unless the Company is notified of the participation
sold to such Participant and such Participant agrees, for the benefit of the
Company, to bound by Section 5.05 as though it were a Bank.
(g) In addition to the assignments and participations permitted under
the foregoing provisions of this Section 11.06, any Bank may (without notice to
the Company, the Administrative Agent or any other Bank and without payment of
any fee) pledge or grant a security interest in all or any portion of its Loans
to secure any obligations of such Bank (including, without limitation, to any
Federal Reserve Bank as collateral security pursuant to Regulation A and any
Operating Circular issued by such Federal Reserve Bank). No such assignment
shall release the assigning Bank from its obligations hereunder.
(h) A Bank may furnish any information concerning the Company or any
of its Subsidiaries in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and participants),
subject, however, to the provisions of Section 11.12(b) hereof.
(i) Anything in this Section 11.06 to the contrary notwithstanding,
no Bank may assign or participate any interest in any Loan held by it hereunder
to the Company or any Affiliate or Subsidiary of the Company without the prior
consent of each Bank.
11.07 Survival. The obligations of the Company to any Bank under
--------
Sections 5.01, 5.04, 5.05, and 11.03 hereof, and the obligations of any Bank
under Sections 10.05 and 11.12 hereof, shall survive the repayment of the Loans
made by such Bank and the termination of the Commitment of such Bank and, in the
case of any Bank that may assign any interest in its Commitment or Loans
hereunder, shall survive the making of such assignment, notwithstanding that
such assigning Bank may cease to be a "Bank" hereunder. In addition, each
representation and warranty made, or deemed to be made by a notice of any Loan,
herein or pursuant hereto shall survive the making of such representation and
warranty, and no Bank shall be deemed to have waived, by reason of making any
Loan, any Default that (i) may arise by reason of such representation or
warranty proving to have
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been false or misleading or (ii) exists at the time such Loan was made,
notwithstanding that such Bank or the Administrative Agent may have had notice
or knowledge or reason to believe that such representation or warranty was false
or misleading, or that such Default was existing, at the time such Loan was
made.
11.08 Captions. The table of contents and captions and section
--------
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
11.09 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.10 Governing Law; Submission to Jurisdiction. This Agreement shall
-----------------------------------------
be governed by, and construed in accordance with, the law of the State of New
York. The Company hereby submits to the nonexclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York
state court sitting in New York County (and any appellate court from any
thereof) for the purposes of all legal proceedings arising out of or relating to
this Agreement or the transactions contemplated hereby. The Company irrevocably
waives, to the fullest extent permitted by applicable law, any objection that it
may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum. The Company hereby irrevocably
agrees and consents that service of process in any such legal proceeding in any
such court may be made on the Company by the mailing thereof by registered mail
postage prepaid or by transmitting the same by telecopier, to the Company in
the manner specified in Section 11.02 hereof, and any such service shall be
deemed good and effective when transmitted by telecopier or, in the case of
mail, upon receipt; provided that nothing herein will affect the right of any
Bank or the Administrative Agent to serve process in any other manner permitted
by law.
To the extent that the Company has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution or execution on the ground of sovereignty or otherwise) with respect
to itself or its Property, it hereby irrevocably waives, to the fullest extent
permitted by applicable law, such immunity in respect of its obligations under
this Agreement.
11.11 Waiver of Jury Trial. EACH OF THE COMPANY, THE ADMINISTRATIVE
--------------------
AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR
Credit Agreement
----------------
<PAGE>
-56-
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11.12 Confidentiality. Each of the Banks and the Administrative
---------------
Agent agrees (on behalf of itself and each of its Affiliates, directors,
officers, employees and representatives) to use reasonable precautions to keep
confidential, in accordance with its customary procedures for handling
confidential information of the same nature and in accordance with safe and
sound banking practices, any non-public information supplied to it by the
Company pursuant to this Agreement that is identified by the Company as being
confidential at the time the same is delivered to the Banks or the
Administrative Agent; provided that nothing herein shall limit the disclosure of
--------
any such non-public information (i) to the extent required by statute, rule,
regulation or judicial process, (ii) to counsel for any of the Banks or the
Administrative Agent, (iii) to bank examiners, auditors or accountants, (iv) to
the Administrative Agent or any other Bank (or to Chase Securities Inc.), (v) in
connection with any litigation to which any one or more of the Banks or the
Administrative Agent is a party, (vi) to a subsidiary or Affiliate of such Bank
as provided in paragraph (a) above or (vii) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first executes and delivers to the
respective Bank a Confidentiality Agreement substantially in the form of Exhibit
C hereto; and provided, further, that in no event shall any Bank or the
--------
Administrative Agent be obligated or required to return any materials furnished
by the Company. The obligations of any assignee that has executed a
Confidentiality Agreement in the form of Exhibit C hereto shall be superseded by
this Section 11.12 upon the date upon which such assignee becomes a Bank
hereunder pursuant to Section 11.06 hereof.
11.13 Judgment Currency. This is an international loan transaction
-----------------
in which the specification of Dollars or any Foreign Currency, as the case may
be (the "Specified Currency"), and any payment in New York County or the country
------------------
of the Specified Currency as the case may be (the "Specified Place"), is of the
---------------
essence, and the Specified Currency shall be the currency of account in all
events relating to Loans denominated in the Specified Currency. The payment
obligations of the Company under this Agreement shall not be discharged by an
amount paid in another currency or in another place, whether pursuant to a
judgment or otherwise, to the extent that the amount so paid on conversion to
the Specified Currency and transfer to the Specified Place under normal banking
procedures does not yield the amount of the Specified Currency at the Specified
Place due hereunder. If for the purpose of obtaining judgment in any court it is
necessary to convert a sum due hereunder in the Specified Currency into another
currency (the "Second Currency"), the rate of exchange which shall be applied
---------------
shall be that at which in accordance with normal banking procedures the
Administrative Agent could purchase the Specified Currency with the Second
Currency on the Business Day next preceding that on which such judgment is
rendered. The obligation of the Company in respect of any such sum due from it
to the Administrative Agent or any Bank
Credit Agreement
----------------
<PAGE>
-57-
hereunder shall, notwithstanding the rate of exchange actually applied in
rendering such judgment, be discharged only to the extent that on the Business
Day following receipt by the Administrative Agent or such Bank, as the case may
be, of any sum adjudged to be due hereunder in the Second Currency to the
Administrative Agent or such Bank, as the case may be, the Administrative Agent
or such Bank, as the case may be, may in accordance with normal banking
procedures purchase and transfer to the Specified Place the Specified Currency
with the amount of the Second Currency so adjudged to be due: and the Company
hereby, as a separate obligation and notwithstanding any such judgment, agrees
to indemnify the Administrative Agent or such Bank, as the case may be,
against, and to pay the Administrative Agent or such Bank, as the case may be,
on demand in the Specified Currency, any difference between the sum originally
due to the Administrative Agent or such Bank. as the case may be, in the
Specified Currency and the amount of the Specified Currency so purchased and
transferred.
11.14 European Monetary Union. (a) If, as a result of the
-----------------------
implementation of European monetary union, (i) any European Currency ceases to
be lawful currency of the nation issuing the same and is replaced by a European
common currency (the "Euro"), or (ii) any European Currency and the Euro are at
the same time recognized by any Governmental Authority of the nation issuing
such European Currency as lawful currency of such nation and the Administrative
Agent or the Majority Banks shall so request in a notice delivered to the
Company, then any amount payable hereunder by any party hereto in such European
Currency shall instead be payable in the Euro and the amount so payable shall be
determined by translating the amount payable in such European Currency to the
Euro at the exchange rate recognized by the European Central Bank for the
purpose of implementing European monetary union. Prior to the occurrence of the
event or events described in clause (i) or (ii) of the preceding sentence, each
amount payable hereunder in any European Currency will, except as otherwise
provided herein, continue to be payable only in that Currency.
(b) The Company agrees, at the request of any Bank, to
compensate such Bank for any loss, cost, expense or reduction in return that
such Bank shall reasonable determine shall be incurred or sustained by such Bank
as a result of the implementation of European monetary union and that would not
have been incurred or sustained but for the transactions provided for herein. A
certificate of a Bank setting forth such Bank's determination of the amount or
amounts necessary to compensate such Bank shall be delivered to the Company and
shall be conclusive absent manifest error so long as such determination is made
on a reasonable basis. The Company shall pay such Bank the amount shown as due
on any such certificate within 10 days after receipt thereof.
(c) The parties hereto agree, at the time of or at any time
following the implementation of European monetary union, to use reasonable
efforts to enter into an agreement amending this Agreement in order to reflect
the implementation of such monetary
Credit Agreement
----------------
<PAGE>
-58-
union, to permit (if feasible) the Euro to qualify as an Agreed Foreign
Currency under the terms and conditions of the definition of such term and to
place the parties hereto in the position with respect to the settlement of
payments of the Euro as they would have been with respect to the settlement of
the Currencies it replaced.
Credit Agreement
----------------
<PAGE>
-59-
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
MID OCEAN LIMITED
By: /s/ Charles F. Hays,
--------------------------
Name: Charles F. Hays,
Title: Senior Vice President,
Chief Financial and Administrative Officer.
Address for Notices:
Mid Ocean Limited
6th Floor, Richmond House
12 Par-La-Ville Road
Hamilton, HM 08, Bermuda
Attention: Charles F. Hays
Telecopier No.: (441) 292-0876
Telephone No.: (441) 292-1358
BANKS
-----
THE CHASE MANHATTAN BANK
By: /s/ Heather Lindstrom
-------------------------
Title: Vice President
CITIBANK N.A.
By /s/ Andrew C. Fowler
------------------------
Title: V.P
By________________________
Title:
Credit Agreement
----------------
<PAGE>
-60-
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By /s/ John S. McGill
----------------------------
John S. McGill
Title: Vice President
By /s/ Gayma Z. Shivnarain
-----------------------------
Gayma Z. Shivnarain
Title: Vice President
MELLON BANK, N.A.
By____________________________
Title:
ROYAL BANK OF CANADA
By____________________________
Title:
THE BANK OF BERMUDA LIMITED
By____________________________
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By____________________________
Title:
Credit Agreement
----------------
<PAGE>
Exhibit 10.14.2
AMENDMENT NO. 1 TO CREDIT AGREEMENT (5-YEAR)
AMENDMENT NO. 1 dated as of August 5, 1998, between MID OCEAN LIMITED,
a corporation duly organized and validly existing under the laws of the Cayman
Islands (the "Company"); each of the lenders that is a signatory hereto
-------
(individually, a "Bank" and, collectively, the "Banks"); and THE CHASE MANHATTAN
---- -----
BANK, as administrative agent for the Banks (in such capacity, together with its
successors in such capacity, the "Administrative Agent").
--------------------
The Company, the Banks and the Administrative Agent are parties to a
Credit Agreement (5-Year) dated as of September 2, 1997 (the "Credit
------
Agreement"), providing, subject to the terms and conditions thereof, for loans
- ---------
to be made by said Banks to the Company in an aggregate principal amount not
exceeding $100,000,000. The Company, the Banks and the Administrative Agent wish
to amend the Credit Agreement in certain respects, and accordingly, the parties
hereto hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this
-----------
Amendment No. 1, terms defined in the Credit Agreement are used herein as
defined therein.
Section 2. Amendments. Upon the execution of this Amendment No. 1 by
----------
the Company and the Majority Banks, the Credit Agreement shall be amended as
follows:
2.01. References in the Credit Agreement (including references to the
Credit Agreement as amended hereby) to "this Agreement" (and indirect references
such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be
references to the Credit Agreement as amended hereby.
2.02. Section 1.01 of the Credit Agreement shall be amended by adding
the following new definitions (to the extent not already included in said
Section 1.01) and inserting the same in the appropriate alphabetical locations
and amending the following definitions (to the extent already included in said
Section 1.01), as follows:
"Change of Control" shall mean (a) the acquisition of ownership,
-----------------
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of
the SEC thereunder as in effect on the date hereof), other than Exel or
Exel Holdings, of shares representing more than 35% of the aggregate
ordinary voting power represented by the issued and outstanding capital
stock of the Company; or (b) occupation of a majority of the seats (other
than vacant seats) on the Board of Directors by Persons who were not (i)
nominated by the Board of Directors; (ii) appointed by directors so
nominated or (iii) elected by EXEL or Exel Holdings in their capacities as
shareholders of the Company.
"EXEL" shall mean EXEL Limited, a corporation duly organized and
----
validly existing under the laws of the Cayman Islands.
"Exel Holdings" shall mean any Person that owns directly or indirectly
-------------
all or substantially all of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of EXEL.
Amendment No. 1 to Credit Agreement (5-Year)
-------------------------------------------
<PAGE>
-2-
"Exel Group" shall mean EXEL, Exel Holdings and, at any time, each
---------
Subsidiary of either Exel or Exel Holdings that as of such time meets the
definition of a "significant subsidiary" contained as of the date hereof in
Regulation S-X of the SEC.
"Mid Ocean Reinsurance" shall mean Mid Ocean Reinsurance Company Limited, a
---------------------
Wholly-Owned Insurance Subsidiary of the Company, any successor thereto, and
from and after the XL Reinsurance Amalgamation, the resulting Person.
"XL Insurance" shall mean X.L. Insurance Company, Ltd., a corporation duly
------------
organized and validly existing under the laws of Bermuda, all of whose capital
stock is owned by EXEL.
"XL Reinsurance Amalgamation" shall mean the amalgamation of X.L. Global
---------------------------
Reinsurance Company, Ltd. with Mid Ocean Reinsurance in accordance with Bermuda
law.
2.03. The definition of "Indebtedness" in Section 1.01 of the Credit
Agreement is hereby amended by replacing "and" at the end of clause (i) thereof
with a comma and by replacing the period at the end of clause (ii) thereof with
the following:
"and (iii) liabilities arising in the ordinary course of business of
an insurance Subsidiary as an insurance company or a corporate member of
Lloyd's and not arising in connection with the borrowing of money or other
financing activities of such Insurance Subsidiary or an Affiliate thereof."
2.04. Section 6.02 of the Credit Agreement is hereby amended by replacing
"; and" at the end of clause (a) thereof with ";", replacing the period at the
end of clause (b) thereof with "; and", and by inserting a new clause (c) after
clause (b) thereof as follows:
"(c) the Company has delivered to the Administrative Agent for each
Bank with the notice of borrowing, Federal Reserve Forms U-1 duly completed
and, if the Company fails to deliver such Federal Reserve Form U-1, it
shall be deemed to have represented and warranted that immediately after
giving effect to such Loan, not more than 25% of the value (as determined
by any reasonable method) of the property subject to Section 8.04 or 8.05
hereof consists of Margin Stock."
2.05. Section 7.07 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"7.07 Use of Credit. No part of the proceeds of the Loans hereunder
-------------
will be used to buy or carry any Margin Stock; provided that at any time
--------
that the Company is a Wholly-Owned Subsidiary of Exel Holdings, proceeds of
Loans hereunder may be used to buy or redeem capital stock of EXEL or Exel
Holdings or to make payments of cash in lieu of shares of Exel Holdings to
holders of common stock of EXEL or of the Company who would otherwise be
entitled to receive shares of common stock or Excel Holdings in connection
with the acquisition by EXEL Holdings of the capital stock of Company if,
immediately after giving effect to the making of any such Loan hereunder,
not more than 25% of the value (as determined by any
Amendment No. 1 to Credit Agreement (5-Year)
--------------------------------------------
<PAGE>
-3-
reasonable method) of the Property subject to Section 8.04 or 8.05 hereof
consists of Margin Stock."
2.06. Section 8.04(b) of the Credit Agreement is hereby amended to read
in its entirety as follows:
"(b) the Company or any Material Subsidiary may merge, amalgamate or
consolidate with any other Person if (i) in the case of a merger, amalgamation
or consolidation of the Company, the Company is the surviving corporation and,
in any other case, the surviving or resulting corporation is, immediately after
giving effect to such merger, amalgamation or consolidation, a Wholly-Owned
Subsidiary of the Company and (ii) immediately after giving effect thereto no
Default would exist hereunder."
2.07. Section 8.12 of the Credit Agreement is hereby amended to read in
its entirety as follows:
"8.12 Indebtedness. The Company will not permit Mid Ocean
------------
Reinsurance,any Affiliate or Subsidiary of the Company having direct or indirect
ownership of Mid Ocean Reinsurance or any Subsidiary of Mid Ocean Reinsurance
to, create, incur or suffer to exist any Debt or any Guarantee of Indebtedness
of any other Person, except for:
(i) Debt or Guarantees of Indebtedness outstanding on the date
hereof and listed in Schedule IV hereto;
(ii) Indebtedness of X.L. Global Reinsurance Company, Ltd.
outstanding on the date of the XL Reinsurance Amalgamation to the extent that
such Indebtedness was outstanding before the XL Reinsurance Amalgamation and not
created in anticipation thereof; and
(iii) from and after the XL Reinsurance Amalgamation, Indebtedness
of Mid Ocean Reinsurance incurred pursuant to (a) that certain Revolving
Credit Agreement (364-Day) dated as if June 6, 1997, as amended in
contemplation of the XL Reinsurance Amalgamation, between XL Insurance and X.L.
Reinsurance Company, Ltd., as Borrowers, XL Insurance and Exel Acquisition Ltd.,
as Guarantors, the Banks party thereto and Mellon Bank N.A., as Agent, in an
aggregate principal amount not to exceed $50,000,000 and (b) that certain
Revolving Credit Agreement (5-Year) dated as of June 6, 1997, as amended in
contemplation of the XL Reinsurance Amalgamation, between XL Insurance and X.L.
Reinsurance Company, Ltd., as Borrowers, XL Insurance and Exel Acquisition Ltd.,
as Guarantors, the Banks party thereto and Mellon Bank N.A., as Agent, in an
aggregate principal amount not to exceed $50,000,000.
2.08. Sections 8.01(c) and 8.01(d) of the Credit Agreement are hereby
amended to read in their entirety as follows:
"(c) within 5 days after filing with the Applicable Insurance
Regulatory Authority and in any event no later than 5 days after the date by
which it is required to be filed by the Applicable
Amendment No.1 to Credit Agreement (5 - Year)
---------------------------------------------
<PAGE>
-4-
Insurance Regulatory Authority the quarterly Statutory Statement of each
Material Insurance Subsidiary, together with a certificate of a senior
financial officer of the Company or of such Subsidiary stating that such
Statutory Statement fairly presents, in all material respects, the
financial condition of each Material Insurance Subsidiary, respectively,
for the period covered thereby in accordance with statutory accounting
practices required or permitted by the Applicable Insurance Regulatory
Authority;
(d) within 5 days after filing with the Applicable Insurance
Regulatory Authority and in any event no later than 5 days after the date
by which it is required to be filed by the Applicable Insurance Regulatory
Authority the annual Statutory Statement of each Material Insurance
Subsidiary, together with an Officer's Certificate stating that such annual
Statutory Statement fairly presents, in all material respects, the
financial condition of each Material Insurance Subsidiary, respectively,
for the period covered thereby in accordance with statutory accounting
practices required or permitted by the Applicable Insurance Regulatory
Authority."
2.09. Section 9(b) of the Credit Agreement is hereby amended by replacing
"The Company or any of its Subsidiaries" with "The Company or any of its
Subsidiaries or any member of the Exel Group" therein.
2.10. Sections 9(e), 9(f) and 9(g) of the Credit Agreement are hereby
amended by (i) replacing "The Company or any of its Material Subsidiaries" with
"The Company or any of its Material Subsidiaries or any number of the Exel
Group" therein and (ii) replacing "Company or such Subsidiary" with "Company,
such Subsidiary of the Company or such member of the Exel Group" in 9(f) and
9(g) therein.
2.11. Section 9 of the Credit Agreement is hereby amended by replacing ";"
in clause (i) thereof with ": or" and by adding a new clause (j) after clause
(i) as follows:
"(j) Exel Holdings shall, at any time, enter into a Guarantee ("EXCEL
-----
Guarantee") of any Indebtedness of EXEL or XL Insurance without also
Guaranteeing the Indebtedness of the Company hereunder pursuant to a guaranty
agreement substantially similar to the EXEL Guarantee."
Section 3. Miscellaneous. Except as herein provided, the Credit Agreement
-------------
shall remain unchanged and in full force and effect. This Amendment No. 1 may
be executed in any number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and any of the parties hereto
may execute this Amendment No. 1 by signing any such counterpart. This
Amendment No. 1 shall be governed by, and construed in accordance with, the law
of the State of New York.
Amendment No. 1 to Credit Agreement (5-Year)
--------------------------------------------
<PAGE>
-5-
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be duly
executed and delivered as of the day and year first above written.
MID OCEAN LIMITED
By: /s/ Michael A. Butt
------------------------
Michael A. Butt
President and Chief Executive Officer
BANKS
-----
THE CHASE MANHATTAN BANK
By: /s/
------------------------
Title: Vice President
CITIBANK N.A.
By: /s/ Malcom Constable
------------------------
Malcolm Constable, VP
Vice President Citibank, N.A.
DEUTSCHE BANK AG. NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By: /s/ John S. McGill
------------------------
John S. McGill
Vice President
By: /s/ Eckhard Osenberg
------------------------
Eckhard Osenberg
Vice President
Amendment No. 1 to Credit Agreement (5-Year)
<PAGE>
-6-
MELLON BANK, N.A.
By: /s/
------------------------
Title: Vice President
ROYAL BANK OF CANADA
By: /s/
------------------------
Title:
THE BANK OF BERMUDA LIMITED
By: /s/
------------------------
Title: Assistant Vice President, Corporate Banking
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Sebastian Rocco
------------------------
Title: Sebastian Rocco
Senior Vice President
STATE STREET BANK AND TRUST COMPANY
By: /s/ Edward M. Anderson
------------------------
Title: Vice President
Amendment No. 1 to Credit Agreement (5-Year)
<PAGE>
-7-
BANQUE NATIONALE DE PARIS
By: /s/ Frances Melville
---------------------------
Title: Frances Melville
Assistant Treasurer
By: /s/ Veronique Marcus
---------------------------
Title: Veronique Marcus
Assistant Vice President
THE BANK OF NOVA SCOTIA
By: /s/
---------------------------
Title: Senior Relationship Manager
Amendment No. 1 to Credit Agreement (5-Year)
<PAGE>
Exhibit 10.14.3
=============================
MID OCEAN LIMITED
--------------------
CREDIT AGREEMENT (364-DAY)
Dated as of September 2, 1997
____________________
$100,000,000
____________________
THE CHASE MANHATTAN BANK
as Administrative Agent
=============================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Section 1. Definitions and Accounting Matters..................................... 1
1.01 Certain Defined Terms............................................ 1
1.02 Accounting Terms; GAAP........................................... 15
1.03 Currencies and Types of Loans.................................... 16
Section 2. Commitments, Loans and Prepayments..................................... 16
2.01 Loans............................................................ 16
2.02 Borrowings of Loans.............................................. 17
2.03 Changes of Commitments; Reduction of Maximum Loan Amounts........ 17
2.04 Fees............................................................. 17
2.05 Lending Offices.................................................. 18
2.06 Several Obligations; Remedies Independent........................ 18
2.07 Evidence of Debt................................................. 18
2.08 Optional Prepayments............................................. 18
2.09 Mandatory Prepayments............................................ 19
2.10 Extension of Commitment Termination Date......................... 19
Section 3. Payments of Principal and Interest..................................... 21
3.01 Repayment of Loans............................................... 21
3.02 Interest......................................................... 21
Section 4. Payments; Pro Rata Treatment; Computations; Etc........................ 22
4.01 Payments......................................................... 22
4.02 Pro Rita Treatment............................................... 23
4.03 Computations..................................................... 24
4.04 Minimum Amounts.................................................. 24
4.05 Certain Notices.................................................. 25
4.06 Non-Receipt of Funds by the Administrative Agent................. 26
4.07 Sharing of Payments, Etc......................................... 27
Section 5. Yield Protection, Etc.................................................. 28
5.01 Additional Costs................................................. 28
5.02 Limitation on Types and Currencies of Loans...................... 30
5.03 Treatment of Affected Loans...................................... 31
5.04 Compensation..................................................... 31
5.05 Taxes............................................................ 32
5.06 Replacement of Banks............................................. 33
Section 6. Conditions Precedent................................................... 34
6.01 Initial Loan..................................................... 34
6.02 Initial and Subsequent Loan...................................... 35
</TABLE>
-i-
Credit Agreement
----------------
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7. Representations and Warranties........................................ 36
7.01 Corporate Existence.............................................. 36
7.02 Financial Condition.............................................. 36
7.03 Litigation....................................................... 37
7.04 No Breach........................................................ 37
7.05 Action........................................................... 37
7.06 Approvals........................................................ 37
7.07 Use of Credit.................................................... 38
7.08 ERISA............................................................ 38
7.09 Taxes............................................................ 38
7.10 Investment Company Act........................................... 38
7.11 Public Utility Holding Company Act............................... 38
7.12 Environmental Matters............................................ 38
7.13 Subsidiaries, Etc................................................ 39
7.14 Stamp Taxes...................................................... 39
7.15 Legal Form....................................................... 39
7.16 True and Complete Disclosure..................................... 39
7.17 Withholding of Taxes............................................. 40
Section 8. Covenants of the Company.............................................. 40
8.01 Financial Statements, Etc........................................ 40
8.02 Existence, Etc................................................... 42
8.03 Insurance........................................................ 43
8.04 Prohibition of Fundamental Changes............................... 43
8.05 Limitation on Liens.............................................. 44
8.06 Certain Financial Covenants...................................... 45
8.07 Ratings.......................................................... 45
8.08 Use of Proceeds.................................................. 45
8.09 Transactions with Affiliates..................................... 46
8.10 Compliance with Laws............................................. 46
8.11 Payment of Obligations........................................... 46
8.12 Indebtedness..................................................... 46
8.13 Capital and Surplus of Mid Ocean Reinsurance..................... 46
Section 9. Events of Default..................................................... 46
Section 10. The Administrative Agent.............................................. 49
10.01 Appointment, Powers and Immunities............................... 49
10.02 Reliance by Administrative Agent................................. 50
10.03 Defaults......................................................... 50
10.04 Rights as a Bank................................................. 50
10.05 Indemnification.................................................. 51
10.06 Non-Reliance on Administrative Agent and Other Banks............. 51
</TABLE>
-ii-
Credit Agreement
----------------
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
10.07 Failure to Act.................................................... 51
10.08 Resignation of Administrative Agent............................... 52
Section 11. Miscellaneous.......................................................... 52
11.01 Waiver............................................................ 52
11.02 Notices........................................................... 52
11.03 Expenses, Etc..................................................... 53
11.04 Amendments, Etc................................................... 53
11.05 Successors and Assigns............................................ 54
11.06 Assignments and Participations.................................... 54
11.07 Survival.......................................................... 57
11.08 Captions.......................................................... 57
11.09 Counterparts...................................................... 57
11.10 Governing Law; Submission to Jurisdiction......................... 57
11.11 Waiver of Jury Trial.............................................. 58
11.12 Confidentiality................................................... 58
11.13 Judgment Currency................................................. 59
11.14 European Monetary Union........................................... 59
</TABLE>
SCHEDULE I - Subsidiaries
SCHEDULE II - Commitments
SCHEDULE III - Liens
SCHEDULE IV - Indebtedness
EXHIBIT A-1 - Form of Opinion of Special Cayman Islands Counsel to the Company
EXHIBIT A-2 - Form of Opinion of Special Bermuda Counsel to the Company
EXHIBIT A-3 - Form of Opinion of Special New York Counsel to the Company
EXHIBIT B - Form of Opinion of Special New York Counsel to Chase
EXHIBIT C - Form of Confidentiality Agreement
EXHIBIT D - Form of Assignment and Acceptance
EXHIBIT E - Form of Promissory Note
-iii-
Credit Agreement
----------------
<PAGE>
CREDIT AGREEMENT (364-DAY) dated as of September 2, 1997, between:
MID OCEAN LIMITED, a corporation duly organized and validly existing
under the laws of the Cayman Islands (the "Company")
-------
Each of the lenders that is a signatory hereto identified under the
caption "BANKS" on the signature pages hereto or that, pursuant to Section
11.06(b) hereof, shall become a "Bank" hereunder; and
THE CHASE MANHATTAN BANK, a New York banking corporation, as
administrative agent for the Banks (in such capacity, together with its
successors in such capacity, the "Administrative Agent").
--------------------
The Company has requested that the Banks make loans to it in an
aggregate principal amount not exceeding $lO0,000,000 at any one time
outstanding in U.S. Dollars and in certain other foreign currencies, and the
Banks are prepared to make such loans upon the terms and conditions hereof.
Accordingly, the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
----------------------------------
1.01 Certain Defined Terms. As used herein, the following terms shall
---------------------
have the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):
---- -----
"Administrative Agent's Account" shall mean, for each Currency, an
------------------------------
account in respect of such Currency designated by the Administrative Agent in a
notice to the Company and the Banks.
"Administrative Questionnaire" shall mean an Administrative
----------------------------
Questionnaire in a form supplied by the Administrative Agent.
"Affiliate" shall mean any Person that directly or indirectly
---------
controls, or is under common control with, or is controlled by, the Company and,
if such Person is an individual, any member of the immediate family (including
parents, spouse, children and siblings) of such individual and any trust whose
principal beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such member or trust As
used in this definition, "control" (including, with its correlative meanings,
-------
"controlled by" and "under common control with") shall mean possession, directly
------------- -------------------------
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise), provided that, in any event, any
--------
Person that owns directly or indirectly securities having 25% or more of the
voting power for the election of directors or other governing body of a
corporation or 25% or more of the partnership or other ownership interests of
any other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person. Notwithstanding the
foregoing, (a) no individual shall be an
Credit Agreement
----------------
<PAGE>
-2-
Affiliate solely by reason of his or her being a director. officer or employee
of the Company or any of its Subsidiaries, (b) the Company and its Subsidiaries
shall not be Affiliates of each other, and (c) neither the Administrative Agent
nor any Bank shall be an Affiliate.
"Agreed Foreign Currency" shall mean at any time any of Australian
-----------------------
Dollars. English Pounds Sterling, Japanese Yen, New Zealand Dollars and, with
the agreement of each Bank, any other Foreign Currency, so long as at such time
(a) such Currency is dealt with in the London (or, in the case of English Pounds
Sterling, Paris) interbank deposit market, (b) such Currency is freely
transferable and convertible into Dollars in the London foreign exchange market
and (c) no central bank or other governmental authorization in the country of
issue of such Currency is required to permit use of such Currency by any Bank
for making any Loan hereunder and/or to permit the Company to borrow and repay
the principal thereof and to pay the interest thereon, unless such authorization
has been obtained and is in full force and effect.
"Assumed Reinsurance" shall mean reinsurance assumed by any Insurance
-------------------
Subsidiary from another Person (other than from another Insurance Subsidiary).
"Applicable Facility Fee Rate" and "Applicable Margin" shall mean,
----------------------------------------------------
during any period when any Rating Group set forth below is applicable, with
respect to any facility fee payable hereunder or any Type of Loan outstanding
hereunder, the percentage set forth below opposite such fee or Type of Loan
under such Rating Group:
<TABLE>
<CAPTION>
=================================================================
Rating Rating Rating
Fee or Loan Group Group Group
I II III
-----------------------------------------------------------------
<S> <C> <C> <C>
Facility Fee 0.050% 0.070% 0.100%
Eurocurrency
Loans 0.175% 0.255% 0.375%
-----------------------------------------------------------------
Base Rate Loans 0.000% 0.000% 0.000%
=================================================================
</TABLE>
For the purposes of this Agreement, any change in the Applicable Facility Fee
Rate or Applicable Margin for any facility fee or any outstanding Loans by
reason of (a) a change in the Standard & Poor's Rating shall become effective on
the date of announcement or publication of a change in such rating or, in the
absence of such announcement or publication, on the effective date of such
changed rating and (b) any other change in the Rating Group shall become
effective on the date of the occurrence of the event that resulted in such
change in the Rating Group.
Credit Agreement
----------------
<PAGE>
-3-
"Applicable Insurance Regulatory Authority" shall mean, with respect
-----------------------------------------
to any Insurance Subsidiary, the insurance department or similar insurance
regulatory or administrative authority or agency of the jurisdiction in which
such Insurance Subsidiary is domiciled.
"Applicable Lending Office" shall mean, for each Bank and for each
-------------------------
Type and Currency of Loan, the "Lending Office" of such Bank (or of an Affiliate
of such Bank) designated for such Type and Currency of Loan in the
Administrative Questionnaire submitted by such Bank or such other office of such
Bank (or of an Affiliate of such Bank) as such Bank may from time to time
specify to the Administrative Agent and the Company as the office by which its
Loans of such Type and Currency are to be made and maintained.
"Assignment and Acceptance" shall mean an assignment and acceptance
-------------------------
entered into by a Bank and an assignee (with the consent of any Person whose
consent is required by Section 11.06(b) hereof), and accepted by the
Administrative Agent, in the form of Exhibit D hereto or any other form approved
by the Administrative Agent.
"Bank" shall mean each of the lenders that is a signatory hereto
----
identified under the caption "BANKS" on the signature pages hereto or that,
pursuant to Section 11.06(b) hereof, shall become a "Bank" hereunder.
"Base Rate" means, for any day, a rate per annum equal to the higher
---------
of (a) the Prime Rate in effect on such day and (b) the Federal Funds Rate in
effect on such day plus 1/2 of 1%. Any change in the Base Rate due to a change
in the Prime Rate or the Federal Funds Rate shall be effective from and
including the effective date of such change in the Prime Rate or the Federal
Funds Rate, respectively.
"Base Rate Loans" shall mean Loans denominated in Dollars that bear
---------------
interest at rates based upon the Base Rate.
"Basis Accord" shall mean the proposals for risk-based capital
------------
framework described by the Basle Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended, modified
and supplemented and in effect from time to time or any replacement thereof.
"Best Rating" shall mean, as at any date, the rating of Mid Ocean
-----------
Reinsurance most recently published by A.M. Best Company, Inc.
"Board of Directors" shall mean the Board of Directors of the Company
------------------
or any duly authorized committee thereof.
Credit Agreement
----------------
<PAGE>
-4-
"Board Resolution" shall mean a copy of a resolution certified by the
----------------
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors, and to be in full force and effect on the date of the
certificate and delivered to the Administrative Agent.
"Business Day" shall mean any day (a) on which commercial banks are
------------
not authorized or required to close in New York City, (b) if such day relates to
a borrowing of, a payment or prepayment of principal of or interest on, or the
interest Period for, a Eurocurrency Loan or a notice by the Company with respect
to any such borrowing, payment, prepayment or Interest Period, that is also a
day on which dealings in deposits denominated in the Currency of such Loan are
carried out in the London interbank market and (c) if such day relates to a
borrowing of, a payment or prepayment of principal of or interest on, or the
Interest Period for, any Loan denominated in any Foreign Currency or a notice by
the Company with respect to any such borrowing, payment, prepayment or Interest
Period, that is also a day on which commercial banks settle payments in the
Principal Financial Center for the Currency in which such Loan is denominated
and in which the London foreign exchange market settles payments in such
Currency.
"Capital and Surplus" shall mean, as at any date for any Person, the
-------------------
aggregate amount of policyholders surplus (determined in accordance with SAP) of
such Person.
"Capital Lease Obligations" shall mean, for any Person, all
-------------------------
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Ceded Reinsurance" shall mean reinsurance ceded by any Insurance
-----------------
Subsidiary to any other Person (other than to another Insurance Subsidiary),
other than Surplus Relief Reinsurance.
"Change of Control" shall mean (a) the acquisition of ownership,
-----------------
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of the
SEC thereunder as in effect on the date hereof) of shares representing more than
35% of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Company; or (b) occupation of a majority of the
seats (other than vacant seats) on the Board of Directors by Persons who were
neither (i) nominated by the Board of Directors nor (ii) appointed by directors
so nominated.
Credit Agreement
----------------
<PAGE>
-5-
"Chase" shall mean The Chase Manhattan Bank.
-----
"Class" shall have the meaning assigned to such term in Section 1.03
-----
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
----
time to time.
"Commitment" shall mean, as to each Bank, the obligation of such Bank
----------
to make Loans pursuant to Section 2.01 hereof in an aggregate principal amount
at any one time outstanding up to but not exceeding the amount set opposite such
Bank's name on Schedule II hereto under the caption "Commitment" (as the same
may at any time or from time to time be reduced pursuant to Section 2.03 hereof
or be increased or reduced pursuant to Section 11.06 hereof).
"Commitment Termination Date" shall mean September 1, 1998, subject to
---------------------------
extension as provided in Section 2.10 hereof; provided that, if such date is not
a Business Day, the Commitment Termination Date shall be the next preceding
Business Day.
"Company Jurisdiction" shall mean (a) Bermuda, (b) the Cayman Islands
--------------------
and (c) any other country (i) where the Company is licensed or qualified to do
business or (ii) from which payments hereunder are made by the Company.
"Currency" shall mean Dollars or any Foreign Currency.
--------
"Debt" shall mean Indebtedness referred to in clauses (a) through (c),
----
inclusive, in the definition of the term Indebtedness.
"Default" shall mean an Event of Default or an event that with notice
-------
or lapse of time or both would become an Event of Default.
"Deferred Acquisition Expenses" shall mean, as at any date, the
-----------------------------
average of the deferred acquisition expenses for the Company and its
Subsidiaries (determined on a consolidated basis, without duplication, in
accordance with GAAP) for the four most recent Fiscal Dates.
"Derivative Transaction" shall mean (a) any "swap agreement" as
----------------------
defined in Section 101(53B) of the Bankruptcy Code (other than a spot foreign
exchange transaction), (b) any equity swap, floor, collar, cap or option
transaction, (c) any option to enter into any of the foregoing and (d) any
combination of the foregoing.
Credit Agreement
----------------
<PAGE>
-6-
"Dollar Equivalent" shall mean, with respect to any Loan denominated
-----------------
in any Foreign Currency, the amount of Dollars that would be required to
purchase the amount of the Foreign Currency of such Loan on the date such Loan
is requested (or (i) in the case of any determination made under Section 2.0
1(c) hereof, on the date of any borrowing referred to in said Section 2.0 1(c)
and (ii) in the case of any determination made under Section 2.09 or
redenomination under the last sentence of Section 4.01 hereof, on the date of
determination or redenomination therein referred to), based upon the spot
selling rate at which Chase offers to sell such Foreign Currency for Dollars in
the London foreign exchange market at approximately 11:00 a.m. London time for
delivery two Business Days later.
"Dollars" and "S" shall mean lawful money of the United States of
------- -
America.
"Environmental Laws" shall mean any and all present and future
------------------
Federal, state, local and foreign laws, rules or regulations, and any orders or
decrees, in each case as now or hereafter in effect, relating to the regulation
or protection of the environment or to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or toxic or hazardous
substances or wastes into the indoor or outdoor environment, including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or toxic or hazardous substances or wastes.
"Equity Rights" shall mean, with respect to any Person, any
-------------
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including, without limitation, any stockholders' or
voting trust agreements) for the issuance, sale, registration or voting of, or
outstanding securities convertible into, any additional shares of capital stock
of any class, or partnership or other ownership interests of any type in, such
Person.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time, and the regulations promulgated and the
rulings issued thereunder.
"ERISA Affiliate" shall mean any corporation or trade or business that
---------------
is a member of any group of organizations (i) described in Section 414(b) or (c)
of the Code of which the Company is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(II) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code, of which the
Company is a member.
Credit Agreement
----------------
<PAGE>
-7-
"ERISA Plan" shall mean any "employee benefit plan" (as defined in
----------
Section 3(3) of ERISA) or any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA that is or, within the preceding five years has been,
established or maintained, or to which contributions are or, within the
preceding five years have been, made or required to be made, by the Company or
any ERISA Affiliates or with respect to which the Company or any ERISA Affiliate
may have liability.
"Eurocurrency Base Rate" shall mean, with respect to any Eurocurrency
----------------------
Loan in Dollars or any Agreed Foreign Currency for the Interest Period therefor:
(a) the arithmetic mean, as calculated by the Administrative Agent,
of the respective rates per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) of the rates appearing on the Screen at approximately
11:00 a.m. London time (or as soon thereafter as practicable) two Business
Days prior to the first day of the Interest Period for such Loan as LIBOR
for such Currency having a term comparable to such Interest Period; or
(b) if the Screen shall cease to report such LIBOR or, in the
reasonable judgment of the Majority Banks, shall cease accurately to
reflect such LIBOR (as reported by any publicly available source of similar
market data selected by the Majority Banks that, in the reasonable judgment
of the Majority Banks, accurately reflects LIBOR for such Currency), the
Eurocurrency Base Rate shall mean, with respect to such Eurocurrency Loan
for such Interest Period the rate per annum (rounded upwards, if necessary,
to the nearest 1/16 of 1%), as determined by the Administrative Agent,
quoted by the Reference Bank at approximately 11:00 a.m. London time (or as
soon thereafter as practicable) two Business Days prior to the first day of
the Interest Period for such Eurocurrency Loan for the offering by the
Reference Bank to leading banks in the London (or, in the case of Loans
denominated in English Pounds Sterling, Paris) interbank market of deposits
denominated in such Currency having a term comparable to such Interest
Period and in an amount equal to $1,000,000 (or the Foreign Currency
Equivalent thereof).
"Euroccurrency Loans" shall mean Loans made to the Company in Dollars
-------------------
or any Agreed Foreign Currency, which Loans bear interest at rates based on
rates referred to in the definition of "Eurocurrency Base Rate" in this Section
1.01.
"Eurcurrency Rate" shall mean, for any Eurocurrency Loan for the
----------------
Interest Period therefor, a rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by the Administrative Agent to be equal to
the Eurocurrency Base Rate for such Loan for such Interest Period multiplied by
the Reserve Rate (if any) for such Interest Period.
Credit Agreement
----------------
<PAGE>
-8-
"Event of Default" shall have the meaning assigned to such term in
----------------
Section 10 hereof.
"Federal Funds Rate" shall mean, for any day, the rate per annum
------------------
(rounded upwards, if necessary, to the nearest 1/100 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, provided that (a) if the day for which such rate is to
--------
be determined 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 (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to Chase on such Business Day on such
transactions as determined by the Administrative Agent.
"Fiscal Dates" shall mean, with respect to the Company, January 31,
------------
April 30, July 31 and October 31 in each year.
"Foreign Benefit Plan" shall mean any plan, fund (including, without
--------------------
limitation, any superannuation fund) or other similar program established or
maintained outside the United States by the Company or a Subsidiary thereof,
with respect to which the Company or such Subsidiary has an obligation to
contribute, for the benefit of employees of the Company or the Subsidiary, which
plan, fund or other similar program provides, or results in, the type of
benefits described in Section 3(1) or 3(2) of ERISA, and which plan is not
subject to ERISA or the Code.
"Foreign Currency" shall mean at any time any Currency other than
----------------
Dollars.
"Foreign Currency Equivalent" shall mean, with respect to any amount
---------------------------
in Dollars, the amount of any Foreign Currency that could be purchased with such
amount of Dollars using the principal of the foreign exchange rate(s) specified
in the definition of the term "Dollar Equivalent", as determined by the
Administrative Agent.
"FRB" shall mean the Board of Governors of the Federal Reserve System
---
(or any successor thereto).
"GAAP" shall mean generally accepted accounting principles in the
----
United States of America.
"Governmental Authority" means the United States of America or any
----------------------
other nation, or any political subdivision of any thereof (whether state or
local), and any government, agency, authority, instrumentality, regulatory body,
court, central bank or other
Credit Agreement
----------------
<PAGE>
-9-
entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.
"Guarantee" shall mean a guarantee, an endorsement, a contingent
---------
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock or equity interests of any Person, or an agreement to purchase, sell
or lease (as lessee or lessor) Property, products, materials, supplies or
services primarily for the purpose of enabling a lebtor to make payment of such
debtor's obligations or an agreement to assure a creditor against loss, and
including, without limitation, causing a bank or other financial institution to
issue a letter of credit or other similar instrument for the benefit of another
Person, but excluding endorsements for collection or deposit in the ordinary
course of business. The terms "Guarantee" and "Guaranteed" used as a verb shall
--------- ----------
have a correlative meaning.
"Indebtedness" shall mean, for any Person: (a) indebtedness created,
------------
incurred or assumed by such Person for borrowed money or obligations of such
Person evidenced by bonds, debentures, promissory notes or similar instruments;
(b) obligations of such Person to pay the deferred purchase or acquisition price
of Property or services, other than trade accounts payable (other than for
borrowed money) arising, and accrued expenses incurred, in the ordinary course
of business; (c) Capital Lease Obligations of such Person; (d) Indebtedness of
others secured by a Lien on the Property of such Person, whether or not the
respective indebtedness so secured has been assumed by such Person; (e)
obligations of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for
account of such Person (other than letters of credit and banker's acceptances
arising in the ordinary course of such Person's business); and (f) Guarantees by
such Person of Indebtedness of others; provided that Indebtedness shall include
Surplus Relief Reinsurance but shall not include (i) obligations with respect to
insurance policies underwritten by, or Assumed Reinsurance underwritten by, or
Reinsurance Agreements entered into by, an Insurance Subsidiary in the ordinary
course of its business and (ii) commissions or other amounts payable in the
ordinary course of business to agents or to other representatives of any of the
Insurance Subsidiaries.
"Insurance Subsidiary" shall mean any Subsidiary of the Company that
--------------------
is licensed to conduct an insurance business by an Applicable Insurance
Regulatory Authority and provides capital to underwrite insurable risks.
Credit Agreement
----------------
<PAGE>
-10-
"Interest Period" shall mean:
---------------
(a) with respect to any Eurocurrency Loan, the period commencing on
the date such Loan is made and ending on the numerically corresponding day
in the first, second, third, or sixth calendar month thereafter, as the
Company may select as provided in Section 4.05 hereof, except that each
Interest Period that commences on the last Business Day of a calendar month
(or on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day
of the appropriate subsequent calendar month:
(b) with respect to any Base Rate Loan, the period commencing on the
date such Base Rate Loan is made and ending on the earlier of the first
Quarterly Date thereafter or the Commitment Termination Date.
Notwithstanding the foregoing: (i) if any Interest Period for any Loan would
otherwise end after the Commitment Termination Date in existence at the time
such Interest Period is selected, such Interest Period shall not be available
hereunder; (ii) each Interest Period that would otherwise end on a day that is
not a Business Day shall end on the next succeeding Business Day (or, in the
case of an Interest Period for a Eurocurrency Loan, if such next succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day); and (iii) notwithstanding clauses (i) and (ii) above, no Interest
Period for any Eurocurrency Loan shall have a duration of less than one month
and, if the Interest Period for any Eurocurrency Loan would otherwise be a
shorter period, such Interest Period shall not be available hereunder.
"LIBOR" shall mean, for any Currency, the rate at which deposits in
-----
such Currency are offered to lending banks in the London (or, in the case of
English Pounds Sterling, Paris) interbank market.
"Lien" shall mean, respect to any Property, any mortgage, deed of
----
trust, lien, pledge, charge or security interest (as defined in Section 1-
201(37) of the Uniform Commercial Code as in effect in the State of New York) of
any kind in respect of such Property (it being understood that a banker's right
of setoff, banker's lien or any similar right of a bank is not a Lien).
"Loans" shall mean Loans provided for by Section 2.01 hereof which may
-----
be Base Rate Loans or Eurocurrency Loans.
"Local Time" shall mean, with respect to any Loan denominated in or
----------
any payment to be made in any Currency, the local time in the Principal
Financial Center for the Currency in which such Loan is denominated or such
payment is to be made.
Credit Agreement
----------------
<PAGE>
-11-
"Majority Banks" shall mean Banks having more than 50% of the
--------------
aggregate amount of the Commitments or, if the Commitments shall have
terminated, Banks holding more than 50% of the aggregate unpaid principal amount
of the Loans.
"Margin Stock" shall mean "margin stock" within the meaning of
------------
Regulations G, U and X.
"Material Adverse Effect" shall mean a material adverse effect on (a)
-----------------------
the business, assets, property, condition (financial or otherwise) or prospects
of the Company and its Subsidiaries taken as a whole or (b) the validity or
enforceability of its Agreement or the rights and remedies of the
Administrative Agent or any Bank hereunder.
"Material Insurance Subsidiary" shall mean, at any time, (i) Mid Ocean
-----------------------------
Reinsurance and (ii) any other Insurance Subsidiary that is a Material
Subsidiary.
"Material Subsidiary" shall mean, at any time, each Subsidiary of the
-------------------
Company that as of such time meets the definition of a "significant subsidiary"
contained as of the date hereof in Regulation S-X of the SEC.
"Mid Ocean Reinsurance" shall mean Mid Ocean Reinsurance Company
---------------------
Limited, a Wholly-Owned Insurance Subsidiary of the Company.
"NAIC" shall mean the National Association of Insurance Commissioners
----
and any successor thereto.
"Net Worth" shall mean, as at any date, the amount of total
---------
shareholders' equity for the Company and its Subsidiaries (determined on a
consolidated basis without duplication in accordance with GAAP).
"Officer" shall mean the Chairman of the Board, the President or any
-------
Vice President of the Company.
"Officer's Certificate" shall mean a certificate signed by any
---------------------
Officer.
"Person" shall mean any individual, corporation, company, voluntary
------
association, partnership, limited liability company, joint venture, trust,
unincorporated organization or government (or any agency, instrumentality or
political subdivision thereof).
"Post-Default Rate" shall mean, in respect of any principal of any
-----------------
Loan or any other amount under this Agreement that is not paid when due (whether
at stated maturity, by acceleration, by optional or mandatory prepayment or
otherwise), a rate per annum equal to
Credit Agreement
----------------
<PAGE>
-12-
2% plus the Base Rate as in effect from time to time (provided that, if the
---- --------
amount so in default is principal of a Eurocurrency Loan and the due date
thereof is a day other than the last day of such Interest Period therefor, the
"Post-Default Rate" for such principal shall be for the period from and
including such due date to but excluding the last day of such Interest Period,
2% plus the interest rate for such Loan as provided in Section 3.02 hereof and
----
thereafter, the rate provided for above in this definition).
"Prime Rate" shall mean the rate of interest from time to time
----------
announced by Chase at its principal office in New York, New York as its prime
commercial lending rate.
"Principal Financial Center" shall mean, in the case of any Currency,
--------------------------
the principal financial center of the country that issues such Currency, as
determined by the Administrative Agent.
"Property" shall mean any right or interest in or to property of any
--------
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Quarterly Dates" shall mean the last Business Day of January, April,
---------------
July and October in each year, the first of which shall be the first such day
after the date hereof.
"Rating Group" shall mean any of Rating Group I, Rating Group II or
------------
Rating Group III.
"Rating Group I" shall mean (a) no Event of Default has occurred and
--------------
is continuing and the Standard & Poor's Rating is at or above AA; "Rating Group
II" shall mean (a) Rating Group I is not in effect and (b) no Event of Default
has occurred and is continuing and (c) the Standard & Poor's Rating is at or
above A; and "Rating Grout, III" shall mean neither Rating Group I nor Rating
Group II is in effect.
"Reference Bank" shall mean Chase.
--------------
"Re??????" shall have the meaning assigned to such term in Section
--------
11.06 hereof.
"Regulations A. D. G. U and X" shall mean, respectively, Regulations
----------------------------
A, D, G, U and X of the FRB, as the same may be modified and supplemented and in
effect from time to time.
"Regulatory Change" shall mean, with respect to any Bank, any change
-----------------
after the date hereof in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or
Credit Agreement
----------------
<PAGE>
-13-
request applying to a class of banks including such Bank of or under any
Federal. state or foreign law or regulations (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Reinsurance Agreement" shall mean any agreement. contract, treaty or
---------------------
other arrangement providing for Ceded Reinsurance by any Insurance Subsidiary or
any Subsidiary of such Insurance Subsidiary.
"Reserve Rate" shall mean a fraction (expressed as a decimal), the
------------
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special. emergency or supplemental reserves) expressed as a decimal
established by the FRB to which member banks of the Federal Reserve System in
New York City with deposits exceeding $1,000,O00,000 are subject with respect
to eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D). Such reserve percentages shall include those imposed pursuant to
Regulation D. The Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"SAP" shall mean the accounting procedures and practices prescribed or
---
permitted by the Applicable Insurance Regulatory Authority or the NAIC.
"Screen" shall mean, for any Currency, the relevant display page for
------
LIBOR for such Currency (as determined by the Administrative Agent) on the Dow
Jones Markets Service; provided that, if the Administrative Agent determines
that there is no such relevant display page for LIBOR for such Currency,
"Screen" shall mean the relevant display page for LIBOR for such Currency (as
determined by the Administrative Agent) on the Reuter Monitor Money Rates
Service.
"SEC" shall mean the Securities and Exchange Commission or any
---
governmental authority succeeding to its principal functions.
"Standard & Poor's" shall mean Standard & Poor's Ratings Services, a
-----------------
division of The McGraw-Hill Companies, Inc., or any successor thereto.
"Standard and Poor's Rating" shall mean, as at any date, the claims-
--------------------------
paying rating of Mid Ocean Reinsurance most recently published by Standard &
Poor's.
"???? Statement" shall mean, as to any Insurance Subsidiary, a
--------------
statement of the condition and affairs of such Insurance Subsidiary, prepared in
accordance with
Credit Agreement
----------------
<PAGE>
-14-
statutory accounting practices required or permitted by the Applicable Insurance
Regulatory Authority, and filed with the Applicable Insurance Regulatory
Authority.
"Subsidiary" shall mean, with respect to any Person, any corporation,
----------
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions of such corporation, partnership or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other
class or classes of such corporation, partnership or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person.
"Surplus Relief Reinsurance" shall mean any transaction in which any
--------------------------
Insurance Subsidiary or any Subsidiary of such Insurance Subsidiary cedes
business under a reinsurance agreement that would be considered a "financing-
type" reinsurance agreement as determined by the independent certified public
accountants of the Company in accordance with principles published by the
Financial Accounting Standards Board or the Second Edition of the AICPA Audit
Guide for Stock Life Insurance Companies (pp. 91-92), as the same may be revised
from time to time.
"Tangible Net Worth" shall mean, as at any date, the sum for the
------------------
Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following:
(a) Net Worth, minus
-----
(b) the sum of the following (without duplication of deductions in
respect of items already deducted in arriving at Net Worth): cost of
treasury shares and the book value of all assets which should be classified
as intangibles but in any event including goodwill, minority interests,
trademarks, trade names, copyrights, patents and franchises, unamortized
debt discount and expense, Deferred Acquisition Expenses and any write-up
in the book value of assets resulting from a revaluation thereof subsequent
to December 31, 1996.
"Taxes" shall have the meaning assigned to such term in Section
-----
5.05(a) hereof.
"Total Capital" shall mean the sum of (i) Total Debt and (ii) Net
-------------
Worth.
Credit Agreement
----------------
<PAGE>
-15-
"Total Debt" shall mean the aggregate principal amount of all Debt of
----------
the Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP).
"Type" shall have the meaning assigned to such term in Section 1.03
----
hereof.
"Wholly Owned Subsidiary" shall mean, with respect to any Person, any
-----------------------
corporation, partnership or other entity of which all of the equity securities
or other ownership interests (other than, in the case of a corporation or other
similar legal entity, directors' qualifying shares or shares held by residents
of the jurisdiction in which such corporation or other similar legal entity is
organized as required by the law of such jurisdiction) are directly or
indirectly owned or controlled by such Person or one or more Wholly Owned
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Subsidiaries of such Person.
1.02 Accounting Terms: GAAP.
----------------------
(a) Except as otherwise expressly provided herein, all terms of an
accounting or financial nature shall be construed in accordance with GAAP or
SAP, as the case may be, as in effect on the date hereof.
(b) The Company shall deliver to the Banks at the same time as the
delivery of any annual or quarterly financial statement under Section 8.01
hereof (i) a description in reasonable detail of any material variation between
the application of GAAP or SAP, as the case may be, employed in the preparation
of such statement and the application of GAAP or SAP, as the case may be, as in
effect on the date hereof and (ii) reasonable estimates of the difference in
covenant compliance arising as a consequence thereof.
1.03 Currencies and Types of Loans. Loans hereunder are by
------------------------------
distinguished by "Currency" and by "Type". The "Currency" of a Loan refers to
the Currency in which such Loan is denominated. The "Type" of a Loan refers to
whether such Loan is a Base Rate Loan or a Eurocurrency Loan, each of which
constitutes a Type. Loans may be identified by one or more of their Currency and
Type.
Section 2. Commitments, Loans and Prepayments.
----------------------------------
2.01 Loans.
-----
(a) Each Bank severally agrees, on the terms and conditions of this
Agreement, to make loans to the Company in Dollars or in any Agreed Foreign
Currency during the period from and including the date hereof to but not
including the Commitment Termination
Credit Agreement
----------------
<PAGE>
-16-
Date in an aggregate principal amount at any one time outstanding up to but not
exceeding the amount of the Commitment of such Bank as in effect from time to
time. Subject to the terms and conditions of this Agreement, during such period
the Company may borrow, prepay, repay and reborrow the amount of the
Commitments.
(b) If, after giving effect to any Loan to be made under this
Section 2.01, more than four separate Interest Periods in respect of Loans
denominated in any single Currency would be outstanding at the same time (for
which purpose Interest Periods described in different lettered clauses of the
definition of the term "Interest Period" shall be deemed to be different
interest Periods even if they are coterminous), then such Loan shall not be
required to be made hereunder.
(c) Except as provided in Section 2.10 hereof, for purposes of
determining (i) whether the amount of any borrowing of Loans, together with all
other Loans then outstanding, would exceed the aggregate amount of Commitments,
(ii) under Section 2.03(b) hereof, the aggregate unutilized amount of the
Commitments and (iii) under Section 6.02 hereof, the outstanding aggregate
principal amount of Loans, the outstanding principal amount of any Loan that is
denominated in any Foreign Currency shall be deemed to be the Dollar Equivalent
(determined as of the date of borrowing of such Loan) of the amount in the
Foreign Currency of such Loan of the amount in the Currency of such Loan.
2.02 Borrowings of Loans. The Company shall give the Administrative
-------------------
Agent notice of each borrowing of Loans hereunder as provided in Section 4.05
hereof. Not later than 11:00 a.m. Local Time on the date specified for each
borrowing of Loans hereunder, each Bank shall make available the amount of the
Loan or Loans to be made by it on such date to the Administrative Agent, at the
Administrative Agent's Account for the Currency in which such Loan is
denominated, in immediately available funds, for account of the Company. The
amount so received by the Administrative Agent shall, subject to the terms and
conditions of this Agreement, be made available to the Company by depositing the
same, in immediately available funds, in an account of the Company designated by
the Company.
2.03 Chances of Commitments: Reduction of Maximum Loan Amounts.
---------------------------------------------------------
(a) The aggregate amount of the Commitments shall be automatically
reduced to zero on the Commitment Termination Date.
(b) The Company shall have the right at any time or from time
to time (i) so long as no Loans are (or at the time will be) outstanding, to
terminate the Commitments and (ii) to reduce the aggregate unutilized amount of
the Commitments; provided that (x) the Company shall give notice of each such
termination or reduction as provided in Section 4.05
--------
Credit Agreement
----------------
<PAGE>
-17-
hereof and (y) each partial reduction of Commitments shall be in an aggregate
amount at least equal to $10,000,000 (or a larger integral multiple of
$1,000,000).
(c) The Commitments once terminated or reduced may not be reinstated.
2.04 Fees.
----
(a) Facility Fee. The Company shall pay to the Administrative Agent
------------
for account of each Bank a facility fee on the daily average amount of such
Bank's Commitment (whether used or unused), for the period from and including
the date hereof to but not including the earlier of the date such Commitment is
terminated and the Commitment Termination Date, at a rate per annum equal to the
Applicable Facility Fee Rate. Accrued facility fee shall be payable on each
Quarterly Date and on the earlier of the date the Commitments are terminated and
the Commitment Termination Date.
(b) Utilization Fee. The Company shall pay to the Administrative
---------------
Agent for account of each Bank, during any period that the aggregate outstanding
principal amount of Loans exceeds 50% of the aggregate amount of the
Commitments, a utilization fee on the daily average aggregate outstanding
principal amount of such Bank's Loans at a rate per annum equal to 0.025% per
annum. Accrued utilization fee shall be payable on each Quarterly Date and on
the earlier of the date the Commitments are terminated and the Commitment
Termination Date interest on such Bank's Loans are payable.
2.05 Lending Offices. The Loans of each Type and Currency made by each
---------------
Bank shall be made and maintained at such Bank's Applicable Lending Office for
Loans of such Type and Currency.
2.06 Several Obligations. The failure of any Bank to make any Loan to
-------------------
be made by it on the date specified therefor shall not relieve any other Bank of
its obligation to make its Loan on such date, and neither any Bank nor the
Administrative Agent shall be responsible for the failure of any other Bank to
make a Loan to be made by such other Bank.
2.07 Evidence of Debt.
----------------
(a) Each Bank shall maintain in accordance with its usual practice an
account or accounts evidencing, with respect to each Loan made by such Bank to
the Company, the amounts of principal of and interest on such Loan payable and
paid to such Bank from time to time hereunder.
(b) The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Type and Currency
thereof and the Interest
Credit Agreement
----------------
<PAGE>
-18-
Period applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from the Company to each Bank hereunder and
(iii) the amount of any sum received by the Administrative Agent hereunder for
account of the Banks and each Bank's share thereof.
(c) The entries made in the accounts maintained pursuant to clause
(a) or (b) of this Section 2.07 shall be prima facie evidence of the existence
----- -----
and amounts of the obligations recorded therein; provided that the failure of
--------
any Bank or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Company to repay
the principal of, interest on, and other amounts in respect of, Loans in
accordance with the terms of this Agreement.
(d) Any Bank may request that Loans made by it be evidenced by a
promissory note of the Company. In such event the Company shall prepare, execute
and deliver to such Bank a promissory note payable to the order of such Bank and
in substantially the form of Exhibit E hereto.
2.08 Optional Prepayments. Subject to Sections 3.02, 4.04 and 5.04
--------------------
hereof, Loans may be prepaid at any time or from time to time, provided that,
--------
the Company shall give the Administrative Agent notice of each such prepayment
as provided in Section 4.05 hereof (and, upon the date specified in any such
notice of prepayment, the amount to be prepaid shall become due and payable
hereunder).
2.09 Mandatory Prepayments.
---------------------
(a) Upon the receipt by the Administrative Agent of a Currency
Valuation Notice (as defined below) and on each Quarterly Date, the
Administrative Agent shall promptly determine the aggregate outstanding
principal amount of all Loans (for which purpose the outstanding principal
amount of any Loan that is denominated in any Foreign Currency shall be deemed
to be the Dollar Equivalent (determined as of the Business Day on which the
Administrative Agent shall have received such Currency Valuation Notice prior to
11:00 a.m. New York time (or, if received by the Administrative Agent after such
time on any Business Day, as of the next succeeding Business Day) or as of such
Quarterly Date, as the case may be, of the amount in the Foreign Currency of
such Loan). Upon making such determination, the Administrative Agent shall
promptly notify the Banks and the Company thereof.
(b) If, on the date of such determination the aggregate outstanding
principal amount of all Loans exceeds 105% of the aggregate amount of the
Commitments as then in effect, the Company shall, if requested by the Majority
Banks (through the Administrative Agent), prepay the Loans in an amount so that
after giving effect thereto the aggregate
Credit Agreement
----------------
<PAGE>
-19-
outstanding principal amount of the Loans does not exceed the Commitments;
provided that, any such payment shall be accompanied by any amounts payable
- --------
under Sections 3.02 and 5.04 hereof.
For purposes of this Section 2.09, "Currency Valuation Notice" shall
-------------------------
mean a ??????????^ Majority Banks to the Administrative Agent stating
that such notice is a "Currency Valuation Notice" and requesting that the
Administrative Agent determine the aggregate outstanding principal amount of all
Loans.
Anything in this Section ?09^ to the contrary notwithstanding, the
Administrative Agent shall not be required to make more than one valuation
determination pursuant to Currency Valuation Notices within any rolling three
month period.
