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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 1-10804
XL CAPITAL LTD
(Exact name of registrant as specified in its charter)
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CAYMAN ISLANDS 98-0191089
(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)
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(441) 292-8515
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Class A Ordinary Shares, Par New York Stock Exchange, Inc.
Value $0.01 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 March 17, 2000 was
approximately $6.5 billion computed upon the basis of the closing sales price of
the 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 March 17, 2000 there were outstanding 121,350,631 Class A Ordinary
Shares, $0.01 par value per share, and 3,115,873 Class B Ordinary Shares, $ 0.01
par value per share, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO REGULATION 14A RELATING TO THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON MAY 12, 2000 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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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 14
Item 4. Submission of Matters to a Vote of Security Holders......... 14
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters......................................... 17
Item 6. Selected Financial Data..................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................. 19
Item 8. Financial Statements and Supplementary Data................. 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ................................... 73
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 74
Item 11. Executive Compensation...................................... 74
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 74
Item 13. Certain Relationships and Related Transactions.............. 74
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 74
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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
RECENT DEVELOPMENTS
On June 18, 1999, XL Capital Ltd (sometimes referred to as the "Company")
merged with NAC Re Corp., a Delaware corporation, in a stock merger.
Shareholders of NAC received 0.915 Company shares for each NAC share in a tax
free exchange. Approximately 16.9 million of the Company's Class A ordinary
shares were issued in this transaction.
The NAC merger was accounted for as a pooling of interests under U.S.
generally accepted accounting principles ("U.S. GAAP"). Accordingly, all prior
period information contained in this document includes the results of NAC as
though it had always been a part of the Company. Following the merger, the
Company changed its fiscal year end from November 30(th) to December 31(st) as a
conforming pooling adjustment. Consolidated financial information presented
herein is based upon the new fiscal year end for all years presented.
HISTORY
The Company was incorporated with limited liability under the Cayman
Islands Companies Act on March 16, 1998, as EXEL Merger Company. The Company was
formed as a result of the merger of EXEL Limited and Mid Ocean Limited on
August 7, 1998, and was renamed EXEL Limited on that date. The merger was
accounted for as a purchase business combination. EXEL and Mid Ocean are
companies that were incorporated in the Cayman Islands in 1986 and 1992,
respectively. At class meetings held in August 1998, the shareholders of EXEL
and Mid Ocean approved Schemes of Arrangement under Cayman Islands law pursuant
to which EXEL and Mid Ocean became wholly-owned subsidiaries of the Company.
Following the merger, Mid Ocean's two main operating subsidiaries, a reinsurance
company and a Lloyd's managing agency with two dedicated corporate syndicates,
were combined with the Company's liability insurance business. At a special
general meeting held on February 1, 1999, the shareholders of the Company
approved a resolution changing the name of the Company to XL Capital Ltd. The
Company, through its subsidiaries, is a leading provider of insurance and
reinsurance coverages and financial products to industrial, commercial, and
professional service firms, insurance companies and other enterprises on a
worldwide basis.
NAC was organized in 1985 and, through its subsidiaries, writes property
and casualty insurance and reinsurance in the U.S., Canada and Europe.
In 1999, the Company made the following investments:
(1) The Company further expanded into the United States by completing the
acquisition of both Intercargo Corporation and ECS, Inc. Intercargo is
headquartered in Schaumburg, Illinois, and through its subsidiaries, underwrites
specialty insurance products for companies engaged in international trade,
including U.S. Customs bonds and marine cargo insurance. ECS is an underwriting
manager headquartered in Exton, Pennsylvania, which specializes in environmental
insurance coverages and risk management services.
(2) The Company signed a joint venture agreement with Les Mutuelles du Mans
Assurances Group to form a new French reinsurance company, Le Mans Re. The
Company owns a 49% shareholding in the new company, which underwrites a
worldwide portfolio comprising all classes of non-life reinsurance business
together with a selective portfolio of life reinsurance business.
(3) The Company made strategic minority investments in two investment
management firms, Highfields Capital Management L.P., a global equity investment
firm, and MKP Capital Management, a New York-based fixed income investment
manager specializing in mortgage-backed securities.
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In 1998, the Company made the following investments:
(1) The Company entered into a joint venture with FSA Holdings Ltd. to
write financial guaranty insurance and reinsurance. 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.
(2) The Company formed Reeve Court Insurance Ltd., a Bermuda company
organized as a joint venture with that company's management for the purpose of
providing life insurance to high net worth individuals.
(3) The Company formed two companies now known as XL Insurance Company of
New York and XL Capital Assurance. XL Insurance Company of New York is a
property and casualty insurance company, and XL Capital Assurance is a financial
guaranty insurance company.
In 1997, the Company made the following investments:
(1) The Company acquired GCR Holdings Limited, whose reinsurance subsidiary
was amalgamated with the Company's reinsurance operations.
(2) The Company acquired a 75% holding in Latin America Re, a Bermuda
reinsurance company.
(3) The Company formed Sovereign Risk Insurance, a Bermuda-based managing
general agency, as a joint venture to write political risk insurance on a
subscription basis on behalf of its shareholders.
In 1996, the Company acquired 30% of Pareto Partners, a firm which
specializes in foreign currency management and related services.
OPERATIONS
The Company is organized into four underwriting segments - insurance,
reinsurance, Lloyd's Syndicates and financial services - and a corporate
segment, which includes the investment operations of the Company. The
descriptions of policies and coverages which follow are summary in nature. Only
the terms and conditions of individual policies or contracts have legal effect,
and nothing in this report constitutes an admission of coverage or other
liability or interpretation of any particular policy provision.
INSURANCE OPERATIONS
The Company provides both excess and primary insurance globally through the
following subsidiaries: XL Insurance, XL Europe, XL Insurance Company of New
York, Greenwich Insurance, Indian Harbor Insurance, ECS and Intercargo.
The Company provides third party general liability insurance, 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. The
liability insurance is written on an excess basis and the loss experience is
characterized as low frequency and high severity. The Company generally requires
that disputes arising under the policies be settled by arbitration in London.
General liability coverage is typically provided on an occurrence-reported
policy form, with up to a maximum limit of $200 million per occurrence and in
the annual aggregate. Policies typically cover occurrences causing unexpected
and unintended personal injury, or property damage 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. Traditional occurrence coverage is also
available for restricted classes of risk and is generally written on a
follow-form basis, i.e. the policy generally adopts the terms, conditions and
exclusions of the underlying policy, currently up to a maximum of $50 million
per occurrence in excess of a minimum attachment point of $25 million.
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Directors and Officers coverage is written on a follow-form claims-made
basis providing up to a maximum limit of $75 million on both a primary and
excess basis.
Professional liability risks are also generally written on a follow-form
basis. Coverage is provided for certain categories of risk up to a maximum of
$50 million with a minimum attachment of $20 million.
Employment practices liability risks are written on a claims-made and
reported policy. The policy covers claims brought by an employee against an
insured for certain employment practices, up to a maximum of $100 million annual
aggregate limit in excess of a minimum attachment point of $0.5 million.
Property insurance risks are written on a follow-form basis, which usually
provides coverage for all risks of physical damage and business interruption up
to a maximum limit of $100 million per occurrence, with a sub-limit of up to
$25 million for coverage in critical earthquake zones. Property insurance is
written on both a pro rata and excess basis. 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.
The Company offers multi-year combined line coverages for traditional
casualty coverages including general, directors and officers liability,
professional liability and property coverage, in addition to a blended finite
coverage for risks which traditionally have been difficult to place through pure
risk transfer mechanisms.
Primary program insurance risks written include specialty insurance such as
auto warranty business, environmental insurance, U.S. Customs bonds and marine
cargo insurance.
REINSURANCE OPERATIONS
The Company, through NAC Re and XL Mid Ocean Re, provides a broad range of
property and casualty reinsurance products on a global basis. Business is
written on both a proportional and excess of loss basis.