2.10 Extension of Commitment Termination Date.
----------------------------------------
(a) The Company may, by notice to the Administrative Agent (which
shall promptly notify the Banks) given not less than 50 days, and not more than
60 days prior to the Commitment Termination Date then in effect (the "Existing
--------
Commitment Termination Date"), request that the Banks extend the Commitment
- ---------------------------
Termination Date for an additional 364 days from the Consent Date (as defined
below). Each Bank, acting in its sole discretion, shall, by notice to the
Company and the Administrative Agent given no later than the date that is 30
days prior to the Existing Commitment Termination Date (herein, the "Consent
-------
Date") advise the Company whether or not such Bank agrees to such extension;
- ----
provided that (i) each Bank that determines not to extend the Commitment
- --------
Termination Date (a "Non-Extending Bank") shall notify the Administrative Agent
------------------
(which shall notify the Banks) of such fact promptly after such determination
(but in any event no later than the Consent Date) and any Bank that does not
advise the Company on or prior to the Consent Date that such Bank agrees to such
extension shall be deemed to be a Non-Extending Bank and (ii) the notice that
any Bank agrees to such extension given prior to the Consent Date shall be
revocable until the close of business in New York on the Consent Date. The
election of any Bank to agree to such extension shall not obligate any other
Bank to so agree.
(b) The Company may, at any time prior to the Existing Commitment
Termination Date, replace any Non-Extending Bank, by giving not less than ten
Business Days' prior notice to the Administrative Agent (which shall promptly
notify such Non-Extending Bank), that it intends to replace such Non-Extending
Bank with respect to its rights and obligations (including, without limitation,
its Commitments) as a "Bank" under this Agreement (collectively, the
"Transferred Interest") with one or more banks or other financial institutions
--------------------
(including, but not limited to, any other Bank or an affiliate of any Bank)
selected by the Company and acceptable to the Administrative Agent in its
reasonable determination (each, a "Replacement Bank"). Upon the Existing
----------------
Commitment Termination Date (and as a
Credit Agreement
----------------
<PAGE>
-20-
condition to the extension thereof), (i) the Company shall pay or cause to be
paid to such Non-Extending Bank being replaced an amount equal to all fees and
other amounts then owing to such Non-Extending Bank hereunder and under any
other document delivered by the Company in connection herewith in respect of the
Transferred Interest (all or a portion of which amount may constitute
consideration for an assignment by such Non-Extending Bank of all or a portion
of the Transferred Interest) and (ii) such Non-Extending Bank shall assign to
each Replacement Bank, pursuant to an Assignment and Acceptance substantially in
the form of Exhibit D hereto, a portion of the Transferred Interest specified by
the Company, whereupon (x) each Replacement Bank shall become a "Bank" for all
purposes of this Agreement having the Commitments in the amount of such Non-
Extending Bank's Commitments assumed by it and all of the rights and obligations
under this Agreement of "Bank(s)" holding the Transferred Interest and (y) such
Non-Extending Bank shall cease to be responsible or liable for, and shall cease
to be entitled to the rights and benefits of, all or any portion of the
Transferred Interest (except to the extent provided in Section 11.07 hereof).
(c) If (and only if) the sum of the aggregate amount of the
Commitments of Banks having agreed so to extend the Existing Commitment
Termination Date on or prior to the Existing Commitment Termination Date plus
the aggregate amount of the Commitments of the Replacement Banks shall equal or
exceed 66-2/3% of the aggregate amount of the Commitments in effect immediately
prior to the Existing Commitment Termination Date, then, effective as of the
Existing Commitment Termination Date, the Existing Commitment Termination Date
shall be extended to the date falling 364 days after the Consent Date (except
that, if such date is not a Business Day, such Commitment Termination Date as so
extended shall be the next preceding Business Day); provided that the Commitment
--------
of each Non-Extending Bank shall terminate on the Existing Commitment
Termination Date.
(d) Notwithstanding the foregoing clauses (a) through (c), the
extension of the Existing Commitment Termination Date shall not be effective
with respect to any Bank unless:
(i) no Default shall have occurred and be continuing on each of the
date of the notice requesting such extension (the "Request Date"), the
------------
Consent Date and the Existing Commitment Termination Date;
(ii) each of the representations and warranties made by the Company in
Section 7 hereof shall be true and complete in all material respects on and
as of each of the Request Date, the Consent Date and the Existing
Commitment Termination Date with the same force and effect as if made on
and as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such
specific date); and
Credit Agreement
----------------
<PAGE>
-21-
(iii) without duplication of the obligation of the Company to
make the payments required by clause (b)(i) of this Section 2.10 with
respect to any Non-Extending Lender being replaced hereunder, the
Company shall pay or cause to paid to each Non-Extending Lender an
amount equal to all fees and other amounts then owing to such
Non-Extending Lender hereunder.
Section 3. Payments of Principal and Interest.
3.01 Repayment of Loans. The Company hereby promises to pay to
------------------
the Administrative Agent for account of each Bank the principal of each Loan
made by such Bank to the Company, and each Loan shall mature, on the last day
of the Interest Period therefor.
3.02 Interest. The Company hereby promises to pay to the
--------
Administrative Agent for account of each Bank interest on the unpaid principal
amount of each Loan made by such Bank to the Company for the period from and
including the date of such Loan to but excluding the date such Loan shall be
paid in full, at the following rates per annum:
(a) if such Loan is a Base Rate Loan, the Base Rate (as in
effect from time to time);
(b) if such Loan is a Eurocurrency Loan, the Eurocurrency Rate
for such Loan for the Interest Period therefor plus the Applicable
Margin.
Notwithstanding the foregoing, the Company hereby promises to pay to the
Administrative Agent for account of each Bank interest at the applicable
Post-Default Rate on any principal of any Loan made by such Bank and on any
other amount payable by the Company hereunder to or for account of such Bank,
that shall not be paid in full when due (whether at stated maturity, by
acceleration, by mandatory prepayment or otherwise), for the period from and
including the due date thereof to but excluding the date the same is paid in
full. Accrued interest on each Loan shall be payable (i) on the last day of the
Interest Period therefor and, if such Interest Period is longer than three
months (in the case of a Eurocurrency Loan), at three-month intervals following
the first day of such Interest Period, and (ii) in the case of any Loan, upon
the payment or prepayment thereof (but only on the principal amount so paid or
prepaid), except that interest payable at the Post-Default Rate shall be payable
from time to time on demand. Promptly after the determination of any interest
rate provided for herein or any change therein, the Administrative Agent shall
give notice thereof to the Banks to which such interest is payable and to the
Company.
Credit Agreement
----------------
<PAGE>
-22-
Section 4. Payments: Pro Rata Treatment: Computations: Etc.
------------------------------------------------
4.01 Payments.
--------
(a) Except to the extent otherwise provided herein, all
payments of principal and interest on any Loan and other amounts to be paid by
the Company under this Agreement shall be made in the Currency in which such
Loan or other amount is denominated, in immediately available funds, without
deduction, set-off or counterclaim, to the Administrative Agent at the
Administrative Agent's Account for the Currency in which such Loan or other
amount is denominated, not later than 11:00 a.m. Local Time on the date on which
such payment shall become due (each such payment made after such time on such
due date to be deemed to have been made on the next succeeding Business Day),
provided that if a new Loan is to be made by any Bank to the Company on a date
- --------
the Company is to repay any principal of an outstanding Loan of such Bank and in
the same Currency, such Bank shall apply the proceeds of such new Loan to the
payment of the principal to be repaid and only an amount equal to the difference
between the principal to be borrowed and the principal to be repaid shall be
made available by such Bank to the Administrative Agent as provided in Section
2.02 hereof or paid by the Company to the Administrative Agent pursuant to this
Section 4.01, as the case may be. All amounts owing under this Agreement
(including facility fees and utilization fees, but not including principal of,
and interest on, Loans denominated in any Foreign Currency) are payable in
Dollars. Notwithstanding the foregoing, if the Company shall fall to pay any
principal of any Loan when due (whether at stated maturity, by acceleration, by
mandatory prepayment or otherwise), the unpaid portion of such Loan shall, if
such Loan is not denominated in Dollars, automatically be redenominated in
Dollars on the due date thereof (or, if such due date is a day other than the
last day of the Interest Period therefor, on the last day of such Interest
Period) in an amount equal to the Dollar Equivalent thereof on the date of such
redenomination and such principal shall be payable on demand; and if the Company
shall fail to pay any interest on any Loan that is not denominated in Dollars,
such interest shall automatically be redenominated in Dollars on the due date
thereof (or, if such due date is a day other than the last day of the Interest
Period therefor, on the last day of such Interest Period) in an amount equal to
the Dollar Equivalent thereof on the date of such redenomination and such
interest shall be payable on demand.
(b) Subject to the proviso to the first sentence of Section
4.0 1(a) above, any Bank for whose account any such payment is to be made may
(but shall not be obligated to) debit the amount of any such payment that is not
made by such time to any ordinary deposit account of the Company with such Bank
(with notice to the Company and the Administrative Agent).
(c) The Company shall, at the time of making each payment
under this Agreement for account of any Bank, specify to the Administrative
Agent (which shall so
Credit Agreement
----------------
<PAGE>
-23-
notify the intended recipient(s) thereof) the Loans or other amounts payable by
the Company hereunder to which such payment is to be applied (and in the event
that the Company fails to so specify, or if an Event of Default has occurred and
is continuing, the Administrative Agent may distribute such payment to the Banks
for application in such manner as it or the Majority Banks, subject to Section
4.02 hereof, may determine to be appropriate).
(d) Each payment received by the Administrative Agent under
this Agreement for account of any Bank shall be paid by the Administrative Agent
promptly to such Bank, in immediately available funds, for account of such
Bank's Applicable Lending Office for the Loan or other obligation in respect of
which such payment is made.
(e) If the due date of any payment under this Agreement would
otherwise fall on a day that is not a Business Day, such date shall be extended
to the next succeeding Business Day, and interest shall be payable for any
principal so extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent otherwise
------------------
provided herein:
(a) each borrowing under Section 2.01 hereof shall be made
from the Banks pro rata according to their respective Commitments;
(b) each payment of facility fee under Section 2.04(a) hereof
shall be made for account of the Banks, and each termination or
reduction of the amount of the Commitments under Section 2.03 hereof
shall be applied to the respective Commitments of the Banks, pro rata
according to the amounts of their respective Commitments;
(c) Eurocurrency Loans denominated in the same Currency and
having the same Interest Period shall (other than as provided in
Section 5.03 hereof) be allocated pro rata among the Banks according to
their respective Commitments;
(d) each payment or prepayment by the Company of principal of
Loans of any Type and denominated in any Currency shall be made for
account of the Banks pro rata in accordance with the respective unpaid
principal amounts of the Loans of such Type and denominated in such
Currency held by them; and
(e) each payment by the Company of interest and utilization
fees on Loans of any Type and denominated in any Currency shall be made
for account of the Banks pro rata in accordance with the amounts of
interest and utilization fees on Loans of such Type and denominated in
such Currency then due and payable to them.
Credit Agreement
----------------
<PAGE>
-24-
4.03 Computations. Interest on Eurocurrency Loans (other than
------------
Loans in English Pounds Sterling), facility fee and utilization fee shall be
computed on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable and interest on Base Rate Loans and Eurocurrency Loans in English Pounds
Sterling shall be computed on the basis of a year of 365 or 366 days, as the
case may be, and actual days elapsed (including the first day but excluding the
last day) occurring in the period for which payable. Notwithstanding the
foregoing, for each day that the Base Rate is calculated by reference to the
Federal Funds Rate, interest on Base Rate Loans shall be computed on the basis
of a year of 360 days and actual days elapsed.
4.04 Minimum Amounts. Except for mandatory prepayments made
---------------
pursuant to Section 2.09 hereof, each borrowing and partial prepayment of
principal of Loans shall be in an aggregate amount at least equal to $5,000,000
or a larger integral multiple of $1,000,000 or, in the case of Eurocurrency
Loans denominated in any Agreed Foreign Currency, the Foreign Currency
Equivalent thereof (rounded downwards to the nearest 1,000 units of such Foreign
Currency). Borrowings or prepayments of Loans of different Types or denominated
in different Currencies or, in the case of Eurocurrency Loans, having different
Interest Periods at the same time hereunder shall be deemed separate borrowings
and prepayments for purposes of this Section 4.04, one for each Type, Currency
or Interest Period. In addition, the aggregate principal amount of Eurocurrency
Loans having the same Interest Period shall be in an amount at least equal to
$5,000,000 or a larger integral multiple of $1,000,000 or, in the case of
Eurocurrency Loans denominated in any Agreed Foreign Currency, the Foreign
Currency Equivalent thereof (rounded downwards to the nearest 1,000 units of
such Foreign Currency) and, if (i) any Eurocurrency Loans denominated in Dollars
would otherwise be in a lesser principal amount for any period, such Loans shall
be Base Rate Loans during such period and (ii) any Eurocurrency Loans
denominated in any Foreign Currency would otherwise be in a lesser principal
amount for any period, such Loans shall be unavailable hereunder.
4.05 Certain Notices. Notices by the Company to the
---------------
Administrative Agent of terminations or reductions of the Commitments, of
reductions of borrowings and optional prepayments of Loans, of Types and
Currencies of Loans and of the duration of Interest Periods shall be irrevocable
and shall be effective only if received by the Administrative Agent not later
than 10:00 a.m. New York time (or, in the case of borrowings or prepayment of,
or duration of Interest Periods for, Eurocurrency Loans denominated in a Foreign
Currency, London time) on the number of Business Days prior to the date of the
relevant termination, reduction, borrowing or prepayment or the first day of
such Interest Period specified below:
Credit Agreement
----------------
<PAGE>
-25-
Number of
Business
Notice Days Prior
Borrowing or prepayment of
Base Rate Loans same day
Borrowing or prepayment of,
or duration of Interest
Period for, Eurocurrency Loans
denominated in Dollars 3
Borrowing or prepayment of,
or duration of Interest
Period for, Eurocurrency Loans
denominated in a Foreign
Currency 5
Each such notice of termination or reduction of the Commitments shall specify
the amount of the Commitments to be terminated or reduced. Each such notice of
borrowing or optional prepayment shall specify the Loans to be borrowed or
prepaid and the amount (subject to Section 4.04 hereof), Type and Currency of
each Loan to be borrowed or prepaid, the date of borrowing or optional
prepayment (which shall be a Business Day), the Interest Period of the Loans to
be borrowed or prepaid. The Administrative Agent shall promptly notify the Banks
of the contents of each such notice.
4.06 Non-Receipt of Funds by the Administrative Agent. Unless
------------------------------------------------
the Administrative Agent shall have been notified by a Bank or the Company (the
"Payor") prior to the date on which the Payor is to make payment to the
Administrative Agent of (in the case of a Bank) the proceeds of a Loan to be
made by such Bank hereunder or (in the case of the Company) a payment to the
Administrative Agent for account of one or more of the Banks hereunder (such
payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Administrative Agent, the Administrative Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient(s) on such date; and, if the Payor has not in fact made the
Required Payment to the Administrative Agent, the recipient(s) of such payment
shall, on demand, repay to the Administrative Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date (the "Advance Date") such amount was so made available by
------------
the Administrative Agent until but not including the date the Administrative
Agent recovers such amount at a
Credit Agreement
----------------
<PAGE>
-26-
rate per annum equal to the greater of (a) the Federal Funds Rate for such day
and (b) a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation and, if such recipient(s) shall fail
promptly to make such payment, the Administrative Agent shall be entitled to
recover such amount, on demand, from the Payor, together with interest as
aforesaid, provided that if neither the recipient(s) nor the Payor shall return
--------
the Required Payment to the Administrative Agent within three Business Days of
the Advance Date, then, retroactively to the Advance Date, the Payor and the
recipient(s) `shall each be obligated to pay interest on the Required Payment as
follows:
(i) if the Required Payment shall represent a payment to be
made by the Company to the Banks, the Company and the recipient(s)
shall each be obligated retroactively to the Advance Date to pay
(without duplication) interest in respect of the Required Payment at
the Post-Default Rate (without duplication of the obligation of such
Company under Section 3.02 hereof to pay interest on the Required
Payment at the Post-Default Rate), it being understood that the return
by the recipient(s) of the Required Payment to the Administrative Agent
shall not limit such obligation of the Company under said Section 3.02
to pay interest at the Post-Default Rate in respect of the Required
Payment; and
(ii) if the Required Payment shall represent proceeds of a
Loan to be made by the Banks to the Company, the Payor and the Company
shall each be obligated retroactively to the Advance Date to pay
(without duplication) interest in respect of the Required Payment at
the rate applicable to such Loan pursuant to Section 3.02 hereof, it
being understood that the return by the Company of the Required Payment
to the Administrative Agent shall not limit any claim the Company may
have against the Payor in respect of such Required Payment.
4.07 Sharing of Payments. Etc.
------------------------
(a) The Company agrees that, in addition to (and without
limitation of) my right of set-off, banker's lien or counterclaim a Bank may
otherwise have, each Bank shall be entitled, at its option (to the fullest
extent permitted by law), to set-off and apply any deposit (general or special,
time or demand, provisional or final), or other indebtedness, held by it for the
credit or account of the Company at any of such Bank's offices, in Dollars or in
any other currency, against any principal of or interest on any of such Bank's
Loans or any other amount payable to such Bank hereunder, that is not paid when
due (regardless of whether such deposit or other indebtedness is then due to the
Company), in which case it shall promptly notify the Company and the
Administrative Agent thereof, provided that such Bank's failure to give such
--------
notice shall not affect the validity thereof.
Credit Agreement
-----------------
<PAGE>
-27-
(b) If any Bank shall obtain from the Company payment of any principal
of or interest on any Loan and denominated in any Currency owing to it or
payment of any other amount under this Agreement through the exercise of any
right of set-off, banker's lien or counterclaim or similar right or otherwise
(other than from the Administrative Agent as provided herein), and, as a result
of such payment, such Bank shall have received a greater percentage of the
principal of or interest on the Loans denominated in such Currency (the
"Applicable Loans") or such other amounts then due hereunder by the Company to
such Bank than the percentage received by any other Bank to which principal of
or interest on the Applicable Loans or such other amounts is then due hereunder
by the Company, it shall promptly purchase from such other Banks participations
in (or, if and to the extent specified by such Bank, direct interests in) the
Applicable Loans or such other amounts, respectively, owing to such other Banks
(or in interest due thereon, as the case may be) in such amounts, and make such
other adjustments from time to time as shall be equitable, to the end that all
such Banks shall share the benefit of such excess payment (net of any expenses
that may be incurred by such Bank in obtaining or preserving such excess
payment) pro rata in accordance with the unpaid principal of and/or interest on
the Applicable Loans or such other amounts, respectively, owing to each of such
Banks. To such end all such Banks shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if such payment
is rescinded or must otherwise be restored.
(c) The Company agrees that any Bank so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans or other amounts (as the case may
be) owing to such Bank in the amount of such participation (or direct interest).
(d) Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of the Company. If, under any applicable bankruptcy, insolvency or
other similar law, any Bank receives a secured claim in lieu of a set-off to
which this Section 4.07 applies, such Bank shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Banks entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.
Credit Agreement
----------------
<PAGE>
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Section 5. Yield Protection Etc.
----------------------
5.01 Additional Costs.
----------------
(a) The Company shall pay (but without duplication, including
by reason of Section 5.05(a) hereof) directly to each Bank from time to time
such amounts as such Bank may reasonably determine to be necessary to compensate
such Bank for any costs incurred by such Bank that such Bank reasonably
determines are attributable to its making or maintaining of any Eurocurrency
Loans to the Company or its obligation to make any Eurocurrency Loans to the
Company hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any of such Loans or such obligation resulting from any
Regulatory Change that:
(i) shall subject such Bank (or its Applicable Lending
Office for any of such Loans) to any tax, duty or other charge in
respect of such Loans or changes the basis of taxation of any amounts
payable to such Bank under this Agreement in respect of any of such
Loans (excluding changes in the rate of tax on the net income of such
Bank or of such Applicable Lending Office by any jurisdiction in which
such Bank is organized or has its principal office or in which such
Applicable Lending Office is located or carrying on business); or
(ii) imposes or increases any reserve, special deposit or
similar requirements (other than the reserve requirement utilized in
the determination of the Eurocurrency Rate for such Loan) relating to
any extensions of credit or other assets of, or any deposits with or
other liabilities of, such Bank (including, without limitation, any of
such Loans or any deposits referred to in the definition of
"Eurocurrency Base Rate" in Section 1.01 hereof), or any commitment of
such Bank (including, without limitation, the Commitment of such Bank
hereunder); or
(iii) imposes any other material condition affecting this
Agreement (or any of such extensions of credit or liabilities) or its
Commitment
(such increases in costs and reductions in amounts receivable being herein
called "Additional Costs").
----------------
If any Bank requests compensation from any Company under this Section 5.01(a),
the Company may, by notice to such Bank (with a copy to the Administrative
Agent), suspend the obligation of such Bank thereafter to make Eurocurrency
Loans to such Company until the Regulatory Change giving rise to such request
ceases to be in effect (in which case the provisions of Section 5.03 hereof
shall be applicable), provided that such suspension shall not affect the right
--------
of such Bank to receive the compensation so requested.
Credit Agreement
----------------
<PAGE>
-29-
(b) Without limiting the effect of the provisions of paragraph
(a) of this Section 5.01, in the event that, by reason of any Regulatory Change.
any Bank either (i) incurs Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of such Bank that includes deposits by reference to which the
interest rate on Eurocurrency Loans denominated in any Currency as determined as
provided in this Agreement or a category of extensions of credit or other assets
of such Bank that includes Eurocurrency Loans denominated in such Currency or
(ii) becomes subject to restrictions on the amount of such a category of
liabilities or assets that it may hold, then, if such Bank so elects by notice
to the Company (with a copy to the Administrative Agent), the obligation of such
Bank to make Eurocurrency Loans in such Currency hereunder shall be suspended
until such Regulatory Change ceases to be in effect (in which case the
provisions of Section 5.03 hereof shall be applicable).
(c) Without limiting the effect of the foregoing provisions of
this Section 5.01 (but without duplication), the Company shall pay directly to
each Bank from time to time on request such amounts as such Bank may reasonably
determine to be necessary to compensate such Bank (or, without duplication, the
bank holding company of which such Bank is a subsidiary) for any costs that it
reasonably determines are attributable to the maintenance by such Bank (or any
Applicable Lending Office or such bank holding company) of capital in respect of
its Commitment or Loans pursuant to any law or regulation or any interpretation,
directive or request (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful) of any court or governmental or
monetary authority (i) following any Regulatory Change or (ii) implementing any
risk-based capital guideline or other requirement (whether or not having the
force of law and whether or not the failure to comply therewith would be
unlawful) hereafter issued by any government or governmental or supervisory
authority implementing at the national level the Bade Accord (such compensation
to include, without limitation, an amount equal to any reduction of the rate of
return on assets or equity of such Bank (or any Applicable Lending Office or
such bank holding company) to a level below that which such Bank (or any
Applicable Lending Office or such bank holding company) could have achieved but
for rich law, regulation, interpretation, directive or request).
(d) Each Bank shall notify the Company of any event occurring
after the date hereof entitling such Bank to compensation under paragraph (a) or
(c) of this Section 5.01 as promptly as practicable, but in any event within 90
days, after such Bank obtains actual knowledge thereof; provided that (i) if any
Bank fails to give such notice within 90 days after it obtains actual knowledge
of such an event, such Bank shall, with respect to compensation payable pursuant
to this Section 5.01 in respect of any costs resulting from such event, only be
entitled to payment under this Section 5.01 for costs incurred from and after
the date 90 days prior to the date that such Bank does give such notice and (ii)
each Bank will designate a different Applicable Lending Office for the Loans of
such Bank affected by such
Credit Agreement
----------------
<PAGE>
-30-
event if such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Bank, be disadvantageous
to such Bank, except that such Bank shall have no obligation to designate an
Applicable Lending Office located in the United States of America. Each Bank
will furnish to the Company a certificate setting forth in reasonable detail the
basis and amount of each request by such Bank for compensation under paragraph
(a) or (c) of this Section 5.01. Determinations and allocations by any Bank for
purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to
paragraph (a) or (b) of this Section 5.01, or of the effect of capital
maintained pursuant to paragraph (c) of this Section 5.01, on its costs or rate
of return of maintaining Loans or its obligation to make Loans, or on amounts
receivable by it in respect of Loans, and of the amounts required to compensate
such Bank under this Section 5.01, shall be conclusive absent manifest error, so
long as such determinations and allocations are made on a reasonable basis.
5.02 Limitation on Types and Currencies of Loans. Anything
-------------------------------------------
herein to the contrary notwithstanding, if, on or prior to the determination of
any Eurocurrency Base Rate for any Interest Period pursuant to clause (b) of the
definition of "Eurocurrency Base Rate" in Section 1.01 hereof:
(a) the Administrative Agent determines, which determination
shall be conclusive, that quotations of interest rates for the relevant
deposits referred to in clause (b) of the definition of "Eurocurrency
Base Rate" in Section 1.01 hereof are not being provided by the
Reference Bank in the relevant amounts or Currencies or for the
relevant maturities for purposes of determining rates of interest for
Eurocurrency Loans referred to in said clause (b) as provided herein;
or
(b) the Majority Banks determine, which determination shall be
conclusive, and notify (or notifies, as the case may be) the
Administrative Agent that the relevant rates of interest referred to in
clause (b) of the definition of "Eurocurrency Base Rate" in Section
1.01 hereof upon the basis of which the rate of interest for
Eurocurrency Loans denominated in any Currency for such Interest Period
is to be determined are not likely adequately to cover the cost to such
Banks (or to such quoting Bank) of making or maintaining Eurocurrency
Loans denominated in such Currency for such Interest Period;
then the Administrative Agent shall give the Company and each Bank prompt notice
thereof and, so long as such condition remains in effect, the Banks shall be
under no obligation to make additional Eurocurrency Loans denominated in such
Currency.
5.03 Treatment of Affected Loans. If the obligation of any
---------------------------
Bank to make Eurocurrency Loans denominated in Dollars shall be suspended
pursuant to Section 5.01 hereof, then, unless and until such Bank gives notice
as provided below that the circumstances
Credit Agreement
----------------
<PAGE>
-31-
specified in Section 5.01 hereof that gave rise to such suspension no longer
exist, all Loans that would otherwise be made by such Bank as Eurocurrency Loans
denominated in Dollars shall be made instead as Base Rate Loans. If the
obligation of any Bank to make Eurocurrency Loans denominated in any Agreed
Foreign Currency to the Company shall be suspended pursuant to Section 5.01
hereof, then, unless and until such Bank gives notice as provided below that the
circumstances specified in Section 5.01 hereof that gave rise to such suspension
no longer exist, all Loans that would otherwise be made by such Bank to the
Company as Eurocurrency Loans denominated in such Agreed Foreign Currency shall,
except as provided in the immediately preceding sentence, be made instead as
Eurocurrency Loans denominated in Dollars.
5.04 Compensation. The Company shall pay to the Administrative Agent
------------
for account of each Bank, upon the request of such Bank through the
Administrative Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Bank) to compensate it for any loss, cost or expense
that such Bank reasonably determines is attributable to:
(a) any payment or mandatory or optional prepayment, of a Eurocurrency
Loan to such Bank for any reason (including, without limitation, the
acceleration of the Loans pursuant to Section 9 hereof) on a date other than
the last day of the Interest Period for such Loan; or
(b) any failure by the Company for any reason (including, without
limitation, the failure of any of the conditions precedent specified in Section
6 hereof to be satisfied) to borrow a Eurocurrency Loan from such Bank on the
date for such borrowing specified in the relevant notice of borrowing given
pursuant to Section 2.02 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid or
not borrowed for the period ("Relevant Period") from the date of such payment,
---------------
prepayment or failure to borrow to the last day of the then current Interest
Period for such Loan (or, in the case of a failure to borrow, the Interest
Period for such Loan that would have commenced on the date specified for such
borrowing) at the applicable rate of interest for such Loan provided for herein
over (ii) the amount of interest that otherwise would have accrued on such
principal amount at a rate equal to the arithmetic mean, as reasonably
determined by such Bank, of the respective rates per annum (rounded upward, if
necessary, to the nearest 1/16 of 1%) of the bid rates for deposits in the
Currency in which such Loan is denominated for the period approximately equal to
the Relevant Period appearing on the Screen or other publicly available source
(as described in the definition of the term "Eurocurrency Base Raze" in Section
1.01 hereof); provided that if
--------
Credit Agreement
----------------
<PAGE>
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the Screen is not publicly available, then the provisions of paragraph (b) of
the definition of the term "Eurocurrency Base Rate" in Section 1.01 hereof shall
apply herein mutatis mutandis.
5.05 Taxes.
-----
(a) The Company agrees to pay to each Bank such additional amounts as
are necessary in order that the net payment of any amount due to such Bank
hereunder, after deduction for or withholding in respect of any Taxes imposed
with respect to such payment (or in lieu thereof, payment of such Taxes by such
Bank), will not be less than the amount stated herein to be then due and
payable, provided that the foregoing obligation to pay such additional amounts
--------
shall not apply:
(i) to any payment to any Bank hereunder unless such Bank is, on the
date hereof (or on the date it becomes a Bank hereunder as provided in
Section 11.06(b) hereof) and on the date of any change in the Applicable
Lending Office of such Bank, entitled to a complete (or, in the case of an
assignee or participant pursuant to paragraph (b) or (e) of Section 11.06
hereof, at least to the extent of the assignor or applicable Bank at the
time of such assignment or participation) exemption from withholding or
deduction by the Company of Taxes on all amounts to be received by such
Bank hereunder in respect of the Loans made by such Bank to the Company, or
(ii) to any Taxes required to be deducted or withheld solely by reason
of the failure by such Bank, after being requested by the Company, to
comply with applicable certification, information, documentation or other
reporting requirements specifically identified by the Company in such
request concerning the nationality, residence, identity or connections with
any Company Jurisdiction if such compliance is required by treaty, statute
or regulation as a precondition to relief or exemption from such Taxes.
For the purposes of this Section 5.05(a), "Taxes" shall mean with respect to the
-----
Company all present or future income, franchise and other taxes and levies,
imposts, deductions, charges, and withholdings whatsoever, and all interest,
penalties or similar amounts with respect thereto, now or hereafter imposed,
assessed, levied or collected by any Governmental Authority of any Company
Jurisdiction on or in respect of payments of principal, interest, fees or other
amounts payable under this Agreement, or any promissory notes evidencing the
Loans made hereunder, including (without limitation) payments under this Section
5.05(a); provided however, that Taxes shall not include (x) income or franchise
-------- -------
taxes imposed on or measured by the net income or capital of a Bank (or its
Applicable Lending Office) by any Company Jurisdiction as a result of (i) such
Bank being organized under the laws of such Company Jurisdiction, (ii) such Bank
having its chief executive office in such Company Jurisdiction or (iii) its
Applicable Lending Office being located or carrying on business in
Credit Agreement
----------------
<PAGE>
-33-
such Company Jurisdiction, (y) interest, penalties or additions to tax not
attributable to any act, failure to act or misrepresentation of the Company
(other than any act or failure to act permitted or contemplated hereunder) and
(z) any tax other than a withholding tax unless the Bank's interest in the Loan
became subject thereto solely by reason of such Bank's participation in the
transactions contemplated hereby.
(b) Within 30 days after paying any amount to the Administrative Agent
or any Bank from which it is required by law to make any deduction or
withholding, and within 30 days after it is required by law to remit such
deduction or withholding to any relevant taxing or other authority, the Company
shall deliver to the Administrative Agent for delivery to such Bank evidence
satisfactory to such Bank of such deduction, withholding or payment (as the case
may be).
5.06 Replacement of Banks. If any Bank requests compensation
--------------------
pursuant to Section 5.01 or 5.05 hereof, or any Bank's obligation to make Loans
of any Type or denominated in any Currency shall be suspended pursuant to
Section 5.01 hereof (any such Bank requesting such compensation, or whose
obligations are so suspended, being herein called a "Requesting Bank"), the
Company, upon three Business Days' notice to the Administrative Agent, may
require that such Requesting Bank transfer all of its right, title and interest
under this Agreement to any bank or other financial institution identified by
the Company that is satisfactory to the Administrative Agent in its reasonable
determination (a) if such bank or other financial institution (a "Proposed,
Bank") agrees to assume all of the obligations of such Requesting Bank
hereunder, and to purchase all of such Requesting Bank's Loans hereunder for
consideration equal to the aggregate outstanding principal amount of such
Requesting Bank's Loans, together with interest thereon to the date of such
purchase and (b) if such Requesting Bank has requested compensation pursuant to
Section 5.01 or 5.05 hereof, such Proposed Bank's aggregate requested
compensation, if any, pursuant to said Section 5.01 or 5.05 with respect to such
Requesting Bank's Loans is lower than that of the Requesting Bank. Subject to
the provisions of Section 11.06(b) hereof, such Proposed Bank shall be a "Bank'
for all purposes hereunder. Without prejudice to the survival of any other
agreement of the Company hereunder the agreements of the Company contained in
Sections 5.01, 5.05 and 11.03 (without duplication of any payments made to such
Requesting Bank by the Company or the Proposed Bank) shall survive for the
benefit of such Requesting Bank under this Section 5.06 with respect to the time
prior to such replacement.
Section 6. Conditions Precedent
--------------------
6.01 Initial Loan. The obligation of any Bank to make its
------------
initial Loan hereunder is subject to the condition precedent that the
Administrative Agent shall have received the following documents (with
sufficient copies for each Bank), each of which shall
Credit Agreement
----------------
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be satisfactory to the Administrative Agent (and to the extent specified below,
to each Bank) form and substance:
(a) Corporate Documents. Certified copies of the organizational
-------------------
documents of the Company and of all corporate authority for the Company
(including, without limitation, board of director resolutions and evidence
of the incumbency and specimen signature of officers) with respect to the
execution, delivery and performance to this Agreement and each other
document to be delivered by the Company from time to time in connection
herewith and with the Loans hereunder (and each of the Administrative Agent
and each Bank may conclusively rely on such certificate of incumbency
until it receives notice in writing from the Company to the contrary).
(b) Opinions of Counsel to the Company. An opinion, dated the date
----------------------------------
hereof, of (i) Conyers, Dill & Pearman, Cayman Islands counsel to the
Company, substantially in the form of Exhibit A-1 hereto and covering such
other matters as the Administrative Agent or any Bank may reasonably
request, (ii) Conyers, Dill & Pearman, Bermuda counsel to the Company,
substantially in the form of Exhibit A-2 hereto and covering such other
matters as the Administrative Agent or any Bank may reasonably request and
(iii) Cahill Gordon & Reindel, special New York counsel to the Company,
substantially in the form of Exhibit A-3 hereto and covering such other
matters as the Administrative Agent or any Bank may reasonably request (and
the Company hereby instructs each such counsel to deliver such opinions to
the Banks and the Administrative Agent).
(c) Opinion of Special New York Counsel to Chase. An opinion, dated the
-------------------------------------------
date hereof, of Milbank, Tweed, Hadley & McCloy, special New York counsel
to Chase, substantially in the form of Exhibit B hereto (and Chase hereby
instructs such counsel to deliver such opinion to the Banks).
(d) Other Documents. Such other documents as the Administrative Agent
---------------
or any Bank or special New York counsel to Chase may reasonably request.
The obligation of any Bank to make its initial extension of credit hereunder is
also subject to the payment or delivery by the Company of such fees as the
Company shall have agreed to pay or deliver to any Bank or an affiliate thereof
or the Administrative Agent in connection herewith, including, without
limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy,
special New York counsel to Chase, in connection with the negotiation,
preparation, execution and delivery of this Agreement and each other document to
be delivered by the Company and the extensions of credit hereunder (to the
extent that statements for such fees and expenses have been delivered to the
Company).
Credit Agreement
----------------
<PAGE>
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6.02 Initial and Subsequent Loans. The obligation of any Bank to make
----------------------------
any Loan hereunder (including such Bank's initial Loan) is subject to the
further conditions precedent that, both immediately prior to the making of such
Loan and also after giving effect thereto and to the intended use thereof:
(a) if such borrowing will increase the Dollar Equivalent of the
aggregate outstanding principal amount of the Loans of the Banks hereunder,
no Default shall have occurred and be continuing; and
(b) if such borrowing will increase the Dollar Equivalent of the
aggregate outstanding principal amount of the Loans of the Banks hereunder,
the representations and warranties made by the Company in Section 7 hereof
(other than the last sentence of Section 7.02 (a) hereof) shall be true and
complete in all material respects on and as of the date of the making of
such Loan with the same force and effect as if made on and as of such date
(or, if any such representation or warranty is expressly stated to have
been made as of a specific date, as of such specific date).
Each notice of borrowing by the Company hereunder shall constitute a
certification by the Company to the effect set forth in the preceding sentence
(both as of the date of such notice and as of the date of such borrowing).
Section 7. Representations and Warranties. The Company represents and
------------------------------
warrants to the Administrative Agent and the Banks that:
7.01 Corporate Existence. Each of the Company and its Material
-------------------
Subsidiaries: (a) is a corporation, partnership or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization; (b) has all requisite corporate or other power, and has all
material governmental licenses, authorizations, consents and approvals necessary
to own its assets and carry on its business as now being or as proposed to be
conducted; and (c) is qualified to do business and is in good standing in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify would have (either
individually or in the aggregate) a Material Adverse Effect.
7.02 Financial Condition.
-------------------
(a) The Company has heretofore furnished to each of the Banks
a the consolidated balance sheet of the Company and its Subsidiaries as at
October 31, 1996 and the related consolidated statements of operations and cash
flows of the Company and its Subsidiaries for the fiscal year ended on said
date, with the opinion thereon of KPMG Peat Marwick and (b)the unaudized
consolidated balance sheet of the Company and its
Credit Agreement
----------------
<PAGE>
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Subsidiaries as at April 30, 1997 and the related consolidated statements of
operations and cash flows of the Company and its Subsidiaries for the three-
month period ended on said date. All such financial statements present fairly,
in all material respects, the financial position of the Company and its
Subsidiaries as at said dates and the results of their operations for the fiscal
year and three-month period ended on said dates (subject, in the case of such
financial statements as at April 30, 1997 to normal year-end audit adjustments),
all in conformity with generally accepted accounting principles in the United
States of America. None of the Company nor any of its Subsidiaries has on the
date hereof any material contingent liabilities, liabilities for taxes, unusual
forward or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or provided for in
said financial statements (or in the notes thereto) as at said dates. Since
October 31, 1996, there has been no material adverse change in the consolidated
business, operations or financial condition of the Company and its Subsidiaries
taken as a whole from that set forth in said financial statements as at said
dates.
(b) The Company has heretofore furnished to each of the Banks the
annual and quarterly Statutory Statements of each of its Material Insurance
Subsidiaries for the fiscal year ended October 31, 1996 and for the quarterly
fiscal period ended April 30, 1997 as filed with the Applicable Insurance
Regulatory Authority. All such Statutory Statements present fairly, in all
material respects, the financial condition of each Insurance Subsidiary,
respectively, as at the respective dates thereof and its results of operations
through fiscal year ended on October 31, 1996 and the quarterly fiscal period
ended April 30, 1997, in accordance with statutory accounting practices
prescribed or permitted by the Applicable Insurance Regulatory Authority.
7.03 Litigation. There are no legal or arbitral proceedings,
----------
or any proceedings by or before any Governmental Authority, now pending or (to
the knowledge of the Company) threatened against the Company or any of its
Subsidiaries that, either individually or in the aggregate, is reasonably likely
to have a Material Adverse Effect.
7.04 No Breach. None of the execution and delivery of this Agreement
---------
and each other document to be delivered by the Company from time to time in
connection herewith and with the Loans hereunder, the consummation of the
transactions herein contemplated or compliance with the terms and provisions
hereof will conflict with or result in a breach of, or require any consent
(other than action by the board of directors of the Company that has already
been taken) under, (a) the charter or by-laws of the Company, (b) any applicable
law or regulation, (c) any agreement or instrument to which the Company or any
of its Material Subsidiaries is a party, or by which any of them or any of their
Property is bound or to which any of them is subject, or constitute a default
under any such agreement or instrument or (d) any judgment, order, injunction or
decree of any
Credit Agreement
----------------
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Governmental Authority by which the Company or any of its Material Subsidiaries
or any of their Property is bound or to which any of them is subject.
7.05 Action. The Company has all necessary corporate power, authority
------
and legal right to execute, deliver and perform its obligations under this
Agreement and each other document to be delivered by the Company from time to
time in connection herewith and with the Loans hereunder, the execution,
delivery and performance by the Company of this Agreement have been duly
authorized by all necessary corporate action on its part: and this Agreement has
been duly and validly executed and delivered by the Company and constitutes its
legal, valid and binding obligation, enforceable under the law of the State of
New York against the Company in accordance with its terms, except as such
enforceability may be limited (a) by bankruptcy, insolvency, reorganization,
moratorium or similar laws of general applicability affecting the enforcement of
creditors' rights or (b) the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or law).
7.06 Approvals. No authorizations, approvals or consents of, and no
---------
filings or registrations with any Governmental Authority are necessary for the
execution, delivery or performance by the Company of this Agreement or for the
legality, validity or enforceability hereof.
7.07 Use of Credit. No part of the proceeds of the Loans hereunder
-------------
will be used to buy or carry any Margin Stock.
7.08 ERISA. Neither the Company nor any of its Subsidiaries
-----
maintains, or has incurred any material obligation in connection with, an ERISA
Plan. Neither the Company nor any of its Subsidiaries is, or has been within the
preceding five years, an ERISA Affiliate of any Person. All contributions
required to be made by the Company or any of its Subsidiaries with respect to a
Foreign Benefit Plan have been timely made. Each Foreign Benefit Plan has been
maintained in substantial compliance with its terms and with the requirements of
any and all applicable laws and has been maintained, where required, in good
standing with applicable Governmental Authorities. Neither the Company nor any
of its Subsidiaries has incurred any material obligation in connection with the
termination, withdrawal from, or payment of benefits under any Foreign Benefit
Plan.
7.09 Taxes. The Company and its Subsidiaries have filed all income tax
-----
returns and all other material tax returns that are required to be filed by them
and have paid all taxes due pursuant to such returns or pursuant to any
assessment received by the Company or any of its Subsidiaries, except for any
such tax being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained. The charges, accruals
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and reserves on the books of the Company and its Subsidiaries in respect of
taxes and other governmental charges are, in the opinion of the Company,
adequate.
7.10 Investment Company Act. Neither the Company nor any of its
----------------------
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
7.11 Public Utility Holding Company Act. Neither the Company
----------------------------------
nor any of its Subsidiaries is a "holding company", or an "affiliate" of a
"holding company" or a "subsidiary company" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
7.12 Environmental Matters. Each of the Company and its Material
---------------------
Subsidiaries has obtained all environmental, health and safety permits, licenses
and other authorizations required under all Environmental Laws from time to time
in effect to carry on its business as now being or as proposed to be conducted,
except to the extent failure to have any such permit, license or authorization
would not (either individually or in the aggregate) have a Material Adverse
Effect.
7.13 Subsidiaries, Etc.
------------------
(a) Set forth in Schedule I hereto is a complete and correct list, as
of the date of this Agreement, of all of the Material Subsidiaries of the
Company, together with, for each such Subsidiary, (i) the jurisdiction of
organization of such Subsidiary, (ii) each Person holding ownership interests in
such Subsidiary and (iii) the nature of the ownership interests held by each
such Person and the percentage of ownership of such Subsidiary represented by
such ownership interests. Except as disclosed in Schedule I hereto, as of the
date of this Agreement (x) each of the Company and its Subsidiaries owns, free
and clear of Liens, and has the unencumbered right to vote, all outstanding
ownership interests in each Person shown to be held by it in Schedule I hereto,
(y) all of the issued and outstanding capital stock of each such Person
organized as a corporation is validly issued, fully paid and nonassessable and
(z) there are no outstanding Equity Rights with respect to such Person.
(b) None of the Subsidiaries of the Company is, on the date hereof,
subject to any indenture, agreement instrument or other arrangement that,
directly or indirectly, prohibits or restrains, or has the effect of prohibiting
or restraining, or imposes materially adverse conditions upon, the incurrence or
payment of Indebtedness, the declaration or payment of dividends, or the making
of loans, advances or investments.
7.14 Stamp Taxes. To ensure the legality, validity, enforceability or
-----------
admissibility in evidence of this Agreement or any promissory notes evidencing
Loans made
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----------------
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(or to be made), it is not necessary that this Agreement or such promissory
notes or any other document be filed or recorded with any Governmental Authority
or that any stamp or similar tax be paid on or in respect of this Agreement or
such promissory notes, or any other document other than such filings and
recordations that have already been made and such stamp or similar taxes that
have already been paid.
7.15 Legal Form. Each of this Agreement and any promissory notes
----------
evidencing Loans made (or to be made) is in proper legal form under the laws of
any Company Jurisdiction for the admissibility thereof in the courts of such
Company Jurisdiction.
7.16 True and Complete Disclosure. The information reports,
----------------------------
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Company to the Administrative Agent or any Bank in connection with
the negotiation, preparation or delivery of this Agreement or included herein or
delivered pursuant hereto, when taken as a whole do not contain any statement of
material fact that is materially untrue or omit to state any material fact
necessary to make the statements herein, in light of the circumstances under
which they were made, not materially misleading.
7.17 Withholding of Taxes. As of the date of this Agreement, the
--------------------
payments of the principal of and interest of the Loans, the fees under Section
2.04 hereof and all other amounts payable hereunder will not be subject, by
withholding or deduction, to any Taxes imposed by any Company Jurisdiction.
Section 8. Covenants of the Comnany. The Company covenants and
------------------------
agrees with the Banks and the Administrative Agent that, so long as any
Commitment is outstanding and until payment in full of all of the principal of
and interest on each Loan and all fees payable under Section 2.04 hereof:
8.01 Financial Statements, Etc. The Company shall deliver to each
-------------------------
of the Banks:
(a) as soon as available and in any event within 50 days after
the end of each of the first three quarterly fiscal periods of each fiscal year
of the Company, consolidated statements of operations and cash flows of the
Company and its Subsidiaries for such period and for the period from the
beginning of the respective fiscal year to the end of such period, and the
related consolidated balance sheet of the Company and its Subsidiaries as at the
end of such period, setting forth in each case in comparative form the
corresponding consolidated and consolidating figures for the corresponding
period (except, in the case of the balance sheet, to the last day of) in the
preceding fiscal year (it being understood that delivery to the Banks of the
Company's Report on Form l0-Q filed with the SEC shall satisfy the financial
statement delivery requirements of this Section 8.01(a) so long as the
financial information
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required to be contained in such Report is substantially the same as the
financial information required under this Section 8.01(a)), accompanied by an
Officer's Certificate, which certificate shall state that said consolidated
financial statements present fairly, in all material respects, the consolidated
financial condition and results of operations of the Company and its
Subsidiaries in accordance with generally accepted accounting principles (except
for the absence of footnotes), consistently applied, as at the end of, and for,
such period (subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 95 days after the end
of each fiscal year of the Company, consolidated statements of operations us and
cash flows of the Company and its Subsidiaries for such fiscal year and the
related consolidated balance sheet of the Company and its Subsidiaries as at the
end of such fiscal year, setting forth in each case in comparative form the
corresponding consolidated figures for the preceding fiscal year (it being
understood that delivery to the Banks of the Company's Report on Form 10-K filed
with the SEC shall satisfy the financial statement delivery requirements of this
Section 8.01(b) so long as the financial information required to be contained
in such Report is substantially the same as the financial information required
under this Section 8.01(b)), and accompanied by a report thereon of KPMG Peat
Marwick or any other independent certified public accountants of recognized
national standing, which report shall state (without a "going concern" or like
qualification or exception and without qualification or exception as to the
scope of its audit) that said consolidated financial statements present fairly,
in all material respects, the consolidated financial condition and results of
operations of the Company and its Subsidiaries as at the end of, and for, such
fiscal year in accordance with generally accepted accounting principles in the
United States of America, and a certificate of such accountants addressed to the
Banks stating that, in making the examination necessary for their opinion,
nothing came to their attention that caused them to believe that the Company had
failed to comply with any of its obligations under Sections 8.04 to 8.07
(inclusive) or that any Default specified in paragraph (b) or (e) through (i),
inclusive, of Section 9 hereof had occurred, except as specifically stated
(which certificate may be limited to the extent required by accounting rules and
guidelines);
(c) within 5 days after filing with the Applicable Insurance
Regulatory Authority and in any event within 55 days after the end of each of
the first three quarterly fiscal periods of each fiscal year of the Company the
quarterly Statutory Statement of each Material Insurance Subsidiary for such
fiscal period, together with a certificate of a senior financial officer of the
Company or of such Subsidiary stating that such Statutory Statement fairly
presents, in all Material respects, the financial condition of each Material
Insurance Subsidiary, respectively, for such quarterly fiscal period in
accordance with statutory accounting practices required or permitted by the
Applicable Insurance Regulatory Authority.
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----------------
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(d) within 5 days after filing with the Applicable Insurance
Regulatory Authority and in any event within 55 days after the end of each
fiscal year of the Company the annual Statutory Statement of each Material
Insurance Subsidiary for such year, together with an Officer's Certificate
stating that such annual Statutory Statement fairly presents, in all material
respects, the financial condition of each Material Insurance Subsidiary,
respectively, for such fiscal year in accordance with statutory accounting
practices required or permitted by the Applicable Insurance Regulatory
Authority.
(e) promptly upon their becoming available, copies of all registration
statements (other than those on Form S-8) and regular periodic reports, if any,
which the Company shall have filed with the SEC or any national securities
exchange;
(f) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed;
(g) promptly after the Company knows that any Default has occurred and
is continuing, a notice of such Default specifying that such notice is a "Notice
of Default" and describing the same in reasonable detail and, together with such
notice or as soon thereafter as possible, a description of the action that the
Company has taken or proposes to take with respect thereto;
(h) the Company will promptly give to each Bank notice of any legal or
arbitral proceedings, or any proceedings before any Governmental Authority,
pending or (to the knowledge of the Company) threatened, against the Company or
any of its Subsidiaries that, either individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect; and
(i) from time to time such other information regarding the financial
condition, operations or business of the Company or any of its Subsidiaries as
the Administrative Agent may reasonably request.
The Company will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, an Officer's
Certificate (i) to the effect that no Default has occurred and is continuing
(or, if any Default has occurred and is continuing, describing the same in
reasonable detail and describing the action that the Company has taken or
proposes to take with respect thereto) and (ii) setting forth in reasonable
detail the computations necessary to determine whether the Company is in
compliance with Sections 8.05(g), 8.05(h) and 8.06 hereof as of the end of the
respective quarterly fiscal period or fiscal year.
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----------------
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8.02 Existence. Etc. The Company will, and will cause each of its
---------------
Material Subsidiaries to:
(a) preserve and maintain its legal existence and all of its material
rights, privileges, licenses and franchises (provided that nothing in this
--------
Section 8.02 shall prohibit any transaction permitted under Section 8.04
hereof);
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if failure
to comply with such requirements is reasonably likely (either individually
or in the aggregate) to have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental charges
or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which penalties attach thereto, except for
any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which, in the
opinion of the Company, adequate reserves are being maintained in
accordance with GAAP;
(d) keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting
principles consistently applied;
(e) maintain all of its material Properties used or useful in its
business in good working order and condition, ordinary wear and tear
excepted; and
(f) permit representatives of any Bank of the Administrative Agent
during normal business hours to examine or inspect any of its Properties,
and to discuss its business and affairs with its officers, all to the
extent reasonably requested by such Bank of the Administrative Agent (as
the case may be).
8.03 Insurance. The Company will, and will cause each of its Material
---------
Subsidiaries to, (a) maintain fidelity and liability insurance with financially
sound and reputable insurance companies (or through self-insurance programs so
long as such self-insurance is administered in accordance with sound business
practices), and with respect to risks of a character (other than insurance
written or reinsurance assumed by the Company or its Subsidiaries) usually
maintained by corporations engaged in the same or similar business similarly
situated, against loss, damage and liability of the kinds and in the amounts
customarily maintained by such corporations and carry such other insurance as is
usually carried by such corporations and (b) furnish to the Administrative
Agent, upon written request, full information as to such insurance carried.
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----------------
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8.04 Prohibition of Fundamental Changes. The Company will not. nor
----------------------------------
will it permit any of its Material Subsidiaries to, enter into any transaction
of merger or consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution).
The Company will not, nor will it permit any of its Material
Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of any
capital stock of any of its Material Insurance Subsidiaries, whether now owned
or hereafter acquired, unless, after giving effect to such Disposition, at least
95% of the capital stock of such Material Insurance Subsidiary is directly or
indirectly owned and controlled by the Company.
Notwithstanding the foregoing provisions of this Section 8.04:
(a) any Material Subsidiary may be merged or consolidated with or
into: (i) the Company if the Company shall be the continuing or surviving
corporation or (ii) any other Subsidiary of the Company; provided that (x)
--------
if any such transaction shall be between a Subsidiary and a Wholly-Owned
Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or
surviving corporation, and
(b) the Company or any Material Subsidiary may merge or consolidate
with any other Person if (i) in the case of a merger or consolidation of
the Company, the Company is the surviving corporation and, in any other
case, the surviving corporation is, after giving effect to such merger or
consolidation, a Wholly-Owned Subsidiary of the Company and (ii) after
giving effect thereto no Default would exist hereunder.
8.05 Limitation on Liens.
-------------------
The Company will not, nor will it permit Mid Ocean Reinsurance, any
Affiliate or Subsidiary of the Company having direct or indirect ownership of
Mid Ocean Reinsurance or any Subsidiary of Mid Ocean Reinsurance to, create,
incur, assume or suffer to exist any Lien upon any of their respective
Properties, whether now owned or hereafter acquired, except:
(a) Liens in existence on the date hereof and listed on Schedule III
hereto;
(b) Liens imposed by any Governmental Authority for taxes, assessments
or charges not yet due or which are being contested in good faith and by
appropriate proceedings, unless the amount thereof is material with respect to
it or its financial condition, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP;
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(c) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are not
overdue for a period of more than 30 days or which are being contested in good
faith and by appropriate proceedings and Liens securing judgments but only to
the extent for an amount and for a period not resulting in an Event of Default
under Section 9(h) hereof;
(d) pledges or deposits under worker's compensation, unemployment
insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on the use
of Property or minor imperfections in title thereto which, in the aggregate, are
not material in amount, and which do not in any case materially detract from the
value of the Property subject thereto or interfere with the ordinary conduct of
the business of the Company;
(g) Liens upon real and/or tangible personal Property acquired after
the date hereof (by purchase, construction or otherwise) by the Company, each of
which Liens either existed on such Property before the time of its acquisition
and was not created in anticipation thereof or was created solely for the
purpose of securing Indebtedness incurred to finance, refinance, or refund the
cost (including the cost of construction) of such Property; provided that (i) no
--------
such Lien shall extend to or cover any Property of the Company other than the
Property so acquired and improvements thereon and (ii) the principal amount of
Indebtedness secured by any such Lien shall not exceed 80% of the fair market
value (as determined in good faith by a senior financial officer of the Company)
of such Property at the time it was acquired (by purchase, construction or
otherwise);
(h) Liens to secure reimbursement obligations of Mid Ocean
Reinsurance or any such Subsidiary or Affiliate of the Company or any Subsidiary
of Mid Ocean Reinsurance in respect of letters of credit caused to be issued in
the ordinary course of business;
(i) additional Liens created after the date hereof so long as the
Indebtedness secured thereby and incurred after the date hereof does not exceed
S5,000,000 in the aggregate at any one time outstanding; and
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(j) any extension, renewal or replacement of the foregoing; provided
--------
that the Liens permitted by this paragraph shall not extend to or cover any
additional Indebtedness or Property (other than a substitution of like
Property).
Notwithstanding anything contained herein to the contrary the Company will not,
and will not permit any of its Subsidiaries to, create, incur, assume or suffer
to exist any Lien on any of the capital stock of Mid Ocean Reinsurance or any
Subsidiary of Mid Ocean Reinsurance.
8.06 Certain Financial Covenants.
---------------------------
(a) Tangible Net Worth. The Company will not, at any time, permit
------------------
Tangible Net Worth to be less than $800,000,000.
(b) Total Debt to Total Capital. The Company shall, at all times,
---------------------------
maintain a ratio of Total Debt to Total Capital of not more than 0.30 to 1.
8.07 Ratings. The Company will not allow the Standard and Poor's
-------
Rating or the Best Rating to be less than A.
8.08 Use of Proceeds. The Company will use the proceeds of the
---------------
Loans hereunder for general corporate purposes (in compliance with all
applicable legal and regulatory requirements, including, without limitation,
Regulations G, U and X and the Securities Act of 1933 and the Securities
Exchange Act of 1934 and the regulations thereunder); provided that neither the
Administrative Agent nor any Bank shall have any responsibility as to the use of
any of such proceeds.
8.09 Transactions with Affiliates. The Company will not, and
----------------------------
will not permit any of its Subsidiaries to, sell, lease or otherwise transfer
any Property to, or purchase, lease or otherwise acquire any Property from, or
otherwise engage in any other transactions with, any of its Affiliates, except
at prices and on terms and conditions not less favorable to the Company or such
Subsidiary than could be obtained on an arm's-length basis from unrelated third
parties.
8.10 Compliance with Laws. The Company will, and will cause each of
--------------------
Subsidiaries to, comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to it or its Property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
8.11 Payment of Obligations. The Company will, and will cause each of
----------------------
its Subsidiaries to, pay its obligations that, if not paid, could result in a
Material Adverse Effect before the same shall become delinquent or in default,
except where (a) the validity or amount
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thereof is being contested in good faith by appropriate proceedings, (b) the
Company or such Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect
8.12 Indebtedness. The Company will not permit Mid Ocean Reinsurance,
------------
any Affiliate or Subsidiary of the Company having direct or indirect ownership
of Mid Ocean Reinsurance or any Subsidiary of Mid Ocean Reinsurance to,
create, incur or suffer to exist any Debt or any Guarantee of Indebtedness of
any other Person, except for Debt or Guarantees of Indebtedness outstanding on
the date hereof and listed in Schedule IV hereto.
8.13 Capital and Surplus of Mid Ocean Reinsurance. The Company will
--------------------------------------------
not permit the Capital and Surplus of Mid Ocean Reinsurance to be less than
$800,000,000 at any time.
Section 9. Events of Default. If one or more of the following events
-----------------
(herein called "Events of Default") shall occur and be continuing:
(a) The Company shall: (i) default in the payment of any principal of
any Loan when due (whether at stated maturity or at mandatory or optional
prepayment or otherwise); or (ii) default in the payment of any interest
on any Loan or any facility fee or utilization fee payable under Section
2.04 hereof and such default shall continue unremedied for two or more
Business Days or (iii) default in the payment of any other amount payable
by it hereunder when due and such default shall have continued unremedied
for five or more days; or
(b) The Company or any of its Subsidiaries shall default in the
payment when due of any principal of or interest on any Indebtedness
aggregating $5,000,000 or more, or any event specified in any note,
agreement, indenture or other document evidencing or relating to any such
Indebtedness shall occur if the effect of such event is to cause, or (with
the giving of any notice or the lapse of time or both) to permit the
holder or holders of such Indebtedness (or a trustee or agent on behalf of
such holder or holders) to cause such Indebtedness to become due, or to be
prepaid in full (whether by redemption, purchase, offer to purchase or
otherwise), prior to its stated maturity or to have the interest rate
thereon reset to a level so that securities evidencing such Indebtedness
trade at a level specified in relation to the par value thereof; or any
Obligor shall default in the payment when due of any amount in excess of
$5,000,000 under any Derivative Transaction; or any event specified in any
Derivative Transaction to which any Obligor is a party shall occur if the
effect of such event is to cause, or (with the giving of any notice or the
lapse of time or both) to
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----------------
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permit, termination or liquidation payment or payments in excess of
$5,000,000 to become due; or
(c) Any representation, warranty or certification made or deemed made
herein or in any other document to be delivered by the Company in
connection herewith and with the Loans hereunder (or in any modification or
supplement hereto or thereto) by the Company, or any certificate furnished
to any Bank or the Administrative Agent pursuant to the provisions hereof
or thereof, shall prove to have been false or misleading as of the time
made or deemed made or furnished in any material respect; or
(d) The Company shall default in the performance of its obligations
under Sections 8.01(g), 8.04 through 8.07, 8.12, or 8.13 hereof
(inclusive); or the Company shall default in the performance of any of its
other obligations in this Agreement or in any other document to be
delivered by the Company in connection herewith and with the Loans
hereunder and such default shall continue unremedied for a period of thirty
or more days after notice thereof to the Company by the Administrative
Agent or any Bank (through the Administrative Agent); or
(e) The Company or any of its Material Subsidiaries shall admit in
writing its inability to, or be generally unable to, pay its debts as such
debts become due; or
(f) The Company or any of its Material Subsidiaries shall (i) apply for
or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, examiner or liquidator of itself or of all or
a substantial part of its Property, (ii) make a general assignment for the
benefit of its creditors, (iii) file, or consent by answer or otherwise
fail to controvert in a timely and appropriate manner the filing against it
of, a petition seeking relief or to take advantage of any law relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution,
arrangement or winding-up, or composition or readjustment of debts or (iv)
take any corporate action for the purpose of effecting any of the
foregoing; or
(g) A proceeding or case shall be commenced, without the application
or consent of the Company or any of its Material Subsidiaries, in any court
or governmental regulatory authority of competent jurisdiction, seeking (i)
its reorganization, liquidation, dissolution, arrangement or winding-up, or
the composition or readjustment of its debts, (ii) the appointment of a
receiver, custodian, trustee, examiner, liquidator or the like of the
Company or such Subsidiary or of all or any substantial part of its
Property or (iii) similar relief in respect of the Company or such
Subsidiary under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and such
proceeding or case shall
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continue undismissed for a period of 60 or more days, or an order, judgment
or decree approving or ordering any of the foregoing shall be entered: or
(h) A judgment or judgments for the payment of money in excess of
$5,000,000 in the aggregate (exclusive of judgment amounts fully covered by
insurance where the insurer has admitted liability in respect of such
judgment) shall be rendered by one or more courts, administrative tribunals
or other bodies having jurisdiction against the Company or any of its
Subsidiaries and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof shall not be
procured, within 60 days from the date of entry thereof and the Company or
the relevant Subsidiary shall not, within said period of 60 days, or such
longer period during which execution of the same shall have been stayed.
appeal therefrom and cause the execution thereof to be stayed during such
appeal: or
(i) A Change of Control shall occur;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 9 with respect to the Company (A) the
Administrative Agent may and, upon request of the Majority Banks, shall, by
notice to the Company, terminate the Commitments and they shall thereupon
terminate, and (B) the Administrative Agent may and, upon request of Banks
holding more than 50% of the aggregate unpaid principal amount of the Loans,
shall, by notice to the Company declare the principal amount then outstanding
of, and the accrued interest on, the Loans and all other amounts payable by the
Company hereunder (including, without limitation, any amounts payable under
Section 5.04 hereof) to be forthwith due and payable, whereupon such amounts
shall be immediately due and payable without presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Company; and (2) in the case of the occurrence of an Event of Default referred
to in clause (f) or (g) of this Section 9 with respect to the Company, the
Commitments shall automatically be terminated and the principal amount then
outstanding of, and the accrued interest on, the Loans and all other amounts
payable by the Company hereunder (including, without limitation, any amounts
payable under Section 5.04 hereof) shall automatically become immediately due
and payable without notice, presentment, demand, protest or other formalities of
any kind, all of which are hereby expressly waived by the Company.