The Company's casualty reinsurance is provided on a treaty and facultative
basis and includes general liability, professional liability, automobile and
workers' compensation, and commercial and personal property risks and specialty
risks, including fidelity and surety and ocean marine. Business is written on an
excess of loss basis, under which the Company indemnifies an insurer for a
portion of the losses on insurance policies in excess of a specified loss
amount, generally $1 million or more, and up to an amount per loss specified in
the contract. It is also written on a pro rata basis under which the Company
assumes from the primary insurer a percentage of loss specified in the treaty of
each risk in the reinsured class.
The Company's property business is primarily short-tail in nature and
includes 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. A significant portion of 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.
The Company's property catastrophe reinsurance account is generally "all
risk" in nature. It is therefore exposed to losses from sources as diverse as
windstorms, earthquakes, freezes, riots, floods, industrial explosions, fires or
any number of other potential disasters. In accordance with market practice, the
Company's policies generally exclude certain risks such as war, nuclear
contamination or radiation. The Company's predominant exposure under such
coverage is to property damage. 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 the Company's property catastrophe contracts
limit coverage to one occurrence in any one policy year, but most contracts
generally provide for one reinstatement.
The Company also writes property risk excess of loss reinsurance. 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.
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The Company's property pro rata account includes proportional reinsurance
of direct property insurance. The Company considers this business to be related
to its catastrophe and other property exposures. In proportional reinsurance,
the Company 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 Company, and the ceding insurer
may also be entitled to receive a profit commission based upon the ratio of
losses, loss adjustment expense and the Company's expenses to premium ceded. The
Company is dependent upon the ceding insurer's underwriting, pricing and claims
administration to yield an underwriting profit. In some instances, the Company
may be entitled to the benefit of other reinsurance, known as common account
reinsurance, purchased by the ceding company on an account reinsured by the
Company on a proportional basis.
The aviation portfolio is written on both a proportional and excess of loss
basis. The exposures are mainly derived through proportional relationships on
defined segments of account following market leaders in the field. Due to the
highly technical nature of the satellite business, the exposures retained under
this portfolio are acquired mostly through proportional reinsurances of
specialist underwriters.
Other reinsurance written by the Company includes political risk, nuclear
accident, professional indemnity and life and annuity.
LLOYD'S OPERATIONS
The Company's Lloyd's operations are conducted by Brockbank and Denham.
Brockbank operates through two subsidiaries, which are Lloyd's managing general
agencies, Brockbank Syndicate Management and Brockbank Personal Lines. These
Brockbank subsidiaries manage five syndicates, two of which are dedicated
corporate syndicates whose capital is provided solely by the Company. During
1999, these dedicated corporate syndicates (syndicates 1209 and 2253) wrote a
range of specialty lines, primarily of insurance but also reinsurance, in
parallel with the other syndicates managed by Brockbank (syndicates 588, 861 and
253). Effective January 1, 2000, motor business is no longer written. Denham is
a Lloyd's managing agency which manages one Lloyd's syndicate (syndicate 990),
whose capital is partially provided by the Company and which writes casualty and
non-marine physical damage insurance. As managing agencies, Brockbank and Denham
receive fees and commissions in respect of the underwriting services they
provide to syndicates.
Corporate syndicate 1209 writes a wide range of classes across the
property, casualty and marine, aviation and transport sectors to a globally
diverse group of clients. Coverages range from global "all risks" programs for
multinationals to tailored facilities for agents with small and medium sized
businesses, with particular emphasis on North America and Europe. The
syndicate's specie account includes fine art, cash in transit, financial
institutions and jewelry. The syndicate's accident and health account is
worldwide and comprises personal accident insurance and reinsurance, medical
expenses and kidnap and ransom. The professional indemnity account includes
professional and directors and officers liability and fidelity, with particular
emphasis in the service sectors (financial institutions, lawyers, information
technology, architects and engineers) in North America. Other business written
by the Company's Lloyd's operations includes the bloodstock account and
contingency coverages.
Through the marine, hull and machinery account, syndicate 1209 has a
significant involvement with many of the world's largest fleets. The syndicate's
energy account comprises cover for all elements of the worldwide hydrocarbon
industry. The syndicate writes a space account and is involved at every stage of
major space launches and associated pre-launch operations. The marine liability
account embraces all the major types of cover available, including pollution
insurance, financiers' exposures and certificates of financial responsibility
reinsurance, as well as the more traditional liability cover, such as
charterers' liabilities. The syndicate writes a broad international cargo
account, specializing in the technology sector and in large plant and project
equipment. The syndicate also writes war and political risk cover for ships and
aircraft, and also covers most political risks, including expropriation,
confiscation, terrorism and trade disruption.
Syndicate 1209's treaty reinsurance account provides high excess or
catastrophe cover predominantly for direct insurers. This account is diverse and
consists of protections for companies ranging from the large worldwide
multi-line insurers to the small domestic industrial mutual insurers. Excess of
loss coverage is provided for most lines of insurance. Syndicate 1209 also
writes a book of non-proportional treaty reinsurance business.
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Until December 1999, syndicate 2253 wrote an account of direct and broker
based motor insurance in the United Kingdom, an account which was also written
by syndicate 1209. This business was offered through two distribution channels:
Admiral Insurance, a direct response motor operation, and Zenith Insurance,
which offered motor insurance through a network of retail brokers. Admiral
concentrated on the private car market. Zenith operated across a broader range
of activities, covering areas such as taxis, motorcycles, agricultural vehicles
and commercial fleets, as well as private cars. In December 1999, Brockbank sold
Admiral and Zenith. The Company expects decreases in premiums, fee income and
certain costs as a result of the sale, however it does not expect the overall
profitability of its Lloyd's operations to be significantly affected by such
sales.
FINANCIAL SERVICES
The Company, through XL Capital Products, provides credit enhancement
coverages in the form of financial guaranty insurance and reinsurance and credit
default swaps on asset-backed, municipal and select corporate risk obligations.
Financial guaranty insurance generally guarantees payments of interest and
principal on an issuer's obligations when due. Credit default swaps provide
coverage for losses upon the occurrence of specified credit events set forth
therein. The Company's underwriting policy is to credit enhance obligations and
exposures that would otherwise be lower investment grades without the benefit of
the Company's enhancement, although on an exception basis, the Company will
consider underwriting high non-investment grade risks.
Asset-backed obligations insured or reinsured by the Company are generally
issued in structured transactions backed by pools of assets of specified types,
such as residential mortgages, auto loans and other consumer receivables,
equipment leases and corporate debt obligations, having an ascertainable cash
flow or market value. Municipal obligations insured or reinsured consist mainly
of general or special obligations of state and local governments, supported by
the issuer's ability to charge fees for specified services or projects.
Corporate risk-based obligations which the Company has underwritten include
essential infrastructure projects and obligations backed by receivables from the
future sales of commodities and other specified services. Obligations guaranteed
or enhanced by the Company range in duration from a few years to 15 or more
years, and premiums are either received on an installment basis or up front.
The Company has adopted written underwriting guidelines for the various
products and asset classes comprising the credit enhancement business, which
include single and aggregate risk limitations on specified exposures. A credit
committee including Bermuda-based executive officers of the Company provides
final underwriting approval for each transaction. Par insured and notional
amounts covered under the Company's guarantees and credit default swaps may be
up to $500 million or more for certain risks, and the underlying risks include
those of the Organization for Economic Cooperation and Development and emerging
market issuers and assets.
The Company has also underwritten two transactions whereby substantial loss
reserves were assumed. In addition to the underwriting risks assumed, the
Company also has embedded exposure in these transactions to investment
performance return and ceded reserves. These transactions are actuarially
expected to be of long duration.
PREMIUMS
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and Note 3 in the Notes to the Consolidated Financial
Statements.
REINSURANCE CEDED
In many cases, the risks assumed by the Company are reinsured with other
reinsurers. The benefits of ceding risks to other reinsurers include reducing
exposure on individual risks, protecting against catastrophic risks and
maintaining acceptable capital ratios. Reinsurance ceded does not legally
discharge the Company from its liabilities in respect of the risk being
reinsured. The following is a discussion of the types of reinsurance ceded by
the Company.
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INSURANCE OPERATIONS
The Company purchases a quota share and an excess of loss reinsurance
treaty to protect the general liability occurrence-notified business written.