Section 10. The Administrative Agent
------------------------
10.01 Appointment; Powers and Immunities. Each Bank hereby appoints
----------------------------------
and authorizes the Administrative Agent to act as its agent hereunder with such
powers as are specifically delegated to the Administrative Agent by the terms of
this Agreement, together with such other powers as are reasonably incidental
thereto. The Administrative Agent
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(which term as used in this sentence and in Section 10.05 and the first sentence
of Section 10.06 hereof shall include reference to its affiliates and its own
and its affiliates' officers, directors, employees and agents):
(a) shall have no duties or responsibilities except those expressly
set forth in this Agreement, and shall not by reason of this Agreement be a
trustee for any Bank;
(b) shall not be responsible to the Banks for any recitals,
statements, representations or warranties contained in this Agreement, or
in any certificate or other document referred to or provided for in, or
received by any of them under this Agreement, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement
or any other document referred to or provided for herein or for any failure
by the Company to perform any of its obligations hereunder or thereunder;
(c) shall not be required to initiate or conduct any litigation or
collection proceedings hereunder; and
(d) shall not be responsible for any action taken or omitted to be
taken by it hereunder or under any other document or instrument referred to
or provided for herein or in connection herewith, except for its own gross
negligence or willful misconduct.
The Administrative Agent may employ agents and attorneys-in-fact and shall not
be responsible for the negligence or misconduct of any such agents or attorneys-
in-fact selected by it in good faith. The Administrative Agent may deem and
treat the payee of any promissory note evidencing any Loans hereunder as the
holder thereof for all purposes hereof unless and until an Assignment and
Acceptance relating to such Loans shall have been filed with the Administrative
Agent, together with the consent of the Company thereto (to the extent provided
in Section 11.06(b) hereof).
10.02 Reliance by Administrative Agent. The Administrative Agent shall
--------------------------------
be entitled to rely upon any certification, notice or other communication
(including, without limitation, any thereof by telephone, telecopy, telegram or
cable) believed by it to be genuine and correct and to have been signed or sent
by or on behalf of the proper Person or Persons, and upon advice and statements
of legal counsel, independent accountants and other experts selected by the
Administrative Agent. As to any matters not expressly provided for by this
Agreement, the Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder in accordance with instructions
given by the Majority Banks (or, if so provided in Section 11.04 hereof, all of
the Banks), and such instructions of the
Credit Agreement
----------------
<PAGE>
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Majority Banks (or all of the Banks, as the case may be) and any action taken or
failure to act pursuant thereto shall be binding on all of the Banks.
10.03 Defaults. The Administrative Agent shall not be deemed to have
--------
knowledge or notice of the occurrence of a Default unless the Administrative
Agent has received notice from a Bank or the Company specifying such Default and
stating that such notice is a "Notice of Default". In the event that the
Administrative Agent receives such a notice of the occurrence of a Default, the
Administrative Agent shall give prompt notice thereof to the Banks. The
Administrative Agent shall (subject to Sections 10.01 and 10.07 hereof) take
such action with respect to such Default as shall be directed by the Majority
Banks, provided that, unless and until the Administrative Agent shall have
--------
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall deem advisable in the best interest of the Banks
except to the extent that this Agreement expressly requires that such action be
taken, or not be taken, only with the consent or upon the authorization of the
Majority Banks or all of the Banks.
10.04 Rights as a Bank. With respect to its Commitment and the Loans
----------------
made by IT, Chase (and any successor acting as Administrative Agent) in its
capacity as a Bank hereunder shall have the same rights and powers hereunder as
any other Bank and may exercise the same as though it were not acting as the
Administrative Agent, and the term "Bank" or "Banks" shall, unless the context
otherwise indicates, include the Administrative Agent in its individual
capacity. Chase (and any successor acting as Administrative Agent)-and its
Affiliates may (without having to account therefor to any Bank) accept deposits
from, lend money to, make investments in and generally engage in any kind of
banking, trust or other business with the Company (and any of its Subsidiaries
or Affiliates) as if it were not acting as the Administrative Agent, and Chase
(and any other successor acting as Administrative Agent) and its Affiliates may
accept fees and other consideration from the Company for services in connection
with this Agreement or otherwise without having to account for the same to the
Banks.
10.05 Indemnification. The Banks agree to indemnify the Administrative
---------------
Agent (to the extent not reimbursed under Section 11.03 hereof, but without
limiting the obligations of the Company under said Section 11.03) ratably in
accordance with their respective Commitments, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever that may be imposed
on, incurred by or asserted against the Administrative Agent (including by any
Bank) arising out of or by reason of any investigation in or in any way relating
to or arising out of this Agreement or any other documents contemplated by or
referred to herein or the transactions contemplated hereby (including, without
limitation, the costs and expenses that the Company is obligated to pay under
Section 11.03 hereof but excluding (i) normal
Credit Agreement
----------------
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administrative costs and expenses incident to the performance of its agency
duties hereunder and (ii) the costs and expenses of the Administrative Agent in
connection with the negotiation and preparation of this Agreement) or the
enforcement of any of the terms hereof or of any such other documents, provided
--------
that no Bank shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the party to be indemnified.
10.06 Non-Reliance on Administrative Agent and Other Banks. Each Bank
----------------------------------------------------
agrees that it has, independently and without reliance on the Administrative
Agent or any other Bank, and based on such documents and information as it has
deemed appropriate made its own credit analysis of the Company and its
Subsidiaries and decision to enter into this Agreement and that it will,
independently and without reliance upon the Administrative Agent, or any other
Bank, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own analysis and decisions in taking or not
taking action under this Agreement. The Administrative Agent shall not be
required to keep itself informed as to the performance or observance by the
Company of this Agreement or any other document referred to or provided for
herein or to inspect the Properties or books of the Company or any of its
Subsidiaries. Except for notices, reports and other documents and information
expressly required to be furnished to the Banks by the Administrative Agent
hereunder, the Administrative Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the affairs,
financial condition, operations, business, Properties, liabilities or prospects
of the Company or any of its Subsidiaries (or any of their Affiliates) that may
come into the possession of the Administrative Agent or any of its Affiliates.
10.07 Failure to Act. Except for action expressly required of the
--------------
Administrative Agent hereunder, the Administrative Agent shall in all cases be
fully justified in failing or refusing to act hereunder unless it shall receive
further assurances to its satisfaction from the Banks of their indemnification
obligations under Section 10.05 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.
10.08 Resignation of Administrative Agent. Subject to the appointment
-----------------------------------
and acceptance of a successor Administrative Agent as provided below, the
Administrative Agent may resign at any time by giving notice thereof to the
Banks and the Company. Upon any such resignation, the Majority Banks shall have
the right (with, so long as no Default shall have occurred and be continuing,
the consent of the Company, which consent shall not be unreasonably withheld or
delayed) to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within 30 days after the retiring
Administrative Agent's giving of notice of resignation of the retiring
Administrative Agent, then the retiring
Credit Agreement
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Administrative Agent may, on behalf of the Banks, (with, so long as no Default
shall have occurred and be continuing, the consent of the Company, which consent
shall not be unreasonably withheld or delayed) appoint a successor
Administrative Agent, that shall be a Bank that has an office in New York, New
York with a combined capital and surplus of at least $500,000,000. Upon the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Section 10 shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Administrative Agent.
Section 11. Miscellaneous.
-------------
11.01 Waiver. No failure on the part of the Administrative
------
Agent or any Bank to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
11.02 Notices. All notices, requests and other communications
-------
provided for herein (including, without limitation, any modifications of, or
waivers, requests or consents under, this Agreement) shall be given or made in
writing (including, without limitation, by telecopy) to the intended recipient
at (a) if to any Company or the Administrative Agent, the "Address for Notices"
specified below its name on the signature pages hereof or (b) if to any Bank,
the address (or telecopy number) set forth in its Administrative Questionnaire;
or, as to any party, at such other address as shall be designated by such party
in a notice to each other party. Except as otherwise provided in this Agreement,
all such communications shall be deemed to have been duly given when transmitted
by telecopier or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid.
11.03 Expenses, Etc. The Company agrees to pay or reimburse
-------------
each of the Banks and the Administrative Agent for: (a) all reasonable out-of-
pocket costs and expenses of the Administrative Agent (including, without
limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy,
special New York counsel to Chase) in connection with the negotiation or
preparation of any modification, supplement or waiver of any of the terms of
this Agreement (whether or not consummated); (b) all reasonable out-of-pocket
costs and expenses of the Banks and the Administrative Agent (including, without
limitation, the reasonable fees and expenses of legal counsel) in connection
with (i) any Default and any
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----------------
<PAGE>
-53-
enforcement or collection proceedings resulting therefrom, including, without
limitation, all manner of participation in or other involvement with (x)
bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation
proceedings, (y) judicial or regulatory proceedings and (z) workout,
restructuring or other negotiations or proceedings (whether or not the workout,
restructuring or transaction contemplated thereby is consummated) and (ii) the
enforcement of this Section 11.03; and (c) all transfer, stamp, documentary,
recording or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement or any other
document referred to herein.
The Company hereby agrees to indemnify the Administrative
Agent and each Bank and their respective directors, officers, employees,
attorneys and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages or expenses (without duplication of
anything covered by Section 5 hereof) incurred by any of them (including,
without limitation, any and all losses, liabilities, claims, damages or expenses
incurred by the Administrative Agent to any Bank, whether or not the
Administrative Agent or any Bank is a party thereto) arising out of or by reason
of any investigation or litigation or other proceedings (including any
threatened investigation or litigation or other proceedings) relating to the
Loans hereunder or any actual or proposed use by the Company or any of its
Subsidiaries of the proceeds of any of the Loans hereunder, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified).
11.04 Amendments, Etc. Except as otherwise expressly provided
---------------
in this Agreement, any provision of this Agreement may be modified or
supplemented only by an instrument in writing signed by the Company and the
Majority Banks, or by the Company and the Administrative Agent acting with the
consent of the Majority Banks, and any provision of this Agreement may be waived
by the Majority Banks or by the Administrative Agent acting with the consent of
the Majority Banks; provided that (a) no such modification, supplement or waiver
shall: (i) increase, or (except as provided in Section 2.10 hereof) extend the
term of the Commitment of any Bank, or extend the time or waive any requirement
for the reduction or termination of such Commitment, without the written consent
of such Bank; (ii) extend the date fixed for the payment of principal of or
interest on any Loan or any fee hereunder, without the written consent of each
Bank affected thereby; (iii) reduce the amount of any such payment of principal,
without the written consent of each Bank affected thereby; (iv) reduce the rate
at which interest is payable thereon or any fee is payable hereunder, without
the written consent of each Bank affected thereby; (v) alter the rights or
obligations of the Company to prepay Loans, without the written consent of each
Bank affected thereby; (vi) alter the terms of Sections 4.02 or 4.07(b) hereof
or this Section 11.04, without the written consent of each Bank; or (vii) modify
the definition of the terms "Agreed Foreign
Credit Agreement
----------------
<PAGE>
-54-
Currency" or "Majority Banks" or modify in any other manner the number or
percentage of the Banks required to make any determinations or waive any rights
hereunder or to modify any provision hereof, without the written consent of each
Bank; and (b) any modification of any of the rights or obligations of the
Administrative Agent hereunder shall require the consent of the Administrative
Agent.
11.05 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06 Assignments and Participations.
------------------------------
(a) The Company may not assign any of its rights or
obligations hereunder without the prior consent of all of the Banks and the
Administrative Agent.
(b) Any Bank may assign to one or more assignees all or a
portion of its rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans at the time owing to it) subject to the
following: (i) except in the case of an assignment to a Bank or an affiliate of
a Bank, each of the Company and the Administrative Agent shall have given their
prior written consent to such assignment (which consent shall not be
unreasonably withheld), (ii) except in the case of an assignment to a Bank or an
affiliate of a Bank or an assignment of the entire remaining amount of the
assigning Bank's Commitment, the amount of the Commitment of the assigning Bank
subject to each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the Administrative
Agent) shall not be less than $5,000,000 unless each of the Company and the
Administrative Agent otherwise consent, (iii) each partial assignment shall be
made as an assignment of a proportionate part of all the assigning Bank's rights
and obligations under this Agreement, (iv) the parties to each assignment shall
execute and deliver to the Administrative Agent an Assignment and Acceptance,
together with a processing and recordation fee of $3,000, and (v) the assignee,
if it shall not be a Bank, shall (x) be entitled to an exemption from
withholding or deduction by the Company of Taxes on all amounts to be received
by it hereunder at least the same extent as the assignor and (y) deliver to the
Administrative Agent an Administrative Questionnaire; provided further that any
----------------
consent of the Company otherwise required under this Section shall not be
required if an Event of Default under paragraph (f) or (g) of Section 9 has
occurred and is continuing with respect to the Company. Subject to acceptance
and recording thereof pursuant to paragraph (d) of this Section, from and after
the effective date specified in each Assignment and Acceptance the assignee
thereunder shall be a party hereto and, to the extent of the interest assigned
by such Assignment and Acceptance, have the rights and obligations of a Bank
under this Agreement, and the assigning Bank thereunder shall, to the extent of
the interest assigned by such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the assigning Bank's rights
Credit Agreement
----------------
<PAGE>
-55-
and obligations under this Agreement, such Bank shall cease to be a party hereto
but shall continue to be entitled to the benefits of Sections 5.01, 5.04, 5.05
and 11.03). Any assignment or transfer by a Bank of rights or obligations under
this Agreement that does not comply with this paragraph shall be treated for
purposes of this Agreement as a sale by such Bank of a participation in such
rights and obligations in accordance with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an
agent of the Company, shall maintain at one of its offices in The City of New
York a copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Banks, and the Commitment of,
and principal amount of the Loans owing to, each Bank pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
--------
conclusive, and the Company and the Banks may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Bank hereunder for
all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Company and any Bank, at any
reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Bank and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Bank hereunder), the processing and recordation fee referred to in paragraph (b)
of this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Bank may, without the consent of the Company, sell
participations to one or more banks or other entities (a "Participant") in all
-----------
or a portion of such Bank's rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided that (i) such Bank's obligations under this Agreement shall remain
- --------
unchanged, (ii) such Bank shall remain solely responsible to the other parties
hereto for the performance of such obligations and (iii) the Company and the
other Banks shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement. Any
agreement or instrument pursuant to which a Bank sells such a participation
shall provide that such Bank shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement; provided that such agreement or instrument may provide that
--------
such Bank will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the proviso to Section 11.04 that
affects such Participant Subject TO paragraph (f) of this Section, the Company
agrees that each Participant shall be entitled to the
Credit Agreement
----------------
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-56-
benefits of Sections 5.01, 5.04 and 5.05 to the same extent as if it were a Bank
and had acquired its interest by assignment pursuant to paragraph (b) of this
Section. To the extent permitted by law, each Participant also shall be entitled
to the benefits of Section 4.07(a) as though it were a Bank, provided that any
exercise by any Participant of any such benefits shall constitute the agreement
of such Participant to be subject to Section 4.07(b) as though it were a Bank.
(f) A Participant shall not be entitled to receive any greater
payment under Section 5.01 or 5.05 than the applicable Bank would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Company's prior written consent. A Participant shall not be entitled to the
benefits of Section 5.05 unless the Company is notified of the participation
sold to such Participant and such Participant agrees, for the benefit of the
Company, to bound by Section 5.05 as though it were a Bank.
(g) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 11.06, any Bank may
(without notice to the Company, the Administrative Agent or any other Bank and
without payment of any fee) pledge or grant a security interest in all or any
portion of its Loans to secure any obligations of such Bank (including, without
limitation, to any Federal Reserve Bank as collateral security pursuant to
Regulation A and any Operating Circular issued by such Federal Reserve Bank). No
such assignment shall release the assigning Bank from its obligations hereunder.
(h) A Bank may furnish any information concerning the Company
or any of its Subsidiaries in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and participants),
subject, however, to the provisions of Section 11.12(b) hereof.
(i) Anything in this Section 11.06 to the contrary
notwithstanding, no Bank may assign or participate any interest in any Loan held
by it hereunder to the Company or any Affiliate or Subsidiary of the Company
without the prior consent of each Bank.
11.07 Survival. The obligations of the Company to any Bank
--------
under Sections 5.01, 5.04, 5.05, and 11.03 hereof, and the obligations of any
Bank under Sections 10.05 and 11.12 hereof, shall survive the repayment of the
Loans made by such Bank and the termination of the Commitment of such Bank
(including, with respect to any Bank that does not agree to the extension of the
Commitment Termination Date in accordance with Section 2.10 hereof, the
repayment of the Loans made by such Bank and the termination of the Commitment
of such Bank on the applicable Existing Commitment Termination Date before
giving effect to such extension) and, in the case of any Bank that may assign
any interest in its Commitment or Loans hereunder, shall survive the making of
such assignment,
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notwithstanding that such assigning Bank may cease to be a "Bank" hereunder. In
addition, each representation and warranty made, or deemed to be made by a
notice of any Loan, herein or pursuant hereto shall survive the making of such
representation and warranty, and no Bank shall be deemed to have waived, by
reason of making any Loan, any Default that (i) may arise by reason of such
representation or warranty proving to have been false or misleading or (ii)
exists at the time such Loan was made, notwithstanding that such Bank or the
Administrative Agent may have had notice or knowledge or reason to believe that
such representation or warranty was false or misleading, or that such Default
was existing, at the time such Loan was made.
11.08 Captions. The table of contents and captions and section
--------
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
11.09 Counterparts. This Agreement may be executed in any
------------
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
11.10 Governing Law: Submission to Jurisdiction. This
-----------------------------------------
Agreement shall be governed by, and construed in accordance with, the law of the
State of New York. The Company hereby submits to the nonexclusive jurisdiction
of the United States District Court for the Southern District of New York and of
any New York state court sitting in New York County (and any appellate court
from any thereof) for the purposes of all legal proceedings arising out of or
relating to this Agreement or the transactions contemplated hereby. The Company
irrevocably waives, to the fullest extent permitted by applicable law, any
objection that it may now or hereafter have to the laying of the venue of any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum. The Company
hereby irrevocably agrees and consents that service of process in any such legal
proceeding in any such court may be made on the Company by the mailing thereof
by registered mail postage prepaid, or by transmitting the same by telecopier,
to the Company in the manner specified in Section 11.02 hereof, and any such
service shall be deemed good and effective when transmitted by telecopier or, in
the case of mail, upon receipt; provided that nothing herein will affect the
right of any Bank or the Administrative Agent to serve process in any other
manner permitted by law.
To the extent that the Company has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution or execution, on the ground of sovereignty or otherwise) with respect
to itself or its Property, it hereby irrevocably waives, to the fullest extent
permitted by applicable law, such immunity in respect of its obligations under
this Agreement.
Credit Agreement
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11.11 Waiver of Jury Trial. EACH OF THE COMPANY, THE
--------------------
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
11.12 Confidentiality. Each of the Banks and the
---------------
Administrative Agent agrees (on behalf of itself and each of its Affiliates,
directors, officers, employees and representatives' to use reasonable
precautions to keep confidential, in accordance with its customary procedures
for handling confidential information of the same nature and in accordance with
safe and sound banking practices, any non-public information supplied to it by
the Company pursuant to this Agreement that is identified by the Company as
being confidential at the time the same is delivered to the Banks or the
Administrative Agent; provided that nothing herein shall limit the disclosure of
--------
any such non-public information (i) to the extent required by statute, rule,
regulation or judicial process, (ii) to counsel for any of the Banks or the
Administrative Agent, (iii) to bank examiners, auditors or accountants, (iv) to
the Administrative Agent or any other Bank (or to Chase Securities Inc.), (v) in
connection with any litigation to which any one or more of the Banks or the
Administrative Agent is a party, (vi) to a subsidiary or Affiliate of such Bank
as provided in paragraph (a) above or (vii) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first executes and delivers to the
respective Bank a Confidentiality Agreement substantially in the form of Exhibit
C hereto; and provided, further, that in no event shall any Bank or the
--------
Administrative Agent be obligated or required to return any materials furnished
by the Company. The obligations of any assignee that has executed a
Confidentiality Agreement in the form of Exhibit C hereto shall be superseded by
this Section 11.12 upon the date upon which such assignee becomes a Bank
hereunder pursuant to Section 11.06 hereof.
11.13 Judgment Currency. This is an international loan
-----------------
transaction in which the specification of Dollars or any Foreign Currency, as
the case may be (the "Specified Currency") and any payment in New York County or
------------------
the country of the Specified Currency, as the case may be (the "Specified
---------
Place"), is of the essence, and the Specified Currency shall be the currency of
- -----
account in all events relating to Loans denominated in the Specified Currency.
The payment obligations of the Company under this Agreement shall not be
discharged by an amount paid in another currency or in another place, whether
pursuant to a judgment or otherwise, to the extent that the amount so paid on
conversion to the Specified Currency and transfer to the Specified Place under
normal banking procedures does not yield the amount of the Specified Currency at
the Specified Place due hereunder. If for the purpose of obtaining judgment in
any court it is necessary to convert a sum due hereunder in the Specified
Currency into another currency (the "Second Currency"), the rate of exchange
---------------
which
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shall be applied shall be that at which in accordance with normal banking
procedures the Administrative Agent could purchase the Specified Currency with
the Second Currency on the Business Day next preceding that on which such
judgment is rendered. The obligation of the Company in respect of any such sum
due from it to the Administrative Agent or any Bank hereunder shall,
notwithstanding the rate of exchange actually applied in rendering such
judgment, be discharged only to the extent that on the Business Day following
receipt by the Administrative Agent or such Bank, as the case may be, of any sum
adjudged to be due hereunder in the Second Currency to the Administrative Agent
or such Bank, as the case may be, the Administrative Agent or such Bank, as the
case may be, may in accordance with normal banking procedures purchase and
transfer to the Specified Place the Specified Currency with the amount of the
Second Currency so adjudged to be due; and the Company hereby, as a separate
obligation and notwithstanding any such judgment. agrees to indemnify the
Administrative Agent or such Bank, as the case may be, against, and to pay the
Administrative Agent or such Bank, as the case may be, on demand in the
Specified Currency, any difference between the sum originally due to the
Administrative Agent or such Bank, as the case may be, in the Specified Currency
and the amount of the Specified Currency so purchased and transferred.
11.14 European Monetary Union. (a) If, as a result of the
-----------------------
implementation of European monetary union, (i) any European Currency ceases to
be lawful currency of the nation issuing the same and is replaced by a European
common currency (the Euro"), or (ii) any European Currency and the Euro are at
----
the same time recognized by any Governmental Authority of the nation issuing
such European Currency as lawful currency of such nation and the Administrative
Agent or the Majority Banks shall so request in a notice delivered to the
Company, then any amount payable hereunder by any party hereto in such European
Currency shall instead be payable in the Euro and the amount so payable shall be
determined by translating the amount payable in such European Currency to the
Euro at the exchange rate recognized by the European Central Bank for the
purpose of implementing European monetary union. Prior to the occurrence of the
event or events described in clause (i) or (ii) of the preceding sentence, each
amount payable hereunder in any European Currency will, except as otherwise
provided herein, continue to be payable only in that Currency.
(b) The Company agrees, at the request of any Bank, to
compensate such Bank for any loss, cost, expense or reduction in return that
such Bank shall reasonable determine shall be incurred or sustained by such Bank
as a result of the implementation of European monetary union and that would not
have been incurred or sustained but for the transactions provided for herein. A
certificate of a Bank setting forth such Bank's determination of the amount or
amounts necessary to compensate such Bank shall be delivered to the Company and
shall be conclusive absent manifest error so long as such determination is made
on a reasonable basis. The Company shall pay such Bank the amount shown as due
on any such certificate within 10 days after receipt thereof.
Credit Agreement
----------------
<PAGE>
-60-
(c) The parties hereto agree, at the time of or at any time
following the implementation of European monetary union, to use reasonable
efforts to enter into an agreement amending this Agreement in order to reflect
the implementation of such monetary union, to permit (if feasible) the Euro to
qualify as an Agreed Foreign Currency under the terms and conditions of the
definition of such term and to place the parties hereto in the position with
respect to the settlement of payments of the Euro as they would have been with
respect to the settlement of the Currencies it replaced.
Credit Agreement
----------------
<PAGE>
-61-
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
MID OCEAN LIMITED
By: /s/ Charles F. Hays
---------------------
Name: Charles F. Hays,
Title: Senior Vice President,
Chief Financial and
Administrative Officer
Address for Notices:
Mid Ocean Limited
6th Floor, Richmond House
12 Par-La-Ville Road
Hamilton, HM 08, Bermuda
Attention: Charles F. Hays
Telecopier No.: (441) 292-0876
Telephone No.: (441) 292-1358
BANKS
-----
THE CHASE MANHATTAN BANK
By______________________
Title:
CITIBANK N.A.
By______________________
Title:
By______________________
Title:
Credit Agreement
----------------
<PAGE>
-61-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
MID OCEAN LIMITED
By_________________________
Name:
Title:
Address for Notices:
Mid Ocean Limited
6th Floor, Richmond House
12 Par-La-Ville Road
Hamilton, HM 08, Bermuda
Attention: Charles F. Hays
Telecopier No.: (441) 292-0876
Telephone No.: (441) 292-1358
BANKS
-----
THE CHASE MANHATTAN BANK
By /s/ Heather Lindstrom
-------------------------
Title: Vice President
CITIBANK N.A.
By /s/ Andrew C.Fowler
-----------------------
Title: V.P.
By_________________________
Title:
Credit Agreement
----------------
<PAGE>
-62-
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By /s/ John S. McGill
--------------------------
Title: Vice President
By /s/ Gayma Z. Shivnarain
--------------------------
Title: Vice President
MELLON BANK, N.A.
By /s/ [SIGNATURE ILLEGIBLE]^^
---------------------------
Title: [ILLEGIBLE]
ROYAL BANK OF CANADA
By /s/ [SIGNATURE ILLEGIBLE]^^
--------------------------
Title: Senior Manager
THE BANK OF BERMUDA LIMITED
By /s/ [SIGNATURE ILLEGIBLE]^^
--------------------------
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ [SIGNATURE ILLEGIBLE]^^
--------------------------
Title: Senior Vice President
Credit Agreement
----------------
<PAGE>
-63-
STATE STREET BANK AND TRUST COMPANY
By /s/ [SIGNATURE ILLEGIBLE]^^
--------------------------
Title: Vice President
By__________________________
Title:
BANQUE NATIONALE DE PARIS
By /s/ Phil Truesdale
--------------------------
Title: Vice President
By /s/ Frances Melville
--------------------------
Title: Assistant Treasurer
THE BANK OF NOVA SCOTIA NY AGENCY
By /s/ J. R. Trimble
--------------------------
Title: Senior Relationship Manager
Credit Agreement
----------------
<PAGE>
-64-
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ Heather Lindstrom
--------------------------
Title: Vice President
Address for Notices to Chase as
Administrative Agent (except as noted
below for Eurocurrency Loans
denominated in a Foreign Currency):
The Chase Manhattan Bank
Agent Bank Services Group
1 Chase Manhattan Plaza
8th Floor
New York, New York 10081
Attention: Laura A. Rebecca
Telecopier No.: 212-552-7490
Telephone No.: 212-552-7253
Address for Notices to Chase as
Administrative Agent for borrowings of
or prepayment of, or duration of
Interest Periods for Eurocurrency Loans
denominated in a Foreign Currency:
The Chase Manhattan Bank
Woolgate House
Coleman Street
London, England
Attention: Stephen Hurford
Telecopier No.: 44-171-777-2360
Telephone No.: 44-171-777-2347
Credit Agreement
----------------
<PAGE>
Schedule I
Subsidiaries
<TABLE>
<CAPTION>
% Beneficial Jurisdiction
Ownership by of
Immediate Parent Incorporation
---------------- --------------
<S> <C> <C>
Mid Ocean Limited - Cayman Islands
Mid Ocean Reinsurance Company Ltd 100 Bermuda
Baltusrol Holdings Limited 100 Bermuda
Dornoch Limited 100 United Kingdom
County Down Limited 100 United Kingdom
Brockbank Holdings Limited 100 United Kingdom
Brockbank Underwriting Limited 100 United Kingdom
Brockbank Syndicate Management Limited 100 United Kingdom
Admiral Insurance Services Limited 100 United Kingdom
Admiral Services (Europe) Limited 100 United Kingdom
Able Insurance Services Limited 100 United Kingdom
Brockbank Personal Lines Limited 100 United Kingdom
Zenith Policy Services Limited 100 United Kingdom
Cassidy Brockbank Limited 100 United Kingdom
Brockbank Dedicated Insurance Limited 100 United Kingdom
Brockbank Financial Services Limited 100 United Kingdom
Mid Ocean Reinsurance Consulting GmbH 100 Germany
</TABLE>
Schedule I
----------
<PAGE>
Schedule II
Commitments
-----------
<TABLE>
<CAPTION>
<S> <C>
=========================================================================
Bank Commitment
- ---- ----------
- -------------------------------------------------------------------------
The Chase Manhattan Bank $ 15,000.000
- -------------------------------------------------------------------------
Citibank N.A. S 12.500.000
- -------------------------------------------------------------------------
Deutsche Bank AG $ 12.500.000
- -------------------------------------------------------------------------
Mellon Bank, N.A. $ 12,500.000
- -------------------------------------------------------------------------
Royal Bank of Canada $ 12,500.000
- -------------------------------------------------------------------------
The Bank of Bermuda Limited $ 7,500.000
- -------------------------------------------------------------------------
Credit Lyonnais New York Branch $ 7,500.000
- -------------------------------------------------------------------------
State Street Bank and Trust Company $ 7,500.000
- -------------------------------------------------------------------------
Banque National De Paris $ 6,250.000
- -------------------------------------------------------------------------
Bank of Nova Scotia N.Y. Agency $ 6,250.000
- -------------------------------------------------------------------------
Total $100,000,000
=========================================================================
</TABLE>
Schedule II
-----------
<PAGE>
Schedule III
Liens
As of July 31, 1997
LETTERS OF CREDIT - Secured by lien on a portion of the investment portfolio &
cash balances of the Subsidiary or office listed below in the respective amounts
listed below:
<TABLE>
<CAPTION>
S EQUIVALENT
FX rate - July 31
<S> <C> <C> <C>
BROCKBANK GBP 8,500,000 $ 13,948,500
LONDON BRANCH USD 764,114 $ 764,114
OF MID OCEAN REINSURANCE
BALTUSROL County Down GBP 19,263,319 $ 31,611,106
Dornoch GBP 45,827,981 $ 75,203,717
MID OCEAN R.EINSURANCE GBP 16,874,245 $ 27,690,636
USD 56,027,807 $ 56,027,807
-------------
$ 205,245,880
=============
</TABLE>
Schedule III
------------
<PAGE>
Schedule IV
Indebtedness
[None]
<PAGE>
EXHIBIT A-1
[Form of Opinion of Conyers Dill & Pearman, Cayman Islands Counsel to the
Company)
CONYERS DILL & PEARMAN
DATE
To the Banks party to the Credit Agreement
referred to below and
The Chase Manhattan Bank,
as Administrative Agent
Dear Sirs
Mid Ocean Limited/US$100.000.000 Loan
- -------------------------------------
We have acted as special legal counsel in the Cayman Islands to Mid Ocean
Limited (the "Company") in connection with a loan of up to US$100,000,000 (or
equivalent in other currencies) proposed to be made to the Company by the Banks
(as defined in the Credit Agreement referred to below).
For the purpose of giving this opinion we have examined and relied upon an
executed copy of a Credit Agreement (364-Day) dated September 2, 1997 executed
by the Company and the Banks named therein and The Chase Manhattan Bank, as
Administrative Agent (the "Agreement").
We also have reviewed a copy of the Memorandum and Articles of Association of
the Company, minutes of a meeting of the Company's Board of Directors held on
5th June 1997 certified as a true copy thereof by the Secretary of the Company
on 13th August 1997 (the "Resolutions"), and such other documents and made
enquiries as to questions of law as we have deemed necessary in order to render
the opinions set forth below.
A Certificate of Good Standing for the Company dated [ ] 1997 issued by
the Cayman Islands Registry in respect of the Company as an exempted company
under the laws of the Cayman Islands is attached.
We have conducted a search of the Cause Book of the Grand Court in the Cayman
Islands and have discovered no legal proceedings against the Company within the
Cayman Islands as at [ ].
We do not provide registered office facilities in the Cayman Islands to the
Company. We have not acted generally as its legal adviser, we are not familiar
with its operations or financial affairs and we have not acted in regard to the
transaction referred to in the Agreement save for the purpose of giving this
opinion.
<PAGE>
-2-
For the purpose of the provision of this opinion we have assumed without
enquiry:
(1) the genuineness and authenticity of all signatures and seals and the
conformity to the originals of all copies of documents (whether or not
certified) submitted to us and the authenticity and completeness of the
originals from which such copies were taken;
(2) the capacity, power and authority of each of the parties to the Agreement
(other than the Company) to enter into and perform its respective
obligations under the Agreement;
(3) the due execution and delivery of the Agreement by each of the parties
thereto (other than the Company);
(4) the accuracy and completeness of all factual statements, representations
and warranties, in each case as to factual matters, made in the Agreement
which we have relied on without further enquiry;
(5) that there were no representations or warranties made other than as set out
in the Agreement;
(6) that the Resolutions of the Directors of the Company are a full and
accurate record of the Resolutions passed at the meeting, duly convened and
held by the Directors of the Company in accordance with the Articles of
Association of the Company at which the Directors declared in writing any
interest they had in the matters in issue and that such Resolutions have
not been amended or rescinded and are in full force and effect;
(7) that the Board of Directors of the Company, when passing the resolutions
referred to in this opinion acted in good faith and having regard to all
relevant matters, reasonably and honestly believed that the responsibility
to be assumed by the Company pursuant to the Agreement would be in the
commercial interest of the Company;
(8) that there is no provision of the law of any jurisdiction, other than the
Cayman Islands, which would have any implication in relation to the
opinions expressed herein;
(9) the legality, validity and enforceability under the laws of the State of
New York (the "Foreign Laws") of the Agreement; and
(10) that the choice of the Foreign Laws to govern the Agreement and the
submission by the Company to the non-exclusive jurisdiction of the United
States District Court for the Southern District of New York and any New
York State court sitting in New York County (and any appellate court from
any thereof) (the "Foreign Courts") is a valid choice and submission under
the Foreign Laws.
The obligations of the Company under the Agreement:
<PAGE>
-3-
(i) will be subject to the laws from time to time in effect relating to
bankruptcy, insolvency, liquidation, possessory liens, rights of
set-off, reorganization, amalgamation, moratorium or any other laws or
legal procedures, whether of a similar nature or otherwise, generally
affecting the rights of creditors;
(ii) will be subject to statutory limitation of the time within which
proceedings may be brought;
(iii) will be subject to general principles of equity and, as such, specific
performance and injunctive relief, being equitable remedies, may not be
available; and
(iv) may not be given effect to by a Cayman Islands Court whether or not it
was applying the Foreign Laws, if and to the extent they constitute the
payment of an amount which is in the nature of a penalty and not in the
nature of liquidated damages, and a Cayman Islands Court may stay any
proceedings commenced in the Cayman Islands against the Company under
the Agreement if there are other proceedings in respect of the
Agreement simultaneously under way against the Company in another
jurisdiction.
We have made no investigation of and express no opinion in relation to the laws
of any jurisdiction other than the Cayman Islands. This opinion is limited to
and is given on the basis of the current law and practice in the Cayman Islands.
This opinion is issued solely for your benefit with respect to the matters
referred to herein and is not to be relied upon by any other person, firm or
entity or in respect of any other matter.
Based upon and subject to the foregoing we are of the opinion that:
I. The Company is duly incorporated and validly existing under the laws of
the Cayman Islands and in good standing pursuant to the provisions of
the Companies Law (1995 Revision).
2. The Company has the necessary corporate power and authority to enter
into and perform its obligations under the Agreement and to borrow
under the Agreement
3. The Company has taken all corporate action necessary to authorize its
execution, delivery and performance of the Agreement including the
borrowing thereunder.
4. The Agreement has been duly executed and delivered by or on behalf of
the Company and constitutes the legal, valid and binding obligations of
the Company in accordance with the terms thereof.
5. The execution and delivery of the Agreement by the Company thereunder
and the performance by the Company of its obligations thereunder and
the borrowings by the Company thereunder will not violate the
Memorandum and Articles of Association of the Company nor any
applicable law, regulation, order or decree in the Cayman Islands. No
provision in the Agreement would appear to constitute a penalty.
<PAGE>
-4-
6. No order, consent, approval, license, authorization or validation of or
exemption by any governmental or public body or authority of the Cayman
Islands or any subdivision thereof is required to authorize or is
required in connection with the execution, delivery, performance or
enforcement of the Agreement or the borrowing thereunder.
7. It is not necessary or desirable to ensure the enforceability in the
Cayman Islands of the Agreement that it be registered in any register
kept by, or filed with, any governmental or regulatory body in the
Cayman Islands.
8. Subject to the payment of nominal stamp duty of $2 if the Agreement is
executed in or brought into the Cayman Islands, the Agreement is in
proper legal form under the laws of the Cayman Islands for the
admissability thereof into evidence in the courts of the Cayman
Islands.
9. There is no income or other tax of the Cayman Islands imposed by
withholding or otherwise on any payments to be made to or by the
Company under the Agreement.
10. The Company is not entitled to sovereign immunity under the laws of the
Cayman Islands, from any legal proceedings, whether in the Cayman
Islands or elsewhere, to enforce or to collect upon the Agreement,
including, without limitation, immunity from service, immunity from
jurisdiction of any court or tribunal or immunity of any of its
property from attachment prior to entry of judgment or from attachment
in aid of execution upon a judgment in respect of itself or its
property.
11. The Company has the legal capacity to sue and to be sued in its own
name under the laws of the Cayman Islands.
12. The choice of the Foreign Laws as the governing law of the Agreement
will be recognized and applied by the Cayman Islands courts provided
that such choice was made for bona fides purposes and is effective as a
matter of the Foreign Laws.
13. The submission by the Company under the Agreement to the non-exclusive
jurisdiction of the Foreign Courts is valid and binding upon the
Company under the laws of the Cayman Islands.
14. Although there is no statutory enforcement in the Cayman Islands of
judgments obtained in the Foreign Courts, the courts of the Cayman
Islands will recognize and enforce a foreign judgment of a court
recognized as having jurisdiction based on the principle that a
judgment of a foreign court imposes upon a judgment debtor an
obligation to pay the sum for which the judgment has been given, and
provided such judgment is final and conclusive, for a liquidated sum
not in respect of taxes or a fine or penalty, and which was not
obtained by a fraud or in a manner, and is not of a kind the
enforcement of which is, contrary to the public of the policy of the
Cayman Islands, nor obtained in proceedings which were opposed to
natural justice.
<PAGE>
-5-
15. We believe that in the event of any proceedings being brought in the
Cayman Islands courts in respect of a monetary obligation expressed to
be payable in a currency other than Cayman Islands dollars, a Cayman
Islands court would give judgment expressed as an order to pay such
currency or its Cayman Islands dollar equivalent at the time of the
payment or enforcement of the judgment. With respect to winding up
proceedings, Cayman Islands law may require that all claims or debts
are converted either into Cayman Islands dollars or the Company's
functional currency of account at the exchange rate ruling at the date
of commencement of the winding up.
Yours faithfully
CONYERS DILL & PEARMAN
<PAGE>
EXHIBIT A-2
[Form of Opinion of Conyers, Dill & Pearman. Bermuda Counsel to the
Company]
CONYERS DILL & PEARMAN
DATE
To the Banks party to the Credit Agreement
referred to below and
The Chase Manhattan Bank,
as Administrative Agent
Dear Sirs
Mid Ocean Limited/USS100.000.000 Loan
- -------------------------------------
We have acted as special legal counsel in Bermuda to Mid Ocean Limited (the
"Company") in connection with a loan of up to US$100,000,000 (or equivalent in
other currencies) proposed to be made to the Company by the Banks (as defined in
the Credit Agreement referred to below).
For the purpose of giving this opinion we have examined and relied upon an
executed copy of a Credit Agreement (364-Day) dated September 2, 1997 executed
by the Company and the Banks named therein and The Chase Manhattan Bank. as
Administrative Agent (the "Agreement").
We also have reviewed a copy of the Memorandum and Articles of Association of
the Company, minutes of a meeting of the Company's Board of Directors held on
5th June 1997 certified as a true copy thereof by the Secretary of the Company
on 13th August 1997 (the "Resolutions"), and such other documents and made
enquiries as to questions of law as we have deemed necessary in order to render
the opinions set forth below.
A Certificate of Compliance for the Company dated 11th August 1997 issued by the
Registrar of Companies of Bermuda in respect of the Company as an overseas
company with a permit to carry on business in Bermuda is attached.
We have conducted a search of the Cause Book of the Supreme Court of Bermuda and
have discovered no legal proceedings against the Company pending in Bermuda as
at [ ].
We do not provide the principal office of the Company in Bermuda or act as its
principal representative in Bermuda. We have not acted generally as its legal
adviser, we are not familiar with its operations or financial affairs and we
have not acted in regard to the transaction referred to in the Agreement save
for the purpose of giving this opinion.
Opinion of Cayman Islands Counsel to the Company
------------------------------------------------
<PAGE>
-2-
For the purpose of the provision of this opinion we have assumed without
enquiry:
(1) the genuineness and authenticity of all signatures and seals and the
conformity to the originals of all copies of documents (whether or not
certified) submitted to us and the authenticity and completeness of the
originals from which such copies were taken;
(2) the capacity, power and authority of each of the parties to the Agreement
to enter into and perform its respective obligations under the Agreement;
(3) the due execution and delivery of the Agreement by each of the parties
thereto;
(4) the accuracy and completeness of all factual statements, representations
and warranties, in each case as to factual matters, made in the Agreement
which we have relied on without further enquiry;
(5) that there were no representations or warranties made other than as set out
in the Agreement;
(6) that there is no provision of the law of any jurisdiction, other than
Bermuda. which would have any implication in relation to the opinions
expressed herein;
(7) the legality, validity and enforceability under the laws of the State of
New York (the "Foreign Laws") of the Agreement; and
(8) that the choice of the Foreign Laws to govern the Agreement and the
submission by the Company to the non-exclusive jurisdiction of the United
States District Court for the Southern District of New York and any New
York State court sitting in New York County (and any appellate court from
any thereof) (the "Foreign Courts") is a valid choice and submission under
the Foreign Laws.
We have made no investigation of and express no opinion in relation to the laws
of any jurisdiction other than Bermuda. This opinion is limited to and is given
on the basis of the current law and practice in Bermuda. This opinion is issued
solely for your benefit with respect to the matters referred to herein and is
not to be relied upon by any other person, firm or entity or in respect of any
other matter.
Based upon and subject to the foregoing we are of the opinion that:
1. The Company is in good standing (meaning that it has not failed to make any
filing with any Bermuda governmental authority or to pay any Bermuda
government fee or tax which might make it liable to be struck off the
Register of Companies and thereby cease to exist under the laws of Bermuda)
under the laws of Bermuda.
Opinion of Cayman Islands Counsel to the Company
------------------------------------------------
<PAGE>
-3-
2. The execution and delivery of the Agreement by the Company thereunder and
the performance by the Company of its obligations thereunder and the
borrowing thereunder will not violate any applicable law, regulation, order
or decree in Bermuda.
3. No order, consent, approval, license, authorization or validation of or
exemption by any governmental or public body or authority of Bermuda or any
subdivision thereof is required to authorize or is required in connection
with the execution, ???????^ of the Agreement or the borrowing thereunder.
4. It is not necessary or desirable to ensure the enforceability in Bermuda of
the Agreement that it be registered in any register kept by, or filed with,
any governmental or regulatory body in Bermuda.
5. There is no income or other tax of Bermuda imposed by withholding or
otherwise on any payments to be made to or by the Company under the
Agreement. The Agreement ???????^ duty in Bermuda and no registration,
documentary, recording, transfer ?????^ fee or charge is payable in Bermuda
in connection with the execution, delivery, filing, registration or
performance of the Agreement.
6. The Company is not entitled to sovereign immunity under the laws of
Bermuda, from any legal proceedings, whether in Bermuda or elsewhere, to
enforce or to collect upon the Agreement, including, without limitation,
immunity from service, immunity from jurisdiction of any court or tribunal
or immunity of any of its property from attachment prior to entry of
judgment or from attachment in aid of execution upon a judgment in respect
of itself or its property.
7. The Agreement is in proper legal form under the laws of Bermuda for the
admissability thereof into evidence in the courts of Bermuda.
8. The choice of the Foreign Laws as the governing law of the Agreement will
be recognized and applied by Bermuda courts provided that such choice was
made for bona fides purposes and is effective as a matter of the Foreign
Laws.
9. The submission by the Company to the non exclusive jurisdiction of the
Foreign Courts will be recognized and applied by the Bermuda courts.
10. The courts of Bermuda would recognize as a valid judgment, a final and
conclusive ???????????^ obtained in the Foreign Courts against the Company
based upon the Agreement under which a sum of money is payable (other than
a sum of money payable in respect of multiple damages, taxes or other
charges of a like nature or in respect of a fine or other penalty) and
would give a judgment based thereon provided that (a) such courts had
proper jurisdiction over the parties subject to such judgment, (b) such
courts did not contravene the rules of natural justice of Bermuda, (c) such
judgment was
Opinion of Cayman Islands Counsel to the Company
------------------------------------------------
<PAGE>
-4-
not obtained by fraud, (d) the enforcement of the judgment would not be
contrary to the public policy of Bermuda, (e) no new admissible evidence
relevant to the action is submitted prior to the rendering of the judgment
by the courts of Bermuda and (0 there is due compliance with the correct
procedures under the laws of Bermuda.
Yours faithfully
CONYERS DILL & PEARMAN
Opinion of Cayman Islands Counsel to the Company
------------------------------------------------
<PAGE>
EXHIBIT A-3
[Form of Opinion of Special New York Counsel to the Company]
September [_], 1997
To the Banks party to the
Credit Agreement referred to
below and The Chase Manhattan Bank,
as Administrative Agent
Ladies and Gentlemen:
We have acted as special New York counsel to Mid Ocean Limited (the
"Company"), a Cayman Islands corporation, in connection with the Credit
Agreement (364-Day) (the "Credit Agreement") dated as of September 2, 1997,
between the Company, the Banks named therein, and The Chase Manhattan Bank, as
Administrative Agent providing for loans to be made by said lenders to the
Company in an aggregate principal amount not to exceed $100,000,000. Terms
defined in the Credit Agreement are used herein as defined therein. This opinion
is being delivered pursuant to Section 6.01(b) of the Credit Agreement.
In rendering the opinions expressed below, we have examined the Credit
Agreement.
In our examination, we have assumed the authenticity of all documents
submitted to us as originals and the conformity with authentic original
documents of all documents submitted to us as copies. When relevant facts were
not independently established, we have relied upon representations made in or
pursuant to the Credit Agreement.
In our examination, we have assumed, with respect to the Credit
Agreement that:
(i) the Credit Agreement has been duly authorized by, has been duly
executed and delivered by, and (except, to the extent expressly
set forth in the opinions expressed below, as to the Company)
constitutes the legal, valid, binding and enforceable
obligations of, all of the parties thereto;
(ii) all signatures to the Credit Agreement have been duly
authorized; and
(ill) all of the parties to the Credit Agreement are duly organized
and validly existing and have the power and authority (corporate
or other) to execute, deliver and perform the Credit Agreement.
Opinion of Special New York Counsel to the Company
--------------------------------------------------
<PAGE>
-2-
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that the Credit Agreement constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or transfer or
other similar laws relating to or affecting the rights of creditors generally
(including the judicial application of similar laws of any Company Jurisdiction)
and except as the enforceability of the Credit Agreement is subject to the
application of general principles of equity (regardless of whether considered in
a proceeding in equity or at law), including, without limitation, (a) the
possible unavailability of specific performance, injunctive relief or any other
equitable remedy and (b) concepts of materiality, reasonableness, good faith and
fair dealing.
The foregoing opinions are subject to the following comments and
qualifications:
(A) The enforceability of Section 11.03 of the Credit Agreement may
be limited by laws limiting the enforceability of provisions exculpating or
exempting a party, or requiring indemnification of a party for, liability
for its own action or inaction, to the extent the action or inaction
involves gross negligence, recklessness, willful misconduct or unlawful
conduct
(B) The enforceability of provisions in the Credit Agreement to the
effect that terms may not be waived or modified except in writing may be
limited under certain circumstances.
(C) We express no opinion as to (i) the effect of the laws of any
jurisdiction in which any Bank is located (other than the State of New
York) that limit the interest, fees or other charges such Bank may impose,
(ii) Section 4.07(c) of the Credit Agreement, (iii) the second sentence of
Section 11.10 of the Credit Agreement, insofar as such sentence relates to
the subject matter jurisdiction of the United States District Court for the
Southern District of New York to adjudicate any controversy related to the
Credit Agreement, (iv) the waiver of inconvenient forum set forth in
Section 11.10 of the Credit Agreement with respect to proceedings in the
United States District Court for the Southern District of New York, (v)
Section 11.13 or 11.14(c) of the Credit Agreement and (vi) Section 11.10 of
the Credit Agreement to the extent it purports to be a waiver of immunity
acquired after the execution and delivery of the Credit Agreement.
(D) We point out with reference to obligations stated to be payable
in a currency other than Dollars that (i) a New York statute provides that
a judgment rendered by a court of the State of New York in respect of an
obligation denominated in any such other currency would be rendered in such
other currency and would be converted into Dollars at the rate of exchange
prevailing on the date of entry of the judgment and (ii) a judgment
rendered by a Federal court sitting in the State of New York in respect of
an obligation
Opinion of Special New York Counsel to the Company
--------------------------------------------------
<PAGE>
-3-
denominated in any such other currency may be expressed in Dollars, but we
express no opinion as to the rate of exchange such Federal court would
apply.
The foregoing opinions are limited to matters involving the Federal
laws of the United States of America and the law of the State of New York, and
we do not express any opinion as to the laws of any other jurisdiction.
At the request of our clients, this opinion letter is, pursuant to
Section 6.01(b) of the Credit Agreement, provided to you by us in our capacity
as special New York counsel to the Company may not be relied upon by any Person
for any purpose other than in connection with the transactions contemplated by
the Credit Agreement without, in each instance, our prior written consent.
Very truly yours,
Opinion of Special New York Counsel to the Company
--------------------------------------------------
<PAGE>
EXHIBIT B
[Form of Opinion of Special New York Counsel to Chase]
September [_], 1997
To the Banks party to the
Credit Agreement referred to
below and The Chase Manhattan Bank,
as Administrative Agent
Ladies and Gentlemen:
We have acted as special New York counsel to The Chase Manhattan Bank
("Chase") in connection with the Credit Agreement (364-Day) dated as of
-----
September 2, 1997 (the "Credit Agreement") between Mid Ocean Limited (the
---------------
"Company"), the Banks named therein, and Chase, as Administrative Agent,
-------
providing for loans to be made by said lenders to the Company in an aggregate
principal amount not to exceed $100,000,000. Terms defined in the Credit
Agreement are used herein as defined therein. This opinion is being delivered
pursuant to Section 6.01(c) of the Credit Agreement.
In rendering the opinions expressed below, we have examined the Credit
Agreement.
In our examination, we have assumed the authenticity of all documents
submitted to us as originals and the conformity with authentic original
documents of all documents submitted to us as copies. When relevant facts were
not independently established, we have relied upon representations made in or
pursuant to the Credit Agreement.
In rendering the opinions expressed below, we have assumed that:
(i) the Credit Agreement has been duly authorized by, has been duly
executed and delivered by, and (except to the extent expressly
set forth in the opinions below as to the Company) constitutes
the legal, valid, binding and enforceable obligations of, all of
the parties thereto;
(ii) all signatories to the Credit Agreement have been duly
authorized; and
(iii) all of the parties to the Credit Agreement are duly organized
and validly existing and have the power and authority (corporate
or other) to execute, deliver and perform the Credit Agreement
Opinion of Special Counsel to Chase
-----------------------------------
<PAGE>
EXHIBIT C
[Form of Confidentiality Agreement]
CONFIDENTIALITY AGREEMENT
[Date]
[Insert Name and
Address of Prospective
Participant or Assignee]
Re: Credit Agreement (364-Day) dated as of September 2,
1997 (as modified and supplemented and in effect from
time to time, the "Credit Agreement"), between Mid
Ocean Limited (the "Company"), the lenders named
therein, and The Chase Manhattan Bank, as
Administrative Agent, providing for Loans in an
aggregate principal amount not to exceed
$100,000,000.
Dear Ladies and Gentlemen:
As a Bank party TO the Credit Agreement, we have agreed with
the Company pursuant to Section 11.12 of the Credit Agreement to use reasonable
precautions to keep confidential, except as otherwise provided therein, all non-
public information identified by the Company as being confidential at the time
the same is delivered TO us pursuant to the Credit Agreement.
As provided in said Section 11.12, we are permitted to provide
you, as a prospective [holder of a participation in the Loans (as defined in the
Credit Agreement)] [assignee Bank], with certain of such non-public information
subject to the execution and delivery by you, prior TO receiving such non-public
information, of a Confidentiality Agreement in this form. Such information will
not be made available to you until your execution and return to us of this
Confidentiality Agreement
Accordingly, in consideration of the foregoing, you agree (on
behalf of yourself and each of your Affiliates, directors, officers, employees
and representatives and for the benefit of us and the Company) that (A) such
information will not be used by you except in connection with the proposed
[participation][assignment] mentioned above and (B) you agree TO keep
confidential, in accordance with your customary procedures for handling
confidential information and in accordance with safe and sound banking
practices, to keep such information confidential, provided that nothing herein
--------
shall limit the disclosure of any such non-public information (i) to the extent
required by statute, rule, regulation or judicial process, (ii) to your counsel
or to
Confidentiality Agreement
-------------------------
<PAGE>
-2-
counsel for any of the Banks or the Administrative Agent, (iii) to bank
examiners, auditors or accountants, (iv) to the Administrative Agent or any
other Bank (or to Chase Securities Inc.), (v) in connection with any litigation
to which you or any one or more of the Banks or the Administrative Agent are a
party, (vi) to a subsidiary or Affiliate of yours as provided in Section
11.12(a) of the Credit Agreement or (vii) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first executes and delivers to you a
Confidentiality Agreement substantially in the form hereof; provided, further,
-------- -------
hat in no event shall you be obligated to return any materials furnished to you
pursuant to this Confidentiality Agreement.
If you are a prospective assignee, your obligations under this
Confidentiality Agreement shall be superseded by Section 11.12 of the Credit
Agreement on the date upon which you become a Bank under the Credit Agreement
pursuant to Section 11.06 thereof.
Please indicate your agreement to the foregoing by signing as
provided below the enclosed copy of this Confidentiality Agreement and returning
the same to us.
Very truly yours,
[INSERT NAME OF BANK]
By______________________
The foregoing is agreed to
as of the date of this letter.
[INSERT NAME OF PROSPECTIVE
PARTICIPANT OR ASSIGNEE]
By____________________
Confidentiality Agreement
-------------------------
<PAGE>
-3-
denominated in any such other currency may be expressed in Dollars, but
we express no opinion as to the rate of exchange such Federal court
would apply.
The foregoing opinions are limited to matters involving the
Federal laws of the United States of America and the law of the State of New
York, and we do not express any opinion as to the laws of any other
jurisdiction.
This opinion letter is pursuant to Section 6.01(c) of the
Credit Agreement, provided to you by us in our capacity as special New York
counsel to Chase and may not be relied upon by any Person for any purpose other
than in connection with the transactions contemplated by the Credit Agreement
without, in each instance, our prior written consent.
Very truly yours,
CDP/WJM
Opinion of Special Counsel to Chase
-----------------------------------
<PAGE>
EXHIBIT D
[Form of Assignment and Acceptance]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement (364-Day) dated as of
September 2, 1997 (as modified and supplemented and in effect from time to time,
the "Credit Agreement") among Mid Ocean Limited, the lenders the named therein
----------------
and The Chase Manhattan Bank, as Administrative Agent. Terms defined in the
Credit Agreement are used herein as defined therein.
_____________________ (the "Assignor") and _____________________ (the
"Assignee") agree as follows:
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date as set forth in Schedule 1 hereto (the "Effective Date"), an
--------------
interest (the "Assigned Interest") in and to the Assignor's rights and
-----------------
obligations under the Credit Agreement in an amount as set forth on Schedule 1
hereto.
2. The Assignor (i) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or any other instrument or
document furnished pursuant thereto, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement or any
other instrument or document furnished pursuant thereto, other than that it has
not created any adverse claim upon the interest being assigned by it hereunder
and that such interest is free and clear of any such adverse claim; and (ii)
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the Company or any other obligation or the
performance or observance by the Company of its respective obligations under the
Credit Agreement or any other instrument or document furnished pursuant hereto
or thereto.
3. The Assignee (i) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (ii) confirms that it
has received a copy of the Credit Agreement, together with copies of the
financial statements referred to in Section 7.02 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (iii) agrees
that it will, independently and without reliance upon the Assignor, the
Administrative Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement or
any other instrument or document finished pursuant hereto or thereto; (iv)
appoints and authorizes the Administrative Agent to take such action as
administrative agent on its behalf and to exercise such powers and discretion
under the Credit Agreement or any other instrument or document furnished
pursuant hereto or thereto as are delegated to the Administrative Agent by the
terms thereto together with such powers as are incidental thereto;
Assignment and Acceptance
-------------------------
<PAGE>
-2-
and (v) agrees that it will be bound by the provisions of the Credit Agreement
and will perform in accordance with its terms all the obligations which by the
terms of the Credit Agreement are required to be performed by it as a Bank.
4. Following the execution of this Assignment and Acceptance. it will
be delivered to the Administrative Agent for acceptance and recording by the
Administrative Agent pursuant to Section 11.06(b) of the Credit Agreement,
effective as of the Effective Date (which date shall not, unless otherwise
agreed to by the Administrative Agent, be earlier than five Business Days after
the date of such acceptance and recording by the Administrative Agent, provided
--------
that in no event shall the Effective Date be earlier than the date of delivery
of this Assignment and Acceptance to the Administrative Agent).
5. Upon such acceptance and recording, from and after the Effective
Date, the Administrative Agent shall make all payments in respect of the
Assigned Interest (including payments of principal, interest, fees and other
amounts) to the Assignee which accrue subsequent to the Effective Date.
6. From and after the Effective Date, (i) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Bank thereunder and shall be
bound by the provisions thereof and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement except as provided in
Section 11.07 of the Credit Agreement.
7. This Assignment and Acceptance shall be governed by and construed
in accordance with the law of the State of New York.
8. This Assignment and Acceptance may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Assignment and
Acceptance by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers on Schedule I hereto.
Assignment and Acceptance
-------------------------
<PAGE>
Schedule 1 to
Assignment and Acceptance
relating to the Credit Agreement (364-Day)
dated as of September 2, 1997
among Mid Ocean Limited,
the lenders named therein and
The Chase Manhattan Bank, as Administrative Agent
Name of Assignor:
Name of Assignee:
Effective Date of Assignment:
Amount of Commitment Assigned:
The outstanding principal amount of Loans made to the Company being assigned
hereby and the respective names of the Currencies in which such Loans are
denominated:
Outstanding Principal Name of Currency
Amount of Loans or Currencies of
Assigned ($) Loans Assigned
------------ --------------
_________________________
Total:
Assignment and Acceptance
-------------------------
<PAGE>
-2-
[ASSIGNEE] [ASSIGNOR]
By______________________ By_____________________
Title: Title:
Consented to and Accepted:
THE CHASE MANHATTAN BANk, as
Administrative Agent
By__________________________
Title:
Consented to:
MID OCEAN LIMITED
By__________________________
Title:
By__________________________
Title:
Assignment and Acceptance
-------------------------
<PAGE>
EXHIBIT E
[Form of Promissory Note]
PROMISSORY NOTE
__________ 1997
FOR VALUE RECEIVED, Mid Ocean Limited, a corporation organized under
the laws of the Cayman Islands (the "Company"), hereby promises to pay to
-------
___________________ (the "Bank), for account of its respective Applicable
----
Lending Offices provided for by the Credit Agreement referred to below, at the
Administrative Agent's Account for the respective Currencies of the Loans
evidenced hereby, such amount as shall equal the aggregate unpaid principal
--------------------
amount of the Loans made by the Bank to the Company under the Credit Agreement,
in the respective Currencies in which such Loans are denominated and in
immediately available funds, on the dates and in the principal amounts provided
in the Credit Agreement, and to pay interest on the unpaid principal amount of
each such Loan, at such account, in like money and funds, for the period
commencing on the date of such Loan until such Loan shall be paid in full, at
the rates per annum and on the dates provided in the Credit Agreement.
The date, amount, Type, Currency, interest rate and duration of
Interest Period (if applicable) of each Loan made by the Bank to the Company,
and each payment made on account of the principal thereof, shall be recorded by
the Bank on its books and endorsed by the Bank on the schedule attached hereto
or any continuation thereof, provided that the failure of the Bank to make any
--------
such recordation or endorsement shall not affect the obligations of the Company
to make a payment when due of any amount owing under the Credit Agreement or
hereunder in respect of the Loans made by the Bank.
This Note evidences Loans made by the Bank to the Company under the
Credit Agreement (364-Day) dated as of September 2, 1997 (as modified and
supplemented and in effect from time to time, the "Credit Agreement") between
----------------
Mid Ocean Limited, the lenders named therein (including the Bank), and The Chase
Manhattan Bank, as Administrative Agent, providing for Loans in an aggregate
principal amount not to exceed $100,000,000. Terms used but not defined in this
Note have the respective meanings assigned to them in the Credit Agreement.
Promissory Note
---------------
<PAGE>
-2-
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of Loans
upon the terms and conditions specified therein.
Except as permitted by Section 11.06 of the Credit Agreement, this
Note may not be assigned by the Bank to any other Person.
This note shall be governed by, and construed in accordance with, the
law of the State of New York.
MID OCEAN LIMITED
By____________________
Title:
By____________________
Title:
Promissory Note
---------------
<PAGE>
-3-
SCHEDULE OF LOANS
This Note evidences Loans made under the within-described Credit
Agreement to the Company, on the dates, in the principal amounts, of the Types,
bearing interest at the rates and having Interest Periods (if applicable) of the
durations set forth below, subject to the payments and prepayments of principal
set forth below:
<TABLE>
<CAPTION>
Principal Maturity Unpaid
Amount Type Date Amount Prin- Notation
Date of of Interest of Paid or cipal Made
Made Loan Loan Currency Rate Loan Prepaid Amount by
- ----- ------ ----- -------- --------- ------- ------- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
Promissory Note
---------------
<PAGE>
Exhibit 10.14.4
AMENDMENT NO. 1 TO CREDIT AGREEMENT (364-DAY)
AMENDMENT NO. 1 dated as of August 5, 1998, between MID OCEAN LIMITED,
a corporation duly organized and validly existing under the laws of the Cayman
Islands (the "Company"); each of the lenders that is a signatory hereto
-------
(individually, a "Bank" and collectively, the "Banks"); and THE CHASE MANHATTAN
---- -----
BANK, as administrative agent for the Banks (in such capacity, together with its
successors in such capacity, the "Administrative Agent").
--------------------
The Company, the Banks and the Administrative Agent are parties to a
Credit Agreement (364-Day) dated as of September 2, 1997 (the "Credit
------
Agreement"), providing, subject to the terms and conditions thereof, for loans
- ---------
to be made by said Banks to the Company in an aggregate principal amount not
exceeding $100,000,000. The Company, the Banks and the Administrative Agent
wish to amend the Credit Agreement in certain respects, and accordingly, the
parties hereto hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this
-----------
Amendment No. 1, terms defined in the Credit Agreement are used herein as
defined therein.
Section 2. Amendments. Upon the execution of this Amendment No. 1 by
----------
the Company and the Majority Banks, the Credit Agreement shall be amended as
follows (except for the amendment to the definition of the term Commitment
Termination Date in Section 2.02 below, which amendment shall be effective only
if this Amendment is executed by all of the Banks):
2.01. References in the Credit Agreement (including references to the
Credit Agreement as amended hereby) to "this Agreement" (and indirect references
such as "hereunder", "hereby", "herein" and "hereof") shall be deemed to be
references to the Credit Agreement as amended hereby.
2.02. Section 1.01 of the Credit Agreement shall be amended by adding
the following new definitions (to the extent not already included in said
Section 1.01) and inserting the same in the appropriate alphabetical locations
and amending the following definitions (to the extent already included in said
Section 1.01), as follows:
"Applicable Facility Fee Rate" and "Applicable Margin" shall
----------------------------------------------------
mean, during any period when any Rating Group set forth below is
applicable, with respect to any facility fee payable hereunder or any Type
of Loan outstanding hereunder, the percentage set forth below opposite such
fee or Type of Loan under such Rating Group:
Rating Rating
Fee or Loan Group Group
I II
--------------------------------------------------------
Facility Fee 0.05% 0.07%
--------------------------------------------------------
Eurocurrency Loans 0.20% 0.25%
--------------------------------------------------------
Base Rate Loans 0.00% 0.00%
--------------------------------------------------------
Amendment No. 1 to Credit Agreement (364-Day)
---------------------------------------------
<PAGE>
-2-
For the purposes of this Agreement, any change in the Applicable Facility Fee
Rate or Applicable Margin for any facility fee or any outstanding Loans by
reason of (a) a change in the Standard & Poor's Rating shall become effective on
the date of the announcement or publication of a change in such rating or, in
the absence of such announcement or publication, on the effective date of such
changed rating and (b) any other change in the Rating Group shall become
effective on the date of the occurrence of the event that resulted in such
change in the Rating Group.
"Change of Control" shall mean (a) the acquisition of ownership,
-----------------
directly or indirectly, beneficially or of record, by any Person or group
(within the meaning of the Securities Exchange Act of 1934 and the rules of the
SEC thereunder as in effect on the date hereof), other than Exel or Exel
Holdings, of shares representing more than 35% of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of the Company; or
(b) occupation of a majority of the seats (other than vacant seats) on the Board
of Directors by Persons who were not (i) nominated by the Board of Directors,
(ii) appointed by directors so nominated or (iii) elected by EXEL or Exel
Holdings in their capacities as shareholders of the Company.
"Commitment Termination Date" shall mean August 4, 1999, subject to
---------------------------
extension as provided in Section 2.10 hereof; provided that, if such date is not
--------
a Business day, the Commitment Termination Date shall be the next preceding
Business Day.
"EXEL" shall mean EXEL Limited, a corporation duly organized and
----
validly existing under the laws of the Cayman Islands.
"Exel Holdings" shall mean any Person that owns directly or indirectly
-------------
all or substantially all of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of EXEL.
"Exel Group" shall mean EXEL; Exel Holdings and, at any time, each
----------
Subsidiary of either Exel or Exel Holdings that as of such time meets the
definition of a "significant subsidiary" contained as of the date hereof in
Regulation S-X of the SEC.
"Mid Ocean Reinsurance" shall mean Mid Ocean Reinsurance Company
---------------------
Limited, a Wholly-Owned Insurance Subsidiary of the Company, any successor
thereto, and from and after the XL Reinsurance Amalgamation, the resulting
Person.
"Rating Group" shall mean either Rating Group I or Rating Group II.
------------
"Rating Group I" shall mean (a) no Event of Default has occurred and is
--------------
continuing and (b) the Standard & Poor's Rating is at or above AA-; Rating Group
------------
II shall mean that Rating Group I is not in effect.
- --
"XL Insurance" shall mean XL Insurance Company, Ltd., a corporation
------------
duly organized and validly existing under the laws of Bermuda, all of whose
capital stock is owned by EXEL.
"XL Reinsurance Amalgamation" shall mean the amalgamation of XL.
---------------------------
Global Reinsurance Company, Ltd. with Mid Ocean Reinsurance in accordance with
Bermuda law.
Amendment No. 1 to Credit Agreement (364-Day)
---------------------------------------------
<PAGE>
-3-
2.03. The definition of "Indebtedness" in Section 1.01 of the Credit
Agreement is hereby amended by replacing "and" at the end of clause (i) thereof
with a comma and by replacing the period at the end of clause (ii) thereof with
the following:
"and (iii) liabilities arising in the ordinary course of business
of an insurance Subsidiary as an insurance company or a corporate member of
Lloyd's and not arising in connection with the borrowing of money or other
financing activities of such Insurance Subsidiary or an Affiliate thereof."
2.04. Clause (b) of Section 2.04 of the Credit Agreement is hereby
amended to read in its entirety as follows:
"(b) Utilization Fee. The Company shall pay to the Administrative
---------------
Agent for account of each Bank, (a) during any period that the aggregate
outstanding principal amount of Loans is greater than 33% but less than or equal
to 66% of the aggregate amount of the Commitments, a utilization fee on the
daily average aggregate outstanding principal amount of such Bank's Loans at a
rate per annum equal to 0.025% per annum and (b) during any period that the
aggregate outstanding principal amount of Loans exceeds 66% of the aggregate
amount of the Commitments, a utilization fee on the daily average aggregate
outstanding principal amount of such Bank's Loans at a rate per annum equal to
0.050% per annum. Accrued utilization fee shall be payable on each Quarterly
Date and on the earlier of the date the Commitments are terminated and the
Commitment Termination Date interest on such Bank's Loans are payable."
2.05. Section 6.02 of the Credit Agreement is hereby amended by
replacing "; and", and by inserting a new clause (c) after clause (b) thereof as
follows:
"(c) the Company has delivered to the Administrative Agent for each
Bank with the notice of borrowing, Federal Reserve Forms U-1 duly completed and,
if the Company fails to deliver such Federal Reserve Forms U-1, it shall be
deemed to have represented and warranted that immediately after giving effect to
such Loan, not more than 25% of the value (as determined by any reasonable
method) of the Property subject to Section 8.04 or 8.05 hereof consists of
Margin Stock."
2.06. Section 7.07 of the Credit Agreement is hereby amended to read in
its entirety as follow:
"7.07 Use of Credit. No part of the proceeds of the Loans hereunder
-------------
will be used to buy or carry any Margin Stock; provided that at any time that
--------
at any time that the Company is a Wholly-Owned Subsidiary of Exel Holdings,
proceeds of Loans hereunder may be used to buy or redeem capital stocl of EXEL
or Exel Holdings or to make payments of cash in lieu of shares of Exel Holdings
to holders of common stock of EXEL or of the Company who would otherwise be
entitled to receive shares of common stock of Exel Holdings in connection with
the acquisition by EXEL Holdings of the capital stock of the Company if,
immediately after giving effect to the making of any such Loan hereunder, not
more than 25% of the value (as determined by any
Amendment No.1 to Credit Agreement (364-Day)
--------------------------------------------
<PAGE>
-4-
reasonable method) of the Property subject to Section 8.04 or 8.05 hereof
consists of Margin Stock."
2.07. Section 8.04(b) of the Credit Agreement is hereby amended to
read in its entirety as follows:
"(b) the Company or any Material Subsidiary may merge, amalgamate or
consolidate with any other Person if (i) in the case of a merger,
amalgamation or consolidation of the Company, the Company is the surviving
corporation and, in any other case, the surviving or resulting corporation
is, immediately after giving effect to such merger, amalgamation or
consolidation, a Wholly-Owned Subsidiary of the Company and (ii)
immediately after giving effect thereto no Default would exist hereunder."
2.08. Section 8.12 of the Credit Agreement is hereby amended to read
in its entirety as follows:
"8.12 Indebtedness. The Company will not permit Mid Ocean
------------
Reinsurance, any Affiliate or Subsidiary of the Company having direct or
indirect ownership of Mid Ocean Reinsurance or any Subsidiary of Mid Ocean
Reinsurance to, create, incur or suffer to exist any Debt or any Guarantee
of Indebtedness of any other Person, except for:
(i) Debt or Guarantees of Indebtedness outstanding on the
date hereof and listed in Schedule IV hereto;
(ii) Indebtedness of X.L. Global Reinsurance Company, Ltd.
outstanding on the date of the XL Reinsurance Amalgamation to the
extent that such Indebtedness was outstanding before the XL
Reinsurance Amalgamation and not created in anticipation thereof; and
(iii) from and after the XL Reinsurance Amalgamation,
Indebtedness of Mid Ocean Reinsurance incurred pursuant to (a) the
certain Revolving Credit Agreement (364-Day) dated as of June 6, 1997,
as amended in contemplation of the XL Reinsurance Amalgamation,
between XL Insurance and X.L. Reinsurance Company, Ltd., as
Borrowers, XL Insurance and Exel Acquisition Ltd., as Guarantors, the
Banks party thereto and Mellon Bank N.A., as Agent, in an aggregate
principal amount not to exceed $50,000,000 and (b) that certain
Revolving Credit Agreement (5-Year) dated as of June 6, 1997, as
amended in contemplation of the XL Reinsurance Amalgamation, between
XL Insurance and X.L. Reinsurance Company, Ltd., as Borrowers, XL
Insurance and Excel Acquisition Ltd., as Guarantors, the Banks party
thereto and Mellon Bank N.A., as Agent, in an aggregate principal
amount not to exceed $50,000,000.
2.09. Sections 8.01(c) and 8.01(d) of the Credit Agreement are hereby
amended to read in their entirety as follows:
"(c) within 5 days after filing with the Applicable Insurance
Regulatory Authority and in any event no later than 5 days after the date by
which it is required to be filed by the Applicable
Amendment No. 1 to Credit Agreement (364-Day)
---------------------------------------------
<PAGE>
-5-
Insurance Regulatory Authority the quarterly Statutory Statement of each
Material Insurance Subsidiary, together with a certificate of a senior financial
officer of the Company or of such Subsidiary stating that such Statutory
Statement fairly presents, in all material respects, the financial condition of
each Material Insurance Subsidiary, respectively, for the period covered thereby
in accordance with statutory accounting practices required or permitted by the
Applicable Insurance Regulatory Authority;
(d) within 5 days after filing with the Applicable Insurance Regulatory
Authority and in any event no later than 5 days after the date by which it is
required to be filed by the Applicable Insurance Regulatory Authority the annual
Statutory Statement of each Material Insurance Subsidiary, together with an
Officer's Certificate stating that such annual Statutory Statement fairly
presents, in all material respects, the financial condition of each Material
Insurance Subsidiary, respectively, for the period covered thereby in accordance
with statutory accounting practices required or permitted by the Applicable
Insurance Regulatory Authority."
2.10. Section 9(b) of the Credit Agreement is hereby amended by
replacing "The Company or any of its Subsidiaries" with "The Company or any of
its Subsidiaries or any member of the Exel Group" therein.
2.11. Sections 9(e), 9(f) and 9(g) of the Credit Agreement are hereby
amended by (i) replacing "The Company or any of its Material Subsidiaries" with
"The Company or any of its Material Subsidiaries or any member of the Exel
Group" therein and (ii) replacing "Company or such Subsidiary" with "Company,
such Subsidiary of the Company or such member of the Exel Group" in 9(f) and
9(g) therein.
2.12. Section 9 of the Credit Agreement is hereby amended by replacing
";" in clause (i) thereof with ";or" and by adding a new clause (j) after clause
(i) follows:
"(j) Exel Holding shall, at any time, enter into a Guarantee
("EXEL Guarantee") of any Indebtedness of EXEL or XL Insurance without also
--------------
Guaranteeing the Indebtedness of the Company hereunder pursuant to a guaranty
agreement substantially similar to the EXEL Guarantee."
Section 3. Miscellaneous. Except as herein provided, the Credit
-------------
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 1 may be executed in any number of counterparts, all of which taken
together shall constitute one and the same amendatory instrument and any of the
parties hereto may execute this Amendment No. 1 by signing any such counterpart.
This Amendment No. 1 shall be governed by, and construed in accordance with, the
law of the State of New York.
Amendment No. 1 to Credit Agreement (364-Day)
--------------------------------------------
<PAGE>
-6-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be duly executed and delivered as of the day and year first above written.
MID OCEAN LIMITED
By /s/ Michael A. Butt
----------------------------
Michael A. Butt
President and Chief Executive Officer
BANKS
-----
THE CHASE MANHATTAN BANK
By /s/
----------------------------
Title: Vice President
CITIBANK N.A.
By /s/ Malcolm Constable
----------------------------
Title: Malcolm Constable, VP
Vice President
Citibank, N.A.
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By /s/ John S. McGill
----------------------------
Title: John S. McGill
Vice President
By /s/ Eckhard Osenberg
----------------------------
Title: Eckhard Osenberg
Vice President
Amendment No. 1 to Credit Agreement (364-Day)
<PAGE>
-7-
MELLON BANK, N.A.
By /s/
-----------------------------
Title: Vice President
ROYAL BANK OF CANADA
By /s/
-----------------------------
Title: Service Manager
THE BANK OF BERMUDA LIMITED
By /s/
-----------------------------
Title: Assistant Vice President, Corporate Banking
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Sebastian Rocco
-----------------------------
Sebastian Rocco
Title: Senior Vice President
STATE STREET BANK AND TRUST COMPANY
By /s/ Edward M. Anderson
-----------------------------
Edward M. Anderson
Title:
Amendment No. 1 to Credit Agreement (364-Day)
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BANQUE NATIONALE DE PARIS
By /s/ Frances Melville
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Title: Frances Melville
Assistant Treasurer
By /s/ Veronique Marcus
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Title: Veronique Marcus
Assistant Vice President
THE BANK OF NOVA SCOTIA
By /s/ Todd Miller
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Title: Todd Miller
Senior Relationship Manager
Amendment No. 1 to Credit Agreement (364-Day)
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Exhibit 10.14.5
LOAN AGREEMENT
between
X.L. AMERICA, INC.
as Borrower,
and
X.L. INSURANCE COMPANY, LTD. and X.L. INVESTMENTS LTD.,
as Guarantors,
and
THREE RIVERS FUNDING CORPORATION,
as Lender,
dated as of
December 22, 1998
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Table of Contents
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ARTICLE I DEFINITIONS: CONSTRUCTION...........................................1
1.01. Certain Definitions.................................................1
1.02. Construction........................................................7
1.03. Accounting Principles...............................................8
ARTICLE II THE LOANS..........................................................8
2.01. The Loans...........................................................8
2.02. The Note............................................................8
2.03. Loan Request........................................................9
2.04. Commitment..........................................................9
2.05. Mandatory and Optional Prepayments..................................9
2.06. Interest; Fees.....................................................10
2.07. Proceeds...........................................................10
2.08. Taxes..............................................................10
2.09. Increased Cost and Reduced Return..................................11
ARTICLE III REPRESENTATIONS AND WARRANTIES...................................12
3.01. Organization and Qualification.....................................12
3.02. Corporate Power and Authorization..................................12
3.03. Financial Information..............................................12
3.04. Litigation.........................................................12
3.05. No Adverse Changes.................................................12
3.06. No Conflicting Laws or Agreements; Consents and Approvals..........12
3.07. Execution and Binding Effect.......................................13
3.08. Taxes..............................................................13
3.09. Use of Proceeds....................................................13
3.10. Permits, Licenses and Rights.......................................13
3.11. Accurate and Complete Disclosure...................................13
3.12. Absence of Violations..............................................13
3.13. Environmental Matters..............................................13
3.14. Not an Investment Company..........................................14
ARTICLE IV CONDITIONS OF LENDING.............................................14
4.01. Effectiveness......................................................14
4.02. Borrowings.........................................................14
ARTICLE V AFFIRMATIVE COVENANTS..............................................15
5.01. Reporting and Information Requirements.............................15
5.02. Preservation of Existence and Franchises...........................16
5.03. Insurance..........................................................16
5.04. Maintenance of Properties..........................................16
5.05. Payment of Taxes and Other Potential Charges and Priority
Claims Payment of Other Current Liabilities......................16
5.06. Financial Accounting Practices.....................................17
5.07. Compliance with Applicable Laws....................................17
5.08. Use of Proceeds....................................................17
5.09. Continuation Of and Change In Business.............................17
5.10. Visitation.........................................................17
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ARTICLE VI NEGATIVE COVENANTS................................................17
6.01. Mergers and Acquisitions...........................................17
6.02. Dispositions of Assets.............................................18
6.03. Liens..............................................................18
6.04. Transactions With Affiliates.......................................19
6.05. Business...........................................................19
6.06. Ratio of Total Funded Debt to Consolidated Tangible Net Worth......19
6.07. Consolidated Net Worth.............................................19
6.08. Indebtedness.......................................................19
6.09. Operating Leverage.................................................20
6.10. Private Act........................................................20
ARTICLE VII EVENTS OF TERMINATION............................................20
7.01. Events of Termination..............................................20
7.02. Remedies...........................................................21
ARTICLE VIII GUARANTEE.......................................................22
8.01. The Guarantee......................................................22
8.02. Obligations Unconditional..........................................22
8.03. Reinstatement......................................................23
8.04. Remedies...........................................................23
8.05. Continuing Guarantee...............................................23
8.06. No Restrictions....................................................23
ARTICLE IX MISCELLANEOUS.....................................................24
9.01. Amendments and Waivers.............................................24
9.02. Notices............................................................24
9.03. Survival of Representations and Warranties.........................24
9.04. Payment of Expenses and Taxes......................................24
9.05. Successors and Assigns; Participations.............................25
9.06. Set-Off............................................................26
9.07. Counterparts.......................................................26
9.08. Severability.......................................................26
9.09. Integration........................................................26
9.10. Governing Law......................................................26
9.11. Submission To Jurisdiction Waivers.................................26
9.12. Acknowledgments....................................................27
9.13. Waiver Of Jury Trial...............................................27
9.14. No Bankruptcy Petition Against Lender..............................27
9.15. No Recourse........................................................27
9.16. Holidays...........................................................27
9.17. Judgment Currency..................................................28
9.18. Records............................................................28
9.19. Confidentiality....................................................28
Exhibit A Form of Promissory Note
Exhibit B Form of Loan Request
Exhibit C Contents of Opinions of Counsel
Schedule 3.01 Subsidiaries
Schedule 6.03(a) Liens
Schedule 6.08(d) Indebtedness
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LOAN AGREEMENT, dated as of December 22, 1998, by and between X.L.
AMERICA, INC., a Delaware corporation (the "Borrower"), X.L. INSURANCE COMPANY,
LTD. ("X.L. Insurance"), a Bermuda limited liability corporation, and X.L.
INVESTMENTS LTD. ("X.L. Investments"), a Bermuda limited liability corporation,
(X.L. Insurance and X.L. Investments are referred to herein individually as
"Guarantor" and collectively as the "Guarantors"), and THREE RIVERS FUNDING
CORPORATION a Delaware corporation (the "Lender").
PRELIMINARY STATEMENT
WHEREAS, the Lender has agreed to make Loans available to the Borrower
upon all of the terms and conditions herein set forth; and
WHEREAS, the Lender intends to fund the Loan by (a) the issuance of
Commercial Paper or (b) if the Lender is unable for any reason to issue
Commercial Paper, by borrowings under the Funding Agreements.
NOW, THEREFORE, in consideration of their mutual agreements hereinafter
set forth and intending to be legally bound hereby, the Borrower and the Lender
agree as follows.
ARTICLE I
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DEFINITIONS: CONSTRUCTION
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1.01. Certain Definitions. In addition to other words and terms defined
elsewhere in this Agreement, as used herein the following words and terms shall
have the following meanings, respectively, unless the context hereof otherwise
clearly requires:
"Affected Party" means the Lender and each Person providing liquidity
or credit support to the Lender pursuant to the Funding Agreement and each of
their respective Affiliates and assigns.
"Affiliate" means, with respect to any specified Person, any other
Person which directly or indirectly, controls, or which is controlled by, or
which is under common control with, such specified Person.
"Agreement" shall mean this Agreement as amended, modified or
supplemented from time to time.
"Assets" at any time shall mean the assets of a Credit Party, as the
context requires, at such time, determined in accordance with GAAP or SAP, as
appropriate.
"Bermuda Companies Law" shall mean The Companies Act of 1981 of
Bermuda, as amended, and the regulations promulgated thereunder.
"Bermuda Insurance Law " shall mean The Insurance Act of 1978 of
Bermuda, as amended, and the regulations promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, Sunday, public
holiday under the laws of the Commonwealth of Pennsylvania, of the State of New
York or of Bermuda or other day on which banking institutions are authorized or
obligated to close in Pittsburgh, Pennsylvania or New York, New York or Bermuda.
(The parties contemplate that on or shortly after the Closing Date they will
exchange and agree upon a list of public holidays for 1999).
"Capitalized Lease Obligation" shall mean any lease obligation which is
required to be capitalized in accordance with GAAP.
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"Change in Control" shall mean the occurrence of any of the following
events or conditions: (a) any Person or group of Persons (as used in Sections 13
and 14 of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"),
and the rules and regulations thereunder) shall have become the beneficial owner
(as defined in rules promulgated by the Securities & Exchange Commission) of
more than 40% of the voting securities of EXEL Limited; (b) the sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of EXEL Limited; or
(c) a majority of the members of EXEL Limited's Board of Directors are persons
who are then serving on the Board of Directors without having been elected by
the Board of Directors or having been nominated for election by EXEL Limited's
shareholders.
"Closing Date" shall mean December 23, 1998 or such later date as may
be specified by the Borrower by one day's written notice to the Lender.
"Collateral" shall have the meaning given that term in the Pledge
Agreement.
"Collateral Agent" means Bankers Trust Company, a New York state bank,
in its capacity as Collateral Agent under the Third Amended and Restated
Security Agreement, dated as of September 10, 1998, between the Lender and such
Collateral Agent.
"Commercial Paper" means the commercial paper notes of the Lender
issued in the United States commercial paper market.
"Commitment" means the obligation of the Lender to make Loans to the
Borrower under this Agreement in a maximum principal amount outstanding at any
time equal to $150,000,000, as such amount may be reduced in accordance with the
provisions of Section 2.04 hereof.
"Commitment Expiration Date" means the earliest of (i) December 21,
1999, which may be extended from time to time for an additional period or
periods commencing on the then scheduled Commitment Expiration Date, by written
notice of request given by the Borrower to the Lender, specifying the duration
of the period of extension requested, at least 120 days before such scheduled
Commitment Expiration Date, and by written notice of acceptance (which
acceptance may be given or withheld by the Lender in its sole discretion) by the
Lender to the Borrower not later than ninety (90) days prior to such scheduled
Commitment Expiration Date, provided, that the new scheduled Commitment
Expiration Date shall in no event result in a remaining term of the commitment
that exceeds 360 days, (ii) the date that the Lender shall give notice of the
termination of the Commitment pursuant to Article VII of this Agreement, and
(iii) the first date on which there shall no longer be the Funding Agreement in
effect (as to which the Lender shall promptly notify the Borrower after
obtaining notice of such termination); provided, further, that if any Commitment
Expiration Date is not a Business Day it shall occur on the next preceding
Business Day.
"Consolidated Net Worth" shall mean at any date the consolidated
stockholders' equity of the Borrower and its consolidated Subsidiaries.
"Consolidated Tangible Net Worth" shall mean at any date the
consolidated stockholders' equity of the Borrower and its consolidated
Subsidiaries less their consolidated Intangible Assets, all determined as of
such date. For purposes of this definition "Intangible Assets" means the amount
(to the extent reflected in determining such consolidated stockholders' equity)
of (i) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of assets of a going concern business made within
twelve months after the acquisition of such business) subsequent to November 30,
1997, in the book value of any asset owned by the Borrower or a consolidated
Subsidiary and (ii) all unamortized debt discount and expense, unamortized
deferred charges, deferred acquisition costs, goodwill, patents, trademarks,
service marks, trade names, anticipated future benefit of tax loss
carry-forwards, copyrights, organization or developmental expenses and other
intangible assets.
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"Control Agreement" means the Control and Consent Acknowledgement and
Agreement Concerning Pledged Accounts, dated of even date herewith, by and
between X.L. Investments, the Lender, Mellon Bank, N. A., in its capacity as
Custodian under the Custody Agreement (as defined therein) and Mellon Bank, N.
A., in its capacity as Referral Agent for the Lender.
"Cost of Funds" means, with respect to any Settlement Period, an
amount, as notified in writing by the Lender to the Borrower on or prior to the
related Determination Date, equal to the interest, discount or carrying cost for
funding the Loans hereunder during such Settlement Period, either from the
issuance of Commercial Paper, the taking of loans, the sale of interests in the
Loans made hereunder or otherwise, computed by reference to the weighted average
Cost of Funds Rate for such Settlement Period.
"Cost of Funds Amount" means, with respect to each Settlement Period,
the sum of (a) the Cost of Funds for such Settlement Period, plus (b) the
product of (1) the Program Fee Rate times the average Outstanding Principal
Amount during such Settlement Period times (2) a fraction, the numerator of
which is the actual number of days in such Settlement Period and the denominator
of which is 360, plus (c) the product of (1) the Facility Fee Rate times the
average Commitment in effect during such Settlement Period and (2) a fraction,
the numerator of which is the actual number of days in such Settlement Period
and the denominator of which is 360.
"Cost of Funds Rate" means, with respect to the computation of the Cost
of Funds for a Settlement Period, (i) to the extent the funding for the Loans
during such Settlement Period is obtained through the issuance of Commercial
Paper, the effective yield of such Commercial Paper (including any dealer's
discount or fees) during such Settlement Period, (ii) to the extent funding for
the Loans during such Settlement Period is obtained through the sale of
interests in the Loans pursuant to the Funding Agreement, the sum of the LIBOR
Rate for such Settlement Period plus .625% per annum, and (iii) to the extent
funding for the Loans during such Settlement Period is obtained through the
taking of loans or otherwise or pursuant to any Program Support Agreement, the
rate provided in the operative documents governing the same during such
Settlement Period.
"Credit Parties" means the Borrower and the Guarantors and "Credit
Party" means any of them.
"Determination Date" means, with respect to any Settlement Date, the
second Business Day immediately preceding such Settlement Date.
"Dollar," "Dollars" and the symbol $ shall mean lawful money of the
United States of America.
"Dollar Equivalent" of an amount of a currency other than Dollars shall
mean the amount of Dollars which such amount of such currency could purchase at
11:00 o'clock A.M., New York City time on the date of determination, based upon
the quoted spot rates of Mellon at which its applicable branch or office offers
to exchange Dollars for such currency in the foreign exchange market and "Dollar
Equivalent" of an amount denominated in Dollars shall mean such amount of
Dollars.
"Dollar Equivalent Amount" of any Pledged Security shall mean (i) with
respect to any Pledged Security denominated in a currency other than Dollars,
the Dollar Equivalent of the market value of such Pledged Security as most
recently determined at the time in question in accordance with the Pledge
Agreement and (ii) with respect to a Pledged Security denominated in Dollars,
the market value of such Pledged Security as most recently determined at the
time in question in accordance with the Pledge Agreement.
"Environmental Concern Materials" shall mean (a) any flammable
substance, explosive, radioactive material, hazardous material, hazardous waste,
toxic substance, solid waste, pollutant, contaminant or any related material,
raw material, substance, product or by-product of any substance specified in or
regulated or otherwise affected by any Environmental Law (including but not
limited to any "hazardous substance" as defined in CERCLA or any similar Law),
(b) any toxic chemical or other substance from or related to
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industrial, commercial or institutional activities, and (c) asbestos, gasoline,
diesel fuel, motor oil, waste and used oil, heating oil and other petroleum
products or compounds, polychlorinated biphenyls, radon and urea formaldehyde.
"Environmental Law" shall mean any Law, whether now existing or
subsequently enacted or amended, relating to (a) pollution or protection of the
environment, including natural resources, (b) exposure of Persons, including but
not limited to employees, to Environmental Concern Materials, (c) protection of
the public health or welfare from the effects of products, by-products, wastes,
emissions, discharges or releases of Environmental Concern Materials or (d)
regulation of the manufacture, use or introduction into commerce of
Environmental Concern Materials, including their manufacture, formulation,
packaging, labeling, distribution, transportation, handling, storage or
disposal.
"Event of Termination" shall mean any of the Events of Termination
described in Section 7.01 hereof.
"Excluded Taxes" shall have the meaning given such term in Section 2.08
hereof.
"EXEL Limited" shall mean EXEL Limited, a corporation organized under
the laws of the Cayman Islands, British West Indies. EXEL Limited is the
indirect sole shareholder of X.L. Insurance Company, Ltd., except for a nominal
number of shares owned by two nominee shareholders required by the Bermuda
Companies Law.
"Facility Fee" means, with respect to any Settlement Date, the monthly
fee payable by the Borrower to the Lender on such Settlement Date computed on
the basis of the Facility Fee Rate and the Commitment with respect to the
related Settlement Period.
"Facility Fee Rate" means the rate per annum set forth in a separate
letter agreement between the Borrower and the Lender.
"Funding Agreement" means the Funding Agreement dated as of December
21, 1998 between Mellon and the Lender.
"GAAP" shall have the meaning set forth in Section 1.03 hereof.
"Guaranteed Obligations" shall have the meaning given that term in
Section 8.01 hereof.
"Guarantor" and "Guarantors" shall have the meaning given those terms
in the preamble to this Agreement.
"Guaranteed Obligations" shall have the meaning given that term in
Section 8.01 hereof.
"Guaranty Equivalents" means, with respect to any Person, without
duplication, any obligations of such Person (other than endorsements in the
ordinary course of business of negotiable instruments for deposit or collection)
guaranteeing or intended to guarantee any Indebtedness of any other Person in
any manner, whether direct or indirect, and including without limitation any
obligation, whether or not contingent, (i) to purchase any such Indebtedness or
any property constituting security therefor for the purpose of assuring the
holder of such Indebtedness, (ii) to advance or provide funds or other support
for the payment or purchase of any such Indebtedness or to maintain working
capital, solvency or other balance sheet condition of such other Person
(including without limitation keepwell agreements, maintenance agreements,
comfort letters or similar agreements or arrangements) for the benefit of any
holder of Indebtedness of such other Person, (iii) to lease or purchase
property, securities or services primarily for the purpose of assuring the
holder of such Indebtedness, or (iv) to otherwise assure or hold harmless the
holder of such Indebtedness against loss in respect thereof. The amount of any
Guaranty Equivalent hereunder shall (subject to any limitations set -forth
therein) be deemed to be an amount equal to
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the outstanding principal amount (or maximum principal amount, if larger) of the
Indebtedness in respect of which such Guaranty Equivalent is made.
"Indebtedness" of a Person shall mean (it being understood, for the
avoidance of doubt, that insurance payment liabilities, as such, and liabilities
arising in the ordinary course of such Person's business as an insurance company
or corporate member of Lloyds (other than in connection with the financing
activities of such Person or any of such Person's Affiliates) shall not be
deemed to constitute Indebtedness):
(i) all indebtedness or liability for or on account of money
borrowed by, or for or on account of deposits with or advances to (but
not including accrued pension costs, deferred income taxes or accounts
payable of) such Person;
(ii) all obligations (including contingent liabilities) of
such Person evidenced by bonds, debentures, notes, banker's acceptances
or similar instruments;
(iii) all indebtedness or liability for or on account of
property or services purchased or acquired by such Person;
(iv) any amount secured by a Lien on property owned by such
Person (whether or not assumed) and Capitalized Lease Obligations of
such Person (without regard to any limitation of the rights and
remedies of the holder of such Lien or the lessor under such
Capitalized Lease to repossession or sale of such property);
(v) the maximum available amount of all standby letters of
credit issued for the account of such Person and, without duplication,
all drafts drawn thereunder (to the extent unreimbursed; and
(vi) all Guaranty Equivalents of such Person.
"Insurance Subsidiary" means any, present or future, direct or indirect
Subsidiary of the Borrower that offers insurance products, including but not
limited to X.L. Europe Insurance.
"Law" shall mean any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any Official Body.
"LIBOR Rate" means, with respect to any date of determination, the rate
at which deposits in dollars for a period of thirty (30) days are offered to the
Referral Agent in the London Interbank market on such date in an amount
approximately equal to the principal amount of the Loan or Loans being funded by
a "funding institution" under the Funding Agreement.
"Lien" shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, including but not limited to any conditional sale or title retention
arrangement, and any assignment, deposit arrangement or lease intended as, or
having the effect of, security.
"Loan" or "Loans" shall have the meaning given such terms in Section
2.01 hereof.
"Loan Documents" shall mean this Agreement, the Note, the Pledge
Agreement and the Control Agreement and any other documents or instruments
executed and delivered in connection herewith or therewith.
"Loan Request" shall have the meaning given that term in Section 2.03
hereof.
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"Material Adverse Effect" shall mean the occurrence of an event
(including any adverse determination in any litigation, arbitration, or
governmental investigation or proceeding), which has or could reasonably be
expected to have a materially adverse effect on: (a) the assets, business,
financial condition or operations of a Credit Party and its Subsidiaries taken
as a whole; or (b) the ability of a Credit Party to perform any of its payment
or other material obligations under this Agreement or the Note; or (c) the
legality, validity, binding effect or enforceability against a Credit Party of
any Loan Document that by its terms purports to bind such Credit Party.
"Mellon" shall mean Mellon Bank, N.A., a national banking association.
"Note" shall have the meaning set forth in Section 2.02 hereof.
"Obligations" shall mean the obligation of the Borrower to repay the
aggregate unpaid principal amount of all loans, and pay all interest accrued
thereon, all Facility Fees and Program Fees accruing and all other liabilities
of the Borrower arising pursuant to the terms of this Agreement or the other
Loan Documents.
"Office," when used in connection with the Lender, shall mean its
office located at Global Securitization Services, LLC, 25 West 43rd Street,
Suite 704, New York, New York 10036, or at such other office or offices of the
Lender or subsidiary or affiliate thereof as may be designated in writing from
time to time by the Lender to the Borrowers.
"Official Body" shall mean any government or political subdivision or
any agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
"Outstanding Principal Amount" means, with respect to any day, the
aggregate principal amount of the Loans outstanding on such day.
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated association, joint venture, joint-stock company, government
(including political subdivisions), official body or agency, or any other
entity.
"Pledge Agreement" shall mean the Pledge Agreement, dated of even date
herewith, between X.L. Investments and the Lender.
"Pledged Securities" shall have the meaning given that term in the
Pledge Agreement.
"Pledged Securities Available Amount" at any time shall mean the amount
which is equal to the lesser of (i) 66 2/3% of the value of the Qualifying
Pledged Securities (as determined as a Dollar Equivalent Amount) and (ii) 100%
of the value of the Qualifying AA Pledged Securities (as determined as a Dollar
Equivalent).
"Private Act" shall mean separate legislation enacted in Bermuda with
the intention that such legislation applies specifically to a Borrower in whole
or in part.
"Program Fee" means, with respect to any Settlement Date, the monthly
fee payable by the Borrower to the Lender on such Settlement Date computed on
the basis of the Program Fee Rate and the Outstanding Principal Amount with
respect to the related Settlement Period.
"Program Fee Rate" means the rate per annum set forth in a separate
letter agreement between the Borrower and the Lender.
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"Program Support Agreement" means, collectively, all liquidity
agreements, funding agreements (other than the Funding Agreement), credit
agreements, letter of credit agreements, surety agreements, letter of credit and
all other agreements which may be in effect from time to time and which provide
liquidity or credit support in respect of the Commercial Paper.
"Qualifying Pledged Securities" means: (i) cash (including credit
balances treated as cash) and (b) debt securities rated at least A (or, in the
case of short-term debt securities A-1) or the equivalent by S&P (and not rated
lower than A (or, in the case of short-term debt securities P-1) by Moody's) or
at least A (or, in the case of short-term debt securities, P-1) or the
equivalent by Moody's (and not rated lower than A (or, in the case of short-term
securities, A-1) by S&P).
"Qualifying AA Pledged Securities" shall mean (a) cash (including
credit balances treated as cash) and (b) debt securities rated at least AA (or,
in the case of short-term debt securities, A-1) or the equivalent by S&P (and
not rated lower than Aa (or, in the case of short-term debt securities, P-1) by
Moody's) or at least Aa (or, in the case of short-term debt securities, P-1) or
the equivalent by Moody's (and not rated lower than AA (or, in the case of
short-term debt securities, A-1) by S&P).
"SAP" shall mean, as to the Borrower and each Insurance Subsidiary, the
statutory accounting practices prescribed or permitted by the relevant Official
Body for the Borrower's or such Insurance Subsidiary's domicile for the
preparation of Annual Statements and other Default reports by insurance
corporations of the same type as such Borrower or such Insurance Subsidiary in
effect on the date such statements or reports are to be prepared.
"Settlement Date" means the 3rd day of each calendar month or, if such
day is not a Business Day, the next succeeding Business Day.
"Settlement Period" means, with respect to a Settlement Date, the
calendar month (or portion thereof in the case of the first settlement period)
most recently ended.
"Subsidiary" of the Borrower at any time shall mean any corporation of
which a majority (by number of shares or number of votes) of any class of
outstanding capital stock normally entitled to vote for the election of one or
more directors (regardless of any contingency which does or may suspend or
dilute the voting rights of such class) is at such time owned directly or
indirectly by the Borrower or one or more Subsidiaries.
"Taxes" shall have the meaning set forth in Section 2.08 hereof.
"Total Funded Debt" of a Person at any time shall mean all Indebtedness
of such person which would at such time be classified in whole or in part as a
liability on the balance sheet of such person in accordance with GAAP.
"Unmatured Event" means an event or condition which, with the giving of
notice or the lapse of time or both, would be an Event of Termination.
1.02. Construction. Unless the context of this Agreement otherwise
clearly requires, "or" has the inclusive meaning represented by the phrase
"and/or. " References in this Agreement to "determination" by the Lender include
good faith estimates by the Lender (in the case of quantitative determinations)
and good faith belief of the Lender (in the case of qualitative determinations).
The words "hereof," "herein," "hereunder" and similar terms in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement. The section and other headings contained in this Agreement are for
reference purposes only and shall not control or affect the construction of this
Agreement or the interpretation hereof in any respect. Section, subsection and
exhibit references are to this Agreement unless otherwise specified.
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1.03. Accounting Principles. (a) As used herein, "GAAP" shall mean
generally accepted accounting principles as such principles shall be in effect
in the United States of America at the Relevant Date, subject to the provisions
of this Section 1.03. As used herein, "Relevant Date" shall mean the date a
relevant computation or determination is to be made or the date of relevant
financial statements, as the case may be.
(b) Except as otherwise provided in this Agreement, all computations
and determinations as to accounting or financial matters shall be made, and all
financial statements to be delivered pursuant to this Agreement shall be
prepared, in accordance with GAAP or SAP, as the context requires (including
principles of consolidation where appropriate), and all accounting or financial
terms shall have the meanings ascribed to such terms by GAAP or SAP, as
appropriate.
(c) If any change in GAAP or SAP after the date of this Agreement is or
shall be required to be applied to transactions then or thereafter in existence,
and a violation of one or more provisions of this Agreement shall have occurred
(or in the opinion of the Lender would be likely to occur) which would not have
occurred or be likely to occur if no change in accounting principles had taken
place, the parties agree in such event to negotiate in good faith an amendment
of this Agreement which shall approximate to the extent possible the economic
effect of the original financial covenants after taking into account such change
in GAAP or SAP, as appropriate.
(d) Without in any manner limiting the provisions of this Section 1.03,
if any change in GAAP or SAP occurs after the date of this Agreement and such
change in GAAP or SAP could or would materially change the Borrower's financial
results or position from that reflected in such Borrower's financial statements
prior to such change, such Borrower shall notify the Lender as soon as
practicable.
ARTICLE II
----------
THE LOANS
---------
2.01. The Loans. Subject to the terms and conditions hereof, the Lender
hereby agrees that it will, from time to time prior to the Commitment Expiration
Date, make one or more loans (each a "Loan" and, collectively, the "Loans") to
the Borrower subject to the immediately succeeding sentence. Notwithstanding
anything contained in this Agreement to the contrary, the Lender shall not be
obligated to make any Loan if, after such Loan is made, the Outstanding
Principal Amount exceeds the lesser of (a) the Commitment and (b) the Pledged
Securities Available Amount. The Lender shall remit the proceeds of each Loan to
the Borrower at the principal office of Mellon in immediately available funds.
2.02. The Note. The Loans shall be evidenced by a promissory note of
the Borrower, substantially in the form of Exhibit A hereto (the "Note"). The
Note shall be payable to the order of the Lender and shall mature on the
Commitment Expiration Date. The Note shall be dated the Closing Date and provide
for the payment of principal and interest in accordance with Section 2.06. The
Borrower hereby authorizes the Lender to make the appropriate notations on the
schedule annexed to the Note for purposes of recording any Loan made thereon and
any payments or prepayments made with respect thereto (provided that any failure
by the Lender to make any such notation shall not affect the obligations of the
Borrower hereunder or under the Note in respect of such Loan). The Borrower
agrees that each notation made by the Lender on the schedule annexed to the Note
shall be final and conclusive absent demonstrable error. The Outstanding
Principal Amount at any time shall constitute the principal amount of the Note
at such time.
2.03. Loan Request. Whenever the Borrower desires the Lender to make a
Loan, the Borrower shall deliver to the Lender a written request, in
substantially the form of Exhibit B (a "Loan Request"), to the Borrower, no
later than 11:00 A.M., New York City time, at least two Business Days prior to
the date of such Loan. Each Loan Request shall specify the principal amount of
the Loan to be made on the such date (which shall be no less than $10,000,000 or
such lesser amount which the Lender shall have
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approved). Each Loan Request submitted by the Borrower shall be an affirmation
by the Borrower that (x) the representations and warranties of the Borrower set
forth in Article III of this Agreement are on the date of such Loan Request, and
will be on the date of such Loan, true and correct in all material respects as
if made on and as of such dates, except to the extent any such representation or
warranty relates specifically to an earlier date, and (y) no Unmatured Event or
Event of Termination shall have occurred and be continuing on either of such
dates. Each Loan Request given pursuant hereto shall be irrevocable.
2.04. Commitment. (a) The Borrower may, upon at least thirty (30) days'
prior written notice to the Lender, terminate in whole or permanently reduce in
part the unused portion of the Commitment; provided, that (i) such termination
shall not be effective unless and until the Outstanding Principal Amount has
been reduced to zero and all Cost of Funds Amount and all other fees or amounts
due to the Lender hereunder have been paid in full, (ii) each partial reduction
shall be in the amount of at least $10,000,000 or an integral multiple thereof,
and (iii) any partial reduction of the Commitment which would result in the
remaining Commitment being less than $25,000,000 shall be deemed to be a
termination in whole of the Commitment.
(b) If any bank or financial institution which is a party to the
Funding Agreement does not consent to the extension of the expiration date of
its commitment under the Funding Agreement or its commitment thereunder expires
or is terminated for any reason, to the extent such bank or financial
institution is not replaced on or prior to such expiration date, then the
Commitment shall be reduced by such amount as shall be necessary to cause the
Commitment to be equal to the aggregate of all commitments of banks and/or
financial institutions under the Funding Agreement(s) after giving effect to
such termination or expiration.
(c) The Lender will not: (i) without the consent of the Borrower,
voluntarily agree to any termination of the Funding Agreement prior to its
stated expiration date; (ii) without the consent of the Borrower, voluntarily
agree to any reduction in the amount of any commitment under the Funding
Agreement; or (iii) without the consent of the Borrower, which will not be
unreasonably withheld, amend the Funding Agreement.
2.05. Mandatory and Optional Prepayments. (a) The Borrower may on a
Settlement Date prepay the Loans, in whole or in part, without premium or
penalty, upon at least 30 days' irrevocable prior written notice to the Lender
in the case of a prepayment in whole or at least three (3) Business Days'
irrevocable prior written notice to the Lender in the case of a partial
prepayment; provided, that each partial prepayment shall be in the amount of at
least $10,000,000 or an integral multiple thereof; provided, further, that the
Borrower shall (i) simultaneously pay to the Lender, and indemnify the Lender
and hold the Lender harmless from, all costs and expenses incurred by the Lender
in connection with such prepayment, and (ii) indemnify the Lender and hold the
Lender harmless from any funding loss (in an amount equal to the amount of
interest the Lender would have received (calculated with respect to the
applicable fixed interest, discount or carrying cost period with respect to the
relevant Cost of Funds) but for such prepayment less the interest earned on
investing such funds) and expense which the Lender may sustain or incur as a
consequence of such prepayment. Any such prepayment of the Loans shall be
accompanied by, without duplication of the preceding sentence, a payment of all
accrued but unpaid interest on the Loans through the date of prepayment, plus
all accrued but unpaid fees, expenses and other amounts due to the Lender
arising under or in connection with this Agreement and the Note through the date
of prepayment.
(b) If, after giving effect to any reduction of the Commitment pursuant
to Section 2.04(b) above, the Outstanding Principal Amount shall exceed the
Commitment, the Borrower shall, within one Business Day of its receipt of
written notice of the reduction of the Commitment, make a prepayment in respect
of the principal of the Loans in an amount equal to the excess of the
Outstanding Principal Amount over the Commitment as so reduced, accompanied by a
payment of all accrued but unpaid interest on such amount through the date of
such prepayment.
(c) If at any time the Pledged Securities Available Amount is less than
the Outstanding Principal Amount, the Borrower shall, within one Business Day of
its receipt of written notice thereof, make a
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prepayment in respect of the principal of the Loans in an amount equal to the
excess of the Outstanding Principal Amount over the Pledged Securities Available
Amount accompanied by a payment of all accrued but unpaid interest on such
amount through the date of such prepayment.
2.06. Interest; Fees. On each Settlement Date, the Borrower
shall make the following cash payments:
(i) to the Lender as interest on the Loans, all accrued and
unpaid Cost of Funds Amount; and
(ii) to the Lender, all accrued and unpaid amounts due and
payable to the Lender under this Agreement not described in clause (i)
above, including without limitation, the Program Fee and the Facility
Fee.
2.07. Proceeds. The proceeds of each Loan shall be used by the
Borrower solely for general corporate purposes.
2.08. Taxes. All payments made by the Borrower under this Agreement and
the Note shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, hereafter
imposed, levied, collected, withheld or assessed by the Government of the United
States or any political subdivision thereof having taxing authority, excluding
(i) income and withholding taxes (including, without limitation, branch profits
taxes, minimum taxes and taxes computed under alternative methods, at least one
of which is based on net income) and franchise taxes (imposed in lieu of income
taxes) imposed on the net income of the Lender as a result of any present or
former connection between the jurisdiction imposing such tax or any political
subdivision or taxing authority thereof or therein and the Lender other than a
connection resulting solely from this Agreement and the transactions
contemplated hereby; and (ii) any Taxes that would not have been imposed but for
the failure of the Lender to provide and keep current any certification or other
documentation required to qualify for an exemption from or reduction in the rate
of any Tax (all such excluded taxes described in clause (i) or (ii) above being
hereinafter called "Excluded Taxes" and all such non-Excluded Taxes, levies,
imposts, duties, charges, fees, deductions and withholdings being hereinafter
called "Taxes"). If any Taxes are required to be deducted or withheld from any
amounts payable to or under the Note, the amounts so payable to the Lender shall
be increased to the extent necessary to yield to the Lender (after payment of
all Taxes on such increased amounts) the amount that would have been otherwise
been received by the Lender had not such deduction or withholdings been imposed.
Whenever any Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the Lender a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Taxes when due to the appropriate taxing authority or
fails to remit to the Lender the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lender for any incremental Taxes,
interest or penalties that the Lender is legally required to pay as a result of
any such failure. Such indemnification shall be made within 30 days from the
date the Lender makes written demand therefor. If the Lender receives any refund
or credit in respect of any Taxes with respect to which the Borrower has made
full payment to the Lender pursuant to this Section 2.08, it shall pay over such
refund and remit such credit to the Borrower, net of all out-of-pocket expenses
incurred by the Lender in obtaining such refund or credit and without interest.
The agreements in this subsection shall survive the termination of this
Agreement and the payment of the Note.
2.09. Increased Cost and Reduced Return. (a) If any Affected Party
shall be charged any fee, expense or increased cost other than relating to Taxes
or Excluded Taxes on account of the adoption after the date hereof of any
applicable law, rule, regulation or guideline (including any applicable law,
rule, regulation or guideline regarding capital adequacy) or any change therein
after the date hereof, or any change after the date hereof in the interpretation
or administration thereof by any Official Body, central bank or comparable
agency: (i) which subjects such Affected Party to any charge or withholding on
or with respect to the Funding Agreement or a Program Support Agreement, as the
case may be, or such Affected
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Party's obligations under the Funding Agreement or Program Support Agreement, as
the case may be, or on or with respect to this Agreement or the Loans, or
changes the basis of taxation to any Affected Party of any amounts payable under
the Funding Agreement, a Program Support Agreement or this Agreement (except for
changes in the rate of tax on the overall net income of such Affected Party), or
(ii) which imposes, modifies or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, an Affected Party
under the Funding Agreement or a Program Support Agreement, as the case may be,
or (iii) which imposes any other condition the result of which is (x) to
increase the cost to such Affected Party of performing its obligations, or (y)
to reduce the rate of return on such Affected Party's capital as a consequence
of its obligations, in each case under the Funding Agreement or a Program
Support Agreement, as the case may be, or to reduce the amount of any sum
received or receivable by such Affected Party, or to require any payment
calculated by reference to the amount of interests or loans held or interest
received by it, in each case under the Funding Agreement or a Program Support
Agreement, as the case may be, then, upon demand by the Lender, the Borrower
shall be obligated to immediately pay to the Lender, for the benefit of such
Affected Party, such amounts charged to such Affected Party or to compensate
such Affected Party for such increase, reduction or imposition; provided,
however, that, to the extent that any such amount with respect to an Affected
Party under a Program Support Agreement (other than Mellon Bank, N. A.) exceeds
the amount the Borrower would have been obligated to pay to Mellon Bank, N. A.
if Mellon Bank, N. A. had taken the place of such Affected Party under such
Program Support Agreement, the Borrower shall not be obligated to pay to the
Lender the amount of such excess.
(b) The Lender agrees that it shall use reasonable efforts to take any
action that will avoid the need to pay, or reduce the amount of, any increased
amounts referred to in this Section 2.09; provided that the Lender shall not be
obligated to take any actions that would, in the Lender's sole discretion, be
materially disadvantageous to the Lender. In the event that any Affected Party
claims any increased costs referred to in this Section 2.09, the Lender will
furnish to the Borrower a certificate setting forth the basis and amount of each
request by such Affected Party for any such increased amounts referred to in
paragraph (a) of this Section 2.09. Determinations by the Lender of any
increased amounts referred to in paragraph (a) of this Section 2.09 shall be
conclusive, absent manifest error. In the event that any Affected Party claims
any increased costs referred to in this Section 2.09 or payments under Section
2.08, the Borrower may, upon payment of such amounts and prepayment of Loans
equal to all amounts owing to such Affected Party with respect to its funding
under the Funding Agreement, and upon reduction of the Lender's commitment
hereunder by an amount equal to such Affected Party's commitment under the
Funding Agreement, and subject to the second proviso of Section 2.05(a) hereof,
require the Lender to cause such Affected Party to cease to be a party to the
Funding Agreement.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES.
-------------------------------
Each Credit Party represents and warrants that:
3.01. Organization and Qualification. Such Credit Party and each of its
Subsidiaries are corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation; each
of such Credit Party and its Subsidiaries have the power and authority to own
its properties and assets, and to carry on its business as presently conducted
and is qualified to do business in those jurisdictions in which its ownership of
property or the nature of its business activities is such that failure to
receive or retain such qualification would have a Material Adverse Effect. A
list of such Credit Party's Subsidiaries setting forth their respective
jurisdictions of incorporation is set forth in Schedule 3.01 hereto. Such Credit
Party is not subject to any Private Act other than the X.L. Insurance Company,
Ltd. Act, 1989, a copy of which has been provided to Lender.
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3.02. Corporate Power and Authorization. Such Credit Party has
corporate power and authority to make and carry out this Agreement and any other
Loan Document to which it is a party, in the case of the Borrower, to make the
borrowings provided for herein, to execute and deliver this Agreement and, in
the case of the Borrower, the Note, and to perform its obligations hereunder and
under any such Loan Documents and all such action has been duly authorized by
all necessary corporate proceedings on its part.
3.03. Financial Information. Such Credit Party has furnished to the
Lender copies of the audited consolidated financial statements and the
consolidating financial statements of such Credit Party and its consolidated
Subsidiaries including a consolidated and consolidating balance sheet and
related statements of income and retained earnings for the fiscal year ending
November 30, 1997. Such financial statements fairly present the financial
position of such Credit Party and its consolidated Subsidiaries as of the date
of such reports and the consolidated and consolidating results of their
operations and cash flows for the fiscal period then ended in conformity with
GAAP applied on a consistent basis, and such consolidated financial statements
have been examined and reported upon by independent, certified public
accountants.
3.04. Litigation. Except as disclosed to the Lender in writing prior to
the Closing Date (including by disclosure in the financial statements delivered
to the Lender referred to in Section 3.03 hereof), there is no litigation or
governmental proceeding by or against such Credit Party or any of its
Subsidiaries pending or, to its knowledge, threatened, which could reasonably be
expected (in light of reserves, and total shareholders' equity of such Credit
Party and after taking into account the nature of such Credit Party's business
and activities) to have a Material Adverse Effect if adversely determined.
3.05. No Adverse Changes. Since November 30, 1997, there has been no
occurrence or event which has had a Material Adverse Effect.
3.06. No Conflicting Laws or Agreements; Consents and Approvals. (a)
Neither the execution and delivery of this Agreement or any other Loan Document,
the consummation of the transactions herein or therein contemplated nor
compliance with the terms and provisions hereof or thereof will conflict with or
result in a breach of any of the terms, conditions or provisions of the articles
of incorporation or by-laws of such Credit Party or of any applicable Law or of
any material agreement or instrument to which such Credit Party is a party or by
which it is bound or to which it is subject, or constitute a default thereunder
or result in the creation or imposition of any Lien of any nature whatsoever
upon any of the property of such Credit Party pursuant to the terms of any such
agreement or instrument.
(b) No authorization, consent, approval, license, exemption or other
action by, and no registration, qualification, designation, declaration or
filing with, any Official Body is or will be necessary or advisable in
connection with (i) execution and delivery of this Agreement or any other Loan
Document, (ii) the consummation of the transactions herein or therein
contemplated, or (iii) the performance of or compliance with the terms and
conditions hereof or thereof.
3.07. Execution and Binding Effect. This Agreement has been duly and
validly executed and delivered by such Credit Party. This Agreement constitutes,
and the Note when duly executed and delivered by such Credit Party pursuant to
the provisions hereof will constitute, legal, valid and binding obligations of
such Credit Party enforceable in accordance with the terms thereof except, as to
the enforcement of remedies, for limitations imposed by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally (excluding Laws with respect to
fraudulent conveyance), (ii) Laws limiting the right of specific performance or
(iii) general principles of equity.
3.08. Taxes. All tax returns required to be filed by such Credit Party
have been properly prepared, executed and filed. All taxes, assessments, fees
and other governmental charges upon such Credit Party or upon its properties,
income or sales which are due and payable have been paid. The reserves and
provisions for taxes, if any, on the books of such Credit Party are adequate for
all open years and for its current fiscal period as determined in accordance
with GAAP.
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3.09. Use of Proceeds. The Borrower will use the proceeds from any
borrowing hereunder for general corporate purposes (which may include
acquisitions). The Borrower will make no borrowing hereunder for the purpose of
buying or carrying any "margin stock" as such term is used in Regulation U of
the Board of Governors of the Federal Reserve System in violation of such
regulation. The Borrower is not engaged in the business of extending credit to
others for the purposes of buying or carrying any "margin stock."
3.10. Permits, Licenses and Rights. Such Credit Party and each
Subsidiary of such Credit Party own or possess all the patents, trademarks,
service marks, trade names, copyrights, licenses, franchises, permits and rights
with respect to the foregoing necessary to own and operate their respective
properties and to carry on their respective businesses as presently conducted
and presently planned to be conducted without, to the best knowledge of such
Credit Party, conflict with the rights of others.
3.11. Accurate and Complete Disclosure. All information provided by or
on behalf of such Credit Party to Lender pursuant to or in connection with the
Loan Documents and the transactions contemplated thereby is true and accurate in
all material respects on the date such information is dated (or, if not dated,
on the date such information was received by Lender) and such information, taken
as a whole, which was provided on or prior to the time this representation is
made or remade, does not, to the best knowledge of such Credit Party, omit to
state any material fact necessary to make such information not misleading at
such time in light of the circumstances in which it was provided.
3.12. Absence of Violations. Such Credit Party and each Affiliate of
such Credit Party is not in violation of a any charter document, corporate
minute or resolution, any instrument or agreement, in each case binding on it or
affecting its property, or any Law, in a manner which could have a Materially
Adverse Effect.
3.13. Environmental Matters. Such Credit Party and each of its
Subsidiaries is and has been in full compliance with all applicable
Environmental Laws. Such Credit Party and each of its Subsidiaries have all
Approvals by Official Bodies charged with the enforcement of Environmental Laws
that are necessary or desirable for the ownership and operation of their
respective properties, facilities and businesses as presently owned and operated
and as presently proposed to be owned and operated.
3.14. Not an Investment Company. Such Credit Party is not an Investment
Company required to be registered under the Investment Company Act of 1940.
ARTICLE IV
----------
CONDITIONS OF LENDING
---------------------
4.01. Effectiveness. The effectiveness of this Agreement and the
closing of the transactions contemplated hereby shall be subject to the
following conditions:
(a) Proceedings and Incumbency. There shall have been delivered to
Lender a certificate with respect to each Credit Party in form and substance
satisfactory to Lender dated the Closing Date and signed on behalf of such
Credit Party by the Secretary or an Assistant Secretary of such Credit Party,
certifying as to: (a) true copies of all corporate action taken by such Credit
Party relative to this Agreement, and the other Loan Documents applicable to it,
including but not limited to that described in Section 3.02 hereof and (b) the
names, true signatures and incumbency of the officer or officers of such Credit
Party authorized to execute and deliver this Agreement and the other Loan
Documents applicable to it. Lender may conclusively rely on such certificates
unless and until a later certificate revising the prior certificate has been
furnished to Lender.
(b) Organizational Documents. There shall have been delivered to Lender
(i) certified copies of the articles of incorporation and by-laws for each
Credit Party, (ii) a certificate of good standing for each
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Credit Party certified by the appropriate Official Body and (iii) a certificate
of good standing certified by the appropriate Official Body.
(c) Opinions of Counsel. There shall have been delivered to Lender
written opinions addressed to Lender, dated the Closing Date, of Cahill Gordon &
Reindel, Conyers, Dill & Pearman and Paul S. Giordano, Esq., respectively, the
Borrower's and Guarantors' counsel, which together are substantially to the
effects set forth in Exhibit C.
(d) Details, Proceedings and Documents. All legal details and
proceedings in connection with the transactions contemplated by this Agreement
shall be satisfactory to Lender, and Lender shall have received all such
counterpart originals or certified or other copies of the Loan Documents and
such other documents and proceedings in connection with such transactions, in
form and substance satisfactory to it, as Lender has reasonably requested.
(e) Fees and Expenses. The Borrower shall have paid all fees and other
compensation to be paid by it hereunder on or prior to the Closing Date.
(f) Representations and Warranties. The representations and warranties
contained in Article III hereof shall be true on and as of the Closing Date with
the same effect as though made on and as of the Closing Date.
(g) Pledge Agreement. The Pledge Agreement shall have been entered into
by the parties thereto.
(h) Funding Agreement. A funding agreement shall have been entered into
between the Lender and Mellon with respect to the transactions contemplated by
this Agreement.
4.02. Borrowings. The obligations of Lender to make any Loan hereunder
are subject to the accuracy as of the date hereof of the representations and
warranties herein contained, to the satisfaction of the condition set forth in
the second sentence of Section 2.01 hereof, to the performance by the Borrower
of its obligations to be performed hereunder on or before the date of such Loans
and to the satisfaction of the following further conditions:
(a) Representations and Warranties; Events of Termination and Unmatured
Events. The representations and warranties contained in Article III hereof shall
be true on and as of the date of each Loan hereunder with the same effect as
though made on and as of each such date (except to the extent they are expressly
stated to relate only to a prior date), and on the date of each Loan hereunder
no Event of Termination and no Unmatured Event shall have occurred and be
continuing or exist or shall occur or exist after giving effect to the Loans to
be made on such date. Failure of Lender to receive notice from the Borrower to
the contrary before any Loan is made or deemed made hereunder shall constitute a
representation and warranty that: (i) the representations and warranties
contained in Article III hereof are true and correct on and as of the date of
such Loan with the same effect as though made on and as of such date (except to
the extent they are expressly stated to relate only to a prior date) and (ii) on
the date of such Loan no Event of Termination or Unmatured Event has occurred
and is continuing or exists or will occur or exist after giving effect to such
Loan.
(b) Commitment. The fact that, immediately after such Borrowing, the
aggregate outstanding principal amount of the Loans will not exceed the
aggregate amount of the Commitment.
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ARTICLE V
---------
AFFIRMATIVE COVENANTS
---------------------
Each Credit Party hereby covenants to the Lender as follows:
5.01. Reporting and Information Requirements. Such Credit Party shall
deliver to the Lender:
(a) Annual Reports. (i) As soon as practicable and in any event within
100 days after the close of each fiscal year of X. L. Insurance, audited
consolidated statements and unaudited consolidating statements of income,
retained earnings and cash flows of such Credit Party and its consolidated
Subsidiaries, for such fiscal year and a consolidated audited and consolidating
balance sheet of such Credit Party and its consolidated Subsidiaries, as of the
close of such fiscal year, and notes to each, all in accordance with GAAP,
setting forth in comparative form the corresponding figures for the preceding
fiscal year, with such consolidated statements and balance sheets to be
certified by independent public accountants of recognized national standing in
the United States selected by such Credit Party and not unacceptable to the
Lender, and the certificate or report of such accountants to be free of
exceptions or qualifications not reasonably acceptable to the Lender.
(b) Quarterly Statements. Within sixty days after the end of the first,
second and third quarterly accounting periods in each fiscal year of such Credit
Party, copies of the unaudited consolidated and consolidating balance sheets of
such Credit Party and its consolidated Subsidiaries as of the end of such
accounting period and of the consolidated and consolidating income statements of
such Credit Party and its consolidated Subsidiaries for the elapsed portion of
the fiscal year ended with the last day of such accounting period, all in
accordance with GAAP subject to year-end audit adjustments and certified by the
principal financial officer of such Credit Party to have been prepared in
accordance with generally accepted accounting principles consistently applied by
such Credit Party except as explained in such certificate.
(c) Compliance Certificates. Within 100 days after the end of each
fiscal year of such Credit Party and within sixty days after the end of each of
the first three quarters of each fiscal year, a certificate dated as of the end
of such fiscal year or quarter, signed on behalf of such Credit Party by a
principal financial officer thereof, (i) stating that as of the date thereof no
Event of Termination or Unmatured Event has occurred and is continuing or
exists, or if an Event of Termination or Unmatured Event has occurred and is
continuing or exists, specifying in detail the nature and period of existence
thereof and any action with respect thereto taken or contemplated to be taken by
such Credit Party, (ii) stating in reasonable detail the information and
calculations necessary to establish compliance with the provisions of Article VI
hereof, and (iii) stating that the signer has reviewed this Agreement and that
such certificate is based on an examination made by or under the supervision of
the signer sufficient to assure that such certificate is accurate.
(d) Further Information. All such other information and in such form as
the Lender may reasonably request in writing.
(e) Notice of Event of Termination. Immediately upon becoming aware of
any Event of Termination or Unmatured Event, written notice thereof, together
with a written statement of the president or a principal financial officer of
such Credit Party setting forth the details thereof and any action with respect
thereto taken or contemplated to be taken by such Credit Party.
(f) Notice of Material Adverse Change. Promptly upon becoming aware
thereof, written notice of any event or occurrence constituting or which could
reasonably be expected to have a Material Adverse Effect.
(g) Notice of Material Proceedings. Promptly upon becoming aware
thereof, written notice of the commencement, existence or threat of any
proceeding or a material change in any existing material proceeding by or before
any Official Body against or affecting such Credit Party which, if adversely
decided, could have a Material Adverse Effect.
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(h) Notice of Certain Material Changes. Promptly upon adoption thereof,
notice of each material change in such Credit Party's investment policy,
underwriting policy or other business policy.
5.02. Preservation of Existence and Franchises. Such Credit Party
shall, and shall cause each of its Subsidiaries to, maintain its corporate
existence, rights and franchises in full force and effect in its jurisdiction of
incorporation. Such Credit Party shall, and shall cause each of its Subsidiaries
to, qualify and remain qualified as a foreign corporation in each jurisdiction
in which failure to receive or retain such qualification would have a Material
Adverse Effect.