Under the terms of the current quota share treaty, the Company cedes 20% of each
risk subject to a per risk maximum of $30 million. The aggregate maximum amount
recoverable under this treaty is 300% of the total premium ceded. Effective
April 1, 1999, the business covered by the treaty was extended to include
employment practices liability business. The treaty is placed with eight
reinsurers and no single reinsurer participates in excess of 20% of the program.
All reinsurers are rated by A.M. Best as A or better and all reinsurers, except
for one, are rated by S&P as BBB or better. The most significant reinsurers on
this program are Hannover Re, St. Paul Re and Cigna. These companies are rated
AA+, AA and BBB, respectively, by S&P, and have participations of 20%, 20% and
15%, respectively, on a reinsurance balance receivable and unpaid losses
recoverable balance of $192 million as of December 31, 1999.
Under the terms of the excess of loss reinsurance treaty, the Company is
reinsured for $112.5 million excess of various per risk, aggregate and
quota-share retentions. The maximum amount recoverable under this treaty is $250
million. The treaty is placed with eighteen reinsurers including four Lloyd's
syndicates. No single reinsurer participates in excess of 20% of the program.
All reinsurers are rated by S&P as A or better, and all reinsurers, except for
one, are rated by A.M. Best as A or better. The most significant reinsurers on
this program are American Re, ERC Frankona and PMA Re. These companies are rated
AAA, AAA and A, respectively, by S&P, and have participations of 20%, 12.5% and
10%, respectively, on a reinsurance balance receivable and unpaid losses
recoverable balance of $38 million as of December 31, 1999.
The Company also purchases a variable surplus treaty to protect the
property business written. Under the terms of the current treaty, the Company
can cede a maximum of 50% of each risk subject to a per risk maximum of $25
million. The maximum amount recoverable under this treaty is $50 million. The
treaty is placed with eight reinsurers and no single reinsurer participates in
excess of 20% of the program. All reinsurers are rated by A.M. Best as A or
better and by S&P as A- or better. The most significant reinsurers on this
program are ERC Frankona, PMA Re and St. Paul Re. These companies are rated AAA,
A and AA, respectively, by S&P, and have participations of 20%, 16% and 15%,
respectively, on a reinsurance balance receivable and unpaid losses recoverable
balance of $13 million as of December 31, 1999.
The Company also purchases a quota share reinsurance treaty to protect the
general liability occurrence business. At December 31, 1999, there were no
losses under this treaty.
REINSURANCE OPERATIONS
Traditionally, the Company has purchased limited retrocession reinsurance
on its property business with covers primarily originating from common account
reinsurance on assumed business. Specific excess of loss protection is purchased
for the London and Singapore branch operations, and a corporate multi-year
program is purchased for its global property exposures. This protection gives
total limits in various layers and excess of varying attachment points according
to territorial exposure. The Company has co-reinsurance retentions within this
program. In August 1998, the Company placed $200 million of retrocessional
property catastrophe cover in a combination reinsurance and capital market swap
transaction which covered hurricane and earthquake exposure in the U.S. and its
territories and in the Caribbean. This cover was not renewed in 1999 and was
replaced by a second event cover of $300 million excess of a retention of
$500 million.
The Company's casualty reinsurance program in 1999 covers multiple claims
arising from two or more risks in a single occurrence or event. Workers'
compensation business is reinsured at $195 million in excess of $5 million
retention for any one occurrence. An additional casualty contingency cover is
purchased for a total of $32 million excess of an initial retention of
$5 million, which gradually increases up to an additional $3 million should
gross losses exceed $30 million. In addition, the Company had coverage in 1999,
1998 and 1997 in the event that the accident year loss and loss expense ratio
exceeded a pre-determined amount. At December 31, 1999, the Company had a
reinsurance balance receivable and unpaid loss recoverable of $117 million due
from Hannover Re (Ireland) Ltd, which is rated A+ by A.M. Best.