5.03. Insurance. Such Credit Party shall, and shall cause each of its
Subsidiaries to, maintain with financially sound and reputable insurers,
insurance with respect to its properties in such amounts as is customary in the
case of corporations engaged in the same or a similar business having similar
properties similarly situated.
5.04. Maintenance of Properties. Such Credit Party shall, and shall
cause each of its Subsidiaries to, maintain or cause to be maintained in good
repair, working order and condition the properties now or hereafter owned,
leased or otherwise possessed by and used or useful in its business and shall
make or cause to be made all needful and proper repairs, renewals, replacements
and improvements thereto so that the business carried on in connection therewith
may be properly conducted at all times, provided, however, that the foregoing
shall not impose on such Credit Party or any Subsidiary of such Credit Party any
obligation in respect of any property leased by such Credit Party or such
Subsidiary in addition to such Credit Party 's obligations under the applicable
document creating such Credit Party 's or such Subsidiary's lease or tenancy.
5.05. Payment of Taxes and Other Potential Charges and Priority Claims
Payment of Other Current Liabilities. Such Credit Party shall, and shall cause
each of its Subsidiaries to, pay or discharge:
(a) on or prior to the date on which penalties attach thereto, all
taxes, assessments and other governmental charges or levies imposed upon it or
any of its properties or income;
(b) on or prior to the date when due, all lawful claims of materialmen,
mechanics, carriers, warehousemen, landlords and other like Persons which, if
unpaid, might result in the creation of a Lien upon any such property; and
(c) on or prior to the date when due, all other lawful claims which, if
unpaid, might result in the creation of a Lien upon any such property (other
than Liens not forbidden by Section 6.03 hereof) or which, if unpaid, might give
rise to a claim entitled to priority over general creditors of such Credit Party
in any proceeding under the Bermuda Companies Law or Bermuda Insurance Law, or
any insolvency proceeding, liquidation, receivership, rehabilitation,
dissolution or winding-up involving such Credit Party or such Subsidiary;
provided that, unless and until foreclosure, distraint, levy, sale or similar
proceedings shall have been commenced, such Credit Party need not pay or
discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof is contested in good faith and by appropriate proceedings
diligently conducted and so long as such reserves or other appropriate
provisions as may be required by GAAP and SAP shall have been made therefor and
so long as such failure to pay or discharge does not have a Material Adverse
Effect.
5.06. Financial Accounting Practices. Such Credit Party shall, and
shall cause each of its Subsidiaries to, make and keep books, records and
accounts which, in reasonable detail, accurately and fairly reflect its
transactions and dispositions of its assets and maintain a system of internal
accounting controls sufficient to provide reasonable assurances that
transactions are recorded as necessary to permit preparation of financial
statements required under Section 5.01 hereof in conformity with GAAP and SAP,
as applicable, and to maintain accountability for assets.
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5.07. Compliance with Applicable Laws. Such Credit Party shall, and
shall cause each of its Subsidiaries to, comply with all applicable Laws
(including but not limited to the Bermuda Companies Law and Bermuda Insurance
Laws) in all respects; provided that such Credit Party or any Subsidiary of such
Credit Party shall not be deemed to be in violation of this Section 5.07 as a
result of any failure to comply with any such Law which would not (i) result in
fines, penalties, injunctive relief or other civil or criminal liabilities
which, in the aggregate, would have a Materially Adversely Effect or (ii)
otherwise impair the ability of such Credit Party to perform its obligations
under this Agreement or the Note.
5.08. Use of Proceeds. Such Credit Party shall use the proceeds of all
Loans hereunder for its general corporate purposes (including to fund
acquisitions).
5.09. Continuation Of and Change In Business. Such Credit Party and its
Subsidiaries shall continue to engage in substantially the same business and
activities it currently engages in on the date of this Agreement.
5.10. Visitation. Such Credit Party shall permit such Persons as the
Lender may reasonably designate to visit and inspect any of the properties of
such Credit Party, to discuss its affairs with its financial management, and
provide such other information relating to the business and financial condition
of such Credit Party at such times as the Lender may reasonably request. Such
Credit Party hereby authorizes its financial management to discuss with the
Lender the affairs of such Credit Party.
ARTICLE VI
----------
NEGATIVE COVENANTS
------------------
Each Credit Party covenants to the Lender as follows:
6.01. Mergers and Acquisitions. (a) Such Credit Party shall not merge
with or into or consolidate with any other Person, or agree to do any of the
foregoing, except that if no Event of Termination or Potential Event of
Termination shall occur and be continuing or shall exist at the time of such
merger or consolidation or immediately thereafter and after giving effect
thereto:
(i) such Credit Party may merge with any other corporation,
including a Subsidiary, if such Credit Party shall be the surviving
corporation; and
(ii) if the written consent of the Lender is obtained, such
Credit Party may merge into or consolidate with any other corporation
if the corporation into which such Credit Party is merged or which is
formed by such consolidation shall expressly assume all obligations of
such Credit Party under this Agreement.
(b) Such Credit Party shall not acquire the stock or other equity
interests, or all or any substantial portion of the properties or assets of any
other Person, or agree to do any of the foregoing, unless such Person is engaged
primarily in the insurance business or the financial services business.
6.02. Dispositions of Assets. Such Credit Party shall not , and nor
shall it permit any Subsidiary to, sell, convey, assign, lease, abandon or
otherwise transfer or dispose of, voluntarily or involuntarily (any of the
foregoing being referred to in this Section 6.02 as a "transaction" and any
series of related transactions constituting but a single transaction), any of
its properties or Assets, tangible or intangible (including but not limited to
sale, assignment, discount or other disposition of accounts, contract rights,
chattel paper or general intangibles with or without recourse), except:
(a) Transactions in the ordinary course of business involving current
assets or other assets classified on such Credit Party's balance sheet as
available for sale.
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(b) Sales, conveyances, assignments or other transfers or dispositions
in immediate exchange for cash or tangible assets, provided that any such sales,
conveyances or transfers shall not individually, or in the aggregate, exceed
$50,000,000 in any calendar year; or
(c) Dispositions of equipment or other property which is obsolete or no
longer used or useful in the conduct of the business of such Credit Party or its
Subsidiaries.
6.03. Liens. Such Credit Party shall not, nor shall it permit any
Subsidiary to, at any time create, incur, assume or suffer to exist any Lien on
any of its property or assets, tangible or intangible, now owned or hereafter
acquired or agree or become liable to do so, except:
(a) Liens existing on the date hereof (and extension, renewal and
replacement Liens upon the same property, provided the amount secured by each
Lien constituting such an extension, renewal or replacement Lien shall not
exceed the amount secured by the Lien theretofore existing) and listed on
Schedule 6.03(a) hereto;
(b) Liens arising from taxes, assessments, charges, levies or claims
described in Section 5.05 hereof that are not yet due or that remain payable
without penalty or to the extent permitted to remain unpaid under the provision
of such Section 5.05;
(c) Liens on property securing all or part of the purchase price
thereof to such Credit Party and Liens (whether or not assumed) existing on
property at the time of purchase thereof by such Credit Party (and extension,
renewal and replacement Liens upon the same property), provided --
(i) each such Lien is confined solely to the property so
purchased, improvements thereto and proceeds thereof, and
(ii) the aggregate amount of the obligations secured by all
such Liens on any particular property at any time purchased by such
Credit Party, as applicable, shall not exceed 100% (if such obligations
are not subject when created to United States income taxes) or 90% (in
all other cases) of the lesser of the fair market value of such
property at such time or the actual purchase price of such property;
(d) Zoning restrictions, easements, minor restrictions on the use of
real property, minor irregularities in title thereto and other minor Liens that
do not in the aggregate materially detract from the value of a property or asset
to, or materially impair its use in the business of, such Credit Party;
(e) Liens securing Indebtedness permitted by Section 6.08 (c) hereof
covering assets whose market value is not materially greater than the amount of
the Indebtedness secured thereby plus a commercially reasonable margin;
(f) Liens on cash and securities of such Credit Party or its
Subsidiaries incurred as part of the management of its investment portfolio in
accordance with customary portfolio management practice and not in violation of
such Credit Party's investment policy as in effect on the date of this
Agreement; or
(g) Liens created under the Pledge Agreement.
6.04. Transactions With Affiliates. Such Credit Party shall not, nor
shall it permit any Subsidiary to, enter into or carry out any transaction with
(including, without limitation, purchase or lease property or services to, loan
or advance to or enter into, suffer to remain in existence or amend any
contract, agreement or arrangement with) any Affiliate of such Credit Party, or
directly or indirectly agree to do any of the foregoing, except transactions
among such Credit Party and its wholly-owned Subsidiaries and transactions with
Affiliates in good faith in the ordinary course of such Credit Party's business
consistent with past
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practice and on terms no less favorable to such Credit Party or any Subsidiary
than those that could have been obtained in a comparable transaction on an arm's
length basis from an unrelated Person.
6.05. Business. Such Credit Party will not, nor will it permit any
Subsidiary to, engage (directly or indirectly) in any businesses other than the
businesses substantially the same as those in which such Credit Party and its
Subsidiaries are engaged on the Closing Date and any businesses reasonably
related thereto or in the financial services industry. X.L. Insurance will not
permit, at any time, its net premiums earned from insurance operations to
comprise less than 50% of its gross revenues (on a consolidated basis exclusive
of net gains and losses from investments and investment income).
6.06. Ratio of Total Funded Debt to Consolidated Tangible Net Worth.
X.L. Insurance will not permit its ratio of Total Funded Debt to Consolidated
Tangible Net Worth to be greater than 0.35 at any time.
6.07. Consolidated Net Worth. X.L. Insurance will not permit its
Consolidated Net Worth to be less than $1,200,000,000 at any time.
6.08. Indebtedness. X.L. Insurance shall not, nor shall it permit any
Subsidiary to, at any time create, incur, assume or suffer to exist any
Indebtedness, or agree, become or remain liable (contingent or otherwise) to do
any of the foregoing, except:
(a) Indebtedness to the Lender pursuant to this Agreement and the
other Loan Documents;
(b) Indebtedness of such Credit Party or any Subsidiary in an aggregate
principal amount not exceeding $300,000,000 at any time outstanding;
(c) Reimbursement obligations or guaranty obligations with respect to
letters of credit not exceeding $500,000,000 in the aggregate, of which not more
than $500,000,000 may be secured;
(d) Indebtedness described on Schedule 6.08(d);
(e) Accounts or claims payable and accrued and deferred compensation
(including options) incurred in the ordinary course of business by such Credit
Party or any Subsidiary of such Credit Party; and
(f) Indebtedness incurred in transactions described in Section 6.03(f).
6.09. Operating Leverage. X.L. Insurance will not permit its ratio of
net premiums written to statutory capital and surplus, in each case as reflected
in the notes to its consolidated financial statements, to be greater than 1.2 to
1.0 at any time.
6.10. Private Act. Such Credit Party shall not become subject to a
Private Act other than the X.L. Insurance Company, Ltd. Act, 1989.
ARTICLE VII
-----------
EVENTS OF TERMINATION
---------------------
7.01. Events of Termination. An Event of Termination shall mean the
occurrence or existence of one or more of the following events or conditions
(for any reason, whether voluntary, involuntary or effected or required by Law):
(a) The Borrower shall default in the payment when due of the
principal of any Loan;
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(b) The Borrower shall default in the payment when due of any interest,
Facility Fee, Program Fee, or any other fee or amount payable hereunder which
default shall continue for a period of three days from the due date thereof;
(c) A Credit Party shall default in the observance, performance or
fulfillment of any covenant contained in Article VI hereof;
(d) A Credit Party shall default in the observance, performance or
fulfillment of any other covenant, condition or provision hereof and such
default shall not be remedied for a period of twenty days after written notice
thereof to the Borrower from the Lender or the holder of the Note;
(e) A Credit Party, or any Subsidiary of a Credit Party or EXEL Limited
shall default (i) in any payment of principal of or interest on any other
obligation for borrowed money in principal amount of $10,000,000 or more beyond
any period of grace provided with respect thereto, or (ii) in the performance of
any other agreement, term or condition contained in any such agreement under
which any such obligation in principal amount of $ 10,000,000.00 or more is
created, if the effect of such default is to cause or permit the holder or
holders of such obligation (or trustee on behalf of such holder or holders) to
cause such obligation to become due prior to its stated maturity or to terminate
its commitment under such agreement;
(f) One or more judgments for the payment of money shall have been
entered against a Credit Party which judgments exceed $50,000,000 in the
aggregate and such judgments shall remain undischarged or uncontested or
appealed in good faith for a period of thirty consecutive days;
(g) Any representation or warranty herein made by a Credit Party, or
any certificate or financial statement furnished pursuant to the provisions
hereof, shall prove to have been false or misleading in any material respect as
of the time made or furnished;
(h) X.L. Insurance shall cease to own, beneficially and of record,
directly or indirectly, 100% of the voting shares of common stock of each other
Credit Party.
(i) EXEL Limited shall cease to own, beneficially and of record,
directly or indirectly all of the outstanding voting shares of capital stock of
X.L. Insurance, except for a nominal number of shares owned by two nominee
shareholders required by the Bermuda Companies Law;
(j) A Change in Control shall occur;
(k) The guarantee contained in Article VIII hereof shall terminate or
cease, in whole or material part, to be a legally valid and binding obligation
of X.L. Insurance or X.L. Investments , or the Borrower or any Person acting for
or on its behalf contests such validity or binding nature of such guarantee
itself or the transactions contemplated by this Agreement and the Note, or any
other Person shall assert any of the foregoing, or the Pledge Agreement shall
terminate or cease, in whole or in part, to be a legally valid and binding
obligation of X.L. Investments, or any Credit Party or any Person acting for or
on behalf of any such parties contests such validity or binding nature of the
Pledge Agreement itself or the transactions contemplated thereby (including the
security interest granted thereunder);
(l) A decree or order by a court having jurisdiction in the premises
shall have been entered adjudging a Credit Party a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization of such Credit
Party under the Bermuda Companies Law, or any other similar applicable Law, and
such decree or order shall have continued undischarged or unstayed for a period
of sixty days; or a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver or liquidator or trustee or assignee
in bankruptcy or insolvency of such Credit Party or a substantial part of its
property, or for the winding up or liquidation of its affairs, shall have been
entered, and such decree or order shall have remained in force undischarged and
unstayed for a period of sixty days; or
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(m) A Credit Party or EXEL Limited shall institute proceedings to be
adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy
proceeding against it, or shall file a petition or answer or consent seeking
reorganization under the Bermuda Companies Law or any other similar applicable
Law, or shall consent to the filing of any such petition, or shall consent to
the appointment of a receiver or liquidator or trustee or assignee in bankruptcy
or insolvency of it or of a substantial part of its property, or shall make an
assignment for the benefit of creditors, or shall admit in writing its inability
to pay its debts generally as they become due, or corporate action shall be
taken by such Credit Party in furtherance of any of the aforesaid purposes.
7.02. Remedies. At any time after the occurrence of an Event of
Termination and so long as such Event of Termination is continuing, the Lender
may, in accordance with applicable law, take one or more of the following
actions: (i) give notice (which may be telephone notice confirmed in writing) to
the Borrower of the occurrence of such Event of Termination, and the Lender's
election to terminate the Commitment under this Agreement, whereupon the
Lender's obligation to make Loans shall be terminated (except that in the case
of the occurrence of any Event of Termination described in Section 7.01(l) or
(m) hereof, no such notice shall be required and such termination shall be
automatic), (ii) by notice to the Borrower declare the unpaid principal amount
and interest under the Note, the Loans and all other amounts payable to the
Lender by the Borrower hereunder to be forthwith due and payable, whereupon such
amounts shall become forthwith due and payable, both as to principal and
interest, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived, anything contained herein or in the
Note to the contrary notwithstanding (except that in the case of the occurrence
of any Event of Termination described in Section 7.01(l) or (m) hereof, no such
notice shall be required and such termination and acceleration shall be
automatic), and (iii) to do any and all other and further acts and actions which
the Lender may take pursuant to this Agreement or under applicable law.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition, or other
judicial proceeding relative to the Borrower or either Guarantor, the
obligations secured hereby or relating to the property of the Borrower, the
Lender (irrespective of whether the Obligations shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of whether the
Lender shall have made any demand on the Borrower or either Guarantor for the
payment of overdue principal or interest or any such other obligation) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of
principal, interest, if any, owing and unpaid in respect of the
Obligations and any other obligation secured hereby and to file such
other papers or documents as may be necessary or advisable in order to
have the claims of the Lender (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Lender, its
agents and counsel) and of the Lender allowed in such judicial
proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator, or
other similar official in any such judicial proceeding is hereby authorized by
the Borrower to make such payments to the Lender and to pay to the Lender any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Lender, its agents and counsel.
ARTICLE VIII
------------
GUARANTEE
---------
8.01. The Guarantee. Each of the Guarantors guarantee to the Lender as
hereinafter provided the prompt payment of the Obligations of the Borrower (the
"Guaranteed Obligations") in full when due
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(whether at stated maturity, by acceleration, or otherwise) strictly in
accordance with the terms thereof. Each Guarantor hereby further agrees that if
any of the Guaranteed Obligations are not paid in full when due (whether at
stated maturity, by acceleration, or otherwise), the Guarantor will promptly pay
the same, without any demand or notice whatsoever (except as expressly provided
herein), and that in the case of any extension of time of payment or renewal of
any of the Guaranteed Obligations, the same will be promptly paid in full when
due (whether at extended maturity, by acceleration or otherwise) in accordance
with the terms of such extension or renewal.
Notwithstanding any provision to the contrary contained herein or in any other
of the Loan Documents, to the extent the obligations of either Guarantor shall
be adjudicated to be invalid or unenforceable for any reason (including, without
limitation, because of any applicable law, including the insolvency laws,
relating to fraudulent conveyances or transfers) then the obligations of such
Guarantor hereunder automatically shall be limited to the maximum amount that is
permissible under applicable law.
8.02. Obligations Unconditional. The obligations of each Guarantor
under this Article are absolute and unconditional (to the fullest extent
permitted by applicable law), irrespective of the value, genuineness, validity,
regularity or enforceability of any of the Loan Documents, or any other
agreement or instrument referred to therein, or any substitution, release or
exchange of any other guarantee of or security for any of the Guaranteed
Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Article that the obligations of each Guarantor
hereunder shall be absolute and unconditional under any and all circumstances.
Each Guarantor agrees that such Guarantor shall have no right of subrogation,
indemnity, reimbursement or contribution against the Borrower for amounts paid
under his Guarantee until such time as the Lender has been paid in full, the
Commitment under the Credit Agreement has been terminated and no Person or
Official Body shall have any right to request any return or reimbursement of
funds from the Lender in connection with monies received under the Loan
Documents. Without limiting the generality of the foregoing, it is agreed that,
to the fullest extent permitted by applicable law, the occurrence of any one or
more of the following shall not alter or impair the liability of either
Guarantor hereunder which shall remain absolute and unconditional as described
above:
(i) at any time or from time to time, without notice to the
Guarantors, the time for any performance of or compliance with any of
the Guaranteed Obligations shall be extended, or such performance or
compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of any
of the Loan Documents, or any other agreement or instrument referred to
in the Loan Documents shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall
be accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Loan Documents, or any other agreement or instrument referred to in the
Loan Documents shall be waived or any other guarantee of any of the
Guaranteed Obligations or any security therefor shall be released or
exchanged in whole or in part or otherwise dealt with;
(iv) any Lien granted to, or in favor of, the Lender as
security for any of the Guaranteed Obligations shall be void or
violable, or shall fail to attach or be perfected; or
(v) any of the Guaranteed Obligations shall be determined to
be void or voidable (including, without limitation, for the benefit of
any creditor of either Guarantor) or shall be subordinated to the
claims of any Person (including, without limitation, any creditor of
either Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever (except notices expressly required hereunder), and
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any requirement that the Lender exhaust any right, power or remedy or proceed
against any Person under any of the Loan Documents, or any other agreement or
instrument referred to in the Loan Documents, or against any other Person under
any other guarantee of, or security for, any of the Guaranteed Obligations.
8.03. Reinstatement. The obligations of the Guarantors under this
Article shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of any Person in respect of the Guaranteed
Obligations is rescinded or must be otherwise restored by any holder of any of
the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy, receivership, or reorganization or otherwise, and each Guarantor
agrees that it will indemnify the Lender on demand for all reasonable
out-of-pocket costs and expenses (including, without limitation, reasonable fees
and expenses of counsel) incurred by the Lender in connection with such
rescission or restoration, including any such reasonable costs and expenses
incurred in defending against any claim alleging that such payment constituted a
preference, fraudulent transfer or similar payment under any bankruptcy,
insolvency, receivership, reorganization or similar law.
8.04. Remedies. Each Guarantor agrees that, to the fullest extent
permitted by applicable law, as between such Guarantor, on the one hand, and the
Lender, on the other hand, the Guaranteed Obligations may be declared to be
forthwith due and payable as provided in Section 7.01 hereof (and shall be
deemed to have become automatically due and payable in the circumstances
provided in said Section 7.01) for purposes of Section 8.01 hereof
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or preventing the Guaranteed Obligations from becoming
automatically due and payable) as to any other Person and that, in the event of
such declaration (or Guaranteed Obligations being deemed to have become
automatically due and payable), the Guaranteed Obligations (whether or not due
and payable by any other Person) shall forthwith become due and payable by such
Guarantor for purposes of said Section 8.01.
8.05. Continuing Guarantee. The guarantee in this Article is a
continuing guarantee, and shall apply to all of the Guaranteed Obligations
whenever arising.
8.06. No Restrictions. Except for restrictions under the Loan
Documents, neither Guarantor shall be or become subject to any restriction of
any nature (whether arising by operation of Law, by agreement, by its articles
of incorporation, by-laws or other constituent documents of such Guarantor, or
otherwise) on the right of such Guarantor from time to time to (x) pay any
indebtedness, obligations or liabilities from time to time owed to the Borrower,
or (y) make loans or advances to the Borrower, or (z) transfer any of its
properties or assets to the Borrower.
ARTICLE IX
----------
MISCELLANEOUS
-------------
9.01. Amendments and Waivers. None of this Agreement or the Note or any
other Loan Document to which the Lender, the Guarantors or the Borrower is a
party, nor any terms hereof or thereof, may be amended, supplemented or modified
except in accordance with the provisions of this subsection. Subject to
obtaining the consent of any other party required hereunder or thereunder, the
Lender, the Guarantors and the Borrower may, from time to time, enter into
written amendments, supplements or modifications hereto and to the Note and any
other Loan Document to which they are parties for the purpose of adding any
provisions to this Agreement or the Note or such other Loan Document or changing
in any manner the rights of Lender or the Borrower or the Guarantors hereunder
or thereunder and, in addition, waiving, on such terms and conditions as Lender
may specify in such instrument, any of the requirements of this Agreement or the
Note or such other Loan Document or any Unmatured Event or Event of Termination
and its consequences. Any such waiver and any such amendment, supplement or
modification shall be binding upon the Lender and all future holders of the
Note. In the case of any waiver,
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the Lender and the Borrower and the Guarantors shall be restored to their former
position and rights hereunder and under the Note and any other Loan Document to
which they are parties, and any Unmatured Event or Event of Termination waived
shall be deemed to be cured and not continuing; but no such waiver shall extend
to any subsequent or other Unmatured Event or Event of Termination, or impair
any right consequent thereon.
9.02. Notices, etc. Any notice or other communication in connection
with this Agreement shall be deemed to have been given or made when received by
the party to whom directed. All such notices and other communications shall be
in writing unless otherwise provided herein and shall be directed, if to the
Lender, at the Lender's address on the signature pages hereof; and if to the
Borrower, at Cumberland House, One Victoria Street, P.O. Box HM 2245, Hamilton
HMJX Bermuda, Attention: Chief Financial Officer, or in accordance with the
latest unrevoked written direction from any party to the other parties hereto.
9.03. Survival of Representations and Warranties. All representations
and warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement and the Note.
9.04. Payment of Expenses and Taxes. The Borrower agrees, on demand,
to(a) pay or reimburse the Lender for all its reasonable out-of-pocket costs and
expenses incurred in connection with the preparation and execution of any
amendment, supplement or modification to, this Agreement, the Note and the other
Loan Documents and any other agreements prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, any and all reasonable collateral audit
fees, and the reasonable fees and disbursements of counsel to the Lender, (b)
pay or reimburse the Lender for all its costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
Agreement, the Note and the other Loan Documents, including, without limitation,
the reasonable fees and disbursements of counsel to the Lender and (c) pay,
indemnify, and hold the Lender harmless from, any and all recording and filing
fees and any and all liabilities with respect to, or resulting from any delay in
paying, any registration tax, stamp, duty and other similar taxes or duties, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement, the Note and the other Loan
Documents, and (d) pay, indemnify, and hold the Lender harmless from and against
any and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements to the extent arising from
the execution, delivery and administration of, and the enforcement against the
Borrower of, this Agreement, the Note and the other Loan Documents (all the
foregoing, collectively, the "indemnified liabilities"), provided that the
Borrower shall not have any obligation hereunder to the Lender with respect to
indemnified liabilities arising from the gross negligence or willful misconduct
of the Lender. Without limitation of the generality of this Section 9.04(d), the
Borrower shall pay on demand to the Lender any and all amounts necessary to
indemnify the Lender from and against any and all indemnified liabilities
relating to or resulting from any of the following:
(i) reliance on any representation or warranty made or deemed
made by the Borrower (or any of its officers) under or in connection
with this Agreement, any Loan Document, any Loan Request or any other
information or report delivered by the Borrower pursuant hereto, which,
in any such case, shall have been false or incorrect in any material
respect when made or deemed made or delivered, except to the extent it
specifically relates to an earlier date:
(ii) the failure by the Borrower to comply with any term,
provision or covenant contained in this Agreement or any Loan Document.
The agreements in this subsection shall survive repayment of the Loans, the Note
and all other amounts payable hereunder. Notwithstanding anything in this
Section 9.04 to the contrary, the Borrower shall not
24
<PAGE>
have any obligation hereunder to the Lender with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of the
Lender.
9.05. Successors and Assigns; Participations.
--------------------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
the Borrower, the Lender, the Guarantors and all future holders of the Note and
their respective successors and assigns, except that neither the Borrower nor
any Guarantor may assign or transfer any of its rights or obligations under this
Agreement without the prior consent of the Lender, and the Lender may not assign
or transfer any of its rights or obligations under this Agreement without the
prior consent of the Borrower (which consent shall not be unreasonably
withheld). The parties to this Agreement acknowledge that the Lender has
assigned and shall be permitted to continue to assign (without consent) to the
Collateral Agent, as collateral agent for the benefit of the holders of any debt
instruments issued by the Lender, its rights under this Agreement and the other
Loan Documents (including its rights in the Collateral under the Pledge
Agreement).
(b) The Borrower and the Lender agree that the Lender may, from time to
time, with the prior consent of the Borrower (which consent shall not be
unreasonably withheld), sell a portion of the Lender's obligation to make Loans
hereunder and of the Lender's rights hereunder and under the Loans and the Note,
or grant participations herein and in the Loans and the Note. Any such assignee
or participant may have the same rights as the Lender in respect of the rights
granted to the Lender hereunder. In such connection, it is agreed that the
Lender shall not be responsible for a failure by any such assignee or
participant, and that each such assignee or participant shall not be responsible
for a failure by the Lender (or another such assignee or participant), to make
or fund, as the case may be, its pro rata portion of any Loan.
(c) Every participant or assignee of the Lender shall provide the
Borrower (A) prior to becoming a participant or assignee (i) if the participant
or assignee is incorporated or established under the laws of a jurisdiction
outside of the United States, two duly completed copies of the United States
Internal Revenue Form 4224 or 1001 (or, if the assignee or participant is not a
bank, Form W-8) or successor applicable or required forms, in each case
entitling the participant or assignee to receive payments under this Agreement
without deduction or withholding of any United States Federal income taxes and
demonstrating the participant's or assignee's exemption from backup withholding
tax, (ii) a duly completed copy of the Internal Revenue Service Form W-8 or W-9
or successor applicable or required forms, and (iii) such other forms and
information as may be reasonably required to confirm the availability of any
applicable exemption from United States Federal, state or local withholding
taxes, and (B) to the extent possible, each potential participant or assignee
must also agree to provide the Borrower on or before the date that any such form
expires or becomes obsolete, or upon the occurrence of any event requiring an
amendment, resubmission or change in the most recent form previously delivered
by it, and such extensions or renewals as may be reasonably requested by the
Borrower. Notwithstanding any provision of this Agreement to the contrary, the
Borrower shall be entitled to withhold or cause withholding, and no amount shall
be payable under Section 2.8, to the extent such amount would otherwise be
payable as the result of such participant's or assignee's failure to deliver the
forms required by this paragraph (c) on a timely basis.
(d) The Lender shall not grant to any assignee or participant the right
to consent to any amendment or waiver entered into in accordance with subsection
9.01 except for any such amendment or waiver which would reduce the amount or
extend the due date of any principal of or interest on the Note.
9.06. Set-Off. In case any one or more of the Events of Termination
described in Article VII hereof shall occur, the holder of the Note shall have
the right, in addition to all other rights and remedies available to it, to
set-off against the unpaid balance of the Note any debt owing by such holder to
the Borrower, including without limitation any funds in any deposit account
maintained by the Borrower with such holder, and such holder shall have and
there is hereby created in favor of such holder a security interest in all
deposit accounts maintained by the Borrower with such holder. Any sums obtained
by the holder of the Note issued hereunder by way of counterclaim, set-off,
banker's lien or other lien for application upon the Note shall be shared pro
rata with the holders of an interest in the Note or this
25
<PAGE>
Agreement. Nothing in this Agreement shall be deemed any waiver or prohibition
of any right of banker's lien or set-off under applicable Law.
9.07. Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
9.08. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.09. Integration. This Agreement represents the agreement of the
Borrower and the Lender with respect to the subject matter hereof, and there are
no promises, undertakings, representations or warranties by Lender relative to
the subject matter hereof not expressly set forth or referred to herein or in
the other Loan Documents.
9.10. GOVERNING LAW. THIS AGREEMENT AND THE NOTE AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
COMMONWEALTH OF PENNSYLVANIA.
9.11. SUBMISSION TO JURISDICTION WAIVERS. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH IT
IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE
COMMONWEALTH OF PENNSYLVANIA AND THE STATE OF NEW YORK, THE COURTS OF THE UNITED
STATES OF AMERICA FOR THE WESTERN DISTRICT OF PENNSYLVANIA AND THE SOUTHERN
DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
(b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE
OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME;
(c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY
BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS AS PROVIDED
IN SECTION 9.02 OR AT SUCH OTHER ADDRESS OF WHICH ALL OF THE OTHER PARTIES
HERETO SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; AND
(d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE
OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE
IN ANY OTHER JURISDICTION.
9.12. Acknowledgments. The Borrower hereby acknowledges that:
26
<PAGE>
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement, the Note and the other Loan Documents;
(b) the Lender has no fiduciary relationship to the Borrower, and the
relationship between the Lender and the Borrower is solely that of debtor and
creditor; and
(c) no joint venture exists between the Borrower and the Lender.
9.13. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTE OR ANY OTHER LOAN DOCUMENT AND
FOR ANY COUNTERCLAIM THEREIN.
9.14. No Bankruptcy Petition Against Lender. The Borrower covenants and
agrees that it will not institute against, or join any other Person in
instituting against, the Lender any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other proceedings under any federal or
state bankruptcy or similar law.
9.15. No Recourse. The obligations of the Lender under this Agreement
are solely the corporate obligations of the Lender. No recourse shall be had for
the payment of any amount owing in respect to this Agreement or for the payment
of any fee hereunder or for any other obligation or claim arising out of or
based upon this Agreement against any stockholder, employee, officer, director
or incorporator of the Lender or against Mellon or any stockholder, employee,
officer, director, incorporator or affiliate thereof.
9.16. Holidays. Unless otherwise specified herein, whenever any payment
or action to be made or taken hereunder or under the Note shall be stated to be
due on a Saturday, Sunday or public holiday under the laws of the Commonwealth
of Pennsylvania or Bermuda, such payment or action shall be made or taken on the
next succeeding Business Day and such extension of time shall in such case be
included in computing interest, if any, in connection with such payment or
action.
9.17. Judgment Currency. In the event of a judgment or order being
rendered by any court or tribunal for the payment of any amounts owing to the
Lender under this Agreement or any other Loan Document or for the payment of
damages in respect of any breach of this Agreement or any other Loan Document or
under or in respect of a judgment or order of another court or tribunal for the
payment of such amounts or damages, such judgment or order being expressed in a
currency (the "Judgment Currency") other than Dollars the party against whom the
judgment or order is made shall indemnify and hold the Lender harmless against
any deficiency in terms of Dollars in the amounts received by the Lender arising
or resulting from any variations as between (i) the exchange rate at which
Dollars are converted into the Judgment Currency for the purposes of such
judgment or order and (ii) the exchange rate at which the Lender is able to
purchase Dollars with the amount of the Judgment Currency actually received by
the Lender on the date of such receipt. The indemnity in this section shall
constitute a separate and independent obligation from the other obligations of
the Borrower hereunder and shall apply irrespective of any indulgence granted by
the Lender.
9.18. Records. The unpaid principal amount of the Loans owing to the
Lender, the unpaid interest accrued thereon, the interest rate or rates
applicable to such unpaid principal amount, the duration of such applicability,
the Lender's Commitment and the accrued and unpaid Facility Fees and Program
Fees shall at all times be ascertained from the records of the Lender, which
shall be conclusive absent manifest error.
9.19. Confidentiality. The Lender agrees to keep confidential any
information relating to the Borrower received by it pursuant to or in connection
with this Agreement which is (a) information which the Lender reasonably expect
that the Borrower would want to keep confidential or (b) information which is
clearly marked "CONFIDENTIAL"; provided, however, that this Section 9.19 shall
not be construed to prevent the Lender from disclosing such information (i) to
any affiliate that shall agree in writing for the benefit of the Borrower to be
bound by this obligation of confidentiality, (ii) upon the order of any court or
27
<PAGE>
administrative agency of competent jurisdiction, (iii) upon the request or
demand of any regulatory agency or authority having jurisdiction over the Lender
which request or demand has the force of Law or is made by a bank regulatory
agency, (iv) that has been publicly disclosed, other than from a breach of this
provision by the Lender, (v) that has been obtained from any person that is
neither a party to this Agreement nor an affiliate of any such party, but only
to the extent that the Lender does not know or have reason to know that such
disclosure violates a confidentiality agreement between such person and the
Borrower (vi) in connection with the exercise of any right or remedy hereunder
or under any other Loan Document, (vii) as expressly contemplated by this
Agreement or any other Loan Document, (viii) to any prospective purchaser of all
or any part of the interest of the Lender which shall agree in writing for the
benefit of the Borrower to be bound by the obligation of confidentiality in this
Agreement or the other Loan Documents if such prospective purchaser is a
financial institution or has been consented to by the Borrower, which consent
will not be withheld if such purchaser is not a competitor of the Borrower or an
affiliate of a competitor of the Borrower or (ix) to its liquidity or credit
providers under the Funding Agreement, which agrees in writing to maintain the
confidentiality of such information in accordance with this Section 9.19, or a
rating agency rating the securities of the Lender.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their respective officers
thereunto duly authorized, have executed this Agreement as of the day and year
first above written.
X.L. AMERICA, INC., as Borrower
By: _______________________________
(Signature)
Name: _____________________________
Title: ____________________________
X.L. INSURANCE COMPANY, LTD., as a Guarantor
By: _______________________________
(Signature)
Name: _____________________________
Title: ____________________________
X.L. INVESTMENTS LTD., as a Guarantor
By: _______________________________
(Signature)
Name: _____________________________
Title: ____________________________
THREE RIVERS FUNDING CORPORATION, as Lender
By: _______________________________
(Signature)
Name: _____________________________
Title: ____________________________
Notice Address:
c/o Global Securitization Services, LLC
25 West 43rd Street, Suite 704
New York, New York 10036
Attention: Mr. Bernard J. Angelo
Telephone: (212) 302-5151
Facsimile: (212) 302-8767
29
<PAGE>
EXHIBIT "A"
PROMISSORY NOTE
$______________________
December , 1998
FOR VALUE RECEIVED, the undersigned, X.L. America, Inc., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of Three
Rivers Funding Corporation, (the "Lender") on the Commitment Expiration Date for
each Loan made by the Lender to the Borrower pursuant to the Agreement described
below the lesser of (i) the principal sum of ________________ Dollars
($______________) and (ii) the unpaid principal amount of all such Loans made by
the Lender maturing on such Commitment Expiration Date. The Borrowers further
promise to pay to the order of the Lender interest on the unpaid principal
amount hereof from time to time outstanding at the rate or rates per annum
determined pursuant to Section 2.06 of, or as otherwise provided in, the
Agreement, payable on the dates set forth in the Agreement.
This Promissory Note is the Note referred to in the Loan Agreement
dated as of December ,1998 among the Borrower, X.L. Investments Ltd., X.L.
Insurance Company, Ltd. and the Lender (as the same may have been or may
hereafter be amended or modified, the "Agreement" which Agreement, among other
things, contains provisions for prepayments on account of principal hereof prior
to the maturity hereof and also for acceleration of the maturity hereof upon the
happening of certain stated events, upon the terms and conditions therein
specified. Terms defined in the Agreement shall have the same meanings herein.
The Borrower hereby expressly waive presentment, demand, protest, and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note and the Agreement, and an
action for amounts due hereunder or thereunder shall immediately accrue upon the
expiration of any grace period.
This Note shall be governed by, construed and enforced in accordance
with the laws of the Commonwealth of Pennsylvania, without regard to conflict of
laws principles.
X.L. AMERICA, INC.
By: _____________________________
(Signature)
Name: ___________________________
Title: __________________________
<PAGE>
[REVERSE OF NOTE OR SCHEDULE THERETO]
This Note evidences Loans made by the Lender under Section 2.1 of the Loan
Agreement dated as of December 22, 1998, as from time to time amended, between
X.L. America, Inc. and the Lender, in the principal amounts and on the dates set
forth below, subject to the payments and prepayments of principal set forth
below:
Principal Principal Amount Principal Balance
Date Amount Loaned Paid or Prepaid Outstanding
- ---- ------------- --------------- -----------
2
<PAGE>
EXHIBIT 10.14.6
LETTER OF CREDIT FACILITY AND REIMBURSEMENT AGREEMENT
BETWEEN
X.L. INSURANCE COMPANY, LTD.,
X.L. EUROPE INSURANCE, X.L. GLOBAL REINSURANCE COMPANY, LTD.,
and
VENTON UNDERWRITING GROUP LIMITED,
as Account Parties,
AND
X.L. INSURANCE COMPANY, LTD. and X.L. INVESTMENTS LTD.,
as Guarantors,
AND
THE BANKS PARTIES HERETO FROM TIME TO TIME
AND
MELLON BANK, N.A.,
as Issuing Bank and as Agent
DATED AS OF
February 27, 1998
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
ARTICLE I DEFINITIONS; CONSTRUCTION........................................ 1
1.01 Certain Definitions.............................................. 1
1.02 Construction..................................................... 9
1.03 Accounting Principles............................................ 10
ARTICLE II THE LETTER OF CREDIT FACILITY.................................... 10
2.01 Letters of Credit................................................ 10
2.02 Commitment Fee; Reduction of the Committed Amounts............... 12
2.03 Procedure for Issuance and Amendment of Letters of Credit........ 12
2.04 Letter of Credit Participating Interests......................... 13
2.05 Letter of Credit Drawings and Reimbursements..................... 14
2.06 Equalization..................................................... 15
2.07 Obligations Absolute............................................. 15
2.08 Further Assurances............................................... 16
2.09 Letter of Credit Applications.................................... 16
2.10 Certain Provisions Relating to the issuing Bank.................. 16
2.11 Payments Generally; Interest and Interest on Overdue Amounts..... 17
2.12 Additional Compensation in Certain Circumstances................. 18
2.13 Taxes............................................................ 19
2.14 Extensions of Expiration Date.................................... 20
2.15 Tranches......................................................... 21
ARTICLE III REPRESENTATIONS AND WARRANTIES................................... 24
3.01 Organization and Qualification................................... 24
3.02 Corporate Power and Authorization................................ 24
3.03 Financial Information............................................ 24
3.04 Litigation....................................................... 24
3.05 No Adverse Changes............................................... 25
3.06 No Conflicting Laws or Agreements; Consents and Approvals........ 25
3.07 Execution and Binding Effect..................................... 25
3.08 Taxes............................................................ 25
3.09 Use of Proceeds.................................................. 25
3.10 Permits, Licenses and Rights..................................... 25
3.11 Accurate and Complete Disclosure................................. 25
3.12 Absence of Violations............................................ 26
3.13 Environmental Matters............................................ 26
3.14 Not an Investment Company........................................ 26
ARTICLE IV CONDITIONS....................................................... 26
4.01 Effectiveness.................................................... 26
4.02 Issuance of Letters of Credit.................................... 27
ARTICLE V AFFIRMATIVE COVENANTS............................................ 28
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
5.01 Reporting and Information Requirements........................... 28
5.02 Preservation of Existence and Franchises......................... 29
5.03 Insurance........................................................ 29
5.04 Maintenance of Properties........................................ 29
5.05 Payment of Taxes and Other Potential Charges and Priority
Claims Payment of Other Current Liabilities...................... 29
5.06 Financial Accounting Practices................................... 30
5.07 Compliance with Applicable Laws.................................. 30
5.08 Use of Proceeds.................................................. 30
5.09 Continuation Of and Change In Business........................... 30
5.10 Visitation....................................................... 30
ARTICLE VI NEGATIVE COVENANTS............................................... 31
6.01 Mergers and Acquisitions......................................... 31
6.02 Dispositions of Assets........................................... 31
6.03 Liens............................................................ 31
6.04 Transactions With Affiliates..................................... 32
6.05 Business......................................................... 32
6.06 Ratio of Total Funded Debt to Consolidated Tangible Net Worth.... 33
6.07 Consolidated Net Worth........................................... 33
6.08 Indebtedness..................................................... 33
6.09 Operating Leverage............................................... 33
6.10 Private Act...................................................... 33
ARTICLE VII EVENTS OF DEFAULT................................................ 33
7.01 Events of Default................................................ 33
ARTICLE VIII THE AGENT........................................................ 35
8.01 Appointment...................................................... 35
8.02 General Nature of Agent's Duties................................. 36
8.03 Exercise of Powers............................................... 36
8.04 General Exculpatory Provisions................................... 36
8.05 Administration by the Agent...................................... 37
8.06 Bank Not Relying on Agent or Other Banks......................... 38
8.07 Indemnification.................................................. 38
8.08 Agent in its Individual; Capacity................................ 38
8.09 Successor Agent.................................................. 38
8.10 Additional Agents................................................ 39
8.11 Calculations..................................................... 39
8.12 Agent's Fee...................................................... 39
ARTICLE IX MISCELLANEOUS.................................................... 39
9.01 No Implied Waiver etc............................................ 39
9.02 Set-Off.......................................................... 39
9.03 Survival of Provisions........................................... 40
9.04 Expenses and Fees; Indemnity..................................... 40
9.05 Severability..................................................... 41
9.06 Holidays......................................................... 41
9.07 Notices, etc..................................................... 41
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
9.08 Forum Selection and Consent to Jurisdiction...................... 41
9.09 Waiver of Jury Trial............................................. 41
9.10 Governing Law.................................................... 42
9.11 Validity and Enforceability...................................... 42
9.12 Counterparts..................................................... 42
9.13 Successors and Assigns; Participations; Assignments.............. 42
9.14 Amendments and Waivers........................................... 44
9.15 Judgment Currency................................................ 45
9.16 Records.......................................................... 46
9.17 Confidentiality.................................................. 46
9.18 Sharing of Collections 46
ARTICLE X GUARANTEE........................................................ 46
10.01 The Guarantee.................................................... 46
10.02 Obligations Unconditional........................................ 47
10.03 Reinstatement.................................................... 48
10.04 Remedies......................................................... 48
10.05 Continuing Guarantee............................................. 48
10.06 No Restrictions.................................................. 48
</TABLE>
Exhibit A Form of Continuing Letter of Credit Agreement
Exhibit B Form of Transfer Supplement
Exhibit C Form of Opinions of Counsel
Exhibit D Form of Compliance Certificate
Exhibit E List of Currently Outstanding Letters of Credit
Exhibit F Letter of Credit Application
Schedule 2.01(b) Form of Evergreen Provision
Schedule 3.01 Subsidiaries
Schedule 6.03(a) Liens
Schedule 6.08(d) Indebtedness
iii
<PAGE>
LETTER OF CREDIT FACILITY AND REIMBURSEMENT AGREEMENT, dated and effective
as of February 27, 1998, by and between X.L. INSURANCE COMPANY, LTD., a Bermuda
limited liability corporation ("X.L. Insurance"), X.L. EUROPE INSURANCE, a
Company incorporated under the laws of Ireland ("X.L. Europe"), X.L. GLOBAL
REINSURANCE COMPANY, LTD., a Bermuda limited liability corporation ("X.L.
Global"), VENTON UNDERWRITING GROUP LIMITED, an English limited company ("Venton
Group") (X.L. Insurance, X.L. Europe, X.L. Global and Venton Group are referred
to hereinafter individually as "Account Party" and collectively as the "Account
Parties"), X.L. INVESTMENTS LTD., a Bermuda limited liability corporation ("X.L.
Investments") (X.L. Insurance and X.L. Investments are referred to herein
individually as "Guarantor" and collectively as the "Guarantors"), the Banks (as
defined further below) parties hereto from time to time, MELLON BANK, N.A., a
national banking association, as Issuing Bank (the "Issuing Bank") and MELLON
BANK, N.A., a national banking association, as Agent for the Banks and the
Issuing Bank hereunder (in such capacity, together with successors in such
capacity, the "Agent").
PRELIMINARY STATEMENT
WHEREAS, the Banks have agreed to make available to the Account Parties a
Letter of Credit Facility upon all of the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of their mutual agreements hereinafter set
forth and intending to be legally bound hereby, the Account Parties, the
Guarantors, the Agent, the Issuing Bank and each Bank agree as follows.
ARTICLE I
DEFINITIONS: CONSTRUCTION
-------------------------
1.01. Certain Definitions. In addition to other words and terms defined
-------------------
elsewhere in this Agreement, as used herein the following words and terms shall
have the following meanings, respectively, unless the context hereof otherwise
clearly requires:
"Account Parties" and "Account Party" shall have the meaning assigned
those terms in the preamble hereof.
"Affiliate" shall mean an entity which is directly or indirectly controlled
by an Account Party or which controls an Account Party or which is under common
control with any of the Account Parties.
"Aggregate Letter of Credit Undrawn Availability" at any time shall mean
the aggregate amount of the Letter of Credit Undrawn Availability for all
Letters of Credit at such time.
"Aggregate Letter of Credit Unreimbursed Draws" at any time shall mean the
aggregate amount of Letter of Credit Unreimbursed Draws for all Letters of
Credit at such time.
<PAGE>
"Agreement" shall mean this Agreement as amended, modified or supplemented
from time to time.
"Applicable Interest Rate" as used herein, (i) with respect to obligations
denominated in Dollars, shall mean the Prime Rate and (ii) with respect to
obligations denominated in Pounds, shall mean 0.5% per annum in excess of the
rate appearing on the Telerate Screen page 3740 or 3750 or any equivalent
successor to such page or other page as appropriate on the Telerate Service or
such other service as may, from time to time, display the British Bankers'
Association Interest Settlement Rate for deposits in Pounds.
"Assets" at any time shall mean the assets of any Credit Party, as the
context requires, at such time, determined in accordance with GAAP or SAP, as
appropriate.
"Bank Parties" shall mean the Banks, the Issuing Bank and the Agent.
"Banks" shall mean the parties listed on the signature pages hereof,
subject to the provisions of Section 9.13 hereof pertaining to Persons becoming
or ceasing to be Banks, and Bank shall mean any of them.
"Bermuda Companies Law" shall mean The Companies Act of 1981 of Bermuda, as
amended, and the regulations promulgated thereunder.
"Bermuda Insurance Law " shall mean The Insurance Act of 1978 of Bermuda,
as amended, and the regulations promulgated thereunder.
"Business Day" shall mean any day other than a Saturday, Sunday, public
holiday under the laws of the Commonwealth of Pennsylvania or of Bermuda or
other day on which banking institutions are authorized or obligated to close in
Pittsburgh, Pennsylvania or Bermuda.
"Capitalized Lease Obligation" shall mean any lease obligation which is
required to be capitalized in accordance with GAAP.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, and any successor statute of similar import, and
regulations thereunder, in each case as in effect from time to time.
"Change in Control" shall mean the occurrence of any of the following
events or conditions: (a) any Person or group of Persons (as used in Sections 13
and 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations thereunder) shall have become the beneficial owner
(as defined in rules promulgated by the Securities and Exchange Commission) of
more than 40% of the voting securities of EXEL Limited; (b) the sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of EXEL Limited; or
(c) a majority of the members of EXEL Limited's Board of Directors are persons
who are then serving on the Board of Directors without having been elected by
the Board of Directors or having been nominated for election by its
shareholders; provided, that consummation of the 1998 Merger shall be deemed not
--------
to be a Change in Control.
"Closing Date" shall mean March 3, 1998 or such later date as may be
specified by X.L. Insurance by one day's written notice to the Agent.
"Commitment Banks" shall have the meaning assigned to that term in Section
2.15 hereof.
"Commitment Fee" shall have the meaning assigned to that term in Section
2.02(a) hereof.
2
<PAGE>
"Consolidated Net Worth" shall mean at any date the consolidated
stockholders' equity of the applicable Account Party and its Consolidated
Subsidiaries.
"Consolidated Subsidiaries" of a Person shall mean those Subsidiaries of
such Person the accounts of which are consolidated with the accounts of such
Person in accordance with GAAP.
"Consolidated Tangible Net Worth" shall mean at any date the consolidated
stockholders' equity of the applicable Account Party and its Consolidated
Subsidiaries less their consolidated Intangible Assets, all determined as of
such date. For purposes of this definition "Intangible Assets" means the amount
(to the extent reflected in determining such consolidated stockholders' equity)
of (i) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of assets of a going concern business made within
twelve months after the acquisition of such business) subsequent to November 30,
1997, in the book value of any asset owned by the applicable Account Party or a
consolidated Subsidiary and (ii) all unamortized debt discount and expense,
unamortized deferred charges, deferred acquisition costs, goodwill, patents,
trademarks, service marks, trade names, anticipated future benefit of tax loss
carry-forwards, copyrights, organization or developmental expenses and other
intangible assets.
"Continuing Letter of Credit Agreement" shall mean the letter of credit
agreement executed and delivered by the Account Parties substantially in the
form of Exhibit A hereto.
"Conversion to Tranche System" shall have the meaning assigned to that term
in Section 2.15 hereof.
"Credit Parties" means the Account Parties and the Guarantors and "Credit
Party" means any of them.
"Credit Subsidiary" shall mean a Person which is Subsidiary of both (i) a
Credit Party and (ii) a party to the Syndicated Revolving Credit Agreements.
"Current Expiration Date" shall have the meaning assigned to that term in
Section 2.14 hereof.
"Custodian" shall mean Mellon Bank, N.A., or any successor, in its
capacity as Custodian for X.L. Investments pursuant to the Custody Agreement,
dated as of April 1, 1991, as amended, restated or otherwise modified from time
to time, or any successor custodian appointed in accordance with Section 6.11 of
the Pledge Agreement..
"Dollar," "Dollars" and the symbol $ shall mean lawful money of the United
States of America.
"Dollar Equivalent" of an amount of a currency other than Dollars shall
mean the amount of Dollars which such amount of such currency could purchase at
11:00 o'clock A.M., Pittsburgh time on the date of determination, based upon the
quoted spot rates of the Issuing Bank at which its applicable branch or office
offers to exchange Dollars for such currency in the foreign exchange market and
"Dollar Equivalent" of an amount denominated in Dollars shall mean such amount
of Dollars.
"Dollar Equivalent Amount" of any Pledged Security shall mean (i) with
respect to any Pledged Security denominated in a currency other than Dollars,
the Dollar Equivalent of the market value of such Pledged Security as most
recently determined at the time in question in accordance with the Pledge
Agreement and (ii) with respect to a Pledged Security denominated in Dollars,
the market value of such Pledged Security as most recently determined at the
time in question in accordance with the Pledge Agreement.
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"Environmental Concern Materials" shall mean (a) any flammable substance,
explosive, radioactive material, hazardous material, hazardous waste, toxic
substance, solid waste, pollutant, contaminant or any related material, raw
material, substance, product or by-product of any substance specified in or
regulated or otherwise affected by any Environmental Law (including but not
limited to any "hazardous substance" as defined in CERCLA or any similar Law),
(b) any toxic chemical or other substance from or related to industrial,
commercial or institutional activities, and (c) asbestos, gasoline, diesel fuel,
motor oil, waste and used oil, heating oil and other petroleum products or
compounds, polychlorinated biphenyls, radon and urea formaldehyde.
"Environmental Law" shall mean any Law, whether now existing or
subsequently enacted or amended, relating to (a) pollution or protection of the
environment, including natural resources, (b) exposure of Persons, including but
not limited to employees, to Environmental Concern Materials, (c) protection of
the public health or welfare from the effects of products, by-products, wastes,
emissions, discharges or releases of Environmental Concern Materials or (d)
regulation of the manufacture, use or introduction into commerce of
Environmental Concern Materials, including their manufacture, formulation,
packaging, labeling, distribution, transportation, handling, storage or
disposal.
"Event of Default" shall mean any of the Events of Default described in
Article VII hereof.
"EXEL Limited" shall mean (i) until consummation of the 1998 Merger, EXEL
Limited, a corporation organized under the laws of the Cayman Islands, British
West Indies which, on the date of this Agreement, is the sole shareholder of
X.L. Insurance Company, Ltd., except for a nominal number of shares owned by two
nominee shareholders required by the Bermuda Companies Law and (ii) from and
after consummation of the 1998 Merger, EXEL Limited, a corporation organized
under the laws of the Cayman Islands, British West Indies which is referred to
as "New EXEL" in the 8-K Report referred to in the definition of 1998 Merger
below.
"Existing Letters of Credit" shall mean the letters of credit listed on
Exhibit E hereto.
"Expiration Date" shall mean the Business Day immediately preceding the
first Anniversary of the Closing Date, as the same may be extended in accordance
with Section 2.14 hereof.
"Extension Request" shall have the meaning set forth in Section 2.14
hereof.
"GAAP" shall have the meaning set forth in Section 1.03 hereof.
"Guaranteed Obligations" shall have the meaning assigned to that term in
Section 10.01 hereof.
"Guarantors" and "Guarantor" shall have the meaning assigned to those terms
in the preamble to this Agreement.
"Guaranty Equivalents" means, with respect to any Person, without
duplication, any obligations of such Person (other than endorsements in the
ordinary course of business of negotiable instruments for deposit or collection)
guaranteeing or intended to guarantee any Indebtedness of any other Person in
any manner, whether direct or indirect, and including without limitation any
obligation, whether or not contingent, (i) to purchase any such Indebtedness or
any property constituting security therefor for the purpose of assuring the
holder of such Indebtedness, (ii) to advance or provide funds or other support
for the payment or purchase of any such Indebtedness or to maintain working
capital, solvency or other balance sheet condition of such other Person
(including without limitation keepwell agreements, maintenance agreements,
comfort letters or similar agreements or arrangements) for the benefit of any
holder of Indebtedness of such
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other Person, (iii) to lease or purchase property, securities or services
primarily for the purpose of assuring the holder of such Indebtedness, or (iv)
to otherwise assure or hold harmless the holder of such Indebtedness against
loss in respect thereof. The amount of any Guaranty Equivalent hereunder shall
(subject to any limitations set forth therein) be deemed to be an amount equal
to the outstanding principal amount (or maximum principal amount, if larger) of
the Indebtedness in respect of which such Guaranty Equivalent is made.
"Indebtedness" of a Person shall mean (it being understood, for the
avoidance of doubt, that insurance payment liabilities, as such, and liabilities
arising in the ordinary course of such Person's business as an insurance company
or corporate member of Lloyds (other than in connection with the financing
activities of such Person or of any of such Person's Affiliates) shall not be
deemed to constitute Indebtedness):
(i) all indebtedness or liability for or on account of money
borrowed by, or for or on account of deposits with or advances to (but not
including accrued pension costs, deferred income taxes or accounts payable
of) such Person;
(ii) all obligations (including contingent liabilities) of such
Person evidenced by bonds, debentures, notes, banker's acceptances or
similar instruments;
(iii) all indebtedness or liability for or on account of property or
services purchased or acquired by such Person;
(iv) any amount secured by a Lien on property owned by such Person
(whether or not assumed) and Capitalized Lease Obligations of such Person
(without regard to any limitation of the rights and remedies of the holder
of such Lien or the lessor under such Capitalized Lease to repossession or
sale of such property);
(v) the maximum available amount of all standby letters of credit
issued for the account of such Person and, without duplication, all drafts
drawn thereunder (to the extent unreimbursed; and
(vi) all Guaranty Equivalents of such Person.
"Insurance Subsidiary" means any, present or future, direct or indirect
Subsidiary of any Account Party that offers insurance products, including but
not limited to certain of the Account Parties.
"Law" shall mean any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any Official Body.
"Letter of Credit" shall mean each Letter of Credit issued by the Issuing
Bank for the account of one or more of the Account Parties pursuant to this
Agreement and each of the Existing Letters of Credit, each as amended, modified
or supplemented from time to time.
"Letter of Credit Application" shall have the meaning given that term in
Section 2.03(a)(ii) hereof.
"Letter of Credit Exposure" at any time shall mean the sum at such time of
(a) the Aggregate Letter of Credit Unreimbursed Draws (determined as a Dollar
Equivalent), (b) the Aggregate Letter of Credit Undrawn Availability and (c) the
aggregate Stated Amount (determined as a Dollar Equivalent) of Letters of Credit
which have been requested by an Account Party to be issued hereunder but are not
yet so issued.
"Letter of Credit Fee" shall have the meaning given that term in Section
2.01(d) hereof.
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"Letter of Credit Participating Interest" shall have the meaning given that
term in Section 2.04(a) hereof.
"Letter of Credit Participating Interest Committed Amount" shall have the
meaning given that term in Section 2.01(a) hereof.
"Letter of Credit Participating Interest Commitment" shall have the meaning
given that term in Section 2.04(a) hereof.
"Letter of Credit Participating Interest Percentage" and "Letter of Credit
Participating Interest Commitment Percentage" for each Bank shall mean a
fraction, expressed as percentage, the numerator of which is such Bank's Letter
of Credit Participating Interest Committed Amount and the denominator of which
is the aggregate Letter of Credit Participating Interest Committed Amounts of
all of the Banks.
"Letter of Credit Reimbursement Obligation" with respect to a Letter of
Credit means the obligation of the applicable Account Party to reimburse the
Issuing Bank for drawings on a Letter of Credit, together with interest
thereon, and "Letter of Credit Reimbursement Obligations" shall mean all such
obligations with respect to all Letters of Credit.
"Letter of Credit Undrawn Availability" with respect to a Letter of Credit
at any time shall mean the maximum amount (determined as a Dollar Equivalent)
available to be drawn under such Letter of Credit at such time or thereafter,
regardless of the existence or satisfaction of any conditions or limitations on
drawing.
"Letter of Credit Unreimbursed Draw" with respect to a Letter of Credit at
any time shall mean the amount at such time of a payment made by the Issuing
Bank under such Letter of Credit, to the extent not repaid by the applicable
Account Party.
"Level One Day" shall mean each day during the period from (but not
including) a Valuation Date to and including the next succeeding Valuation Date
if on the Valuation Date which is the last day of such period the market value
(determined as a Dollar Equivalent Amount) of Zero Percent Risk-Capital
Securities included in the Pledged Securities is less than 35% of the market
value (determined as a Dollar Equivalent Amount) of the Required Pledged
Securities; "Level Two Day" shall mean each day (which is not a Level One Day)
during the period from (but not including) a Valuation Date to and including the
next succeeding Valuation Date if on the Valuation Date which is the last day of
such period the market value (determined as a Dollar Equivalent Amount) of Zero
Percent Risk-Capital Securities included in the Pledged Securities is less than
50% of the market value (determined as a Dollar Equivalent Amount) of the
Required Pledged Securities; "Level Three Day" shall mean each day (which is not
a Level Two Day or a Level One Day) during the period from (but not including) a
Valuation Date to and including the next succeeding Valuation Date if on the
Valuation Date which is the last day of such period the market value (determined
as a Dollar Equivalent Amount) of Zero Percent Risk-Capital Securities included
in the Pledged Securities is less than 75% of the market value (determined as a
Dollar Equivalent Amount) of the Required Pledged Securities; "Level Four Day"
shall mean each day (which is not a Level Three Day, a Level Two Day or a Level
One Day) during the period from (but not including) a Valuation Date to and
including the next succeeding Valuation Date if on the Valuation Date which is
the last day of such period the market value (determined as a Dollar Equivalent
Amount) of Zero Percent Risk-Capital Securities included in the Pledged
Securities is less than 100% of the market value (determined as a Dollar
Equivalent Amount) of the Required Pledged Securities; "Level Five Day" shall
mean each day during the period from (but not including) a Valuation Date to and
including the next succeeding Valuation Date if on the
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Valuation Date which is the last day of such period the market value (determined
as a Dollar Equivalent Amount) of Zero Percent Risk-Capital Securities included
in the Pledged Securities is 100% of the market value (determined as a Dollar
Equivalent Amount) of the Required Pledged Securities.
"Lien" shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, including but not limited to any conditional sale or title retention
arrangement, and any assignment, deposit arrangement or lease intended as, or
having the effect of, security.
"Material Adverse Effect" shall mean the occurrence of an event (including
any adverse determination in any litigation, arbitration, or governmental
investigation or proceeding), which has or could reasonably be expected to have
a materially adverse effect on: (a) the assets, business, financial condition or
operations of a Credit Party and its Subsidiaries taken as a whole; or (b) the
ability of a Credit Party to perform any of its payment or other material
obligations under this Agreement; or (c) the legality, validity, binding effect
or enforceability against a Credit Party of any Transaction Document that by its
terms purports to bind such Credit Party.
"1998 Merger" shall mean consummation of the transactions provided for in
the Agreement and Schemes of Arrangements, dated as of March 16, 1998,
substantially as described in the Current Report on Form 8-K of EXEL Limited
dated such date.
"Nonextending Bank" shall have the meaning assigned to that term in Section
2.14 hereof.
"Obligations" shall mean, collectively, the Letter of Credit Reimbursement
Obligations and the obligations of each and every Account Party to pay all fees,
indemnities and all other liabilities of such Account Party arising pursuant to
the terms of this Agreement or the other Transaction Documents.
"Office," when used in connection with the Agent, shall mean its office
located at One Mellon Bank Center, Pittsburgh, Pennsylvania 15258, or at such
other office or offices of the Agent or branch, subsidiary or affiliate thereof
as may be designated in writing from time to time by the Agent to the Account
Parties.
"Official Body" shall mean any government or political subdivision or any
agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
"Permitted Liens" shall mean the Liens described in paragraphs (a) through
(g) of Section 6.03.
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated association, joint venture, joint-stock company, government
(including political subdivisions), official body or agency, or any other
entity.
"Pledged Accounts" shall have the meaning given that term in the Pledge
Agreement.
"Pledge Agreement" shall mean the Pledge Agreement, dated of even date
herewith, between the Agent and X.L. Investments.
"Pledged Securities" shall have the meaning given that term in the Pledge
Agreement.
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"Pledged Securities Available Amount" at any time shall mean the amount
which is equal to 90% of the value of the Qualifying Pledged Securities (as
determined as a Dollar Equivalent Amount at such time).
"Potential Default" shall mean any event or condition referenced in Article
VII hereof which with notice, passage of time or both would constitute an Event
of Default.
"Pound," "Pounds" and the symbol "(Pounds)" shall mean the lawful money of
the United Kingdom.