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The Company had an intercompany stop loss agreement in place in 1999 under
which a subsidiary in the reinsurance segment was covered by a subsidiary in the
insurance segment for losses exceeding a specified loss ratio up to $100
million. The purpose of this agreement is to efficiently manage statutory
surplus levels across the Company.
The 1998 casualty reinsurance program was similar to that of 1999. Workers'
compensation business is reinsured for $195 million in excess of $5 million
retention for any one occurrence. An additional casualty contingency cover is
purchased for a total of $25 million excess of an initial retention of
$5 million.
The Company's 1997 casualty reinsurance program was substantially similar
to the 1998 program.
The Company terminated two retrocessional programs effective January 1,
1997. Termination of these programs has resulted in an increase in net retention
levels for the years 1996 and prior. As the casualty book of business matures,
the increase in net retentions for these years may result in increased
volatility in future years to the extent the actual frequency and severity of
claims differs from management's current estimates. The Company believes its
exposure to such volatility is within acceptable levels.
LLOYD'S OPERATIONS
The Company's Lloyd's operations have historically purchased reinsurance to
protect the syndicates against extraordinary loss or loss involving one or more
underwriting classes. The amount purchased is determined with reference to the
syndicates' aggregate exposure and potential loss scenarios.
COMPETITION
The worldwide property and casualty insurance and reinsurance industry 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. Some of the Company's competitors
possess significantly greater financial and other resources than the Company.
The Company generally competes on the basis of financial strength, coverage
terms, claims paying rating and reputation, price and customer service.
See Industry Overview included in the "Management's Discussion of Financial
Condition and Results of Operations" for further discussion of current market
conditions.
UNDERWRITING AND MARKETING
UNDERWRITING
The insurance subsidiaries write liability and property 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 institutions 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 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 judgment 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 that group. Each industry group is reviewed
annually to take into account outstanding reported 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.
The reinsurance subsidiaries employ 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 they anticipate
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placing at risk. Underwriting opportunities presented are evaluated based upon a
number of factors including: the type and layer of risk to be assumed; actuarial
evaluation of premium adequacy; the cedent's underwriting and claims experience;
the cedent's financial condition and claims paying rating; exposure; and
experience with the cedent and the line of business to be underwritten. In
addition, the Company assesses a variety of other 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. On-site underwriting reviews are performed
where deemed necessary to determine the quality of a current or prospective
cedent's underwriting operation.
For the property catastrophe reinsurance business, the Company 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 catastrophic losses in any geographic zone. The Company
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 the Company's zones is subject to periodic review and change. The
Company also generally seeks an attachment point for its property catastrophe
reinsurance anticipated to be high enough to produce a low frequency of loss.
The Company seeks to limit 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.
The Company's Lloyd's operations underwrite a broad range of risks, and the
factors taken into consideration in the underwriting process vary between class
of business. An actuarial resource is available to underwriters to assist in the
review and rating of risks. Underwriters operate within agreed guidelines, which
establish maximum gross exposure by business area and geographic region. The
daily acceptance of risk is performed by the active underwriter, the class
underwriters and individuals with specific delegated authority. Underwriting
authority limits are agreed between the active underwriter, the class
underwriter and the managing agency's board of directors. Underwriters may
delegate underwriting authority on a contractual basis to individuals who are
approved and monitored. Brockbank Syndicates also participate on market
facilities where underwriting authority is delegated to the lead insurer.
For the financial services business, the Company has adopted written
underwriting guidelines for the various products and asset classes comprising
the credit enhancement business, which include single and aggregate risk
limitations on specified exposures. A credit committee including Bermuda-based
executive officers of the Company provides final underwriting approval for each
transaction.
As part of the underwriting process, all of the Company's insurance and
reinsurance underwriting operations evaluated potential exposures to claims,
losses and defense costs associated with Year 2000-related issues. Such claims,
losses and costs, to the extent that they materialize, could have a material
adverse affect on the Company's results of operations and financial condition.
No significant matters had been notified to the Company as of March 17, 2000.