"Prime Rate" shall mean the interest rate per annum announced from time to
time by the Agent as its prime rate, such rate to change automatically effective
as of the effectiveness of each announced change in such prime rate (it being
understood that such Prime Rate may be greater or less than other interest rates
charged by the Agent to other borrowers and is not solely based or dependent
upon the interest rate which the Agent may charge any particular borrower or
class of borrower).
"Private Act" shall mean separate legislation enacted in Bermuda with the
intention that such legislation applies specifically to a Credit Party in whole
or in part.
"Pro Rata" shall have the meaning assigned to that term in Section 2.15
hereof.
"Purchasing Bank" shall have the meaning assigned to that term in Section
9.13(c) hereof.
"Qualifying Pledged Securities" shall mean (i) cash (including credit
balances treated as cash); (ii) direct claims (including securities, loans and
leases) on, and the portions of claims that are directly and unconditionally
guaranteed by, the central government of any OECD country or any U.S. Government
Agency, as such terms are used in Appendix A, Section III(C), Category I to
Regulation H, as promulgated by the Board of Governors of the Federal Reserve
System; and (iii) claims on, and the portions of claims that are guaranteed by,
U.S. Government-sponsored agencies and claims on, and the portions of claims
guaranteed by, certain multilateral lending institutions in which the U.S.
government is a shareholder or contributing member or shares of money market
mutual funds investing solely in U.S. Government Securities, as such terms are
used in Appendix A, Section III(C), Category II to such Regulation H; provided,
however, that those securities or obligations referred to in clauses (i), (ii)
and (iii) above shall not be counted towards the Collateral Value Requirement
under the Pledge Agreement unless such securities or obligations have a twenty
percent or lower risk capital weighting under such Regulation H, as amended from
time to time.
"Regular Payment Date" shall mean the last day of each March, June,
September and December after the date hereof, or, if such last day is not a
Business Day, the next succeeding Business Day.
"Replacement Bank" shall have the meaning assigned to that term in Section
2.14 hereof.
"Required Banks" shall mean at any time Banks which have at least 51% of
the aggregate Letter of Credit Participating Interests in Letters of Credit
outstanding at such time.
"Required Commitment Banks" shall have the meaning assigned to that term in
Section 2.15 hereof.
"Required Pledged Securities" shall mean at any time Qualifying Pledged
Securities 90% of the market value of which (expressed as a Dollar Equivalent
Amount) is equal to, but not greater
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<PAGE>
than, the sum of the Aggregate Letter of Credit Unreimbursed Draws (determined
as a Dollar Equivalent) at such time and the Aggregate Letter of Credit Undrawn
Availability at such time.
"SAP" shall mean, as to each Account Party and each Insurance Subsidiary,
the statutory accounting practices prescribed or permitted by the relevant
Official Body (including, in the case of Venton Group, the Lloyds council) for
such Account Party's or such Insurance Subsidiary's domicile for the preparation
of Annual Statements and other Default reports by insurance corporations of the
same type as such Account Party or such Insurance Subsidiary in effect on the
date such statements or reports are to be prepared.
"Standard Notice" shall mean an irrevocable notice provided to the Agent at
no later than 10:00 o'clock a.m., Pittsburgh time, on a Business Day. Standard
Notice shall be in writing (including telex, facsimile or cable communication)
or by telephone (to be subsequently confirmed in writing) in any such case,
effective upon receipt by the Agent.
"Stated Amount" shall mean, with respect to a Letter of Credit, the maximum
face or stated amount of such Letter of Credit, irrespective of whether such
maximum amount is available for drawing at the time in question.
"Subsidiary" of a Person at any time shall mean any corporation of which a
majority (by number of shares or number of votes) of any class of outstanding
capital stock normally entitled to vote for the election of one or more
directors (regardless of any contingency which does or may suspend or dilute the
voting rights of such class) is at such time owned directly or indirectly by
such Person or one or more Subsidiaries of such Person.
"Syndicated Revolving Credit Agreements" shall mean the Revolving Credit
Agreement, dated as of June 6, 1997, and the Short Term Revolving Credit
Agreement, dated as of June 6, 1997, in each case between X. L. Insurance, X. L.
Reinsurance, Exel Acquisition Ltd., the banks parties thereto and Mellon Bank,
N. A., as agent., as amended or extended, or as replaced by one or more other
agreements providing for credit not exceeding $500,000,000 in the aggregate,
from time to time.
"Total Funded Debt" of a Person at any time shall mean all Indebtedness of
such person which would at such time be classified in whole or in part as a
liability on the balance sheet of such person in accordance with GAAP.
"Tranche 1 Bank", "Tranche 1 Letter of Credit", "Tranche 1 Letter of Credit
Participating Interest", "Tranche 2 Bank", "Tranche 2 Letter of Credit",
"Tranche 2 Letter of Credit Participating Interest", "Tranche 2 Letter of Credit
Participating Interest Commitment", "Tranche 2 Letter of Credit Participating
Interest Committed Amount", "Tranche 2 Letter of Credit Participating Interest
Commitment Percentage", "Tranche 3 Letter of Credit", "Tranche 4 Letter of
Credit" and "Tranche X" shall have the respective meanings assigned to those
terms in Section 2.15 hereof.
"Transaction Document" or "Transaction Documents" shall mean this
Agreement, the Pledge Agreement, each Letter of Credit and any other documents
or instruments executed and delivered in connection herewith or therewith.
"Valuation Date" shall mean the last Business Day of each month.
"Zero Percent Risk-Capital Securities" means Pledged Securities which have
a 0% risk-capital weighting for bank regulatory capital purposes.
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1.02. Construction. Unless the context of this Agreement otherwise
------------
clearly requires, "or" has the inclusive meaning represented by the phrase
"and/or. " References in this Agreement to "determination" by the Agent include
estimates by the Agent in good faith, without gross negligence and without
manifest error (in the case of quantitative determinations) and beliefs held by
the Agent in good faith and without gross negligence (in the case of qualitative
determinations). The words "hereof," "herein," "hereunder" and similar terms in
this Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement. The section and other headings contained in this
Agreement are for reference purposes only and shall not control or affect the
construction of this Agreement or the interpretation hereof in any respect.
Section, subsection and exhibit references are to this Agreement unless
otherwise specified.
1.03. Accounting Principles. (a) As used herein, "GAAP" shall mean
---------------------
generally accepted accounting principles as such principles shall be in effect
in the United States of America, or with respect to Venton Group, the United
Kingdom, and with respect to X.L. Europe, the Republic of Ireland, at the
Relevant Date, subject to the other provisions of this Section 1.03. As used
herein, "Relevant Date" shall mean the date a relevant computation or
determination is to be made or the date of relevant financial statements, as the
case may be.
(b) Except as otherwise provided in this Agreement, all computations and
determinations as to accounting or financial matters shall be made, and all
financial statements to be delivered pursuant to this Agreement shall be
prepared, in accordance with GAAP or SAP, as the context requires (including
principles of consolidation where appropriate), and all accounting or financial
terms shall have the meanings ascribed to such terms by GAAP or SAP, as
appropriate.
(c) If any change in GAAP or SAP after the date of this Agreement is or
shall be required to be applied to transactions then or thereafter in existence,
and a violation of one or more provisions of this Agreement shall have occurred
(or in the opinion of the Required Banks would be likely to occur) which would
not have occurred or be likely to occur if no change in accounting principles
had taken place, the parties agree in such event to negotiate in good faith an
amendment of this Agreement which shall approximate to the extent possible the
economic effect of the original financial covenants after taking into account
such change in GAAP or SAP, as appropriate.
(d) Without in any manner limiting the provisions of this Section 1.03, if
any change in GAAP or SAP occurs after the date of this Agreement and such
change in GAAP or SAP would have materially changed an Account Party's reported
financial results or position from that reflected in such Account Party's
financial statements most recently prepared prior to such change, such Account
Party shall notify the Agent as soon as practicable.
ARTICLE II
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THE LETTER OF CREDIT FACILITY
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2.01. Letters of Credit.
-----------------
(a) Letter of Credit Commitments. Subject to the terms and conditions and
----------------------------
relying upon the representations and warranties herein set forth, the Issuing
Bank agrees to issue (or, in the case of Existing Letters of Credit, maintain
outstanding) Letters of Credit for the account of an Account Party at any time
or from time to time on or after the date hereof and to but not including the
Expiration Date (it being understood that Letters of Credit may be outstanding
for the account of one or more of the Account Parties at any time). The Issuing
Bank shall have no obligation to issue any Letters of Credit if, after such
Letters of Credit are issued, the Letter of Credit Exposure upon such issuance
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would exceed the lesser of (x) the aggregate of the Banks' Letter of Credit
Participating Interest Committed Amounts and (y) the Pledged Securities
Available Amount. Each Bank's "Letter of Credit Participating Interest
Committed Amount" at any time shall be equal to the amount set forth as its
"Initial Letter of Credit Participating Interest Committed Amount" below its
name on the signature pages hereof, as such amount may have been reduced under
Section 2.02(b) hereof at such time, and subject to transfer to another Bank as
provided in Section 9.13 hereof.
(b) Terms of Letters of Credit. The Account Parties shall not request to
--------------------------
be issued, and the Issuing Bank shall have no obligation to issue, any Letter of
Credit except within the following limitations (i) each Letter of Credit shall
have an expiration date no later than 12 months after the date of issuance
thereof; provided, however, that (x) one or more Letters of Credit with
-----------------
aggregate Stated Amounts for all such Letters of Credit (determined as a Dollar
Equivalent) of up to $200,000,000 may have an expiration date no later than five
years from the date of issuance and (y) any Letter of Credit may have an
"evergreen" provision having substantially the effect set forth on Schedule
2.01(b) hereof, (ii) each Letter of Credit shall be denominated in Dollars or
Pounds and (iii) each Letter of Credit shall be payable only against sight
drafts (and not time drafts).
(c) Form of Letters of Credit. The Issuing Bank shall have no obligation
-------------------------
to issue any letter of credit which is unsatisfactory in form, substance or
beneficiary to the Issuing Bank in the exercise of its reasonable judgment
consistent with its customary practice. The Issuing Bank may not object to a
letter of credit on account of the fact that it may be presented for drawing at
the Issuing Bank's branch in London, England (or, if the Issuing Bank no longer
maintains such a branch at the time of issuance of a Letter of Credit, at such
other location in London, England as may be commercially reasonable). It is
contemplated that one or more Letters of Credit which are issued for the account
of X.L. Insurance may be stated to be issued for the account of Venton
Underwriting Limited, a Bermuda corporation in which X.L. Insurance has an
indirect ownership interest provided, that, notwithstanding the fact that the
name of X.L. Insurance may not appear on the face of any such Letter of Credit,
X.L. Insurance shall be the Account Party with respect to such Letter of Credit
and shall have all Letter of Credit Reimbursement Obligations and other
obligations hereunder with respect thereto.
(d) Letter of Credit Fee. Each Account Party shall pay or cause to be
--------------------
paid to the Agent for the account of each Bank, in accordance with its Letter of
Credit Participating Interest Commitment Percentage , a fee (the "Letter of
Credit Fee") for Letters of Credit (based on a year of 360 days and actual days
elapsed), for each Letter of Credit issued for the account of such Account Party
for each day from and including the date of issuance thereof to and including
the date of expiration or termination thereof, on the Letter of Credit Undrawn
Availability on such day at a rate per annum equal to 0.15% for each Level Five
Day, 0.165% for each Level Four Day, 0.18% for each Level Three Day, 0.23% for
each Level Two Day and 0.28% for each Level One Day. Such Letter of Credit Fee
shall be due and payable for the preceding period for which such fee has not
been paid on each of the following dates: (i) each Regular Payment Date, (ii)
the date of each drawing on such Letter of Credit, and (iii) the date of
expiration or termination of such Letter of Credit. If any Letter of Credit Fee
payment is made on a day which is not a Valuation Date, the amount of such
Letter of Credit Fee attributable to the period from the preceding Valuation
Date until such day shall be determined by reference to the rate applicable on
such preceding Valuation Date, subject to retroactive adjustment on the next
succeeding Valuation Date. The Agent shall provide to the Grantor on a monthly
basis a certificate, showing in reasonable detail (with reference to the
valuation report as of the last business day of the applicable month provided by
the Custodian to the Agent pursuant to the Custodian's Acknowledgment (as
defined in the Pledge Agreement)) the Agent's calculation of the Letter of
Credit Fee.
(e) Purpose of Letters of Credit. The Account Parties agree that each
----------------------------
Letter of Credit shall be used by the Account Party for whom it is issued as a
standby letter of credit, to provide credit enhancement for contract performance
guarantees or for similar bonding requirements, all in the ordinary course of
business of such Account Party. The provisions of this Section 2.01(e) represent
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only an obligation of the Account Parties to the Issuing Bank and the Banks; the
Issuing Bank shall have no obligation to the Banks to ascertain the purpose of
any Letter of Credit, and, without limiting the generality of the provisions of
Section 2.04(b) hereof, the rights and obligations of the Banks and the Issuing
Bank among themselves shall not be impaired or affected by a breach of this
Section 2.01(e).
(f) Administration Fees. Each Account Party shall pay to the Agent, for
-------------------
the sole account of the Issuing Bank, such other administration, maintenance,
amendment, drawing and negotiation fees as are customarily charged by the
Issuing Bank to its customers generally at the time in question (a list of which
customary charges as of the date of this Agreement has been provided by the
Issuing Bank to X.L. Insurance) or are otherwise agreed between the Issuing
Bank and the Account Parties.
2.02. Commitment Fee; Reduction of the Committed Amounts.
--------------------------------------------------
(a) Commitment Fee. X.L. Insurance agrees to pay to the Agent for the
--------------
account of each Bank a commitment fee (the "Commitment Fee") for each day during
the period from the Closing Date to and including the Expiration Date calculated
(based on a year of 360 days and actual days elapsed) at a per annum rate equal
to 0.05% payable on the unused portion of such Bank's Letter of Credit
Participating Interest Committed Amount in effect on such day. Such fee shall
be payable on each Regular Payment Date and on the Expiration Date for the
preceding period for which such fee has not been paid.
(b) Reduction of the Committed Amounts. X.L. Insurance may at any time or
----------------------------------
from time to time reduce Pro Rata the Letter of Credit Participating Interest
Committed Amounts of the Banks to an aggregate amount (which may be zero) not
less than the Letter of Credit Exposure. Any reduction of the Letter of Credit
Participating Interest Committed Amounts shall be in an aggregate minimum amount
of $25,000,000 and in an amount which is an integral multiple of $5,000,000.
Reduction of the Letter of Credit Participating Interest Committed Amounts shall
be made by providing not less than five Business Days' notice (which notice
shall be irrevocable) to such effect to the Agent. After the date specified in
such notice, the Commitment Fee shall be calculated upon the Letter of Credit
Participating Interest Committed Amounts as so reduced.
2.03. Procedure for Issuance and Amendment of Letters of Credit.
---------------------------------------------------------
(a) Request for Issuance. An Account Party may from time to time request,
--------------------
upon at least three Business Days' notice, the Issuing Bank to issue a Letter of
Credit by:
(i) delivering to the Issuing Bank and the Agent a written request to
such effect, specifying the date on which such Letter of Credit is to be
issued, the expiration date thereof, and the Stated Amount thereof, and
(ii) delivering to the Issuing Bank a completed application, in the
form annexed hereto as Exhibit F, or in such other form as is from time to
time be required by the Issuing Bank in accordance with its customary
practice with respect to its customers generally (the "Letter of Credit
Application"), together with such other certificates, documents and other
papers as are specified in such application.
Upon receiving any such notice, the Issuing Bank shall promptly notify the Agent
(by telephone or otherwise), and furnish the Agent with the proposed form of
Letter of Credit to be issued. The Agent shall, promptly upon receiving such
notice, notify the Banks of such proposed Letter of Credit (which notice shall
specify the Stated Amount and term of such proposed Letter of Credit), and shall
determine, as of the close of business on the Business Day before such proposed
issuance, whether such proposed Letter of Credit complies with the limitations
set forth in Section 2.01 hereof. If such limitations set forth in Section 2.01
are not satisfied or if the Required Banks have given notice to the
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Agent to cease issuing Letters of Credit pursuant to Section 2.03(c)(ii) hereof,
the Agent shall notify the Issuing Bank (in writing or by telephone promptly
confirmed in writing) that the Issuing Bank is not authorized to issue such
Letter of Credit. If the Issuing Bank issues a Letter of Credit, it shall
deliver the original of such Letter of Credit to the beneficiary thereof or as
the Account Party shall otherwise direct, and shall promptly notify the Agent
thereof and furnish a copy thereof to the Agent.
(b) Request for Extension or Increase. An Account Party may from time to
---------------------------------
time request the Issuing Bank to extend the expiration date of an outstanding
Letter of Credit or increase (or, with the consent of the beneficiary, decrease)
the Stated Amount of or the amount available to be drawn on such Letter of
Credit. Such extension or increase shall for all purposes hereunder be treated
as though such Account Party had requested issuance of a replacement Letter of
Credit (except only that the Issuing Bank may, if it elects, issue a notice of
extension or increase in lieu of issuing a new Letter of Credit in substitution
for the outstanding Letter of Credit).
(c) Limitations on Issuance, Extension and Amendment.
------------------------------------------------
(i) As between the Issuing Bank, on the one hand, and the Agent and
the Banks, on the other hand, the Issuing Bank shall be justified and fully
protected in issuing such Letter of Credit after receiving authorization
from the Agent as provided in Section 2.03(a) hereof, notwithstanding any
subsequent notices to the Issuing Bank, any knowledge of an Event of
Default (unless the Issuing Bank shall have received a notice specifying
that such Event of Default is an "Event of Default" under this Agreement)
or Potential Default, any knowledge of failure of any condition specified
in Section 4.02 hereof to be satisfied, any other knowledge of the Issuing
Bank, or any other event, condition or circumstance whatsoever. The
Issuing Bank may amend, modify or supplement Letters of Credit or Letter of
Credit Applications, or waive compliance with any condition of issuance or
payment, without the consent of, and without liability to, the Agent or any
Bank, provided that any such amendment, modification or supplement that
extends the expiration date or increases the Stated Amount of or the amount
available to be drawn on an outstanding Letter of Credit shall be subject
to Section 2.01.
(ii) As between the Agent, on the one hand, and the Banks, on the
other hand, the Agent shall not authorize issuance of any Letter of Credit
if the Agent shall have received, at least two Business Days before
authorizing such issuance, from the Required Banks an unrevoked written
notice that any condition precedent set forth in Section 4.02 will not be
satisfied as of the time of such issuance and expressly requesting that the
Agent direct the Issuing Bank to cease to issue Letters of Credit. Absent
such notice, or unless the Agent determines that the applicable limitations
set forth in Section 2.01 hereof are not satisfied, the Agent shall be
justified and fully protected, as against the Banks, in authorizing the
Issuing Bank to issue such Letter of Credit, notwithstanding any subsequent
notices to the Agent, any knowledge of an Event of Default or Potential
Default, any knowledge of failure of any condition specified in Section
4.02 hereof to be satisfied, any other knowledge of the Agent, or any other
event, condition or circumstance whatsoever.
2.04. Letter of Credit Participating Interests.
----------------------------------------
(a) Generally. Concurrently with the issuance of each Letter of Credit,
---------
the Issuing Bank automatically shall be deemed, irrevocably and unconditionally,
to have sold, assigned, transferred and conveyed to each other Bank, and each
other Bank automatically shall be deemed, irrevocably and unconditionally,
severally to have purchased, acquired, accepted and assumed from the Issuing
Bank, without recourse to, or representation or warranty by, the Issuing Bank,
an undivided interest, in a proportion equal to such Bank's Pro Rata share, in
all of the Issuing Bank's rights and obligations in, to or under such Letter of
Credit, the related Letter of Credit Application, the Letter of Credit
Reimbursement Obligations, and all collateral, guarantees and other rights from
time to time directly
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or indirectly securing the foregoing (such interest of each Bank being referred
to herein as a "Letter of Credit Participating Interest", it being understood
that the Letter of Credit Participating Interest of the Issuing Bank is the
interest not otherwise attributable to the Letter of Credit Participating
Interests of the other Banks). Each Bank irrevocably and unconditionally agrees
to the immediately preceding sentence, such agreement being herein referred to
as such Bank's "Letter of Credit Participating Interest Commitment". Amounts
other than Letter of Credit Reimbursement Obligations and Letter of Credit Fees
payable from time to time under or in connection with a Letter of Credit or
Letter of Credit Application shall be for the sole account of the Issuing Bank.
On the date that any Purchasing Bank becomes a party to this Agreement in
accordance with Section 9.13(c) hereof, Letter of Credit Participating Interests
in all outstanding Letters of Credit held by the Bank from which such Purchasing
Bank acquired its interest hereunder shall be proportionately reallocated
between such Purchasing Bank and such transferor Bank (and, to the extent such
transferor Bank is the Issuing Bank, the Purchasing Bank shall be deemed to have
acquired a Letter of Credit Participating Interest from the Issuing Bank to such
extent).
(b) Maximum Amounts of Funding of Participations.
--------------------------------------------
(i) This Section 2.04(b)(i) is applicable if the Conversion to
Tranche System has not occurred. No Bank will be obligated to fund its Letter
of Credit Participating Interest Percentage of a drawing on a Letter of Credit
if such funding would cause the aggregate amount of outstanding unreimbursed
fundings by such Bank of drawings on Letters of Credit to exceed such Bank's
Letter of Credit Participating Interest Committed Amount, unless such excess
results from the fact, with respect to a drawing on a Letter of Credit
denominated in Pounds, that the Dollar Equivalent of one Pound is higher at the
time of such funding than it was at the time of issuance of such Letter of
Credit denominated in Pounds.
(ii) This Section 2.04(b)(ii) is applicable if the Conversion to
Tranche System has occurred. No Tranche 1 Bank, Tranche 2 Bank or Tranche X
Bank, as the case may be, will be obligated to fund its Letter of Credit
Participating Interest Percentage of a drawing on a Tranche 1 Letter of Credit,
Tranche 2 Letter of Credit or Tranche X Letter of Credit, as the case may be, if
such funding would cause the aggregate amount of outstanding unreimbursed
fundings by such Bank of drawings on Letters of Credit under such applicable
Tranche to exceed such Bank's Letter of Credit Participating Interest Committed
Amount under such applicable Tranche, unless such excess results from the fact,
with respect to a drawing on a Letter of Credit denominated in Pounds, that the
Dollar Equivalent Amount of one Pound is higher at the time of such funding than
it was at the time of issuance of such Letter of Credit denominated in Pounds.
(c) Obligations Absolute. Notwithstanding any other provision hereof,
--------------------
each Bank hereby agrees that its obligation to participate in each Letter of
Credit issued in accordance herewith, its obligation to make the payments
specified in Section 2.05 hereof, and the right of the Issuing Bank to receive
such payments in the manner specified therein, are each absolute, irrevocable
and unconditional and shall not be affected by any event, condition or
circumstance whatever. The failure of any Bank to make any such payment shall
not relieve any other Bank of its funding obligation hereunder on the date due,
but no Bank shall be responsible for the failure of any other Bank to meet its
funding obligations hereunder.
2.05. Letter of Credit Drawings and Reimbursements.
--------------------------------------------
(a) Account Party's Reimbursement Obligation. Each Account Party hereby
-----------------------------------------
agrees to reimburse the Issuing Bank, by making payment to the Agent for the
account of the Issuing Bank in accordance with Section 2.11(a) hereof on the
date of each payment made by the Issuing Bank under any Letter of Credit issued
for such Account Party's account (or, if later, the date which is one Business
Day after notice of such payment or of the drawing giving rise to such payment
is given to X.L. Insurance), without, protest or demand, all of which are hereby
waived, and an action therefor
14
<PAGE>
shall immediately accrue. Each Account Party agrees that it will make such
payment to the Agent for the account of the Issuing Bank in the same currency as
the currency of the payment by the Issuing Bank under such Letter of Credit. To
the extent such payment is not timely made, such Account Party hereby agrees to
pay to the Agent, for the account of the Issuing Bank, on demand, interest on
any Letter of Credit Unreimbursed Draws for each day from and including the date
of such payment by the Issuing Bank until paid (before and after judgment) in
accordance with Section 2.11(a) hereof, at the rate per annum set forth in
Section 2.11(b) hereof.
(b) Payment by Banks on Account of Unreimbursed Draws. If the Issuing
-------------------------------------------------
Bank makes a payment under any Letter of Credit and is not reimbursed in full
therefor on such payment date in accordance with Section 2.05(a) hereof, the
Issuing Bank will promptly notify the Agent thereof (which notice may be by
telephone), and the Agent shall forthwith notify each Bank (which notice may be
by telephone promptly confirmed in writing) thereof. No later than the Agent's
close of business on the date such notice is given (if notice is given by 2:00
o'clock P.M.) or 10:00 o'clock A.M. the following day (if notice is given after
2:00 o'clock P.M.) , each such Bank will pay to the Agent, for the account of
the Issuing Bank, in immediately available funds, an amount equal to such Bank's
Pro Rata share of the unreimbursed portion of such payment by the Issuing Bank,
provided such notice is given no later than 2:00 o'clock P.M., Pittsburgh time.
- --------
Each Bank agrees that such payment to the Agent for the account of the Issuing
Bank shall be in the same currency as the currency of the payment by the Issuing
Bank under the Letter of Credit. If and to the extent that any Bank fails to
make such payment to the Issuing Bank on such date, such Bank shall pay such
amount on demand, together with interest, for the Issuing Bank's own account,
for each day from and including the date of the Issuing Bank's payment to and
including the date of repayment to the Issuing Bank (before and after judgment)
at rate per annum for each day from and including the date of such payment by
the Issuing Bank to and including the second Business Day thereafter equal to
the Applicable Interest Rate.
(c) Distributions to Banks. If, at any time, after there occurs a Letter
----------------------
of Credit Unreimbursed Draw and the Issuing Bank has received from any Bank such
Bank's share of such Letter of Credit Unreimbursed Draw, and the Issuing Bank
receives any payment or makes any application of funds on account of the Letter
of Credit Reimbursement Obligation arising from such Letter of Credit
Unreimbursed Draw, the Issuing Bank will pay to the Agent, for the account of
such Bank , such Bank's Pro Rata share of such payment.
(d) Rescission. If any amount received by the Issuing Bank on account of
----------
any Letter of Credit Reimbursement Obligation shall be avoided, rescinded or
otherwise returned or paid over by the Issuing Bank for any reason at any time,
whether before or after the termination of this Agreement (or the Issuing Bank
believes in good faith that such avoidance, rescission, return or payment is
required, whether or not such matter has been adjudicated), each such Bank will,
promptly upon notice from the Agent or the Issuing Bank, pay over to the Agent
for the account of the Issuing Bank its Pro Rata share of such amount, together
with its Pro Rata share of any interest or penalties payable with respect
thereto.
2.06 Equalization. If any Bank receives any payment or makes any
------------
application on account of its Letter of Credit Participating Interest, such Bank
shall forthwith pay over to the Issuing Bank, in Dollars and in like kind of
funds received or applied by it the amount in excess of such Bank's ratable
share of the amount so received or applied.
2.07. Obligations Absolute. The payment obligations of the Account
--------------------
Parties and of the Banks under Section 2.05 shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including, without limitation, the following
circumstances:
15
<PAGE>
(a) any lack of validity or enforceability of this Agreement, any Letter
of Credit or any Transaction Document against an Account Party;
(b) the existence of any claim, set-off, defense or other right which any
Account Party, any Guarantor or any other Person may have at any time against
any beneficiary or transferee of any Letter of Credit (or any Persons for whom
any such beneficiary or transferee may be acting), the Issuing Bank, any Bank,
or any other Person, whether in connection with this Agreement, the transactions
contemplated hereby or any unrelated transaction;
(c) any draft, certificate, statement or other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
(d) payment by the Issuing Bank under any Letter of Credit against
presentation of a draft or certificate which does not comply with the terms of
such Letter of Credit, or payment by the Issuing Bank under the Letter of Credit
in any other circumstances in which conditions to payment are not met, except
any such wrongful payment resulting solely from the gross negligence or willful
misconduct of the Issuing Bank; or
(e) any other event, condition or circumstance whatever, whether or not
similar to any of the foregoing, except if the same results solely from the
gross negligence or willful misconduct of the Issuing Bank.
Each Account Party bears the risk of, and neither the Issuing Bank, any of its
directors, officers, employees or agents, nor any Bank, shall be liable or
responsible for any of, the foregoing matters, the use which may be made of any
Letter of Credit, or acts or omissions of the beneficiary or any transferee in
connection therewith, except for such person's gross negligence or willful
misconduct.
2.08. Further Assurances. Each Account Party and each Guarantor hereby
------------------
agrees, from time to time, to do and perform any and all acts and to execute any
and all further instruments reasonably requested by the Issuing Bank more fully
to effect the purposes of this Agreement and the issuance of the Letters of
Credit hereunder.
2.09. Letter of Credit Applications. The representations, warranties and
-----------------------------
covenants by the Account Parties under, and the rights and remedies of the
Issuing Bank under, the Continuing Letter of Credit Agreement and any Letter of
Credit Application relating to any Letter of Credit are in addition to, and not
in limitation or derogation of, representations, warranties and covenants by the
Account Parties under, and rights and remedies of the Issuing Bank and the Banks
under, this Agreement, the Transaction Documents, and applicable Law. Each
Account Party acknowledges and agrees that all rights of the Issuing Bank under
any Letter of Credit Application shall inure to the benefit of each Bank to the
extent of its Letter of Credit Participating Interest Commitment Percentage as
fully as if such Bank was a party to such Letter of Credit Application. In the
event of any inconsistency between the terms of this Agreement and any Letter of
Credit Application, this Agreement shall prevail.
2.10. Certain Provisions Relating to the Issuing Bank.
-----------------------------------------------
(a) General. The Issuing Bank shall have no duties or responsibilities
-------
except those expressly set forth in this Agreement and the other Transaction
Documents, and no implied duties or responsibilities on the part of the Issuing
Bank shall be read into this Agreement or any Transaction Document or shall
otherwise exist. The duties and responsibilities of the Issuing Bank to the
other Bank Parties under this Agreement and the other Transaction Documents
shall be mechanical and administrative in nature, and the Issuing Bank shall not
have a fiduciary relationship in respect of any Bank Party or any other Person.
The Issuing Bank shall not be liable for any action taken or omitted to be taken
by it under or in connection with this Agreement or any other Transaction
Document, unless
16
<PAGE>
caused by its own gross negligence or willful misconduct. The Issuing Bank shall
not be under any obligation to ascertain, inquire or give any notice relating to
(i) the performance or observance of any of the terms or conditions of this
Agreement or any other Transaction Document on the part of any Account Party,
(ii) the business, operations, condition (financial or otherwise) or prospects
of the Account Parties or any other Person, or (iii) the existence of any Event
of Default or Potential Default. The Issuing Bank shall not be under any
obligation, either initially or on a continuing basis, to provide the Agent or
any Bank with any notices, reports or information of any nature, whether in its
possession presently or hereafter, except for such notices, reports and other
information expressly required by this Agreement to be so furnished. The Issuing
Bank shall not be responsible for the execution, delivery, effectiveness,
enforceability, genuineness, validity or adequacy of this Agreement or any other
Transaction Document.
(b) Administration. The Issuing Bank may rely upon any notice or other
--------------
communication of any nature (written or oral, including but not limited to
telephone conversations, whether or not such notice or other communication is
made in a manner permitted or required by this Agreement or any Transaction
Document) purportedly made by or on behalf of the proper party or parties, and
the Issuing Bank shall not have any duty to verify the identity or authority of
any Person giving such notice or other communication. The Issuing Bank may
consult with legal counsel (including, without limitation, in-house counsel for
the Issuing Bank or in-house or other counsel for the Account Parties),
independent public accountants and any other experts selected by it from time to
time, and the Issuing Bank shall not be liable for any action taken or omitted
to be taken in good faith in accordance with the advice of such counsel,
accountants or experts. Whenever the Issuing Bank shall deem it necessary or
desirable that a matter be proved or established with respect to any Account
Party or Bank Party, such matter may be established by a certificate of such
Account Party or Bank Party, as the case may be, and the Issuing Bank may
conclusively rely upon such certificate. The Issuing Bank shall not be deemed
to have any knowledge or notice of the occurrence of any Event of Default or
Potential Default unless the Issuing Bank has received notice from a Bank or any
Credit Party referring to this Agreement, describing such Event of Default or
Potential Default, and stating that such notice is a "notice of default". If
the Issuing Bank receives such a notice, the Issuing Bank shall give prompt
notice thereof to the Agent.
(c) Indemnification of Issuing Bank by Banks. Each Bank hereby agrees to
----------------------------------------
reimburse and indemnify the Issuing Bank and each of its directors, officers,
employees and agents (to the extent not reimbursed by the Account Parties and
without limitation of the obligations of the Account Parties to do so), Pro
Rata, from and against any and all amounts, losses, liabilities, claims,
damages, expenses, obligations, penalties, actions, judgments, suits, costs or
disbursements of any kind or nature (including, without limitation, the
reasonable fees and disbursements of counsel (other than in-house counsel) for
the Issuing Bank or such other Person in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
the Issuing Bank or such other Person shall be designated a party thereto) that
may at any time be imposed on, incurred by or asserted against the Issuing Bank,
in its capacity as such, or such other Person, as a result of, or arising out
of, or in any way related to or by reason of, this Agreement, any other
Transaction Document, any transaction from time to time contemplated hereby or
thereby, or any transaction financed in whole or in part or directly or
indirectly with the proceeds of any Letter of Credit, provided, that no Bank
--------
shall be liable for any portion of such amounts, losses, liabilities, claims,
damages, expenses, obligations, penalties, actions, judgments, suits, costs or
disbursements resulting from the gross negligence or willful misconduct of the
Issuing Bank or such other Person, as finally determined by a court of
competent jurisdiction.
(d) Issuing Bank in its Individual Capacity. With respect to its
---------------------------------------
Commitments and the Obligations owing to it, the Issuing Bank shall have the
same rights and powers under this Agreement and each other Transaction Document
as any other Bank and may exercise the same as though it were not the Issuing
Bank, and the terms "Banks," "holders of Notes" and like terms shall include the
Issuing Bank in its individual capacity as such. The Issuing Bank and its
affiliates may, without liability to account, make loans to, accept deposits
from, acquire debt or equity interests in, act as
17
<PAGE>
trustee under indentures of, act as agent under other credit facilities for, and
engage in any other business with, any Credit Party and any stockholder,
subsidiary or affiliate of any Credit Party, as though the Issuing Bank were not
the Issuing Bank hereunder.
2.11. Payments Generally; Interest and Interest on Overdue Amounts.
------------------------------------------------------------
(a) Payments Generally. All payments to be made by an Account Party in
------------------
respect of fees, indemnity, expenses or other amounts due from such Account
Party hereunder or under any Transaction Document shall be payable in Dollars at
12:00 o'clock Noon, Pittsburgh time, on the day when due without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
and an action therefor shall immediately accrue, without setoff, counterclaim,
withholding or other deduction of any kind or nature. Except for payments under
Sections 2.12, 2.13 and 9.04 hereof, such payments shall be made to the Agent at
its Office in Dollars in funds immediately available at such Office. Payments
under Sections 2.12, 2.13 and 9.04 hereof shall be made to the applicable Bank
at such domestic account as it shall specify to the Account Parties from time to
time in funds immediately available at such account. Any payment or prepayment
received by the Agent or such Bank after 12:00 o'clock Noon, Pittsburgh time, on
any day shall be deemed to have been received on the next succeeding Business
Day. The Agent shall distribute to the Banks all such payments received by it
from an Account Party as promptly as practicable after receipt by the Agent.
(b) Interest and Interest on Overdue Amounts. Interest on Letter of
----------------------------------------
Credit Reimbursement Obligations shall accrue at a rate per annum (based on a
year of 360 days and actual days elapsed) which for each day shall be equal to
the then-current Applicable Interest Rate beginning on the day that the related
Letter of Credit payment is made and shall be due and payable on the day that
the Letter of Credit Reimbursement Obligation is due and payable in accordance
with Section 2.05(a) hereof. To the extent permitted by law, after there shall
have become due (by acceleration or otherwise) fees, indemnity, expenses or any
other amounts due from the Account Parties hereunder or under any other
Transaction Document, such amounts shall bear interest for each day until paid
(before and after judgment), payable on demand, at a rate per annum (in each
case based on a year of 360 days and actual days elapsed) which for each day
shall be equal to 2% above the then-current Applicable Interest Rate. To the
extent permitted by law, interest accrued on any amount which has become due
hereunder or under any Transaction Document shall compound on a day-by-day
basis, and hence shall be added daily to the overdue amount to which such
interest relates.
2.12. Additional Compensation in Certain Circumstances. If the
------------------------------------------------
introduction of or any change in, or any change in the interpretation or
application of, any Law, regulation or guideline by any Official Body charged
with the interpretation or administration thereof or compliance with any request
or directive of any applicable Official Body (whether or not having the force of
law):
(i) subjects any Bank to any tax or changes the basis of taxation
with respect to this Agreement, the Letters of Credit or payments by the
Account Parties of fees or other amounts due from the Account Parties
hereunder or under the other Transaction Documents (except for taxes on the
overall net income or overall gross receipts of such Bank imposed by the
jurisdictions (federal, state and local) in which the Bank's principal
office is located),
(ii) imposes, modifies or deems applicable any reserve, special
deposit or similar requirement against credits or commitments to extend
credit extended by, assets (funded or contingent) of, deposits with or for
the account of, other acquisitions of funds by, such Bank,
(iii) imposes, modifies or deems applicable any capital adequacy or
similar requirement (A) against assets (funded or contingent) of, or
credits or commitments to extend credit extended by, any Bank or (B)
otherwise applicable to the obligations of any Bank under this Agreement,
or
18
<PAGE>
(iv) imposes upon any Bank any other condition or expense with
respect to this Agreement or the issuance of any Letter of Credit,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Bank or, in the case of clause (iii) hereof, any Person controlling a Bank, with
respect to this Agreement or the issuance of any Letter of Credit (or, in the
case of any capital adequacy or similar requirement, to have the effect of
reducing the rate of return on such Bank's or controlling Person's capital,
taking into consideration such Bank's or controlling Person's policies with
respect to capital adequacy so long as such policies are reasonable in light of
prevailing market practice at the time) by an amount which such Bank deems to be
material, such Bank may from time to time notify the Account Parties of the
amount determined in good faith (using any averaging and attribution methods) by
such Bank (which determination shall be conclusive) to be necessary to
compensate such Bank for such increase, reduction or imposition. Such amount
shall be due and payable by any applicable Account Party to such Bank five
Business Days after such notice is given, together with an amount equal to
interest on such amount from the date two Business Days after the date demanded
until such due date at the Prime Rate. A certificate by such Bank as to the
amount due and payable under this Section 2.12 from time to time and the method
of calculating such amount shall be conclusive. Each Bank agrees that it will
use good faith efforts to notify the Account Parties of the occurrence of any
event that would give rise to a payment under this Section 2.12; provided,
--------
however that, so long as such notice is given within a reasonable period after
the occurrence of such event, any failure of such Bank to give any such notice
shall have no effect on the Account Parties' obligations hereunder.
2.13. Taxes.
-----
(a) Payments Net of Taxes. All payments made by the Account Parties under
---------------------
this Agreement or any other Transaction Document shall be made free and clear
of, and without reduction or withholding for or on account of, any present or
future income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied, collected,
withheld or assessed by any Official Body, and all liabilities with respect
thereto, excluding
(i) in the case of the Agent and each Bank, income or franchise taxes
imposed on the Agent or such Bank by the jurisdiction under the laws of
which the Agent or such Bank is organized or any political subdivision or
taxing authority thereof or therein or as a result of a connection between
such Bank and any jurisdiction other than a connection resulting solely
from this Agreement and the transactions contemplated hereby, and
(ii) in the case of each Bank, income or franchise taxes imposed by
any jurisdiction in which such Bank's lending offices which issue Letters
of Credit are located or any political subdivision or taxing authority
thereof or therein
(all such non-excluded taxes, levies, imposts, deductions, charges or
withholdings being hereinafter called "Taxes"), unless an Account Party is
required to withhold or deduct Taxes. If any Taxes are required to be withheld
or deducted from any amounts payable to the Agent or any Bank under this
Agreement or any other Transaction Document, the applicable Account Party shall
pay the relevant amount of such Taxes and the amounts so payable to the Agent or
such Bank shall be increased to the extent necessary to yield to the Agent or
such Bank (after payment of all Taxes) interest or any such other amounts
payable hereunder at the rates or in the amounts specified in this Agreement and
the other Transaction Documents. Whenever any Taxes are paid by an Account
Party with respect to payments made in connection with this Agreement or any
other Transaction Document, as promptly as possible thereafter, such Account
Party shall send to the Agent for its own account or for the account of such
Bank, as the case may be, a certified copy of an original official receipt
received by such Account Party showing payment thereof. If the Agent or a Bank
determines in its sole discretion in good faith that it has received a refund in
respect of any Taxes as to which it has been indemnified by
19
<PAGE>
an Account Party, or with respect to which an Account Party has paid additional
amounts pursuant to this Section 2.13, the Agent or such Bank shall promptly
after the date of such receipt pay over the amount of such refund to such
Account Party (but only to the extent of indemnity payments made, or additional
amounts paid, by an Account Party under this Section 2.13 with respect to Taxes
giving rise to such refund and only to the extent that the Agent or such Bank
has determined that the amount of any such refund is directly attributable to
payments made under this Agreement), net of all reasonable expenses of the Agent
or such Bank (including additional Taxes attributable to such refund, as
determined by the Agent or such Bank) and without interest (other than interest,
if any, paid by the relevant Official Body with respect to such refund). An
Account Party receiving any such payment from the Agent or a Bank shall, upon
demand, pay to the Agent or such Bank any amount paid over to such Account Party
by the Agent or such Bank (plus penalties, interest or other charges) in the
event the Agent or such Bank is required to repay any portion of such refund to
such Official Body. Nothing in this Section 2.13(a) shall entitle an Account
Party to have access to the records of the Agent or any Bank, including, without
limitation, tax returns.
(b) Indemnity. Each Account Party hereby indemnifies the Agent and each
---------
of the Banks for the full amount of all Taxes attributable to payments by or on
behalf of such Account Party hereunder or under any of the other Transaction
Documents, any Taxes paid by the Agent or such Bank, as the case may be, any
present or future claims, liabilities or losses with respect to or resulting
from any omission to pay or delay in paying any Taxes (including any incremental
Taxes, interest or penalties that may become payable by the Agent or such Bank
as a result of any failure to pay such Taxes, except by reason of unreasonable
delay by the Agent or Bank in notifying an Account Party or in making payment
after payment was received from an Account Party), whether or not such Taxes
were correctly or legally asserted. Such indemnification shall be made within
30 days from the date such Bank or the Agent, as the case may be, makes written
demand therefor.
(c) Withholding and Backup Withholding. Each Bank that is incorporated or
----------------------------------
organized under the laws of any jurisdiction other than the United States or any
State thereof agrees that, on or prior to the date the first payment is due to
be made to it hereunder or under any other Transaction Document, it will furnish
to the Account Parties and the Agent
(i) two valid, duly completed copies of United States Internal
Revenue Service Form 4224 or United States Internal Revenue Form 1001 or
successor applicable form, as the case may be, certifying in each case that
such Bank is entitled to receive payments under this Agreement and the
other Transaction Documents without deduction or withholding of any United
States federal income taxes and
(ii) a valid, duly completed Internal Revenue Service Form W-8 or W-9
or successor applicable form, as the case may be, to establish an exemption
from United States backup withholding tax.
Each Bank which so delivers to the Account Parties and the Agent a Form 1001 or
4224 and Form W-8 or W-9, or successor applicable forms, agrees to deliver to
the Account Parties and the Agent two further copies of the said Form 1001 or
4224 and Form W-8 or W-9, or successor applicable forms, or other manner of
certification, as the case may be, on or before the date that any such form
expires or becomes obsolete or otherwise is required to be resubmitted as a
condition to obtaining an exemption from withholding tax, or after the
occurrence of any event requiring a change in the most recent form previously
delivered by it, and such extensions or renewals thereof as may reasonably be
requested by the Account Parties and the Agent, certifying in the case of a Form
1001 or Form 4224 that such Bank is entitled to receive payments under this
Agreement or any other Transaction Document without deduction or withholding of
any United States federal income taxes, unless in any such cases an event
(including any changes in Law) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Bank from duly completing and delivering any such
letter or form with respect to it and such Bank advises
20
<PAGE>
the Account Parties and the Agent that it is not capable of receiving payments
without any deduction or withholding of United States federal income tax, and in
the case of a Form W-8 or W-9, establishing an exemption from United States
backup withholding tax, in which case Section 2.13(a) and (b) shall apply to all
further payments.
2.14. Extensions of Expiration Date. X.L. Insurance may, at its option,
-----------------------------
give the Agent and the Issuing Bank written notice (an "Extension Request") at
any time not more than ninety days, nor less than forty-five days, prior to the
Expiration Date in effect at such time (the "Current Expiration Date") of X.L.
Insurance's desire to extend the Expiration Date to a date which is not later
than 364 days after the Current Expiration Date. The Agent shall promptly
inform the Banks of such Extension Request. Each Bank which agrees to such
Extension Request shall deliver to the Agent its express written consent thereto
no later than thirty days prior to the Current Expiration Date. No extension
shall become effective unless the express written consent thereto by the
Required Commitment Banks and the Issuing Bank is received by the Agent on or
before the thirtieth day prior to the Current Expiration Date. If the Issuing
Bank and the Required Commitment Banks, but not all Commitment Banks, have
expressly consented in writing to such Extension Request by such thirtieth day,
then the Agent shall so notify X.L. Insurance and X.L. Insurance may, effective
as of the Current Expiration Date, take one or both of the following actions:
(i) replace any Commitment Bank which has not agreed to such Extension Request
(a "Nonextending Bank") with another commercial lending institution satisfactory
to the Issuing Bank (a "Replacement Bank") by giving notice of the name of such
Replacement Bank to the Agent and the Issuing Bank not later than five Business
Days prior to the then effective Expiration Date and (ii) elect to implement a
Conversion to Tranche System as contemplated by Section 2.15 hereof (or, if the
Conversion to Tranche System has previously been implemented, elect to implement
a Supplement to Tranche System as contemplated by Section 2.15 hereof). In the
event that a Nonextending Bank is to be replaced by a Replacement Bank, such
Nonextending Bank shall, upon payment to it of all amounts owing to it on the
date of its replacement, assign all of its interests hereunder to such
Replacement Bank in accordance with the provisions of Section 9.13(c) hereof.
If the Issuing Bank and the Required Commitment Banks shall have consented to
such Extension Request, then, on the Current Expiration Date, the Expiration
Date shall be deemed to have been extended to, and shall be, the date specified
in such Extension Notice. The Agent shall promptly after any such extension
advise the Banks of any changes in the Letter of Credit Participating Interest
Committed Amounts and the Letter of Credit Participating Interest Commitment
Percentages, as well as any changes effected by the election of the Conversion
to Tranche System or a Supplement to Tranche System.
2.15. Tranches. (a) Certain Definitions. As used in this Agreement the
-------- -------------------
following terms have the meanings ascribed thereto:
"Commitment Banks" at any time means Banks which have
Letter of Credit Participating Interest Commitments at such time and
"Commitment Bank" means any one of them.
"Conversion to Tranche System" means the election by the
Account Parties, at a time when X.L. Insurance has made an Extension
Request pursuant to Section 2.14 hereof and such Extension Request has
been consented to in writing by the Issuing Bank and the Required
Commitment Banks, but not by all of the Commitment Banks, to classify
Letters of Credit as Tranche 1 Letters of Credit and Tranche 2 Letters
of Credit, all in accordance with Section 2.15(b) hereof.
"L/C Termination Date" means, with respect to a Letter of
Credit, the date which is stated therein to be the last day on which
the beneficiary thereof may draw thereon.
21
<PAGE>
"Pro Rata" means: (i) until the first Special Expiration Date,
from and to the Banks in accordance with their respective Letter of
Credit Participating Interest Percentages and (ii) thereafter, (x)
with respect to Tranche 1 Letters of Credit, from and to the Tranche 1
Banks in accordance with their respective Tranche 1 Letter of Credit
Participating Interest Percentages, (y) with respect to Tranche 2
Letters of Credit and Tranche 2 Letter of Credit Commitments, from and
to the Tranche 2 Banks in accordance with their respective Tranche 2
Letter of Credit Participating Interest Percentages and (z) with
respect to each additional Tranche of Letters of Credit (i.e., Tranche
3 Letters of Credit, Tranche 4 Letters of Credit, and so on), if any,
from and to the Banks which have Letter of Credit Participating
Interest Commitments or Letter of Credit Participating Interests, as
applicable, with respect to such Tranche in accordance with their
respective related Letter of Participating Interest Percentages.
"Required Commitment Banks" at any time means Commitment Banks
which have, in the aggregate, Letter of Credit Participating Interest
Committed Amounts in excess of 50% of the total outstanding Letter of
Credit Participating Interest Committed Amounts at such time.
"Special Expiration Date" means the Expiration Date which is in
effect at a time when each of the following has occurred: (i) X.L.
Insurance has made an Extension Request pursuant to Section 2.14
hereof, (ii) such Extension Request has been consented to in writing
by the Issuing Bank and the Required Commitment Banks, but not by all
of the Commitment Banks, and (iii) X.L. Insurance has elected to
implement a Conversion to Tranche System or a Supplement to Tranche
System.
"Supplement to Tranche System" means the election by X.L.
Insurance, at a time when the Conversion to Tranche System has been
previously made and when X.L. Insurance has made an Extension Request
pursuant to Section 2.14 hereof and such Extension Request has been
consented to in writing by the Issuing Bank and the Required
Commitment Banks, but not by all of the Commitment Banks, to classify
additional Letters of Credit as Tranche X Letters of Credit.
"Tranche 1 Bank" shall mean each Bank which is a Bank immediately
prior to the first Special Expiration Date.
"Tranche 1 Letter of Credit" means each Letter of Credit which is
issued prior to the first Special Expiration Date, but shall not
include any such Letter of Credit as to which the L/C Termination Date
has been extended to a date after the L/C Termination Date which was
in effect on such first Special Expiration Date.
"Tranche 1 Letter of Credit Participating Interest Percentage"
for each Tranche 1 Bank means such Bank's Letter of Credit
Participating Interest Percentage immediately prior to the first
Special Expiration Date.
"Tranche 2 Bank" shall mean each Bank which has a Tranche 2
Letter of Credit Participating Interest Commitment.
"Tranche 2 Letter of Credit" means each Letter of Credit which is
issued prior to the second Special Expiration Date, but shall not
include any such Letter of Credit as to which the L/C Termination Date
has been extended to a date after the L/C Termination Date which was
in effect on such second Special Expiration Date and shall not include
any Tranche 1 Letter of Credit (it being understood that
22
<PAGE>
a Letter of Credit may change from a Tranche 1 Letter of Credit to a
Tranche 2 Letter of Credit as a result of the extension, after the
first Special Expiration Date, of its L/C Termination Date).
"Tranche 3 Letter of Credit" and "Tranche 4 Letter of Credit"
have the meanings set forth in the definition of the term "Tranche X".
"Tranche X" shall mean Tranche 3 if there are existing Tranche 2
Letters of Credit but not Tranche 3 Letters of Credit, Tranche 4 if
there are existing Tranche 3 Letters of Credit but not Tranche 4
Letters of Credit, and so on in consecutive integral succession. The
terms "Tranche X Bank", "Tranche X Letter of Credit Participating
Interest Commitment", "Tranche X Letter of Credit Participating
Interest Committed Amount" and "Tranche X Letter of Credit
Participating Interest Percentage" shall have comparable meanings.
The term "Tranche X Letter of Credit" shall have a comparable meaning,
but such meaning shall be consistent with the following: (i) the term
"Tranche 3 Letter of Credit" means each Letter of Credit which is
issued prior to the third Special Expiration Date, but shall not
include any such Letter of Credit as to which the L/C Termination Date
has been extended to a date after the L/C Termination Date which was
in effect on such third Special Expiration Date and shall not include
any Tranche 1 Letter or Credit or any Tranche 2 Letter of Credit; (ii)
the term "Tranche 4 Letter of Credit" means each Letter of Credit
which is issued prior to the fourth Special Expiration Date, but shall
not include any such Letter of Credit as to which the L/C Termination
Date has been extended to a date after the L/C Termination Date which
was in effect on such fourth Special Expiration Date and shall not
include any Tranche 1 Letter of Credit, any Tranche 2 Letter of Credit
or any Tranche 3 Letter of Credit; (iii) the terms "Tranche 5 Letter
of Credit", "Tranche 6 Letter of Credit", and so on shall have
comparable meanings (it being understood that a Letter of Credit can
change from one Tranche to another as a result of an extension of its
L/C Termination Date).
(b) Conversion to Tranche System. If the Account Parties elect the
----------------------------
Conversion to Tranche System with respect to an Extension Request, the following
shall occur: (i) the Letter of Credit Participating Interest Commitments of
Banks which, with respect to such Extension Request, are Nonextending Banks
shall terminate as of the Special Expiration Date related to such Extension
Request, but such Nonextending Banks (other than Nonextending Banks which have
been replaced as contemplated by Section 2.14 hereof) shall remain parties to
this Agreement and shall retain all of their respective obligations with respect
to Tranche 1 Letters of Credit and shall retain their respective Letter of
Credit Participating Interests in and with respect to Tranche 1 Letters of
Credit; (ii) from and after the Special Expiration Date related to such
Extension Request, the Letter of Credit Participating Interest Commitment of
each Bank which has consented in writing to such Extension Request shall be a
"Tranche 2 Letter of Credit Participating Interest Commitment" and the Letter of
Credit Participating Interested Committed Amount of such Lender shall be its
"Tranche 2 Letter of Credit Participating Interest Committed Amount"; (iii) the
"Tranche 2 Letter of Credit Participating Interest Commitment Percentage" for
each Tranche 2 Bank shall mean a fraction, expressed as percentage, the
numerator of which is such Tranche 2 Bank's Tranche 2 Letter of Credit
Participating Interest Committed Amount and the denominator of which is the
aggregate Tranche 2 Letter of Credit Participating Interest Committed Amounts of
all of the Tranche 2 Banks.
(c) Supplement to Tranche System. If the Account Parties elect a
----------------------------
Supplement to Tranche System with respect to such Extension Request, the
following shall occur: (i) the Letter of Credit Participating Interest
Commitments of Banks which, with respect to such Extension Request, are
Nonextending Banks shall terminate, but such Nonextending Banks shall remain
parties to this
23
<PAGE>
Agreement and shall retain all of their respective obligations with respect to
Letters of Credit under existing Tranches and shall retain their respective
Letter of Credit Participating Interests in and with respect to existing Letters
of Credit; (ii) from and after the Special Expiration Date related to such
Extension Request, the Letter of Credit Participating Interest Commitment of
each Bank which has consented in writing to such Extension Request shall be a
"Tranche X Letter of Credit Participating Interest Commitment" and the Letter of
Credit Participating Interested Committed Amount of such Lender shall be its
"Tranche X Letter of Credit Participating Interest Committed Amount"; (iii) the
"Tranche X Letter of Credit Participating Interest Commitment Percentage" for
each Tranche X Bank shall mean a fraction, expressed as percentage, the
numerator of which is such Tranche X Bank's Tranche X Letter of Credit
Participating Interest Committed, Amount and the denominator of which is the
aggregate Tranche X Letter of Credit Participating Interest Committed Amounts of
all of the Tranche X Banks, all as contemplated by the definition of the term
"Tranche X" contained in paragraph (a) of this Section 2.15.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES.
-------------------------------
Each Credit Party represents and warrants that:
3.01. Organization and Qualification. Such Credit Party and each of its
------------------------------
Credit Subsidiaries is a corporation duly organized, validly existing and
(unless the concept of good standing is not known to the law of the relevant
jurisdiction) in good standing under the laws of their respective jurisdictions
of incorporation and has the power and authority to own its properties and
assets, and to carry on its business as presently conducted and is qualified to
do business in those jurisdictions in which its ownership of property or the
nature of its business activities is such that failure to receive or retain such
qualification would have a Material Adverse Effect. A list of such Credit
Party's Credit Subsidiaries setting forth their respective jurisdictions of
incorporation is set forth in Schedule 3.01 hereto. Such Credit Party is not
subject to any Private Act, except, with respect to X.L. Insurance, the X.L.
Insurance Company, Ltd. Act, 1989, a copy of which has been provided to the
Agent.
3.02. Corporate Power and Authorization. Such Credit Party and any
---------------------------------
Subsidiary of such Credit Party which is also a Credit Party has corporate power
and authority to make and carry out this Agreement and any other Transaction
Document to which it is a party, to execute and deliver this Agreement and each
such Transaction Document, to perform its obligations hereunder and under any
such Transaction Documents and, in the case of each Credit Party which is an
Account Party, to request the issuance of Letters of Credit as provided for
herein. All such action has been duly authorized by all necessary corporate
proceedings on the part of such Credit Party.
3.03. Financial Information. Such Credit Party has furnished to Agent,
----------------------
with sufficient copies for each Bank, copies of the audited consolidated
financial statements and the consolidating financial statements of such Credit
Party and its consolidated Subsidiaries including a consolidated and
consolidating balance sheet and related statements of income and retained
earnings for the fiscal year ending November 30, 1997 (or, in the case of Venton
Group, December 31, 1996). Such financial statements fairly present the
financial position of such Credit Party and its consolidated Subsidiaries as of
the date of such reports and the consolidated and consolidating results of their
operations and cash flows for the fiscal period then ended in conformity with
GAAP (or, in the case of Venton Group, SAP) applied on a consistent basis, and
such consolidated financial statements have been examined and reported upon by
independent, certified public accountants.
24
<PAGE>
3.04. Litigation. Except as disclosed to the Banks in writing prior to
----------
the Closing Date (including by disclosure in the financial statements delivered
to the Banks referred to in Section 3.03 hereof), there is no litigation or
governmental proceeding by or against such Credit Party or any of its
Subsidiaries pending or, to its knowledge, threatened, which could reasonably be
expected (in light of reserves, and total shareholders' equity of such Credit
Party and after taking into account the nature of such Credit Party's business
and activities) to have a Material Adverse Effect if adversely determined.
3.05. No Adverse Changes. Since November 30, 1997 (or, in the case of
------------------
Venton Group, December 31, 1996), there has been no occurrence or event which
has had a Material Adverse Effect.
3.06. No Conflicting Laws or Agreements; Consents and Approvals. (a)
---------------------------------------------------------
Neither the execution and delivery of this Agreement or any other Transaction
Document, the consummation of the transactions herein or therein contemplated
nor compliance with the terms and provisions hereof or thereof will conflict
with or result in a breach of any of the terms, conditions or provisions of the
articles of incorporation or by-laws of such Credit Party or of any applicable
Law or of any material agreement or instrument to which such Credit Party is a
party or by which it is bound or to which it is subject, or constitute a default
thereunder or result in the creation or imposition of any Lien, except Permitted
Liens, of any nature whatsoever upon any of the property of such Credit Party
pursuant to the terms of any such agreement or instrument.
(b) Except for the filing of the Pledge Agreement with the Registrar of
Companies in Bermuda, no authorization, consent, approval, license, exemption or
other action by, and no registration, qualification, designation, declaration or
filing with, any Official Body is or will be necessary or advisable in
connection with (i) execution and delivery of this Agreement or any other
Transaction Document, (ii) the consummation of the transactions herein or
therein contemplated, or (iii) the performance of or compliance with the terms
and conditions hereof or thereof.
3.07. Execution and Binding Effect. This Agreement (and, in the case of
----------------------------
X.L. Investments, the Pledge Agreement) has been duly and validly executed and
delivered by such Credit Party. This Agreement and each Transaction Document to
which it is a party constitutes legal, valid and binding obligations of such
Credit Party enforceable in accordance with the terms thereof except, as to the
enforcement of remedies, for limitations imposed by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally (excluding Laws with respect to fraudulent
conveyance), (ii) Laws limiting the right of specific performance or (iii)
general principles of equity.
3.08. Taxes. All tax returns required to be filed by each Credit Party
-----
have been properly prepared, executed and filed. All taxes, assessments, fees
and other governmental charges upon such Credit Party or upon its properties,
income or sales which are due and payable have been paid. The reserves and
provisions for taxes, if any, on the books of such Credit Party are adequate for
all open years and for its current fiscal period as determined in accordance
with GAAP.
3.09. Use of Proceeds. Such Credit Party will use any Letter of Credit
---------------
issued hereunder for its account for general corporate purposes. Such Credit
Party will make no request for a Letter of Credit hereunder for the purpose of
directly or indirectly buying or carrying any "margin stock" as such term is
used in Regulation U of the Board of Governors of the Federal Reserve System in
violation of such regulation. Such Credit Party is not engaged in the business
of extending credit to others for the purposes of buying or carrying any "margin
stock."
3.10. Permits, Licenses and Rights. Such Credit Party and each Credit
----------------------------
Subsidiary of such Credit Party own or possess all the patents, trademarks,
service marks, trade names, copyrights, licenses, franchises, permits and rights
with respect to the foregoing necessary to own and operate their respective
properties and to carry on their respective businesses as presently conducted
and
25
<PAGE>
presently planned to be conducted without, to the best knowledge of such
Credit Party, conflict with the rights of others.
3.11. Accurate and Complete Disclosure. All information provided by or on
--------------------------------
behalf of any Credit Party to the Agent or any Bank pursuant to or in connection
with this Agreement or the other Transaction Documents and the transactions
contemplated hereby and thereby is true and accurate in all material respects on
the date such information is dated (or, if not dated, on the date such
information was received by the Agent or such Bank, as the case may be) and such
information, taken as a whole, which was provided on or prior to the time this
representation is made or remade, does not, to the best knowledge of the Credit
Parties, omit to state any material fact necessary to make such information not
misleading at such time in light of the circumstances in which it was provided.
3.12. Absence of Violations. Such Credit Party and each Affiliate of such
---------------------
Credit Party is not in violation of a any charter document, corporate minute or
resolution, any instrument or agreement, in each case binding on it or affecting
its property, or any Law, in a manner which could have a Materially Adverse
Effect.
3.13. Environmental Matters. Such Credit Party and each of its Credit
---------------------
Subsidiaries is and has been in full compliance with all applicable
Environmental Laws. Such Credit Party and each of its Credit Subsidiaries have
all Approvals by Official Bodies charged with the enforcement of Environmental
Laws that are necessary or desirable for the ownership and operation of their
respective properties, facilities and businesses as presently owned and operated
and as presently proposed to be owned and operated.
3.14. Not an Investment Company. Such Credit Party is not an Investment
-------------------------
Company required to be registered under the Investment Company Act of 1940.
ARTICLE IV
----------
CONDITIONS
----------
4.01. Effectiveness. The effectiveness of this Agreement shall be subject
---------------
to the following conditions:
(a) Proceedings and Incumbency. There shall have been delivered to the
--------------------------
Agent with sufficient copies for each Bank a certificate with respect to each
Credit Party in form and substance satisfactory to the Agent dated the Closing
Date and signed on behalf of each Credit Party by the Secretary or an Assistant
Secretary of such Credit Party certifying as to: (a) true copies of all
corporate action taken by such Credit Party relative to this Agreement and the
other Transaction Documents applicable to it including but not limited to that
described in Section 3.02 hereof and (b) the names, true signatures and
incumbency of the officer or officers of such Credit Party authorized to execute
and deliver this Agreement and the other Transaction Documents applicable to it.
Each Bank may conclusively rely on such certificates unless and until a later
certificate revising the prior certificate has been furnished to such Bank.
(b) Organizational Documents. There shall have been delivered to the
------------------------
Agent with sufficient copies for each Bank (i) certified copies of the articles
of incorporation or memorandum of association and by-laws or other equivalent
organizational documents for each Credit Party and (ii) a certificate of good
standing for each Credit Party (other than X.L. Europe) certified by the
appropriate Official Body of its place of organization.
26
<PAGE>
(c) Opinions of Counsel. There shall have been delivered to the Agent
-------------------
with sufficient copies for each Bank written opinions addressed to the Banks,
dated the Closing Date, of Messrs. Cahill Gordon & Reindel, Messrs. Conyers,
Dill & Pearman and Paul S. Giordano, Esq., respectively, the Account Parties'
and Guarantors' counsel, which together are substantially to the effects set
forth in Exhibit C, and opinions of counsel qualified to practice in each
jurisdiction, other than Bermuda and the United States, under the laws of which
an Account Party is organized substantially to such effects to the extent that
the laws of such jurisdiction are relevant.
(d) Details, Proceedings and Documents. All legal details and proceedings
----------------------------------
in connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory to each Bank, and each Bank shall have received all such
counterpart originals or certified or other copies of this Agreement and the
other the Transaction Documents and such other documents and proceedings in
connection with such transactions, in form and substance satisfactory to it, as
such Bank have reasonably requested.
(e) Fees and Expenses. Each Account Party shall have paid all fees and
-----------------
other compensation to be paid by it hereunder on or prior to the Closing Date.
(f) Representation and Warranties. The representation and warranties
-----------------------------
contained in Article III hereof shall be true on and as of the Closing Date with
the same effect as though made on and as of the Closing Date.
(g) Pledge Agreement. The Pledge Agreement shall have been delivered to
----------------
the Agent, with sufficient copies for each Bank, duly executed by X.L.
Investments. The Custodian's Acknowledgment, as defined in the Pledge
Agreement, shall have been delivered to the Agent duly executed by the
Custodian.
(h) Letter of Credit Agreement. The Continuing Letter of Credit Agreement
--------------------------
shall have been delivered to the Agent, with sufficient copies for each Bank,
duly executed by each Account Party.
4.02. Issuance of Letters of Credit. The obligation of the Issuing Bank
-----------------------------
to issue any Letters of Credit hereunder is subject to the accuracy as of the
date hereof of the representations and warranties herein contained, to the
performance by each Account Party of its obligations to be performed hereunder
on or before the date of such Letters of Credit and to the satisfaction of the
following further conditions:
(a) Representations and Warranties; Events of Default and Potential
---------------------------------------------------------------
Defaults. The representations and warranties contained in Article III hereof
- --------
shall be true on and as of the date of each Letter of Credit issued hereunder
with the same effect as though made on and as of each such date, and on the date
of each Letter of Credit issued hereunder no Event of Default and no Potential
Default shall have occurred and be continuing or exist or shall occur or exist
after giving effect to the Letter of Credit to be issued on such date. Failure
of the Agent to receive notice from the applicable Account Party to the contrary
before any Letter of Credit is issued hereunder shall constitute a
representation and warranty that: (i) the representations and warranties
contained in Article III hereof are true and correct on and as of the date of
such Letter of Credit with the same effect as though made on and as of such date
and (ii) on the date of such Letter of Credit no Event of Default or Potential
Default has occurred and is continuing or exists or will occur or exist after
giving effect to such Letter of Credit.
(b) Commitment. The fact that, immediately after the issuance of such
----------
Letter of Credit, the aggregate outstanding Stated Amounts (determined as Dollar
Equivalents) of the Letters of Credit issued and outstanding hereunder will not
exceed the lesser of (x) the aggregate amount of the Letter of Credit
Participating Interest Committed Amounts and (y) the Pledged Securities
27
<PAGE>
Available Amount.
28
<PAGE>
ARTICLE V
---------
AFFIRMATIVE COVENANTS
---------------------
Each Credit Party, as applicable, hereby covenants to the Agent, the
Issuing Bank and each Bank as follows:
5.01. Reporting and Information Requirements. Each Credit Party shall
--------------------------------------
deliver to the Agent with sufficient copies for each Bank:
(a) Annual Reports. (i) As soon as practicable and in any event within
--------------
100 days after the close of each fiscal year, audited consolidated statements
and unaudited consolidating statements of income, retained earnings and cash
flows of such Credit Party and its consolidated Subsidiaries, for such fiscal
year and a consolidated audited and consolidating balance sheet of such Credit
Party and its consolidated Subsidiaries, as of the close of such fiscal year,
and notes to each, all in accordance with GAAP (or, in the case of Venton Group,
until it produces GAAP financial statements, SAP), setting forth in comparative
form the corresponding figures for the preceding fiscal year, with such
consolidated statements and balance sheets to be certified by independent public
accountants of recognized national standing in the United States selected by
such Credit Party and not unacceptable to the Required Banks, and the
certificate or report of such accountants to be free of exceptions or
qualifications not reasonably acceptable to the Required Banks and (ii) as soon
as practical and in any event within 100 days after the close of each fiscal
year of EXEL Limited, audited consolidated statements of income, retained
earnings and cash flows of EXEL Limited and its consolidated Subsidiaries for
such fiscal year and a consolidated audited balance sheet of EXEL Limited and
its consolidated Subsidiaries as of the close of such fiscal year, and notes to
each, all in reasonable detail and in accordance with GAAP (or, in the case of
Venton Group as aforesaid, SAP), setting forth in comparative form the
corresponding figures for the preceding fiscal year, with such statements and
balance sheets to be certified by independent public accountants of recognized
national standing in the United States selected by EXEL Limited and not
unacceptable to the Required Banks, and the certificate or report of such
accountants to be free of exceptions or qualifications not reasonably acceptable
to the Required Banks.
(b) Quarterly Statements. Within sixty days after the end of the first,
--------------------
second and third quarterly accounting periods in each fiscal year of X.L.
Insurance, copies of the unaudited consolidated and consolidating balance sheets
of X.L. Insurance and its consolidated Subsidiaries as of the end of such
accounting period and of the consolidated and consolidating income statements of
X.L. Insurance and its consolidated Subsidiaries for the elapsed portion of the
fiscal year ended with the last day of such accounting period, all in accordance
with GAAP subject to year-end audit adjustments and certified by the principal
financial officer of X.L. Insurance to have been prepared in accordance with
generally accepted accounting principles consistently applied by X.L. Insurance
except as explained in such certificate.
(c) Compliance Certificates. Within 100 days after the end of each fiscal
------------------------
year of the Credit Parties and within sixty days after the end of each of the
first three quarters of each fiscal year, a certificate in the form of Exhibit D
hereto dated as of the end of such fiscal year or quarter, signed on behalf of
each Credit Party by a principal financial officer thereof, (i) stating that as
of the date thereof no Event of Default or Potential Default has occurred and is
continuing or exists, or if an Event of Default or Potential Default has
occurred and is continuing or exists, specifying in detail the nature and period
of existence thereof and any action with respect thereto taken or contemplated
to be taken by such Credit Party, (ii) stating in reasonable detail the
information and calculations necessary to establish compliance with the
provisions of Article VI hereof, and (iii) stating that the signer has reviewed
this
29
<PAGE>
Agreement and that such certificate is based on an examination made by or
under the supervision of the signer sufficient to assure that such certificate
is accurate.
(d) Further Information. All such other information and in such form as
-------------------
any Bank may reasonably request in writing.
(e) Notice of Event of Default. Immediately upon becoming aware of any
--------------------------
Event of Default or Potential Default, written notice thereof, together with a
written statement of the president or a principal financial officer of the
applicable Credit Party setting forth the details thereof and any action with
respect thereto taken or contemplated to be taken by the Credit Parties.
(f) Notice of Material Adverse Change. Promptly upon becoming aware
---------------------------------
thereof, written notice of any event or occurrence constituting or which could
reasonably be expected to have a Material Adverse Effect.
(g) Notice of Material Proceedings. Promptly upon becoming aware thereof,
------------------------------
written notice of the commencement, existence or threat of any proceeding or a
material change in any existing material proceeding by or before any Official
Body against or affecting such Credit Party which, if adversely decided, could
have a Material Adverse Effect.
(h) Notice of Certain Material Changes. Promptly upon adoption thereof,
----------------------------------
notice of each material change in any Credit Party's investment policy,
underwriting policy or other business policy.
The Credit Parties hereby authorize and direct the Agent to, and the Agent
agrees to, furnish to the Banks no less frequently than quarterly a statement of
value with respect to the Pledged Accounts provided by the Custodian under the
Custody Agreement, which statement shall include, or be accompanied by,
information as to the risk weighting of the Required Pledged Securities.
5.02. Preservation of Existence and Franchises. Each Credit Party shall,
----------------------------------------
and shall cause each of its Credit Subsidiaries to, maintain its corporate
existence, rights and franchises in full force and effect in its jurisdiction of
incorporation, which jurisdiction shall continue to be, in the case of each
Credit Party, the jurisdiction under the laws of which such Credit Party is
organized as of the date hereof. Each Credit Party shall, and shall cause each
of its Credit Subsidiaries to, qualify and remain qualified as a foreign
corporation in each jurisdiction in which failure to receive or retain such
qualification would have a Material Adverse Effect.
5.03. Insurance. Each Credit Party shall, and shall cause each of its
---------
Credit Subsidiaries to, maintain with financially sound and reputable insurers,
insurance with respect to its properties in such amounts as is customary in the
case of corporations engaged in the same or a similar business having similar
properties similarly situated.
5.04. Maintenance of Properties. Each Credit Party shall, and shall cause
-------------------------
each of its Credit Subsidiaries to, maintain or cause to be maintained in good
repair, working order and condition the properties now or hereafter owned,
leased or otherwise possessed by and used or useful in its business and shall
make or cause to be made all needful and proper repairs, renewals, replacements
and improvements thereto so that the business carried on in connection therewith
may be properly conducted at all times, provided, however, that the foregoing
--------
shall not impose on such Credit Party or any Subsidiary of such Credit Party any
obligation in respect of any property leased by such Credit Party or such
Subsidiary in addition to such Credit Party's obligations under the applicable
document creating such Credit Party's or such Subsidiary's lease or tenancy.
5.05. Payment of Taxes and Other Potential Charges and Priority Claims
----------------------------------------------------------------
Payment of Other Current Liabilities. Each Credit Party shall, and shall cause
- ---------------- -------------------
each of its Credit Subsidiaries to, pay or discharge:
30
<PAGE>
(a) on or prior to the date on which penalties attach thereto, all
taxes, assessments and other governmental charges or levies imposed upon it or
any of its properties or income;
(b) on or prior to the date when due, all lawful claims of
materialmen, mechanics, carriers, warehousemen, landlords and other like Persons
which, if unpaid, might result in the creation of a Lien upon any such property;
and
(c) on or prior to the date when due, all other lawful claims which,
if unpaid, might result in the creation of a Lien upon any such property (other
than Liens not forbidden by Section 6.03 hereof) or which, if unpaid, might give
rise to a claim entitled to priority over general creditors of such Account
Party in any proceeding under the Bermuda Companies Law or Bermuda Insurance Law
or any similar Law applicable to any Credit Party, or any insolvency proceeding,
liquidation, receivership, rehabilitation, dissolution or winding-up involving
such Credit Party or such Credit Subsidiary; provided that, unless and until
--------
foreclosure, distraint, levy, sale or similar proceedings shall have been
commenced, such Credit Party need not pay or discharge any such tax, assessment,
charge, levy or claim so long as the validity thereof is contested in good faith
and by appropriate proceedings diligently conducted and so long as such reserves
or other appropriate provisions as may be required by GAAP and SAP shall have
been made therefor and so long as such failure to pay or discharge does not have
a Material Adverse Effect.
5.06. Financial Accounting Practices. Such Credit Party shall, and shall
------------------------------
cause each of its Credit Subsidiaries to, make and keep books, records and
accounts which, in reasonable detail, accurately and fairly reflect its
transactions and dispositions of its assets and maintain a system of internal
accounting controls sufficient to provide reasonable assurances that
transactions are recorded as necessary to permit preparation of financial
statements required under Section 5.01 hereof in conformity with GAAP and SAP,
as applicable, and to maintain accountability for assets.
5.07. Compliance with Applicable Laws. Each Credit Party shall, and shall
-------------------------------
cause each of its Credit Subsidiaries to, comply with all applicable Laws
(including but not limited to the Bermuda Companies Law and Bermuda Insurance
Laws) in all respects; provided that such Credit Party or any Credit Subsidiary
--------
of such Credit Party shall not be deemed to be in violation of this Section 5.07
as a result of any failure to comply with any such Law which would not (i)
result in fines, penalties, injunctive relief or other civil or criminal
liabilities which, in the aggregate, would have a Materially Adversely Effect or
(ii) otherwise impair the ability of such Credit Party to perform its
obligations under this Agreement.
5.08. Use of Proceeds. Each Account Party shall use the Letters of Credit
---------------
issued hereunder for its general corporate purposes.
5.09. Continuation Of and Change In Business. Each Credit Party and its
--------------------------------------
Subsidiaries shall continue to engage in substantially the same business and
activities it currently engages in on the date of this Agreement.
5.10. Visitation. Each Credit Party shall permit such Persons as any Bank
----------
may reasonably designate to visit and inspect any of the properties of such
Credit Party, to discuss its affairs with its financial management, and provide
such other information relating to the business and financial condition of such
Credit Party at such times as such Bank may reasonably request. Each Credit
Party hereby authorizes its financial management to discuss with any Bank the
affairs of such Credit Party.
31
<PAGE>
ARTICLE VI
----------
NEGATIVE COVENANTS
------------------
Each Credit Party covenants to the Agent and to each Bank as follows:
6.01. Mergers and Acquisitions. (a) Such Credit Party shall not merge
------------------------
with or into or consolidate with any other Person, or agree to do any of the
foregoing, except that if no Event of Default or Potential Event of Default
shall occur and be continuing or shall exist at the time of such merger or
consolidation or immediately thereafter and after giving effect thereto:
(i) any Credit Party may merge with any other corporation, including
a Subsidiary, if such Credit Party shall be the surviving corporation; and
(ii) if the written consent of the Required Banks is obtained, any
Credit Party may merge into or consolidate with any other corporation if
the corporation into which such Credit Party is merged or which is formed
by such consolidation shall expressly assume all obligations of such Credit
Party under this Agreement.
(b) Such Credit Party shall not acquire the stock or other equity
interests, or all or any substantial portion of the properties or assets of any
other Person, or agree to do any of the foregoing, unless such Person is engaged
primarily in the insurance business or the financial services business.
6.02. Dispositions of Assets. Such Credit Party shall not, and shall not
----------------------
permit any Credit Subsidiary to, sell, convey, assign, lease, abandon or
otherwise transfer or dispose of, voluntarily or involuntarily (any of the
foregoing being referred to in this Section 6.02 as a "transaction" and any
series of related transactions constituting but a single transaction), any of
its properties or Assets, tangible or intangible (including but not limited to
sale, assignment, discount or other disposition of accounts, contract rights,
chattel paper or general intangibles with or without recourse), except:
(a) Transactions in the ordinary course of business involving current
assets or other assets classified on such Credit Party's balance sheet as
available for sale.
(b) Sales, conveyances, assignments or other transfers or dispositions in
immediate exchange for cash or tangible assets, provided that any such sales,
conveyances or transfers shall not individually, or in the aggregate, exceed
$50,000,000 in any calendar year for all Credit Parties in the aggregate; or
(c) Dispositions of equipment or other property which is obsolete or no
longer used or useful in the conduct of the business of such Credit Party or its
Credit Subsidiaries.
6.03. Liens. Such Credit Party shall not, and shall not permit any Credit
-----
Subsidiary to, at any time create, incur, assume or suffer to exist any Lien on
any of its property or assets, tangible or intangible, now owned or hereafter
acquired or agree or become liable to do so, except:
(a) Liens existing on the date hereof (and extension, renewal and
replacement Liens upon the same property, provided the amount secured by each
Lien constituting such an extension, renewal or replacement Lien shall not
exceed the amount secured by the Lien theretofore existing) and listed on
Schedule 6.03(a) hereto; provided, however, that no such Lien may at any time
-------- -------
exist upon the Pledged Securities;
32
<PAGE>
(b) Liens arising from taxes, assessments, charges, levies or claims
described in Section 5.05 hereof that are not yet due or that remain payable
without penalty or to the extent permitted to remain unpaid under the provision
of such Section 5.05;
(c) Liens on property securing all or part of the purchase price thereof
to such Credit Party and Liens (whether or not assumed) existing on property at
the time of purchase thereof by such Credit Party (and extension, renewal and
replacement Liens upon the same property), provided --
(i) each such Lien is confined solely to the property so purchased,
improvements thereto and proceeds thereof, and
(ii) the aggregate amount of the obligations secured by all such
Liens on any particular property at any time purchased by such Credit
Party, as applicable, shall not exceed 100% (if such obligations are not
subject when created to United States income taxes) or 90% (in all other
cases) of the lesser of the fair market value of such property at such time
or the actual purchase price of such property;
provided, however, that no such Lien may at any time exist upon the Pledged
- -------- -------
Securities;
(d) Zoning restrictions, easements, minor restrictions on the use of real
property, minor irregularities in title thereto and other minor Liens that do
not in the aggregate materially detract from the value of a property or asset
to, or materially impair its use in the business of, such Credit Party;
(e) Liens securing Indebtedness permitted by Section 6.08 hereof covering
assets whose market value is not materially greater than an amount equal to the
amount of the Indebtedness secured thereby, plus a commercially reasonable
margin provided, however, that no such Lien may at any time exist upon the
-------- -------
Required Pledged Securities;
(f) Liens on cash and securities of such Credit Party or its Credit
Subsidiaries incurred as part of the management of its investment portfolio in
accordance with customary portfolio management practice and not in violation of
such Credit Parties' investment policy as in effect on the date of this
Agreement; provided, however, that no such Lien may at any time exist upon the
--------- -------
Pledged Securities; or
(g) Liens in favor of the Bank Parties created pursuant to the Pledge
Agreement.
6.04. Transactions With Affiliates. Such Credit Party shall not, and shall
----------------------------
not permit any Credit Subsidiary to, enter into or carry out any transaction
with (including, without limitation, purchase or lease property or services to,
loan or advance to or enter into, suffer to remain in existence or amend any
contract, agreement or arrangement with) any Affiliate of such Credit Party, or
directly or indirectly agree to do any of the foregoing, except transactions
among such Credit Party and its wholly-owned Credit Subsidiaries and
transactions with Affiliates in good faith in the ordinary course of such Credit
Party's business consistent with past practice and on terms no less favorable to
such Credit Party or any Credit Subsidiary than those that could have been
obtained in a comparable transaction on an arm's length basis from an unrelated
Person.
6.05. Business. Such Credit Party will not, and will not permit any
--------
Subsidiary to, engage (directly or indirectly) in any businesses other than the
businesses substantially the same as those in which such Credit Party and its
Subsidiaries are engaged on the Closing Date and any businesses reasonably
related thereto or in the financial services industry. Each Account Party which
is an insurance company will not permit, at any time, its net premiums earned
from insurance operations to comprise less than 50% of gross revenues of such
Account Party (on a consolidated basis exclusive of net gains and losses from
investments and investment income). X.L. Investments
33
<PAGE>
shall not conduct or be engaged in any business other than the business of
holding investments provided to it by X.L. Insurance and the affiliates of X.L.
Insurance and the proceeds thereof.
6.06. Ratio of Total Funded Debt to Consolidated Tangible Net Worth. X.L.
-------------------------------------------------------------
Insurance will not permit its ratio of Total Funded Debt to Consolidated
Tangible Net Worth to be greater than 0.35 at any time.
6.07. Consolidated Net Worth. X.L. Insurance will not permit its
----------------------
Consolidated Net Worth to be less than $1,200,000,000 at any time.
6.08. Indebtedness. Such Credit Party shall not, and shall not permit any
------------
Subsidiary to, at any time create, incur, assume or suffer to exist any
Indebtedness, or agree, become or remain liable (contingent or otherwise) to do
any of the foregoing, except:
(a) Indebtedness to the Banks pursuant to this Agreement and the other
Transaction Documents;
(b) Indebtedness of all Credit Parties and their Subsidiaries in an
aggregate principal amount not exceeding $300,000,000 at any time outstanding;
(c) Indebtedness pursuant to the Syndicated Revolving Credit Agreements;
(d) Indebtedness described on Schedule 6.08(d);
(e) Accounts or claims payable and accrued and deferred compensation
(including options) incurred in the ordinary course of business by any Credit
Party or any Subsidiary of any Credit Party; and
(f) Indebtedness incurred in transactions described in Section 6.03(f).
6.09. Operating Leverage. X.L. Insurance will not permit its ratio of net
------------------
premiums written to statutory capital and surplus, in each case as reflected in
the notes to its consolidated financial statements, to be greater than 1.2 to
1.0 at any time.
6.10. Private Act. Such Credit Party shall not become subject to a Private
-----------
Act except, in the case of X.L. Insurance, the X.L. Insurance Company, Ltd. Act,
1989.
ARTICLE VII
EVENTS OF DEFAULT
-----------------
7.01. Events of Default. An Event of Default shall mean the occurrence or
-----------------
existence of one or more of the following events or conditions (for any reason,
whether voluntary, involuntary or effected or required by Law):
(a) Any Account Party shall default in the payment when due of any
reimbursement obligation with respect to any Letter of Credit;
(b) Any Account Party shall default in the payment when due of any Letter
of Credit Fee, Commitment Fee, or any other fee or amount payable hereunder
which default shall continue for a period of three days from the due date
thereof;
34
<PAGE>
(c) Any Credit Party shall default in the observance, performance or
fulfillment of any covenant contained in Article VI hereof;
(d) Any Credit Party shall default in the observance, performance or
fulfillment of any other covenant, condition or provision hereof and such
default shall not be remedied for a period of twenty days after written notice
thereof to such Credit Party from the Agent;
(e) Any Credit Party, EXEL Limited, or any Subsidiary of any Credit Party
shall default (i) in any payment of principal of or interest on any other
obligation for borrowed money in principal amount of $10,000,000 or more beyond
any period of grace provided with respect thereto, or (ii) in the performance of
any other agreement, term or condition contained in any such agreement under
which any such obligation in principal amount of $10,000,000 or more is created,
if the effect of such default is to cause or permit the holder or holders of
such obligation (or trustee on behalf of such holder or holders) to cause such
obligation to become due prior to its stated maturity or to terminate its
commitment under such agreement;
(f) One or more judgments for the payment of money shall have been entered
against any Credit Party or EXEL Limited which judgments exceed $50,000,000 in
the aggregate and such judgments shall remain undischarged or uncontested or
appealed in good faith for a period of thirty consecutive days;
(g) Any representation or warranty herein made by any Credit Party, or any
certificate or financial statement furnished pursuant to the provisions hereof,
shall prove to have been false or misleading in any material respect as of the
time made (or deemed made) or furnished;
(h) X.L. Insurance shall cease to own, beneficially and of record,
directly or indirectly, 100% of the outstanding voting shares of common stock of
each other Credit Party;
(i) EXEL Limited shall cease to own, beneficially and of record, directly
or indirectly, all of the outstanding voting shares of capital stock of X.L.
Insurance, except for a nominal number of shares owned by two nominee
shareholders required by the Bermuda Companies Law;
(j) A Change in Control shall occur;
(k) The guarantee contained in Article X hereof shall terminate or cease,
in whole or material part, to be a legally valid and binding obligation of X.L.
Insurance or X.L. Investments, or any Credit Party or any Person acting for or
on behalf of any of such parties contests such validity or binding nature of
such guarantee itself or the transactions contemplated by this Agreement, or any
other Person shall assert any of the foregoing, or the Pledge Agreement shall
terminate or cease, in whole or in part, to be a legally valid and binding
obligation of X.L. Investments, or any Credit Party or any Person acting for or
on behalf of any of such parties contests such validity or binding nature of the
Pledge Agreement itself or the transactions contemplated thereby (including the
security interest granted thereunder);
(l) A decree or order by a court having jurisdiction in the premises shall
have been entered adjudging any Credit Party or EXEL Limited a bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization of
such Credit Party or EXEL Limited under the Bermuda Companies Law, or any other
similar applicable Law, and such decree or order shall have continued
undischarged or unstayed for a period of sixty days; or a decree or order of a
court having jurisdiction in the premises for the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or insolvency of such Credit
Party or EXEL Limited or a substantial part of its property, or for the winding
up or liquidation of its affairs, shall have been entered, and such decree or
order shall have remained in force undischarged and unstayed for a period of
sixty days;
35
<PAGE>
(m) Any Credit Party or EXEL Limited shall institute proceedings to be
adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy
proceeding against it, or shall file a petition or answer or consent seeking
reorganization under the Bermuda Companies Law or any other similar applicable
Law, or shall consent to the filing of any such petition, or shall consent to
the appointment of a receiver or liquidator or examiner (in the case of X.L.
Europe) or trustee or assignee in bankruptcy or insolvency of it or of a
substantial part of its property, or shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts generally as
they become due, or corporate action shall be taken by such Credit Party or EXEL
Limited in furtherance of any of the aforesaid purposes; or
(n) The Pledged Securities Available Amount shall at any time be less than
the Letter of Credit Exposure;
then, the Issuing Bank shall be under no further obligation to issue Letters of
Credit hereunder and the Agent may, and upon written request of the Required
Banks shall, exercise any or all remedies available to it under the Pledge
Agreement or otherwise.
ARTICLE VIII
THE AGENT
---------
8.01. Appointment. (a) Each Bank hereby irrevocably appoints Mellon
-----------
Bank, N.A. to act as Agent for such Bank under this Agreement and the other
Transaction Documents. Each Bank hereby irrevocably authorizes the Agent to
take such action on behalf of such Bank under the provisions of this Agreement
and the other Transaction Documents, and to exercise such powers and to perform
such duties, as are expressly delegated to or required of the Agent by the terms
hereof or thereof, together with such powers as are reasonably incidental
thereto. Mellon Bank, N.A. hereby agrees to act as Agent on behalf of the Banks
on the terms and conditions set forth in this Agreement and the other
Transaction Documents, subject to its right to resign as provided in Section
8.10 hereof. Each Bank hereby irrevocably authorizes the Agent to execute and
deliver each of the Transaction Documents and to accept delivery of such of the
other Transaction Documents as may not require execution by the Agent. Each
Bank agrees that the rights and remedies granted to the Agent under the
Transaction Documents shall be exercised exclusively by the Agent, and that no
Bank shall have any right individually to exercise any such right or remedy,
except to the extent expressly provided herein or therein.
(b) Each Bank agrees that Mellon Bank, N. A. may act as collateral agent in
connection with a Future Collateral Allocation Transaction. As used herein, the
term "Future Collateral Allocation Transaction" means a transaction which
includes, among other things, the following elements: (i) X.L. Insurance shall
have arranged one or more separate financing transactions with credit providers
(which may, but need not, include any of the Banks) for which the Pledged
Accounts and securities entitlements therein serve as collateral at a time when
the Pledged Accounts and securities entitlements therein serve as collateral for
the Obligations under this Agreement; (ii) Mellon Bank, N. A. shall have agreed
to serve as collateral agent both for the Issuing Bank, the Agent and the Banks
under this Agreement and the Pledge Agreement and for the parties providing the
separate financing described in clause (i) of this paragraph; (iii) arrangements
shall have been made pursuant to which specific securities entitlements within
the Pledged Accounts are allocated as collateral for the Obligations under this
Agreement and other specific securities entitlements within the Pledged Accounts
are allocated as collateral for such other financings; and (iv) the Required
Banks and the Issuing Bank shall have approved all of such arrangements and the
documents implementing the same, including amendments to this Agreement and the
Pledge Agreement.
36
<PAGE>
8.02. General Nature of Agent's Duties. Notwithstanding anything to the
--------------------------------
contrary elsewhere in this Agreement or in any other Transaction Document:
(a) The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and the other Transaction Documents,
and no implied duties or responsibilities on the part of the Agent shall be
read into this Agreement or any Transaction Document or shall otherwise
exist.
(b) The duties and responsibilities of the Agent under this
Agreement and the other Transaction Documents shall be mechanical and
administrative in nature, and the Agent shall not have a fiduciary
relationship in respect of any Bank.
(c) The Agent is and shall be solely the agent of the Banks. The
Agent does not assume, and shall not at any time be deemed to have, any
relationship of agency or trust with or for, or any other duty or
responsibility to, any other Person (except only for its relationship as
agent for, and its express duties and responsibilities to, the Banks as
provided in this Agreement and the other Transaction Documents).
(d) The Agent shall be under no obligation to take any action
hereunder or under any other Transaction Document if the Agent believes in
good faith that taking such action may conflict with any Law or any
provision of this Agreement or any other Transaction Document, or may
require the Agent to qualify to do business in any jurisdiction where it is
not then so qualified.
8.03. Exercise of Powers. The Agent shall take any action of the type
------------------
specified in this Agreement or any other Transaction Document as being within
the Agent's rights, powers or discretion in accordance with directions from the
Required Banks (or, to the extent this Agreement or such Transaction Document
expressly requires the direction or consent of some other Person or set of
Persons, then instead in accordance with the directions of such other Person or
set of Persons). In the absence of such directions, the Agent shall have the
authority (but under no circumstances shall be obligated), in its sole
discretion, to take any such action, except to the extent this Agreement or such
Transaction Document expressly requires the direction or consent of the Required
Banks (or some other Person or set of Persons), in which case the Agent shall
not take such action absent such direction or consent. Any action or inaction
pursuant to such direction, discretion or consent shall be binding on all the
Banks. The Agent shall not have any liability to any Person as a result of (x)
the Agent acting or refraining from acting in accordance with the directions of
the Required Banks (or other applicable Person or set of Persons), (y) the Agent
refraining from acting in the absence of instructions to act from the Required
Banks (or other applicable Person or set of Persons), whether or not the Agent
has discretionary power to take such action, or (z) the Agent taking
discretionary action it is authorized to take under this Section (subject, in
the case of this clause (z), to the provisions of Section 8.04(a) hereof).
8.04. General Exculpatory Provisions. Notwithstanding anything to the
------------------------------
contrary elsewhere in this Agreement or any other Transaction Document:
(a) The Agent shall not be liable for any action taken or omitted to be
taken by it under or in connection with this Agreement or any other Transaction
Document, unless caused by its own gross negligence or willful misconduct.
(b) The Agent shall not be responsible for (i) the execution, delivery,
effectiveness, enforceability, genuineness, validity or adequacy of this
Agreement or any other Transaction Document, (ii) any recital, representation,
warranty, document, certificate, report or statement in, provided for in, or
received under or in connection with, this Agreement or any other Transaction
Document, (iii) any failure of any Credit Party or Bank to perform any of their
respective obligations
37
<PAGE>
under this Agreement or any other Transaction Document, or (iv) the existence,
validity, enforceability, perfection, recordation, priority, adequacy or value,
now or hereafter, of any Lien or other direct or indirect security afforded or
purported to be afforded by any of the Transaction Documents or otherwise from
time to time.
(c) The Agent shall not be under any obligation to ascertain, inquire or
give any notice relating to (i) the performance or observance of any of the
terms or conditions of this Agreement or any other Transaction Document on the
part of any Credit Party, (ii) the business, operations, condition (financial or
otherwise) or prospects of any Credit Party or any other Person, or (iii) except
to the extent set forth in Section 8.05(f) hereof, the existence of any Event of
Default or Potential Default.
(d) The Agent shall not be under any obligation, either initially or on a
continuing basis, to provide any Bank with any notices, reports or information
of any nature, whether in its possession presently or hereafter, except for such
notices, reports and other information expressly required by this Agreement or
any other Transaction Document to be furnished by the Agent to such Bank.
8.05. Administration by the Agent.
---------------------------
(a) The Agent may rely upon any notice or other communication of any
nature (written or oral, including but not limited to telephone conversations,
whether or not such notice or other communication is made in a manner permitted
or required by this Agreement or any Transaction Document) purportedly made by
or on behalf of the proper party or parties, and the Agent shall not have any
duty to verify the identity or authority of any Person giving such notice or
other communication.
(b) The Agent may consult with legal counsel (including, without
limitation, in-house counsel for the Agent or in-house or other counsel for any
Credit Party), independent public accountants and any other experts selected by
it from time to time, and the Agent shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts.
(c) The Agent may conclusively rely upon the truth of the statements and
the correctness of the opinions expressed in any certificates or opinions
furnished to the Agent in accordance with the requirements of this Agreement or
any other Transaction Document. Whenever the Agent shall deem it necessary or
desirable that a matter be proved or established with respect to any Credit
Party or Bank, such matter may be established by a certificate of such Credit
Party or Bank, as the case may be, and the Agent may conclusively rely upon such
certificate (unless other evidence with respect to such matter is specifically
prescribed in this Agreement or another Transaction Document).
(d) The Agent may fail or refuse to take any action unless it shall be
indemnified to its satisfaction from time to time against any and all amounts,
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature which may be imposed on,
incurred by or asserted against the Agent by reason of taking or continuing to
take any such action.
(e) The Agent may perform any of its duties under this Agreement or any
other Transaction Document by or through agents or attorneys-in-fact. The Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in fact selected by it with reasonable care.
(f) The Agent shall not be deemed to have any knowledge or notice of the
occurrence of any Event of Default or Potential Default unless the Agent has
received notice from a Bank or any Credit Party referring to this Agreement,
describing such Event of Default or Potential Default, and stating
38
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that such notice is a "notice of default". If the Agent receives such a notice,
the Agent shall give prompt notice thereof to each Bank.
8.06. Bank Not Relying on Agent or Other Banks. Each Bank acknowledges as
----------------------------------------
follows: (a) neither the Agent nor any other Bank has made any representations
or warranties to it, and no act taken hereafter by the Agent or any other Bank
shall be deemed to constitute any representation or warranty by the Agent or
such other Bank to it; (b) it has, independently and without reliance upon the
Agent or any other Bank, and based upon such documents and information as it has
deemed appropriate, made its own credit and legal analysis and decision to enter
into this Agreement and the other Transaction Documents; and (c) it will,
independently and without reliance upon the Agent or any other Bank, and based
upon such documents and information as it shall deem appropriate at the time,
make its own decisions to take or not take action under or in connection with
this Agreement and the other Transaction Documents.
8.07. Indemnification. Each Bank agrees to reimburse and indemnify the
---------------
Agent and its directors, officers, employees and agents (to the extent not
reimbursed by a Credit Party and without limitation of the obligations of the
Loan Parties to do so), ratably in accordance with their respective Letter of
Credit Participating Interests, from and against any and all amounts, losses,
liabilities, claims, damages, expenses, obligations, penalties, actions,
judgments, suits, costs or disbursements of any kind or nature (including,
without limitation, the reasonable fees and disbursements of counsel for the
Agent or such other Person in connection with any investigative, administrative
or judicial proceeding commenced or threatened, whether or not the Agent or such
other Person shall be designated a party thereto) that may at any time be
imposed on, incurred by or asserted against the Agent or such other Person as a
result of, or arising out of, or in any way related to or by reason of, this
Agreement, any other Transaction Document, any transaction from time to time
contemplated hereby or thereby, or any transaction to which a Letter of Credit
directly or indirectly relates, provided that no Bank shall be liable for any
--------
portion of such amounts, losses, liabilities, claims, damages, expenses,
obligations, penalties, actions, judgments, suits, costs or disbursements
resulting solely from the gross negligence or willful misconduct of the Agent or
such other Person, as finally determined by a court of competent jurisdiction.
Payments under this Section shall be due and payable on demand, and to the
extent that any Bank fails to pay any such amount on demand, such amount shall
bear interest for each day from the date of demand until paid (before and after
judgment) at a rate per annum (calculated on the basis of a year of 360 days and
actual days elapsed) which for each day shall be equal to 2% over the interest
rate per annum announced by the Federal Reserve Bank of New York or otherwise
determined by the Agent to be applicable for such day to overnight federal funds
transactions arranged by federal funds brokers on the previous trading day.
8.08. Agent in its Individual Capacity. With respect to its Commitments
--------------------------------
and the Obligations owing to it, the Agent shall have the same rights and powers
under this Agreement and each other Transaction Document as any other Bank and
may exercise the same as though it were not the Agent, and the terms "Banks" and
like terms shall include the Agent in its individual capacity as such. The
Agent and its affiliates may, without liability to account, make loans to,
accept deposits from, acquire debt or equity interests in, act as trustee under
indentures of, act as agent under other credit facilities for, and engage in any
other business with, any Credit Party and any stockholder, subsidiary or
affiliate of any Credit Party, as though the Agent were not the Agent hereunder.
8.09. Successor Agent. The Agent may resign at any time by giving 10
---------------
days' prior written notice thereof to the Banks and the Account Parties. The
Agent may be removed by the Required Banks at any time by giving 10 days' prior
written notice thereof to the Agent, the other Banks and the Account Parties.
Upon any such resignation or removal, the Required Banks shall have the right to
appoint a successor Agent. If no successor Agent shall have been so appointed
and consented to, and shall have accepted such appointment, within 30 days after
such notice of resignation or removal, then the retiring Agent may, on behalf of
the Banks, appoint a successor Agent. Each successor Agent shall be a
commercial bank or trust company organized under the laws of the United States
of America or
39
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any State thereof and having a combined capital and surplus of at least
$1,000,000,000. Upon the acceptance by a successor Agent of its appointment as
Agent hereunder, such successor Agent shall thereupon succeed to and become
vested with all the properties, rights, powers, privileges and duties of the
former Agent, without further act, deed or conveyance. Upon the effective date
of resignation or removal of a retiring Agent, such Agent shall be discharged
from its duties under this Agreement and the other Transaction Documents, but
the provisions of this Agreement shall inure to its benefit as to any actions
taken or omitted by it while it was Agent under this Agreement. If and so long
as no successor Agent shall have been appointed, then any notice or other
communication required or permitted to be given by the Agent shall be
sufficiently given if given by the Required Banks, all notices or other
communications required or permitted to be given to the Agent shall be given to
each Bank, and all payments to be made to the Agent shall be made directly to
the Account Parties or Bank for whose account such payment is made.
8.10. Additional Agents. If the Agent shall from time to time deem it
-----------------
necessary or advisable, for its own protection in the performance of its duties
hereunder or in the interest of the Banks, the Agent and the Account Parties
shall execute and deliver a supplemental agreement and all other instruments and
agreements necessary or advisable, in the opinion of the Agent, to constitute
another commercial bank or trust company, or one or more other Persons approved
by the Agent, to act as co-Agent or agent with such powers of the Agent as may
be provided in such supplemental agreement and to vest in such bank, trust
company or Person as such co-Agent or separate agent, as the case may be, any
properties, rights, powers, privileges and duties of the Agent under this
Agreement or any other Transaction Document.
8.11. Calculations. The Agent shall not be liable for any calculation,
------------
apportionment or distribution of payments made by it in good faith. If such
calculation, apportionment or distribution is subsequently determined to have
been made in error, the sole recourse of any Bank to whom payment was due but
not made shall be to recover from the other Banks any payment in excess of the
amount to which they are determined to be entitled or, if the amount due was not
paid by the appropriate Account Party, to recover such amount from the
appropriate Account Party.
8.12. Agent's Fee. X.L. Insurance agrees to pay to the Agent, for its
-----------
individual account, a nonrefundable Agent's fee in an amount and at such time or
times as the Agent and X.L. Insurance have heretofore agreed.
ARTICLE IX
MISCELLANEOUS
-------------
9.01. No Implied Waiver etc. No delay or failure of the Agent or any Bank
---------------------
in exercising any right, power or privilege hereunder shall affect such right,
power or privilege; nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such a right, power or
privilege preclude any further exercise thereof or of any other right, power or
privilege. The rights and remedies hereunder of the Agent and the Banks are
cumulative and not exclusive of any rights or remedies which, it or they would
otherwise have. Any amendment, waiver, permit, consent or approval of any kind
or character on the part of the Agent or a Bank of any breach or default under
this Agreement or any such waiver of any provision or condition of this
Agreement must be in writing and shall be effective only to the extent in such
writing specifically set forth.
9.02. Set-Off. In case any one or more of the Events of Default described
-------
in Article VII hereof shall occur, each Bank shall have the right, in addition
to all other rights and remedies
40
<PAGE>
available to it, to set-off against the unpaid balance of its interests in any
Letter of Credit Reimbursement Obligations any debt owing by such Bank to the
applicable Credit Party, including without limitation any funds in any deposit
account maintained by such Credit Party with such Bank, and such Bank shall have
and there is hereby created in favor of such Bank a security interest in all
deposit accounts maintained by such Credit Party with such Bank, subject to
Liens permitted under 6.03(f). Any sums obtained by any Bank by way of
counterclaim, set-off, banker's lien or other lien for application upon any
Letter of Credit Reimbursement Obligation shall be shared pro rata with the
other Banks. Nothing in this Agreement shall be deemed any waiver or prohibition
of any right of banker's lien or set-off under applicable Law.
9.03. Survival of Provisions. Each of the representations, warranties,
----------------------
covenants and agreements of the Credit Parties contained herein or made in
writing in connection herewith shall survive the execution and delivery of this
Agreement, and the issuance of any Letter of Credit hereunder.
9.04. Expenses and Fees; Indemnity.
----------------------------
(a) Each Account Party agrees to pay or cause to be paid and to save the
Agent and (in the case of clause (iii) below) each of the Banks harmless against
liability for the payment of all reasonable out-of-pocket costs and expenses
(including but not limited to reasonable fees and expenses of counsel, including
local counsel, auditors, and all other professional, accounting, evaluation and
consulting costs) incurred by the Agent or such Bank from time to time arising
from or relating to (i) the negotiation, preparation, execution, delivery,
administration and performance of this Agreement and the other Transaction
Documents, (ii) any requested amendments, modifications, supplements, waivers or
consents (whether or not ultimately entered into or granted) to this Agreement
or any Transaction Document, and (iii) the enforcement or preservation of rights
under this Agreement or any Transaction Document (including but not limited to
any such costs or expenses arising from or relating to (A) collection or
enforcement of any other amount owing hereunder or thereunder by the Agent or
any Bank and (B) any litigation, proceeding, dispute, work-out, restructuring or
rescheduling related in any way to this Agreement or the Transaction Documents.
Notwithstanding the foregoing, an Account Party shall not be required to pay
costs and expenses of a Bank (in its capacity as such) which were incurred by
such Bank in connection with any litigation, proceeding or other dispute
relating solely to a claim made against such Bank by one or more of the other
Banks. Each Account Party hereby agrees to pay all stamp, document, transfer,
recording, filing, registration, search, sales and excise fees and taxes and all
similar impositions now or hereafter determined by the Agent or any Bank to be
payable in connection with this Agreement or any other Transaction Documents or
any other documents, instruments or transactions pursuant to or in connection
herewith or therewith, and an Account Party agrees to save the Agent and each
Bank harmless from and against any and all present or future claims, liabilities
or losses with respect to or resulting from any omission to pay or delay in
paying any such fees.
(b) Each Account Party hereby agrees to reimburse and indemnify the Agent
and each Bank (the "Indemnified Parties") from and against any and all losses,
liabilities, claims, damages, expenses, obligations, penalties, actions,
judgments, suits, costs or disbursements of any kind or nature whatsoever
(including, without limitation, the fees and disbursements of counsel for the
Indemnified Parties in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such Indemnified
Party shall be designated a party thereto) that may at any time be imposed on,
asserted against or incurred by such Indemnified Party as a result of, or
arising out of, or in any way related to or by reason of, this Agreement or any
other Transaction Document, any transaction from time to time contemplated
hereby or thereby, or any transaction to which any Letter of Credit directly or
indirectly relates (and without in any way limiting the generality of the
foregoing, including any violation or breach of any Law by any Credit Party or
any exercise by the Agent or any Bank of any of its rights or remedies under
41
<PAGE>
this Agreement or any other Transaction Document; any breach of any
representation or warranty, covenant or agreement of any Credit Party); but
excluding any such losses, liabilities, claims, damages, expenses, obligations,
penalties, actions, judgments, suits, costs or disbursements to the extent
resulting from the gross negligence or willful misconduct of such Indemnified
Party, as finally determined by a court of competent jurisdiction. If and to the
extent that the foregoing obligations of the Account Parties under this Section
9.04, or any other indemnification obligation of the Account Parties hereunder
or under any other Transaction Document, are unenforceable for any reason, the
Account Parties hereby agree to make the maximum contribution to the payment and
satisfaction of such obligations which is permissible under applicable Law.
Notwithstanding the foregoing, an Account Party shall not be required to pay
costs and expenses of a Bank (in its capacity as such) which were incurred by
such Bank in connection with any litigation, proceeding or other dispute
relating solely to a claim made against such Bank by one or more of the other
Banks.
9.05. Severability. In the event any one or more of the provisions
------------
contained in this Agreement or in any other Transaction Document should be held
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby. The parties shall endeavor in
good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
9.06. Holidays. Unless otherwise specified herein, whenever any payment
--------
or action to be made or taken hereunder shall be stated to be due on a Saturday,
Sunday or public holiday under the laws of the Commonwealth of Pennsylvania or
Bermuda, such payment or action shall be made or taken on the next succeeding
Business Day and such extension of time shall in such case be included in
computing interest, if any, in connection with such payment or action.
9.07. Notices, etc. Any notice or other communication in connection with
------------
this Agreement shall be deemed to have been given or made when received by the
party to whom directed. All such notices and other communications shall be in
writing unless otherwise provided herein and shall be directed, if to a Bank, at
such Bank's address on the signature pages hereof, if to the Agent at One Mellon
Bank Center, Pittsburgh, Pennsylvania 15258, Attention: Loan Administration,
with a copy to Institutional Banking, Room 370, One Mellon Bank Center,
Pittsburgh, PA 15258; if to the Issuing Bank at Three Mellon Bank Center,
Pittsburgh, Pennsylvania 15258, Attention: Letter of Credit Department with a
copy to Institutional Banking, Room 370, One Mellon Bank Center, Pittsburgh,
Pennsylvania 15258 and if to any Credit Party, to X.L. Insurance Company, Ltd.,
Cumberland House, One Victoria Street, Hamilton HM JX Bermuda, Attn: Chief
Financial Officer, fax no. (441) 295-7524, with a copy to X.L. Investments Ltd.,
X.L. Investments, Ltd., Cumberland House, One Victoria Street, Hamilton HM JX
Bermuda, Attn: Chief Investment Officer, fax no. (441) 296-4286, and, in the
case of notices to Venton Underwriting Group Limited, with a copy to Venton
Underwriting Group Limited, c/o Venton Underwriting Agencies Limited,
Gracechurch House, 55 Gracechurch Street, London EC3V OJP England, Attn: Martin
Slade/Jane Clouting, fax no. 44-171-550-3555, or in accordance with the latest
unrevoked written direction from any party to the other parties hereto. For the
purposes of both receiving information from the Agent or any Bank or providing
information to the Agent or any Bank, X.L. Insurance shall act as the agent for
each other Credit Party.
9.08. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED
-------------------------------------------
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR ANY OTHER
MATTER RELATED THERETO MAY BE BROUGHT AND MAINTAINED IN THE COURTS OF
COMMONWEALTH OF PENNSYLVANIA OR IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF PENNSYLVANIA. EACH CREDIT PARTY HEREBY EXPRESSLY AND
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE WESTERN
AND IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN
42
<PAGE>
DISTRICT OF PENNSYLVANIA FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH
ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH SUCH LITIGATION, SUBJECT TO ANY GENERAL RIGHT OF APPEAL. EACH
CREDIT PARTY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY
REGISTERED MAIL, POSTAGE PREPAID, TO THE ADDRESS PROVIDED IN THIS AGREEMENT.
9.09. WAIVER OF JURY TRIAL. TO THE EXTENT LITIGATION HEREUNDER IS BROUGHT
--------------------
BEFORE A COURT IN THE UNITED STATES, THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY. EACH PARTY
ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS PROVISION (AND EACH OTHER PROVISIONS OF EACH OTHER DOCUMENT HERETO TO
WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
AGENT AND EACH BANK ENTERING INTO THIS AGREEMENT AND RELATED AGREEMENTS.
9.10. Governing Law. This Agreement and any other documents delivered in
-------------
connection herewith and the rights and obligations of the parties hereto and
thereto shall for all purposes be governed by and construed and enforced in
accordance with the substantive law of the Commonwealth of Pennsylvania without
giving effect to conflict of laws principles.
9.11 Validity and Enforceability. If any stamp tax, levy, duty or fee is
--------------------------
imposed or payable in respect to this Agreement or the transaction contemplated
hereby or is necessary or advisable to ensure the legality, validity or
enforceability of the documents in this transaction, the Account Parties shall
promptly pay such stamp tax, levy, duty or fee. No government approval or
consent is necessary for the execution, delivery and performance of the
transactions contemplated under this Agreement.
9.12. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which, when so executed and delivered, shall be an original, but all such
counterparts shall together constitute one (1) and the same instrument.
9.13. Successors and Assigns; Participations; Assignments.
---------------------------------------------------
(a) Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the Account Parties, the Banks, the
Agent, and their respective successors and assigns, except that no Credit Party
may assign or otherwise transfer any of its rights or duties under this
Agreement without the prior written consent of the Agent and all of the Banks,
and any purported assignment without such consent shall be void.
(b) Participations. Any Bank may, in the ordinary course of its
--------------
commercial banking business and in accordance with applicable Law, at any time
sell participations to one or more commercial banks or other Persons (each a
"Participant") in a portion of its rights and obligations under this Agreement
and the other Transaction Documents (including, without limitation, all or a
portion of its Letter of Credit Participating Interest Commitments and Letter of
Credit Participating Interest); provided, that
--------
(i) any such participation sold to a Participant which is not a Bank,
an affiliate of a Bank or a Federal Reserve Bank shall be made only with
the consent (which in each case shall not be unreasonably withheld) of X.L.
Insurance and the Agent, unless an Event of
43
<PAGE>
Default has occurred and is continuing, in which case the consent of the
Account Parties shall not be required,
(ii) any such Bank's obligations under this Agreement and the other
Transaction Documents shall remain unchanged,
(iii) such Bank shall remain solely responsible to the other parties
hereto for the performance of such obligations,
(iv) the parties hereto shall continue to deal solely and directly
with such Bank in connection with such Bank's rights and obligations under
this Agreement and each of the other Transaction Documents,
(v) such Participant shall be bound by the provisions of Section
9.13 hereof, and the Bank selling such participation shall obtain from such
Participant a written confirmation of its agreement to be so bound,
(vi) no Participant (unless such Participant is an affiliate of such
Bank, or is itself a Bank) shall be entitled to require such Bank to take
or refrain from taking action under this Agreement or under any other
Transaction Document, except that such Bank may agree with such Participant
that such Bank will not, without such Participant's consent, take action of
the type described in subsections (a), (b), (c) or (d) of Section 9.14
hereof, and
(vii) a Participant shall have the right to vote regarding amendments
to this Agreement only in connection with amendments which effect changes
in the amount of Letter of Credit Participating Interest Commitments,
Letter of Credit Participating Interests, fees payable hereunder and the
Expiration Date.
Each Account Party agrees that any such Participant shall be entitled to the
benefits of Sections 2.09 and 9.04 with respect to its participation in the
Commitments and the Letters of Credit outstanding from time to time; provided,
--------
that no such Participant shall be entitled to receive any greater amount
pursuant to such Sections than the transferor Bank would have been entitled to
receive in respect of the amount of the participation transferred to such
Participant had no such transfer occurred.
(c) Assignments. Any Bank may, in the ordinary course of its commercial
-----------
banking business and in accordance with applicable Law, at any time assign all
or a portion of its rights and obligations under this Agreement and the other
Transaction Documents (including, without limitation, all or any portion of its
Letter of Credit Participating Interest Commitments and Letter of Credit
Participating Interests to any Bank, any affiliate of a Bank or to one or more
additional commercial banks or other Persons (each a "Purchasing Bank");
provided, that
- --------
(i) any such assignment to a Purchasing Bank which is not a Bank, an
affiliate of a Bank or a Federal Reserve Bank shall be made only with the
consent (which in each case shall not be unreasonably withheld) of X.L.
Insurance and the Agent, unless an Event of Default has occurred and is
continuing or exists, in which case the consent of X.L. Insurance shall not
be required,
(ii) if a Bank makes such an assignment of less than all of its then
remaining rights and obligations under this Agreement and the other
Transaction Documents, such assignment shall be in a minimum aggregate
principal amount of $10,000,000 of the Letter of Credit Participating
Interest Commitments and Letter of Credit Participating Interests then
outstanding,
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(iii) each such assignment shall be of a constant, and not a varying,
percentage of each Commitment of the transferor Bank and of all of the
transferor Bank's rights and obligations under this Agreement and the other
Transaction Documents, and
(iv) each such assignment shall be made pursuant to a Transfer
Supplement in substantially the form of Exhibit B to this Agreement, duly
completed (a "Transfer Supplement").
In order to effect any such assignment, the transferor Bank and the
Purchasing Bank shall execute and deliver to the Agent a duly completed
Transfer Supplement (including the consents required by clause (i) of the
preceding sentence) with respect to such assignment, and a processing and
recording fee of $2,500; and, upon receipt thereof, the Agent shall accept
such Transfer Supplement; provided, however, that no such processing and
-------- -------
recording fee shall be due if such assignment is to an affiliate of a Bank
or a Federal Reserve Bank . Upon receipt of the Purchase Price Receipt
Notice pursuant to such Transfer Supplement, the Agent shall record such
acceptance in the Register. Upon such execution, delivery, acceptance and
recording, from and after the close of business at the Agent's Office on
the Transfer Effective Date specified in such Transfer Supplement.
(x) the Purchasing Bank shall be a party hereto and, to the extent
provided in such Transfer Supplement, shall have the rights and obligations
of a Bank hereunder, and
(y) the transferor Bank thereunder shall be released from its
obligations under this Agreement to the extent so transferred (and, in the
case of an Transfer Supplement covering all or the remaining portion of a
transferor Bank's rights and obligations under this Agreement, such
transferor Bank shall cease to be a party to this Agreement) from and after
the Transfer Effective Date.
(d) Register. The Agent shall maintain at its office a copy of each
--------
Transfer Supplement delivered to it and a register (the "Register") for the
recordation of the names and addresses of the banks and the Letter of Credit
Participating Interest Commitment of, and the amount of the Letter of Credit
Participating Interests of, each Bank from time to time. The entries in the
Register shall be conclusive absent manifest error and the Account Parties, the
Agent and the Banks may treat each person whose name is recorded in the Register
as a Bank hereunder for all purposes of the Agreement. The Register shall be
available for inspection by an Account Party or any Bank at any reasonable time
and from time to time upon reasonable prior notice.
(e) Financial and Other Information. Each Credit Party authorizes the
-------------------------------
Agent and each Bank to disclose to any Participant or Purchasing Bank (each, a
"transferee") and any prospective transferee any and all financial and other
information in such Person's possession concerning the Credit Parties and their
affiliates which has been or may be delivered to such Person by or on behalf of
the Credit Parties in connection with this Agreement or any other Transaction
Document or such Person's credit evaluation of the Credit Parties and their
affiliates. At the request of any Bank, a Credit Party, at a Credit Party's
expense, shall provide to each prospective transferee the conformed copies of
documents referred to in Section 4 of the form of Transfer Supplement.
9.14. Amendments and Waivers. Neither this Agreement nor any Transaction
----------------------
Document may be amended, modified or supplemented except in accordance with the
provisions of this Section. The Agent and the Credit Parties may from time to
time amend, modify or supplement the provisions of this Agreement or any other
Transaction Document for the purpose of amending, adding to, or waiving any
provisions or changing in any manner the rights and duties of any Credit Party,
the Agent or any Bank. Any such amendment, modification or supplement made by
the Credit Parties and the Agent in accordance with the provisions of this
Section shall be binding upon the Credit Parties, each Bank and the Agent. The
Agent shall enter into such amendments, modifications or supplements from time
to
45
<PAGE>
time as directed by the Required Banks, and only as so directed, provided,
--------
that no such amendment, modification or supplement may be made which will:
(a) Increase the Letter of Credit Participating Interest Committed Amount
of any Bank over the amount thereof then in effect, or extend the Expiration
Date, without the written consent of each Commitment Bank affected thereby;
(b) Reduce the amount of or postpone the date for payment of any
Commitment Fee or Letter of Credit Fee or reduce or postpone the date for
payment of any other fees, expenses, indemnities or amounts payable under any
Transaction Document, without the written consent of each Bank affected thereby;
(c) Change the definition of "Required Banks" or amend this Section 9.14,
without the written consent of all the Banks;
(d) Amend or waive any of the provisions of Article IX hereof, or impose
additional duties upon the Agent or otherwise adversely affect the rights,
interests or obligations of the Agent, without the written consent of the Agent;
(e) Amend or waive any of the provisions of Article X or release any
Guarantor from its obligations hereunder without the written consent of all the
Banks; or
(f) Amend the definition of Qualifying Pledged Securities or of Required
Pledged Securities (as each such term is defined herein and in the Pledge
Agreement) or release all or (except in accordance with the terms of the Pledge
Agreement) any material part of the Collateral under the Pledge Agreement or
release X.L. Investments from all of its obligations as the Grantor thereunder,
without the written consent of all of the Banks;
and provided further, that Transfer Supplements may be entered into in the
----------------
manner provided in Section 9.13 hereof. Any such amendment, modification or
supplement must be in writing and shall be effective only to the extent set
forth in such writing. Any Event of Default or Potential Default waived or
consented to in any such amendment, modification or supplement shall be deemed
to be cured and not continuing to the extent and for the period set forth in
such waiver or consent, but no such waiver or consent shall extend to any other
or subsequent Event of Default or Potential Default or impair any right
consequent thereto. Implementation of a Future Collateral Allocation
Transaction (as defined in Section 8.01(b) hereof) shall require the consent of
the Required Banks, the Issuing Bank and the Agent, but shall not require the
consent of all of the Banks.
9.15. Judgment Currency. In the event of a judgment or order being
-----------------
rendered by any court or tribunal for the payment of any amounts owing to the
Banks or any of them under this Agreement or any other Transaction Document or
for the payment of damages in respect of any breach of this Agreement or any
other Transaction Document or under or in respect of a judgment or order of
another court or tribunal for the payment of such amounts or damages, such
judgment or order being expressed in a currency (the "Judgment Currency") other
than Dollars the party against whom the judgment or order is made shall
indemnify and hold the Banks harmless against any deficiency in terms of Dollars
in the amounts received by the Banks arising or resulting from any variations as
between (i) the exchange rate at which Dollars are converted into the Judgment
Currency for the purposes of such judgment or order and (ii) the exchange rate
at which each Bank is able to purchase Dollars with the amount of the Judgment
Currency actually received by the Banks on the date of such receipt. The
indemnity in this section shall constitute a separate and independent obligation
from the other obligations of the Account Parties hereunder and shall apply
irrespective of any indulgence granted by the Banks.
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9.16. Records. The amount of outstanding Letters of Credit, each Bank's
-------
Letter of Credit Participating Interest Committed Amount and the accrued and
unpaid Commitment Fees shall at all times be ascertained from the records of the
Agent, which shall be conclusive absent manifest error.
9.17 Confidentiality. Each of the Agent and the Banks agree to keep
---------------
confidential any information relating to the Credit Parties received by it
pursuant to or in connection with this Agreement which is (a) information which
the Agent and the Banks reasonably expect that the applicable Credit Party would
want to keep confidential or (b) information which is clearly marked
"CONFIDENTIAL"; provided, however, that this Section 9.17 shall not be construed
to prevent the Agent or any Bank from disclosing such information (i) to any
affiliate that shall agree in writing for the benefit of the Credit Parties to
be bound by this obligation of confidentiality, (ii) upon the order of any court
or administrative agency of competent jurisdiction, (iii) upon the request or
demand of any regulatory agency or authority having jurisdiction over the Agent
or such Bank which request or demand has the force of Law or is made by a bank
regulatory agency, (iv) that has been publicly disclosed, other than from a
breach of this provision by the Agent or any Bank, (v) that has been obtained
from any person that is neither a party to this Agreement nor an affiliate of
any such party, but only to the extent that such Bank does not know or have
reason to know that such disclosure violates a confidentiality agreement between
such person and the applicable Credit Party (vi) in connection with the exercise
of any right or remedy hereunder or under any other Transaction Document, (vii)
as expressly contemplated by this Agreement or any other Transaction Document or
(viii) to any prospective purchaser of all or any part of the interest of any
Bank which shall agree in writing for the benefit of the Credit Parties to be
bound by the obligation of confidentiality in this Agreement or the other
Transaction Documents if such prospective purchaser is a financial institution
or has been consented to by the Account Parties, which consent will not be
withheld if such purchaser is not a competitor of any Account Party or an
affiliate of a competitor of any Account Party.
9.18. Sharing of Collections. The Banks hereby agree among themselves
----------------------
that if any Bank shall receive (by voluntary payment, realization upon security,
set-off or from any other source) any amount on account of any Obligation
contemplated by this Agreement or the other Transaction Documents to be made by
an Account Party pro rata to all Banks in greater proportion than any such
amount received by any other Bank, then the Bank receiving such proportionately
greater payment shall notify each other Bank and the Agent of such receipt, and
equitable adjustment will be made in the manner stated in this Section 9.18 so
that, in effect, all such excess amounts will be shared ratably among all of the
Banks. The Bank receiving such excess amount shall purchase (which it shall be
deemed to have done simultaneously upon the receipt of such excess amount) for
cash from the other Banks a participation in the applicable Obligations owed to
such other Banks in such amount as shall result in a ratable sharing by all
Banks of such excess amount (and to such extent the receiving Bank shall be a
Participant). If all or any portion of such excess amount is thereafter
recovered from the Bank making such purchase, such purchase shall be rescinded
and the purchase price restored to the extent of such recovery, together with
interest or other amounts, if any, required by Law to be paid by the Bank making
such purchase. The Account Parties hereby consent to and confirm the foregoing
arrangements. Each Participant shall be bound by this Section 9.18 as fully as
if it were a Bank hereunder."
ARTICLE X
GUARANTEE
---------
10.01. The Guarantee. Each of the Guarantors hereby irrevocably,
-------------
unconditionally and absolutely guarantees to the Agent and the Banks, and
becomes surety for, the prompt payment of the Obligations of the Account Parties
(the "Guaranteed Obligations") in full when due (whether at stated maturity, by
acceleration, or otherwise) strictly in accordance with the terms thereof. Each
47
<PAGE>
Guarantor hereby further agrees, as a primary obligor, that if any of the
Guaranteed Obligations are not paid in full when due (whether at stated
maturity, by acceleration, or otherwise and whether or not such payments would
not be permitted under any applicable bankruptcy or similar law), the Guarantor
will promptly pay the same, without any demand or notice whatsoever (except as
expressly provided herein), and that in the case of any extension of time of
payment or renewal of any of the Guaranteed Obligations, the same will be
promptly paid in full when due (whether at extended maturity, by acceleration or
otherwise) in accordance with the terms of such extension or renewal.
Notwithstanding any provision to the contrary contained herein or in any other
of the Transaction Documents, to the extent the obligations of either Guarantor
shall be adjudicated to be invalid or unenforceable for any reason (including,
without limitation, because of any applicable law, including the insolvency
laws, relating to fraudulent conveyances or transfers) then the obligations of
such Guarantor hereunder automatically shall be limited to the maximum amount
that is permissible under applicable law.
10.02. Obligations Unconditional. The obligations of each Guarantor under
-------------------------
this Article are irrevocable, absolute and unconditional (to the fullest extent
permitted by applicable law), irrespective of the value, genuineness, validity,
regularity or enforceability of any of the Transaction Documents, or any other
agreement or instrument referred to therein, or any substitution, release or
exchange of any other guarantee of or security for any of the Guaranteed
Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Article that the obligations of each Guarantor
hereunder shall be absolute and unconditional under any and all circumstances.
Each Guarantor agrees that such Guarantor shall have no right of subrogation,
indemnity, reimbursement or contribution against any Account Party, for amounts
paid under this Article X until such time as the Banks have been paid in full,
no Letter of Credit is outstanding, the Letter of Credit Participating Interest
Commitments under this Agreement have been terminated and no Person or Official
Body shall have any right to request any return or reimbursement of funds from
any Bank in connection with monies received under the Transaction Documents.
Without limiting the generality of the foregoing, it is agreed that, to the
fullest extent permitted by applicable law, the occurrence of any one or more of
the following shall not alter or impair the liability of either Guarantor
hereunder which shall remain irrevocable, absolute and unconditional as
described above:
(i) at any time or from time to time, without notice to the
Guarantors, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or compliance
shall be waived;
(ii) any of the acts mentioned in any of the provisions of any of the
Transaction Documents, or any other agreement or instrument referred to in
the Transaction Documents shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Transaction Documents, or any other agreement or instrument referred to in
the Transaction Documents shall be waived or any other guarantee of any of
the Guaranteed Obligations or any security therefor shall be released or
exchanged in whole or in part or otherwise dealt with;
(iv) any Lien granted to, or in favor of, the Agent or any Bank as
security for any of the Guaranteed Obligations shall be void or violable,
or shall fail to attach or be perfected or the Agent or any Bank shall fail
to realize on any collateral security; or
48
<PAGE>
(v) any of the Guaranteed Obligations shall be determined to be void
or violable (including, without limitation, for the benefit of any creditor
of either Guarantor) or shall be subordinated to the claims of any Person
(including, without limitation, any creditor of either Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever (except notices expressly required hereunder), and any requirement
that the Banks exhaust any right, power or remedy or proceed against any Person
under any of the Transaction Documents, or any other agreement or instrument
referred to in the Transaction Documents, or against any other Person under any
other guarantee of, or security for, any of the Guaranteed Obligations. This is
a guarantee of payment and not merely of collection.
10.03. Reinstatement. The obligations of the Guarantors under this
-------------
Article shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of any Person in respect of the Guaranteed
Obligations is rescinded or must be otherwise restored by any holder of any of
the Guaranteed Obligations, whether as a result of any proceedings in
bankruptcy, receivership, or reorganization or otherwise, and each Guarantor
agrees that it will indemnify the Agent and the Banks on demand for all
reasonable out-of-pocket costs and expenses (including, without limitation,
reasonable fees and expenses of counsel) incurred by the Agent or any Bank in
connection with such rescission or restoration, including any such reasonable
costs and expenses incurred in defending against any claim alleging that such
payment constituted a preference, fraudulent transfer or similar payment under
any bankruptcy, insolvency, receivership, reorganization or similar law.
10.04. Remedies. Each Guarantor agrees that, to the fullest extent
--------
permitted by applicable law, as between such Guarantor, on the one hand, and the
Agent and the Banks, on the other hand, the Guaranteed Obligations may be
declared to be forthwith due and payable as provided in Section 7.01 hereof (and
shall be deemed to have become automatically due and payable in the
circumstances provided in said Section 7.01) for purposes of Section 10.01
hereof notwithstanding any stay, injunction or other prohibition preventing such
declaration (or preventing the Guaranteed Obligations from becoming
automatically due and payable) as to any other Person and that, in the event of
such declaration (or Guaranteed Obligations being deemed to have become
automatically due and payable), the Guaranteed Obligations (whether or not due
and payable by any other Person) shall forthwith become due and payable by such
Guarantor for purposes of said Section 10.01.
10.05. Continuing Guarantee. The guarantee in this Article is a
--------------------
continuing guarantee, and shall apply to all of the Guaranteed Obligations
whenever arising.
10.06. No Restrictions. Except for restrictions under the Transaction
---------------
Documents, neither Guarantor shall be or become subject to any restriction of
any nature (whether arising by operation of Law, by agreement, by its articles
of incorporation, by-laws or other constituent documents of such Guarantor, or
otherwise) on the right of such Guarantor from time to time to (x) pay any
indebtedness, obligations or liabilities from time to time owed to any Account
Party, (y) make loans or advances to my Account Party, or (z) transfer any of
its properties or assets to my Account Party.
49
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their respective officers
thereunto duly authorized, have executed this Agreement as of the day and year
first above written.
X.L. INSURANCE COMPANY, LTD., as an
Account Party and a Guarantor
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
X.L. GLOBAL REINSURANCE COMPANY, LTD., as an Account Party
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
X.L. EUROPE INSURANCE, as an Account Party
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
VENTON UNDERWRITING GROUP LIMITED, as an Account Party
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
X.L. INVESTMENTS LTD., as a Guarantor
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
50
<PAGE>
MELLON BANK, N.A., as a Bank, as Issuing Bank and as Agent
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
Notice Address:
Institutional Banking Department
One Mellon Bank Center, Room 370
Pittsburgh, PA 15258
Attn: Susan Whitewood
with a copy to:
Manager, Letter of Credit Operations
Three Mellon Bank Center, 23rd Floor
Pittsburgh, PA 15259
Initial Letter of Credit Participating Interest Committed Amount: $125,000,000
BANK OF TOKYO-MITSUBISHI LTD.
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
Notice Address:
1251 Avenue of the Americas
New York, NY 10020-1104
Attn: Sally Morse
Initial Letter of Credit Participating Interest Committed Amount: $75,000,000
51
<PAGE>
THE BANK OF NOVA SCOTIA
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
Notice Address:
One Liberty Place
New York, NY 10006
Attn: James R. Trimble
Initial Letter of Credit Participating Interest Committed Amount: $65,000,000
THE CHASE MANHATTAN BANK, N.A.
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
Notice Address:
One Chase Manhattan Plaza
New York, NY 10081
Attn: Candace R. Lau-Hansen
Initial Letter of Credit Participating Interest Committed Amount: $50,000,000
52
<PAGE>
BANK OF AMERICA NT&SA
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
Notice Address:
Insurance Division, 10th Floor
231 South LaSalle Street
Chicago, IL 60697
Attn: Deborah Basler
Initial Letter of Credit Participating Interest Committed Amount: $35,000,000
THE BANK OF BERMUDA LIMITED
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
Notice Address:
6 Front Street
Hamilton HM 11, Bermuda
Attn: Michael W. Collins
Initial Letter of Credit Participating Interest Committed Amount: $35,0000,000
53
<PAGE>
BANQUE NATIONALE DE PARIS
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
Notice Address:
499 Park Avenue
New York, NY 10022
Attn: Phil Truesdale
Initial Letter of Credit Participating Interest Committed Amount: $35,000,000
CREDIT LYONNAIS NEW YORK BRANCH
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
Notice Address:
1301 Avenue of the Americas
12th Floor
New York, NY 10019
Attn: Peter Rasmussen
Initial Letter of Credit Participating Interest Committed Amount: $35,000,000
54
<PAGE>
ROYAL BANK OF CANADA
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
Notice Address:
One Financial Square - 24th Floor
New York, NY 10005-3531
Attn: Gary Overton
Initial Letter of Credit Participating Interest Committed Amount: $35,000,000
BANK AUSTRIA AKTIENGESELLSCHAFT
By:_______________________________
(Signature)
Name:_____________________________
Title:____________________________
Notice Address:
565 Fifth Avenue
New York, NY 10017
Attn: Karla Maloof
Initial Letter of Credit Participating Interest Committed Amount: $10,000,000
55
<PAGE>
Exhibit 10.14.7
FIRST AMENDMENT TO LETTER OF CREDIT FACILITY
--------------------------------------------
AND REIMBURSEMENT AGREEMENT
---------------------------
THIS FIRST AMENDMENT TO LETTER OF CREDIT FACILITY AND REIMBURSEMENT
AGREEMENT, dated as of August 3, 1998 (this "Amendment"), by and among X.L.
Insurance Company, Ltd., X.L. Europe Insurance, X.L. Global Reinsurance Company,
Ltd. and Venton Underwriting Group Limited (the "Account Parties"), X.L.
Insurance Company, Ltd. and X.L. Investments Ltd. (the "Guarantors"), Mellon
Bank, N.A., as Issuing Bank and Agent (the "Agent") and the banks listed on the
signature pages hereto (collectively, the "Banks").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Account Parties, the Guarantors, the Banks, and the Agent
are parties to a Letter of Credit Facility and Reimbursement Agreement, dated as
of February 27, 1998, (the "Credit Agreement"), pursuant to which the Banks have
agreed, on the terms and subject to the conditions described therein, to make a
letter of credit facility available to the Account Parties; and
WHEREAS, the Account Parties have requested the Banks to make certain
changes to the Credit Agreement; and
WHEREAS, the Banks are willing to amend the Credit Agreement as set
forth below; and
WHEREAS, capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in the Credit Agreement;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is
------------------------------
hereby amended as follows:
(a) Section 1.01 of the Credit Agreement is hereby amended by adding
thereto, between the definitions of the terms "1998 Merger" and "Nonextending
Bank", respectively, appearing therein, the following definition:
<PAGE>
"1998 Reinsurance Merger Transaction" shall mean the
transfer, after or contemporaneously with consummation of the
1998 Merger, to Mid Ocean Limited by X.L. Insurance of all of
the common stock of X. L. Reinsurance and the subsequent
amalgamation of X.L. Reinsurance with Mid Ocean Reinsurance
Company, Ltd., the resulting corporation of which amalgamation
will be a Bermuda corporation which shall have assumed and
shall be liable for all of the obligations of X.L. Reinsurance
under the Loan Documents.
(b) The definition of the term "1998 Merger" appearing in Section 1.01 of
the Credit Agreement is hereby amended to read as follows:
"1998 Merger" shall mean consummation of the transactions
provided for in the Agreement and Schemes of Arrangement among
EXEL Limited, EXEL Merger Company, Ltd. and Mid Ocean Limited,
as described in the Current Report on Form 8-K of EXEL Limited
dated as of March 16, 1998, as modified by the amendment and
restatement thereof dated April 28, 1998.
(c) Section 1.01 of the Credit Agreement is hereby amended by adding
thereto; immediately following the definition of the term "Valuation Date"
appearing therein, the following definition:
"X.L. Reinsurance" and "X.L. Global" shall mean (i) until
consummation of the 1998 Reinsurance Merger Transactions, X.L.
Global Reinsurance Company, Ltd., a corporation organized
under the laws of Bermuda, and (ii) from and after
consummation of the 1998 Reinsurance Merger Transaction, X.L.
Mid Ocean Reinsurance Company, Ltd., a corporation organized
under the laws of Bermuda and the resulting corporation of the
amalgamation referred to in the definition of the term "1998
Reinsurance Merger Transaction" appearing in this Section.
(d) The introductory phrase of Article VI of the Credit Agreement,
appearing before Section 6.01, is hereby amended to read as follows:
Each Credit Party covenants to the Agent and to each Bank as
follows (it being understood that nothing in Section 6.01,
Section 6.02 or Section 6.04 hereof shall prohibit the
-2-
<PAGE>
consummation of the 1998 Reinsurance Merger Transaction):
(e) Section 7.01(h) of the Credit Agreement is hereby amended to read
as follows:
(h) X.L. Insurance shall cease to own, beneficially and of
record, directly or indirectly, 100% of the outstanding shares
of common stock of each other Credit Party (other than X.L.
Reinsurance) or EXEL Limited shall cease to own, beneficially
and of record, directly or indirectly all of the outstanding
voting shares of common stock of X.L. Reinsurance, except for
a nominal number of shares owned by nominee shareholders
required by the Bermuda Companies Law.
(f) Section 6.03 of the Credit Agreement is hereby amended by deleting
the period at the end of paragraph (g) thereof and replacing it with "; or" and
by adding after such paragraph (g) a new paragraph (h) to read as follows:
(h) Liens securing letter of credit reimbursement
obligations under the Security Agreement listed on Schedule
6.03(h) hereto (and extension, renewal and replacement Liens
upon the same property or upon substitute property of
approximately the same value, provided the total amount
secured by each Lien constituting such extension, renewal or
replacement Liens shall not exceed the maximum amount secured
by the Liens theretofore existing).
(g) Section 6.08(d) of the Credit Agreement is hereby amended by
adding thereto, between the phrase "Schedule 6.08(d)" and the semicolon at the
end thereof, the phrase "and Indebtedness described on Schedule 6.03(h) hereto".
(h) The Credit Agreement is hereby amended by adding thereto a
Schedule 6.03(h) in the form attached to this Amendment as Schedule 6.03(h).
SECTION 2. EFFECT OF AMENDMENT. The Credit Agreement, as amended by
-------------------
this Amendment, is in all respects ratified, approved and confirmed and shall,
as so amended, remain in full force and effect.
SECTION 3. GOVERNING LAW. This Amendment shall be deemed to be a
-------------
contract under the laws of the Commonwealth of Pennsylvania and for all purposes
shall be governed by and construed and enforced in accordance with the laws of
said Commonwealth.
-3-
<PAGE>
SECTION 4. COUNTERPARTS. This Amendment may be executed in any
------------
number of counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
X.L. INSURANCE COMPANY, LTD.
as an Account Party and as a
Guarantor
By:_______________________________
Title:____________________________
X.L. GLOBAL REINSURANCE COMPANY, LTD.
as an Account Party
By:_______________________________
Title:____________________________
X.L. EUROPE INSURANCE, as an
Account Party
By:_______________________________
Title:____________________________
VENTON UNDERWRITING GROUP LIMITED,
as an Account Party
By:_______________________________
Title:____________________________
X.L. INVESTMENTS LTD., as a
Guarantor
By:_______________________________
Title:____________________________
MELLON BANK, N.A., as a Bank,
Issuing Bank and as Agent
By:_______________________________
Title:____________________________
-4-
<PAGE>
BANK OF TOKYO - MITSUBISHI LTD.,
as a Bank
By:_______________________________
Title:____________________________
THE BANK OF NOVA SCOTIA,
as a Bank
By:_______________________________
Title:____________________________
THE CHASE MANHATTAN BANK,
as a Bank
By:_______________________________
Title:____________________________
THE BANK OF BERMUDA LIMITED,
as a Bank
By:_______________________________
Title:____________________________
ROYAL BANK OF CANADA,
as a Bank
By:_______________________________
Title:____________________________
BANQUE NATIONALE DE PARIS,
as a Bank
By:_______________________________
Title:____________________________
By:_______________________________
Title:____________________________
-5-
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH,
as a Bank
By:_______________________________
Title:____________________________
By:_______________________________
Title:____________________________
BANK OF AMERICA NT&SA,
as a Bank
By:_______________________________
Title:____________________________
BANK AUSTRIA AKTIENGESELLSCHAFT,
as a Bank
By:_______________________________
Title:____________________________
By:_______________________________
Title:____________________________
DEUTSCHE BANK AG, NEW YORK OR
CAYMAN ISLANDS BRANCHES,
as a Bank
By:_______________________________
Title:____________________________
By:_______________________________
Title:____________________________
-6-
<PAGE>
Schedule 6.03(h)
From and after consummation of the 1998 Reinsurance Merger Transaction, the
Lien referred to in Section 6.03(h) of the Agreement with reference to this
Schedule is a Lien on investment securities and similar property in favor of
Citibank, N.A., as agent or as issuing bank, securing reimbursement obligations
and related obligations with respect to letters of credit issued for the account
of X. L. Reinsurance or its affiliates (or for the account of its predecessor,
Mid Ocean Reinsurance Company, Ltd. or its affiliates) in an aggregate face
amount not exceeding $325,000,000. The Indebtedness described in Section 6.08(d)
of the Agreement with reference to this Schedule consists of the obligations
referred to in the immediately preceding sentence.
-7-
<PAGE>
Exhibit 10.14.8
11.16.98
SECOND AMENDMENT TO LETTER OF CREDIT FACILITY
---------------------------------------------
AND REIMBURSEMENT AGREEMENT
---------------------------
THIS SECOND AMENDMENT TO LETTER OF CREDIT FACILITY AND REIMBURSEMENT
AGREEMENT, dated as of November 13, 1998 (this "Amendment"), by and among X.L.
Insurance Company, Ltd., X.L. Europe Insurance, X.L. Midocean Reinsurance
Company, Ltd. (successor to X.L. Global Reinsurance Company, Ltd.) and Venton
Underwriting Group Limited (the "Account Parties"), X.L. Insurance Company, Ltd.
and X.L. Investments Ltd. (the "Guarantors"), Mellon Bank, N.A., as Issuing Bank
and Agent (the "Agent") and the banks listed on the signature pages hereto
(collectively, the "Banks").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Account Parties, the Guarantors, the Banks, and the Agent
are parties to a Letter of Credit Facility and Reimbursement Agreement, dated as
of February 27, 1998, (as amended by the First Amendment thereto dated as of
August 3, 1998, the "Credit Agreement"), pursuant to which the Banks have
agreed, on the terms and subject to the conditions described therein, to make a
letter of credit facility available to the Account Parties; and
WHEREAS, Venton Underwriting Group Limited is proposed to be sold by
X.L. Insurance Company, Ltd. and, upon consummation of such sale, it is desired
that Venton Underwriting Group Limited no longer be an Account Party under, or a
party to, the Credit Agreement; and
WHEREAS, the Account Parties and the Guarantors have requested the
Banks to increase the aggregate stated amount of letters of credit which may
have an expiration date later than one year after the date of issuance; and
WHEREAS, the Banks are willing to amend the Credit Agreement as set
forth below; and
WHEREAS, capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in the Credit Agreement.
<PAGE>
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is
------------------------------
hereby amended as follows:
(a) Section 2.01(b) of the Credit Agreement, entitled "Terms of
Letters of Credit", is hereby amended by deleting the phrase "up to $200,000,000
may have an expiration date no later than five years from the date of issuance"
and inserting in lieu thereof the phrase "up to $300,000,000 may have an
expiration date no later than five years from the date of issuance".
(b) Upon certification to the Agent by X.L. Insurance Company, Ltd.
that Venton Underwriting Group Limited is no longer an affiliate of X.L.
Insurance Company, Ltd. and the delivery to Mellon Bank, N. A. of documentation
satisfactory to it with respect to the guarantee of reimbursement liabilities
for letters of credit issued for the account of Venton Underwriting Group
Limited by Underwriters Reinsurance Company, Venton Underwriting Group Limited
will cease to be an Account Party under, and will cease to be a party to, the
Credit Agreement.
SECTION 2. EFFECTIVENESS AND EFFECT OF AMENDMENT. This Amendment
-------------------------------------
shall become effective upon execution and delivery by the Required Banks and the
Credit Parties. The Credit Agreement, as amended by this Amendment, is in all
respects ratified, approved and confirmed and shall, as so amended, remain in
full force and effect.
SECTION 3. GOVERNING LAW. This Amendment shall be deemed to be a
-------------
contract under the laws of the Commonwealth of Pennsylvania and for all purposes
shall be governed by and construed and enforced in accordance with the laws of
said Commonwealth.
SECTION 4. COUNTERPARTS. This Amendment may be executed in any
------------
number of counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
X.L. INSURANCE COMPANY, LTD.
as an Account Party and as a
Guarantor
By:_____________________________________
Title:__________________________________
-2-
<PAGE>
X.L. MIDOCEAN REINSURANCE COMPANY, LTD.
as an Account Party
By:_____________________________________
Title:__________________________________
X.L. EUROPE INSURANCE, as an
Account Party
By:_____________________________________
Title:__________________________________
VENTON UNDERWRITING GROUP LIMITED
By:_____________________________________
Title:__________________________________
X.L. INVESTMENTS LTD., as a
Guarantor
By:_____________________________________
Title:__________________________________
MELLON BANK, N.A., as a Bank,
Issuing Bank and as Agent
By:_____________________________________
Title:__________________________________
BANK OF TOKYO - MITSUBISHI LTD.,
as a Bank
By:_____________________________________
Title:__________________________________
-3-
<PAGE>
THE BANK OF NOVA SCOTIA,
as a Bank
By:_____________________________________
Title:__________________________________
THE CHASE MANHATTAN BANK,
as a Bank
By:_____________________________________
Title:__________________________________
THE BANK OF BERMUDA LIMITED,
as a Bank
By:_____________________________________
Title:__________________________________
ROYAL BANK OF CANADA,
as a Bank
By:_____________________________________
Title:__________________________________
BANQUE NATIONALE DE PARIS,
as a Bank
By:_____________________________________
Title:__________________________________
By:_____________________________________
Title:__________________________________
-4-
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH,
as a Bank
By:_____________________________________
Title:__________________________________
By:_____________________________________
Title:__________________________________
BANK OF AMERICA NT&SA,
as a Bank
By:_____________________________________
Title:__________________________________
BANK AUSTRIA AKTIENGESELLSCHAFT,
as a Bank
By:_____________________________________
Title:__________________________________
By:_____________________________________
Title:__________________________________
DEUTSCHE BANK AG, NEW YORK OR
CAYMAN ISLANDS BRANCHES,
as a Bank
By:_____________________________________
Title:__________________________________
By:_____________________________________
Title:__________________________________
-5-
<PAGE>
EXHIBIT 10.14.10
EXECUTION COPY
FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT
---------------------------------------------
THIS FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT, dated as of
November 5, 1997 (this "Amendment"), by and among X.L. Insurance Company, Ltd.
and X.L. Reinsurance Company, Ltd. (the "Borrowers"), X.L. Insurance Company,
Ltd. and EXEL Acquisition Ltd. (the "Guarantors"), MELLON BANK, N.A., (the
"Agent") and the banks listed on the signature pages hereto (collectively, the
"Banks").
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Guarantors, the Banks, and the Agent are
parties to a Revolving Credit Agreement, dated as of June 6, 1997, (the "Credit
Agreement"), pursuant to which the Banks have agreed, on the terms and subject
to the conditions described therein, to make Loans to the Borrowers; and
WHEREAS, the Borrowers have requested the Banks to make certain
changes to the Credit Agreement; and
WHEREAS, the Banks are willing to amend the Credit Agreement as set
forth below; and
WHEREAS, capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in the Credit Agreement;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is
------------------------------
hereby amended as follows:
(a) Section 2.05(a) is hereby amended by deleting the term
"Section 2.11(b)" in the first sentence thereof and replacing it
with the term "Section 2.10(b)".
(b) Section 6.08(c) is hereby amended by deleting Section
6.08(c) in its entirety and substituting the following:
"Reimbursement obligations with respect to letters of credit
not exceeding $500,000,000 in aggregate principal amount, of
which $500,000,000 may be secured;"
(c) Schedule 6.08(d) is hereby amended by adding the following
at the end thereof:
"Upon the closing of a secured letter of credit facility
providing for the issuance of letters of credit in
<PAGE>
an aggregate face amount of $500,000,000 between the Borrowers, certain
affiliates of the Borrowers, Mellon Bank, N.A., as Agent and Issuing Bank
and the other banks parties thereto, all of the letters of credit listed on
this Schedule 6.08(d) shall be deleted.
(d) A new Section 9.18 shall be added to the Credit Agreement as follows:
"9.18 Sharing of Collections. The Banks hereby agree among themselves
----------------------
that if any Bank shall receive (by voluntary payment, realization upon
security, set-off or from any other source) any amount on account of the
Loans, interest thereon, or any other Obligation contemplated by this
Agreement or the other Loan Documents to be made by the Borrowers pro rata
to all Banks in greater proportion than any such amount received by any
other Bank, then the Bank receiving such proportionately greater payment
shall notify each other Bank and the Agent of such receipt, and equitable
adjustment will be made in the manner stated in this Section 9.18 so that,
in effect, all such excess amounts will be shared ratably among all of the
Banks. The Bank receiving such excess amount shall purchase (which it
shall be deemed to have done simultaneously upon the receipt of such excess
amount) for cash from the other Banks a participation in the applicable
Obligations owed to such other Banks in such amount as shall result in a
ratable sharing by all Banks of such excess amount (and to such extent the
receiving Bank shall be a Participant). If all or any portion of such
excess amount is thereafter recovered from the Bank making such purchase,
such purchase shall be rescinded and the purchase price restored to the
extent of such recovery, together with interest or other amounts, if any,
required by Law to be paid by the Bank making such purchase. The Borrower
hereby consents to and confirms the foregoing arrangements. Each
Participant shall be bound by this Section 9.18 as fully as if it were a
Bank hereunder."
SECTION 2. EFFECT OF AMENDMENT. The Credit Agreement, as amended by
-------------------
this Amendment, is in all respects ratified, approved and confirmed and shall,
as so amended, remain in full force and effect.
SECTION 3. GOVERNING LAW. This Amendment shall be deemed to be a
-------------
contract under the laws of the Commonwealth of Pennsylvania and for all purposes
shall be governed by and construed and enforced in accordance with the laws of
said Commonwealth.
SECTION 4. COUNTERPARTS. This Amendment may be executed in any
------------
number of counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
X.L. INSURANCE COMPANY, LTD.
as a Borrower and as a Guarantor
By:________________________________
Title:_____________________________
X.L. REINSURANCE COMPANY, LTD.,
as a Borrower
By:________________________________
Title:_____________________________
EXEL ACQUISITION LTD.,
as a Guarantor
By:________________________________
Title:_____________________________
MELLON BANK, N.A., as a Bank
and as Agent
By:________________________________
Title:_____________________________
BANK OF TOKYO - MITSUBISHI LTD.,
as a Bank
By:________________________________
Title:_____________________________
DEUTSCHE BANK AG, NEW YORK OR
CAYMAN ISLANDS BRANCHES,
as a Bank
By:________________________________
Title:_____________________________
By:________________________________
Title:_____________________________
<PAGE>
THE BANK OF NOVA SCOTIA,
as a Bank
By:________________________________
Title:_____________________________
THE CHASE MANHATTAN BANK,
as a Bank
By:________________________________
Title:_____________________________
THE BANK OF BERMUDA LIMITED,
as a Bank
By:________________________________
Title:_____________________________
ROYAL BANK OF CANADA,
as a Bank
By:________________________________
Title:_____________________________
BANQUE NATIONALE DE PARIS,
as a Bank
By:________________________________
Title:_____________________________
By:________________________________
Title:_____________________________
BANK OF AMERICA NT&SA,
as a Bank
By:________________________________
Title:_____________________________
<PAGE>
Exhibit 10.14.11
SECOND AMENDMENT TO SHORT TERM REVOLVING CREDIT AGREEMENT
---------------------------------------------------------
THIS SECOND AMENDMENT TO SHORT TERM REVOLVING CREDIT AGREEMENT, dated
as of May 13, 1998 (this "Amendment"), by and among X.L. Insurance Company, Ltd.
and X.L. Global Reinsurance Company, Ltd. (formerly known as X.L. Reinsurance
Company, Ltd.) (the "Borrowers"), X.L. Insurance Company, Ltd. and EXEL
Acquisition Ltd. (the "Guarantors"), MELLON BANK, N.A., (the "Agent") and the
banks listed on the signature pages hereto (collectively, the "Banks").
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Guarantors, the Banks, and the Agent are
parties to a Short Term Revolving Credit Agreement, dated as of June 6, 1997 and
amended as of November 5, 1997 (as so amended, the "Credit Agreement"), pursuant
to which the Banks have agreed, on the terms and subject to the conditions
described therein, to make Loans to the Borrowers; and
WHEREAS, the Borrowers and the Banks wish to make certain changes to
the Credit Agreement; and
WHEREAS, capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in the Credit Agreement;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
SECTION 1. AMENDMENT TO CREDIT AGREEMENT. Section 2.04(b) of the
-----------------------------
Credit Agreement is hereby amended to read in its entirety as follows:
(b) Applicable Margin. "Applicable Margin" for any day shall mean
-----------------
0.200% plus the Utilization Rate for such day. "Utilization Rate" shall
mean (x) 0.050% for any day on which the aggregate outstanding principal
amount of all Loans under this Agreement exceeds 66% of the sum of the
Committed Amounts of all Banks on such day, (y) 0.025% for any day on which
the aggregate outstanding principal amount of all Loans under this
Agreement exceeds 33%, but is equal to or less than 66%, of the sum of the
Committed Amounts of all Banks on such day and (z) zero for each other day.
SECTION 2. CONFIRMATION OF EXTENSION OF EXPIRATION DATE. By their
--------------------------------------------
execution hereof, the Banks hereby confirm that the Expiration Date under and as
<PAGE>
defined in the Credit Agreement has been extended to May 5, 1999,
notwithstanding the fact that not all of the Banks had consented to such
extension in writing by May 6, 1998 (which was the "Reset Date" in 1998, as used
in Section 2.13 of the Credit Agreement).
SECTION 3. EFFECT OF AMENDMENT. The amendment made in Section 1 of
-------------------
the Agreement shall be effective as of June 6, 1998. The Credit Agreement, as
amended by this Amendment, is in all respects ratified, approved and confirmed
and shall, as so amended, remain in full force and effect.
SECTION 4. GOVERNING LAW. This Amendment shall be deemed to be a
-------------
contract under the laws of the Commonwealth of Pennsylvania and for all purposes
shall be governed by and construed and enforced in accordance with the laws of
said Commonwealth.
SECTION 5. COUNTERPARTS. This Amendment may be executed in any
------------
number of counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
X.L. INSURANCE COMPANY, LTD.
as a Borrower and as a Guarantor
By:__________________________________
Title:_______________________________
X.L. GLOBAL REINSURANCE COMPANY, LTD. (formerly
known as X.L. Reinsurance Company, Ltd.,
as a Borrower
By:__________________________________
Title:_______________________________
EXEL ACQUISITION LTD.,
as a Guarantor
By:__________________________________
Title:_______________________________
-2-
<PAGE>
MELLON BANK, N.A., as a Bank
and as Agent
By:__________________________________
Title:_______________________________
BANK OF TOKYO - MITSUBISHI LTD.,
as a Bank
By:__________________________________
Title:_______________________________
DEUTSCHE BANK AG, NEW YORK OR CAYMAN ISLANDS
BRANCHES,
as a Bank
By:__________________________________
Title:_______________________________
By:__________________________________
Title:_______________________________
THE BANK OF NOVA SCOTIA,
as a Bank
By:__________________________________
Title:_______________________________
THE CHASE MANHATTAN BANK,
as a Bank
By:__________________________________
Title:_______________________________
THE BANK OF BERMUDA LIMITED,
as a Bank
By:__________________________________
Title:_______________________________
ROYAL BANK OF CANADA,
as a Bank
-3-
<PAGE>
By:__________________________________
Title:_______________________________
BANQUE NATIONALE DE PARIS,
as a Bank
By:__________________________________
Title:_______________________________
By:__________________________________
Title:_______________________________
BANK OF AMERICA NT&SA,
as a Bank
By:__________________________________
Title:_______________________________
CREDIT LYONNAIS,
as a Bank
By:__________________________________
Title:_______________________________
By:__________________________________
Title:_______________________________
BANK AUSTRIA AKTIENGESELLSCHAFT,
as a Bank
By:__________________________________
Title:_______________________________
-4-
<PAGE>
Exhibit 10.14.12
THIRD AMENDMENT TO SHORT TERM REVOLVING CREDIT AGREEMENT
--------------------------------------------------------
THIS THIRD AMENDMENT TO SHORT TERM REVOLVING CREDIT AGREEMENT, dated
as of August 3, 1998 (this "Amendment"), by and among X.L. Insurance Company,
Ltd. and X.L. Global Reinsurance Company, Ltd. (formerly known as X.L.
Reinsurance Company, Ltd.) (the "Borrowers"), X.L. Insurance Company, Ltd. and
EXEL Acquisition Ltd. (the "Guarantors"), MELLON BANK, N.A., (the "Agent") and
the banks listed on the signature pages hereto (collectively, the "Banks").
W I T N E S S E T H:
-------------------
WHEREAS, the Borrowers, the Guarantors, the Banks, and the Agent are
parties to a Short Term Revolving Credit Agreement, dated as of June 6, 1997,
(as amended by the First Amendment thereto, dated as of November 5, 1997, and by
the Second Amendment thereto, dated as of May 13, 1998, the "Credit Agreement"),
pursuant to which the Banks have agreed, on the terms and subject to the
conditions described therein, to make Loans to the Borrowers; and
WHEREAS, the Borrowers have requested the Banks to make certain
changes to the Credit Agreement; and
WHEREAS, the Banks are willing to amend the Credit Agreement as set
forth below; and
WHEREAS, capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in the Credit Agreement;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is
------------------------------
hereby amended as follows:
(A) Section 1.01 of the Credit Agreement is hereby amended by adding
thereto, between the definitions of the terms "Material Adverse Effect" and
"Notes", respectively, appearing therein, the following definitions:
"1998 Merger" shall mean consummation of the transactions
provided for in the Agreement and Schemes of Arrangement among
EXEL Limited, EXEL Merger Company, Ltd. and Mid Ocean Limited,
as described in the Current Report on Form 8-K of EXEL Limited
dated as of March 16, 1998, as modified by the amendment and
restatement thereof dated April 28, 1998.
<PAGE>
"1998 Reinsurance Merger Transaction" shall mean the
transfer, after or contemporaneously with consummation of the
1998 Merger, to Mid Ocean Limited by X.L. Insurance of all of
the common stock of X. L. Reinsurance and the subsequent
amalgamation of X.L. Reinsurance with Mid Ocean Reinsurance
Company, Ltd., the resulting corporation of which amalgamation
will be a Bermuda corporation which shall have assumed and
shall be liable for all of the obligations of X.L. Reinsurance
under the Loan Documents.
(B) The definition of the term "Business Day" appearing in Section 1.01 of
the Credit Agreement is hereby amended by inserting therein, between the word
"Pennsylvania" and the period at the end thereof, the words "or Bermuda".
(c) The definition of the term "Change of Control" appearing in Section
1.01 of the Credit Agreement is hereby amended by adding thereto, after the word
"shareholders" and before the period at the end thereof, the following phrase:
"; provided, that consummation of the 1998 Merger shall be deemed not to be a
--------
Change of Control".
(D) The definition of the term "EXEL Limited" appearing in Section 1.01 of
the Credit Agreement is hereby amended to read as follows:
"EXEL Limited" shall mean (i) until consummation of the 1998
Merger, EXEL Limited, a corporation organized under the laws
of the Cayman Islands, British West Indies which, on the date
of this Agreement, is the sole shareholder of X.L. Insurance
Company, Ltd., except for a nominal number of shares owned by
two nominee shareholders required by the Bermuda Companies Law
and (ii) from and after consummation of the 1998 Merger, EXEL
Limited, a corporation organized under the laws of the Cayman
Islands, British West Indies which is referred to as "New
EXEL" in the 8-K Report referred to in the definition of 1998
Merger below.
(E) The definition of the term "Indebtedness" appearing in Section 1.01 of
the Credit Agreement is hereby amended by inserting therein, between the phrase
"of a Person shall mean" and the colon, the following:
(it being understood, for the avoidance of doubt, that
insurance payment liabilities, as such, and liabilities
arising in the ordinary course of such Person's business as an
insurance company or corporate member of
-2-
<PAGE>
Lloyds (other than in connection with the financing activities
of such Person or of any of such Person's Affiliates) shall
not be deemed to constitute Indebtedness)
(F) The definition of the term "X.L. Reinsurance" appearing in Section 1.01
of the Credit Agreement is hereby amended to read as follows:
"X.L. Reinsurance" shall mean (i) until consummation of the
1998 Reinsurance Merger Transactions, X.L. Global Reinsurance
Company, Ltd., a corporation organized under the laws of
Bermuda, and (ii) from and after consummation of the 1998
Reinsurance Merger Transaction, X.L. Mid Ocean Reinsurance
Company, Ltd., a corporation organized under the laws of
Bermuda and the resulting corporation of the amalgamation
referred to in the definition of the term "1998 Reinsurance
Merger Transaction" appearing in this Section.
(G) Section 5.08 of the Credit Agreement is hereby amended by adding
thereto a new second sentence, to read as follows:
"General corporate purposes", as used in the immediately
preceding sentence with respect to the use of proceeds of
Loan, may include payment of dividends.
(H) The introductory phrase of Article VI of the Credit Agreement,
appearing before Section 6.01, is hereby amended to read as follows:
Each Borrower covenants to the Agent and to each Bank as
follows (it being understood that nothing in Section 6.01,
Section 6.02 or Section 6.04 hereof shall prohibit the
consummation of the 1998 Reinsurance Merger Transaction):
(I) Section 7.01(h) of the Credit Agreement is hereby amended to read as
follows:
(h) EXEL Limited shall cease to own, beneficially and of
record, directly or indirectly all of the outstanding voting
shares of common stock of X.L. Reinsurance, except for a
nominal number of shares owned by nominee shareholders
required by the Bermuda Companies Law.
-3-
<PAGE>
(J) Section 6.03 of the Credit Agreement is hereby amended by deleting
the period at the end of paragraph (f) thereof and replacing it with "; or" and
by adding after such paragraph (f) a new paragraph (g) to read as follows:
(g) Liens securing letter of credit reimbursement
obligations under the Security Agreement listed on Schedule
6.03(g) hereto (and extension, renewal and replacement Liens
upon the same property or upon substitute property of
approximately the same value, provided the total amount
secured by each Lien constituting such extension, renewal or
replacement Liens shall not exceed the maximum amount secured
by the Liens theretofore existing).
(K) Section 6.08(d) of the Credit Agreement is hereby amended by
adding thereto, between the phrase "Schedule 6.08(d)" and the semicolon at the
end thereof, the phrase "and Indebtedness described on Schedule 6.03(g) hereto".
(L) The Credit Agreement is hereby amended by adding thereto a
Schedule 6.03(g) in the form attached to this Amendment as Schedule 6.03(g).
SECTION 2. EFFECT OF AMENDMENT. The Credit Agreement, as amended by
-------------------
this Amendment, is in all respects ratified, approved and confirmed and shall,
as so amended, remain in full force and effect.
SECTION 3. GOVERNING LAW. This Amendment shall be deemed to be a
-------------
contract under the laws of the Commonwealth of Pennsylvania and for all purposes
shall be governed by and construed and enforced in accordance with the laws of
said Commonwealth.
SECTION 4. COUNTERPARTS. This Amendment may be executed in any
------------
number of counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
X.L. INSURANCE COMPANY, LTD.
as a Borrower and as a Guarantor
By:__________________________________
Title:_______________________________
-4-
<PAGE>
X.L. GLOBAL REINSURANCE COMPANY, LTD. (formerly
X.L. Reinsurance Company, Ltd.),
as a Borrower
By:________________________________________
Title:_____________________________________
EXEL ACQUISITION LTD.,
as a Guarantor
By:________________________________________
Title:_____________________________________
MELLON BANK, N.A., as a Bank
and as Agent
By:________________________________________
Title:_____________________________________
BANK OF TOKYO - MITSUBISHI LTD.,
as a Bank
By:________________________________________
Title:_____________________________________
DEUTSCHE BANK AG, NEW YORK OR CAYMAN ISLANDS
BRANCHES,
as a Bank
By:________________________________________
Title:_____________________________________
By:________________________________________
Title:_____________________________________
THE BANK OF NOVA SCOTIA,
as a Bank
By:________________________________________
Title:_____________________________________
-5-
<PAGE>
THE CHASE MANHATTAN BANK,
as a Bank
By:________________________________________
Title:_____________________________________
THE BANK OF BERMUDA LIMITED,
as a Bank
By:________________________________________
Title:_____________________________________
ROYAL BANK OF CANADA,
as a Bank
By:________________________________________
Title:_____________________________________
BANQUE NATIONALE DE PARIS,
as a Bank
By:________________________________________
Title:_____________________________________
By:________________________________________
Title:_____________________________________
BANK OF AMERICA NT&SA,
as a Bank
By:________________________________________
Title:_____________________________________
CREDIT LYONNAIS NEW YORK BRANCH,
as a Bank
By:________________________________________
Title:_____________________________________
By:________________________________________
Title:_____________________________________
-6-
<PAGE>
BANK AUSTRIA AKTIENGESELLSCHAFT,
as a Bank
By:________________________________________
Title:_____________________________________
By:________________________________________
Title:_____________________________________
-7-
<PAGE>
Schedule 6.03(g)
From and after consummation of the 1998 Reinsurance Merger
Transaction, the Lien referred to in Section 6.03(g) of the Credit Agreement
with reference to this Schedule is a Lien on investment securities and similar
property in favor of Citibank, N.A., as agent or as issuing bank, securing
reimbursement obligations and related obligations with respect to letters of
credit issued for the account of X. L. Reinsurance or its affiliates (or for the
account of its predecessor, Mid Ocean Reinsurance Company, Ltd. or its
affiliates) in an aggregate face amount not exceeding $325,000,000. The
Indebtedness described in Section 6.08(d) of the Credit Agreement with reference
to this Schedule consists of the obligations referred to in the immediately
preceding sentence.
-8-
<PAGE>
Exhibit 10.14.13
FOURTH AMENDMENT TO SHORT TERM REVOLVING CREDIT AGREEMENT
---------------------------------------------------------
THIS FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, dated as of
December 4, 1998 (this "Amendment"), by and among X.L. Insurance Company, Ltd.
and X.L. Mid Ocean Reinsurance Company, Ltd. (successor to X.L. Global
Reinsurance Company, Ltd.) (the "Borrowers"), X.L. Insurance Company, Ltd. and
EXEL Acquisition Ltd. (the "Guarantors"), MELLON BANK, N.A., (the "Agent") and
the banks listed on the signature pages hereto (collectively, the "Banks").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrowers, the Guarantors, the Banks, and the Agent are
parties to a Revolving Credit Agreement, dated as of June 6, 1997, (as amended
by the First Amendment thereto, dated as of November 5, 1997, the Second
Amendment thereto, dated as of May 13, 1998, and the Third Amendment thereto,
dated as of August 3, 1998, the "Credit Agreement"), pursuant to which the Banks
have agreed, on the terms and subject to the conditions described therein, to
make Loans to the Borrowers; and
WHEREAS, the Borrowers have requested the Banks to make certain
changes to the Credit Agreement; and
WHEREAS, the Banks are willing to amend the Credit Agreement as set
forth below; and
WHEREAS, capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in the Credit Agreement;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is
------------------------------
hereby amended as follows:
(a) Section 2.04(c) of the Credit Agreement is hereby amended by
deleting the words "One, two, three, six or twelve months ('Euro-Rate Funding
Period')" appearing under the column heading "Available Funding Periods"
-------------------------
appearing therein and inserting in lieu of such words under such column heading
the following: "One, two, three, six or twelve months or, if acceptable to all
Banks, one or two weeks ('Euro-Rate Funding Period')".
<PAGE>
(b) Section 6.03(e) of the Credit Agreement is hereby amended to read
as follows:
(e) Liens securing Indebtedness permitted by Section 6.08(b)
or Section 6.08(c) hereof covering assets whose market value is
not materially greater than an amount equal to the amount of the
Indebtedness secured thereby, plus a commercially reasonable
margin.
(c) Section 6.08(b) of the Credit Agreement is hereby amended by
deleting the word "Unsecured" appearing at the beginning thereof.
SECTION 2. EFFECT OF AMENDMENT. The Credit Agreement, as amended by
-------------------
this Amendment, is in all respects ratified, approved and confirmed and shall,
as so amended, remains in full force and effect.
SECTION 3. GOVERNING LAW. This Amendment shall be deemed to be a
-------------
contract under the laws of the Commonwealth of Pennsylvania and for all purposes
shall be governed by and construed and enforced in accordance with the laws of
said Commonwealth.
SECTION 4. COUNTERPARTS. This Amendment may be executed in any
------------
number of counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
X.L. INSURANCE COMPANY, LTD.
as a Borrower and as a Guarantor
By:_________________________________
Title:______________________________
-2-
<PAGE>
X.L. MID OCEAN REINSURANCE COMPANY,
LTD. (successor to X.L. Global
Reinsurance Company, Ltd.),
as a Borrower
By:_________________________________
Title:______________________________
EXEL ACQUISITION LTD.,
as a Guarantor
By:_________________________________
Title:______________________________
MELLON BANK, N.A., as a Bank
and as Agent
By:_________________________________
Title:______________________________
BANK OF TOKYO - MITSUBISHI LTD.,
as a Bank
By:_________________________________
Title:______________________________
DEUTSCHE BANK AG, NEW YORK OR CAYMAN
ISLANDS BRANCHES,
as a Bank
By:_________________________________
Title:______________________________
By:_________________________________
Title:______________________________
THE BANK OF NOVA SCOTIA,
as a Bank
By:_________________________________
Title:______________________________
-3-
<PAGE>
THE CHASE MANHATTAN BANK,
as a Bank
By:_________________________________
Title:______________________________
THE BANK OF BERMUDA LIMITED,
as a Bank
By:_________________________________
Title:______________________________
ROYAL BANK OF CANADA,
as a Bank
By:_________________________________
Title:______________________________
BANQUE NATIONALE DE PARIS,
as a Bank
By:_________________________________
Title:______________________________
By:_________________________________
Title:______________________________
BANK OF AMERICA NT&SA,
as a Bank
By:_________________________________
Title:______________________________
CREDIT LYONNAIS NEW YORK BRANCH,
as a Bank
By:_________________________________
Title:______________________________
By:_________________________________
-4-
<PAGE>
Title:______________________________
BANK AUSTRIA AKTIENGESELLSCHAFT,
as a Bank
By:_________________________________
Title:______________________________
By:_________________________________
Title:______________________________
-5-
<PAGE>
Exhibit 10.14.15
FIRST AMENDMENT TO TERM LOAN AGREEMENT
--------------------------------------
THIS FIRST AMENDMENT TO TERM LOAN AGREEMENT, dated as of November 9,
1998 (this "Amendment"), by and among X.L. America, Inc. (formerly known as X.L.
Holdings, Inc.) (the "Borrower"), X.L. Insurance Company, Ltd. (the
"Guarantor"), and MELLON BANK, N.A., (the "Bank").
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Guarantor and the Bank are parties to a
Term Loan Agreement, dated as of July 7, 1998 (the "Loan Agreement"), pursuant
to which the Bank has made a $50,000,000 term loan advance to the Borrower; and
WHEREAS, the Borrower and the Guarantor have requested the Bank to
make an additional $50,000,000 term loan advance to the Borrower and to amend
the Loan Agreement to provide for such advance and the Bank is willing to do so
on the terms and subject to the conditions set forth herein; and
WHEREAS, capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in the Loan Agreement;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
SECTION 1. AMENDMENTS TO LOAN AGREEMENT.
----------------------------
(a) The definition of the term "Closing Date" in Section 1.01 of the
Loan Agreement is hereby amended to read as follows:
"Closing Date" shall mean, with respect to the first advance
hereunder, July 10, 1998, and shall mean, with respect to the
second advance hereunder, November 9, 1998 or such other date
prior to December 1, 1998 as the Borrower shall designate.
(b) The definition of the term "Loan" in Section 1.01 of the Loan
Agreement is hereby amended to read as follows:
"Loan" shall mean the loan, in the aggregate principal amount
of up to $100,000,000, made by the Bank to the Borrower under
this Agreement, comprising the first advance in the principal
amount of $50,000,000 and the second advance in the amount of
$50,000,000 (it
<PAGE>
being understood that if such second advance is not made, the
term Loan will refer to such first advance).
(c) The definition of the term "Note" in Section 1.01 of the Loan
Agreement is hereby amended by deleting the phrase "the promissory note"
appearing therein and inserting in lieu thereof the phrase ", collectively,
the promissory notes".
(d) Section 2.01(a) of the Loan Agreement is hereby amended to read
as follows:
(a) Commitment. Subject to the terms and conditions and
----------
relying upon the representations and warranties herein set forth,
the Bank agrees to make two advances to the Borrower, each in the
principal amount of the $50,000,000, the first on July 10, 1998
and the second on the Closing Date with respect thereto
(collectively, the "Loan").
(e) Section 2.01(c) of the Loan Agreement is hereby amended to read
as follows:
(c) Note. From and after the date of the second advance of
----
the Loan, the obligation of the Borrower to repay the unpaid
principal amount of the Loan made by the Bank and to pay interest
thereon shall be evidenced in part by two promissory notes of the
Borrower, each dated the applicable Closing Date (collectively,
the "Note"), each in substantially the form attached hereto as
Exhibit A, with the blanks appropriately filled, payable to the
order of the Bank.
(f) Section 4.01 of the Loan Agreement is hereby amended by deleting
the introductory phrase "The obligation of the Bank to make the Loan
hereunder on the Closing Date shall be subject to the following
conditions:" appearing therein and inserting in lieu thereof the
introductory phrase: "The obligation of the Bank to make each advance of
the Loan hereunder on the applicable Closing Date shall be subject to the
satisfaction of the following conditions on the applicable Closing Date and
to the payment by the Borrower to the Bank of an amendment fee of $10,000
on the Closing Date with respect to the second advance:".
SECTION 2. REPRESENTATIONS AND WARRANTIES. Each Loan Party
------------------------------
represents and warrants that the representations and warranties contained in
Article III of the Loan Agreement are true and correct on and as of the date of
this Amendment, and will be true and correct on and as of the Closing Date with
respect to the second advance of the Loan, as if made on each such date. For
purposes of Section 7.01(g) of the Loan Agreement this representation and
warranty is deemed to be made in the Loan Agreement.
SECTION 3. EFFECT OF AMENDMENT. The Loan Agreement, as amended by
-------------------
this Amendment, is in all respects ratified, approved and confirmed and shall,
as so amended, remain in full force and effect.
SECTION 4. GOVERNING LAW. This Amendment shall be deemed to be a
-------------
contract under the laws of the Commonwealth of Pennsylvania and for all purposes
shall be governed by and construed and enforced in accordance with the laws of
said Commonwealth.
-2-
<PAGE>
SECTION 5. COUNTERPARTS. This Amendment may be executed in any
------------
number of counterparts and by the different parties hereto on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
X.L. INSURANCE COMPANY, LTD.,
as Guarantor
By:____________________________________
Title:_________________________________
X.L. AMERICA, INC. (formerly known as X.L.
Holdings, Inc.), as Borrower
By:____________________________________
Title:_________________________________
MELLON BANK, N.A., as Bank
By:____________________________________
Title:_________________________________
-3-
<PAGE>
Exhibit 10.14.16
SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT
----------------------------------------------
THIS SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT, dated as of
August 3, 1998 (this "Amendment"), by and among X.L. Insurance Company, Ltd. and
X.L. Global Reinsurance Company, Ltd. (formerly known as X.L. Reinsurance
Company, Ltd.) (the "Borrowers"), X.L. Insurance Company, Ltd. and EXEL
Acquisition Ltd. (the "Guarantors"), MELLON BANK, N.A., (the "Agent") and the
banks listed on the signature pages hereto (collectively, the "Banks").
W I T N E S S E T H:
-------------------
WHEREAS, the Borrowers, the Guarantors, the Banks, and the Agent are
parties to a Revolving Credit Agreement, dated as of June 6, 1997, (as amended
by the First Amendment thereto, dated as of November 5, 1997, the "Credit
Agreement"), pursuant to which the Banks have agreed, on the terms and subject
to the conditions described therein, to make Loans to the Borrowers; and
WHEREAS, the Borrowers have requested the Banks to make certain
changes to the Credit Agreement; and
WHEREAS, the Banks are willing to amend the Credit Agreement as set
forth below; and
WHEREAS, capitalized terms used herein and not otherwise defined shall
have the meanings assigned to them in the Credit Agreement;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is
------------------------------
hereby amended as follows:
(a) Section 1.01 of the Credit Agreement is hereby amended by adding
thereto, between the definitions of the terms "Material Adverse Effect" and
"Notes", respectively, appearing therein, the following definitions:
"1998 Merger" shall mean consummation of the transactions
provided for in the Agreement and Schemes of Arrangement among
EXEL Limited, EXEL Merger Company, Ltd. and Mid Ocean Limited,
as described in the Current Report on Form 8-K of EXEL Limited
dated as of March 16, 1998, as modified by the amendment and
restatement thereof dated April 28, 1998.
"1998 Reinsurance Merger Transaction" shall mean the
transfer, after or contemporaneously
<PAGE>
with consummation of the 1998 Merger, to Mid Ocean Limited by
X.L. Insurance of all of the common stock of X. L. Reinsurance
and the subsequent amalgamation of X.L. Reinsurance with Mid
Ocean Reinsurance Company, Ltd., the resulting corporation of
which amalgamation will be a Bermuda corporation which shall
have assumed and shall be liable for all of the obligations of
X.L. Reinsurance under the Loan Documents.
(b) The definition of the term "Business Day" appearing in Section 1.01 of
the Credit Agreement is hereby amended by inserting therein, between the word
"Pennsylvania" and the period at the end thereof, the words "or Bermuda".
(c) The definition of the term "Change of Control" appearing in Section
1.01 of the Credit Agreement is hereby amended by adding thereto, after the word
"shareholders" and before the period at the end thereof, the following phrase:
"; provided, that consummation of the 1998 Merger shall be deemed not to be a
--------
Change of Control".
(d) The definition of the term "EXEL Limited" appearing in Section 1.01 of
the Credit Agreement is hereby amended to read as follows:
"EXEL Limited" shall mean (i) until consummation of the 1998
Merger, EXEL Limited, a corporation organized under the laws
of the Cayman Islands, British West Indies which, on the date
of this Agreement, is the sole shareholder of X.L. Insurance
Company, Ltd., except for a nominal number of shares owned by
two nominee shareholders required by the Bermuda Companies Law
and (ii) from and after consummation of the 1998 Merger, EXEL
Limited, a corporation organized under the laws of the Cayman
Islands, British West Indies which is referred to as "New
EXEL" in the 8-K Report referred to in the definition of 1998
Merger below.
(e) The definition of the term "Indebtedness" appearing in Section 1.01 of
the Credit Agreement is hereby amended by inserting therein, between the phrase
"of a Person shall mean" and the colon, the following:
(it being understood, for the avoidance of doubt, that
insurance payment liabilities, as such, and liabilities
arising in the ordinary course of such Person's business as an
insurance company or corporate member of Lloyds (other than in
connection with the financing activities of such Person or of
any
-2-
<PAGE>
of such Person's Affiliates) shall not be deemed to constitute
Indebtedness)
(f) The definition of the term "X.L. Reinsurance" appearing in Section 1.01
of the Credit Agreement is hereby amended to read as follows:
"X.L. Reinsurance" shall mean (i) until consummation of the
1998 Reinsurance Merger Transactions, X.L. Global Reinsurance
Company, Ltd., a corporation organized under the laws of
Bermuda, and (ii) from and after consummation of the 1998
Reinsurance Merger Transaction, X.L. Mid Ocean Reinsurance
Company, Ltd., a corporation organized under the laws of
Bermuda and the resulting corporation of the amalgamation
referred to in the definition of the term "1998 Reinsurance
Merger Transaction" appearing in this Section.
(g) Section 5.08 of the Credit Agreement is hereby amended by adding
thereto a new second sentence, to read as follows:
"General corporate purposes", as used in the immediately
preceding sentence with respect to the use of proceeds of
Loan, may include payment of dividends.
(h) The introductory phrase of Article VI of the Credit Agreement,
appearing before Section 6.01, is hereby amended to read as follows:
Each Borrower covenants to the Agent and to each Bank as
follows (it being understood that nothing in Section 6.01,
Section 6.02 or Section 6.04 hereof shall prohibit the
consummation of the 1998 Reinsurance Merger Transaction):
(i) Section 7.01(h) of the Credit Agreement is hereby amended to read as
follows:
(h) EXEL Limited shall cease to own, beneficially and of
record, directly or indirectly all of the outstanding voting
shares of common stock of X.L. Reinsurance, except for a
nominal number of shares owned by nominee shareholders
required by the Bermuda Companies Law.
(j) Section 6.03 of the Credit Agreement is hereby amended by deleting the
period at the end of paragraph (f)
-3-
<PAGE>
thereof and replacing it with "; or" and by adding after such paragraph (f) a
new paragraph (g) to read as follows:
(g) Liens securing letter of credit reimbursement obligations
under the Security Agreement listed on Schedule 6.03(g) hereto
(and extension, renewal and replacement Liens upon the same
property or upon substitute property of approximately the same
value, provided the total amount secured by each Lien
constituting such extension, renewal or replacement Liens
shall not exceed the maximum amount secured by the Liens
theretofore existing).
(k) Section 6.08(d) of the Credit Agreement is hereby amended by adding
thereto, between the phrase "Schedule 6.08(d)" and the semicolon at the end
thereof, the phrase "and Indebtedness described on Schedule 6.03(g) hereto".
(l) The Credit Agreement is hereby amended by adding thereto a Schedule
6.03(g) in the form attached to this Amendment as Schedule 6.03(g).
SECTION 2. EFFECT OF AMENDMENT. The Credit Agreement, as amended by this
-------------------
Amendment, is in all respects ratified, approved and confirmed and shall, as so
amended, remain in full force and effect.
SECTION 3. GOVERNING LAW. This Amendment shall be deemed to be a contract
-------------
under the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and enforced in accordance with the laws of said
Commonwealth.
SECTION 4. COUNTERPARTS. This Amendment may be executed in any number
------------
of counterparts and by the different parties hereto on separate counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
X.L. INSURANCE COMPANY, LTD.
as a Borrower and as a Guarantor
By:______________________________
Title:___________________________
-4-
<PAGE>
X.L. GLOBAL REINSURANCE COMPANY, LTD. (formerly
X.L. Reinsurance Company, Ltd.),
as a Borrower
By:___________________________________
Title:________________________________
EXEL ACQUISITION LTD.,
as a Guarantor
By:___________________________________
Title:________________________________
MELLON BANK, N.A., as a Bank
and as Agent
By:___________________________________
Title:________________________________
BANK OF TOKYO - MITSUBISHI LTD.,
as a Bank
By:___________________________________
Title:________________________________
DEUTSCHE BANK AG, NEW YORK OR CAYMAN ISLANDS
BRANCHES,
as a Bank
By:___________________________________
Title:________________________________
By:___________________________________
Title:________________________________
THE BANK OF NOVA SCOTIA,
as a Bank
By:___________________________________
Title:________________________________
-5-
<PAGE>
THE CHASE MANHATTAN BANK,
as a Bank
By:___________________________________
Title:________________________________
THE BANK OF BERMUDA LIMITED,
as a Bank
By:___________________________________
Title:________________________________
ROYAL BANK OF CANADA,
as a Bank
By:___________________________________
Title:________________________________
BANQUE NATIONALE DE PARIS,
as a Bank
By:___________________________________
Title:________________________________
By:___________________________________
Title:________________________________
BANK OF AMERICA NT&SA,
as a Bank
By:___________________________________
Title:________________________________
CREDIT LYONNAIS NEW YORK BRANCH,
as a Bank
By:___________________________________
Title:________________________________
By:___________________________________
Title:________________________________
-6-
<PAGE>
BANK AUSTRIA AKTIENGESELLSCHAFT,
as a Bank
By:___________________________________
Title:________________________________
By:___________________________________
Title:________________________________
-7-
<PAGE>
Schedule 6.03(g)
From and after consummation of the 1998 Reinsurance Merger
Transaction, the Lien referred to in Section 6.03(g) of the Credit Agreement
with reference to this Schedule is a Lien on investment securities and similar
property in favor of Citibank, N.A., as agent or as issuing bank, securing
reimbursement obligations and related obligations with respect to letters of
credit issued for the account of X. L. Reinsurance or its affiliates (or for the
account of its predecessor, Mid Ocean Reinsurance Company, Ltd. or its
affiliates) in an aggregate face amount not exceeding $325,000,000. The
Indebtedness described in Section 6.08(d) of the Credit Agreement with reference
to this Schedule consists of the obligations referred to in the immediately
preceding sentence.
-8-
<PAGE>
EXHIBIT 11.1
XL CAPITAL LTD
COMPUTATION OF EARNINGS PER ORDINARY SHARE
AND ORDINARY SHARE EQUIVALENT
<TABLE>
<CAPTION>
Year Ended November 30,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Earnings per ordinary share and ordinary share equivalent--basic:
Weighted average shares outstanding 92,975 85,120 90,734
-------- -------- --------
Net Income $587,663 $676,961 $494,313
-------- -------- --------
Earnings per ordinary share and ordinary share equivalent $ 6.32 $ 7.95 $ 5.45
======== ======== ========
Earnings per ordinary share and ordinary share equivalent--diluted
Weighted average shares outstanding 92,790 84,905 90,420
-------- -------- --------
Average stock options outstanding (net of repurchased shares
under the modified treasury stock method) 1,995 1,410 908
-------- -------- --------
Weighted average ordinary shares and ordinary share
equivalents outstanding $ 94,785 $ 86,315 $ 91,328
======== ======== ========
Net income $587,663 $676,961 $494,313
======== ======== ========
Earnings per ordinary share and ordinary share equivalent $ 6.20 $ 7.84 $ 5.41
======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
EXEL Holdings Limited (100%) - Cayman
EXEL Acquisition Ltd. (100%) - Cayman
Reeve Court Insurance Company (51%) - Bermuda
Reeve Court Holdings Ltd. (50%) - Bermuda
XL Capital Products Ltd (100%) - Bermuda
X. L. Property Holdings Ltd. (50%) - Bermuda
XL Financial Assurance Ltd (80%) - Bermuda
XL Insurance Ltd (100%) - Bermuda
X. L. Investments Ltd. (100%) - Bermuda
XL Global Services (Bermuda) Ltd (100%) - Bermuda
X. L. Holdings Barbados Ltd. (100%) - Barbados
X. L. One Ltd. (100%) - Bermuda
X. L. Two Ltd. (100%) - Bermuda
EXEL Cumberland Limited (100%) - UK
IPT Compliance Limited (100%) - UK
X. L. America Inc. (100%) - Delaware
X. L. Europe (100%) - Republic of Ireland
X. L. Insurance Company of America, Inc. (100%) - New York
Inquislogic Inc. (100%) - Delaware
X. L. Global Services, Inc. (100%) - Delaware
X. L. Risk Solutions Inc. (100%) - Connecticut
X. L. Australia Pty Ltd. (100%) - Australia
X.L. Investment Private Trustee Ltd. (100%) - Bermuda
First Cumberland Bank, Inc. (100%) - Barbados
Garrison Investments Inc. (100%) - Barbados
Inquislogic Ltd. (100%) - Barbados
Kensington Investments Inc. (100%) - Barbados
X. L. Investments (Barbados) Inc. (100%) - Barbados
Cumberland Holdings, Inc. (100%) - Delaware
Mid Ocean Limited (73% - Class A) - Cayman
Mid Ocean Holdings Limited (100%) - Bermuda
XL Mid Ocean Reinsurance Ltd (100%) - Bermuda
LARC Holdings Ltd. (74%) - Bermuda
L. A. Reinsurance Company, Ltd. (100%) - Bermuda
Ridgewood Holdings Company (100%) - Bermuda
The Brockbank Group Plc (100%) - UK
Baltusrol (51%) - Bermuda
Brockbank holdings (100%) - UK
Brockbank Underwriting (100%) - UK
County Down Ltd. (100%) - UK
Dornoch Ltd. (100%) - UK
Brockbank Insurance Services (100%) - UK
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Form 10-K of our report dated January ..,
1999, on our audits of the financial statements and financial statement
schedules of XL Capital Ltd.
We further consent to the incorporation by reference in the registration
statements of XL Capital Ltd on Form S-3 (File No. 33-76170), Form S-8 (File No.
33-86826) and Form S-8 and S-3 (File No. 33-86824) of our report dated January
.., 1999 on our audits of the financial statements and financial statement
schedules of XL Capital Ltd.
PricewaterhouseCoopers
New York, New York
February.., 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<DEBT-HELD-FOR-SALE> 5,333,795
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,128,601
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 6,462,396
<CASH> 443,654
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 97,951
<TOTAL-ASSETS> 10,108,650
<POLICY-LOSSES> 3,121,739
<UNEARNED-PREMIUMS> 1,010,907
<POLICY-OTHER> 19,167
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 301,000
0
0
<COMMON> 1,118
<OTHER-SE> 4,816,762
<TOTAL-LIABILITY-AND-EQUITY> 10,108,650
806,861
<INVESTMENT-INCOME> 279,375
<INVESTMENT-GAINS> 191,795
<OTHER-INCOME> 61,278
<BENEFITS> 390,483
<UNDERWRITING-AMORTIZATION> 88,596
<UNDERWRITING-OTHER> 144,717
<INCOME-PRETAX> 593,852
<INCOME-TAX> 5,363
<INCOME-CONTINUING> 587,663
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 587,663
<EPS-PRIMARY> 6.32
<EPS-DILUTED> 6.20
<RESERVE-OPEN> 2,342,254
<PROVISION-CURRENT> 713,059
<PROVISION-PRIOR> (164,156)
<PAYMENTS-CURRENT> 167,409
<PAYMENTS-PRIOR> 199,066
<RESERVE-CLOSE> 3,121,739
<CUMULATIVE-DEFICIENCY> 349,662
</TABLE>