For more information concerning the impact of Year 2000 issues on underwriting
results, see "Management's Discussion and Analysis of Results of Operations 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 brokers who receive from the insured or ceding company a brokerage commission
usually equal to a percentage of gross premiums. In general, subsidiaries of the
Company are not committed to accept business from any particular broker, and
brokers do not have the authority to bind any subsidiary of the Company, except
in the case where underwriting authority may be delegated to selected
administrators. These administrators are subject to a financial and operational
review prior to any delegation of authority and ongoing reviews are carried out
as necessary.
During 1999, 1998 and 1997, approximately 21%, 34% and 35% of the Company's
consolidated gross written premiums were generated from or placed by Marsh &
McLennan Companies. During 1999, 1998 and 1997, approximately 13%, 19% and 18%
of the Company's consolidated gross written premiums were generated from or
8
<PAGE>
placed by AON Corporation and its subsidiaries. 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 each of the
three years ended December 31, 1999, 1998 and 1997.
UNPAID LOSSES AND LOSS EXPENSES
Certain aspects of the Company's business have loss experience
characterized as low frequency and high severity. This may result in volatility
in both the Company's results and operational cash flows.
Loss reserves are established due to the significant periods of time that
may lapse between the occurrence, reporting and payment of a loss. To recognize
liabilities for unpaid losses, the Company estimates future amounts needed to
pay claims and related expenses with respect to insured events. 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 claim made against the Company's
subsidiaries.
The method of establishing case reserves for reported claims differs
between the Company's operations. For the insurance operations, 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. A similar process is followed in the reinsurance and Lloyd's
operations when the Company is a lead underwriter. Other reinsurance and Lloyd's
business 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 payments are made.
Most of the Company's incurred but not reported ("IBNR") loss reserves are
derived from casualty business. Casualty business generally has a longer tail
than the Company's other lines of business. IBNR is calculated in two steps.
First, case reserve development is estimated with the use of the loss
development factor method. Second, IBNR is estimated with a frequency and
severity approach. Since coverage is usually triggered when a notice is
submitted by the insured, IBNR losses exist only when claims with a loss notice
develop into the relevant layers of coverage. The method estimates 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.
However, even such actuarially sound methods, when coupled with the nature of
the risks written, can lead to subsequent adjustments to reserves that are both
significant and irregular.
Several aspects of the Company's casualty insurance operations complicate
the actuarial reserving techniques for loss reserves as compared to other
insurance operations. 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 will be characterized by low frequency and high severity, limiting the
utility of claims experience of other insurers for similar claims. While
management believes it has made a reasonable estimate of ultimate losses, the
ultimate claims experience may not be as reliably predicted as may be the case
with other insurance operations, and there can be no assurance that losses and
loss expenses will not exceed the total reserves.
Claims relating to property catastrophe and property risk excess treaties
will generally become known within approximately 18 to 24 months from the date
of occurrence. Conversely, claims on the casualty business develop on average 5
to 8 years from the date of occurrence. Claims under a significant number of
Lloyd's syndicate policies, with the exception of motor, will generally become
known within 36 months of the date of the occurrence. Motor claims not involving
personal injury will generally be known and paid within 12 months of the
occurrence.
9
<PAGE>
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 the prior estimates.
The table below presents the development of unpaid loss and loss expense
reserves for 1989 through 1999. The top line of the table shows the liability,
net of reinsurance recoveries at the balance sheet date for each of the
indicated years. This represents the estimated amounts of net loss and loss
expenses arising in all prior years that are unpaid at the balance sheet date,
including IBNR. The upper portion shows the re-estimated amount of the
previously recorded reserve liability based on experience as of the end of each
succeeding year. The estimate changes as more information becomes known about
the frequency and severity of claims for individual years. The "Cumulative
Redundancy (Deficiency)" line represents the aggregate change in the successive
years with respect to that liability. The lower portion of the table reflects
the cumulative paid losses relating to these reserves. 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. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition - Cautionary Note Regarding Forward-Looking Statements."
ANALYSIS OF CONSOLIDATED LOSS AND LOSS EXPENSE RESERVE DEVELOPMENT
NET OF REINSURANCE RECOVERIES
(In Millions)
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
ESTIMATED LIABILITY FOR UNPAID
LOSSES AND LOSS EXPENSES,
NET OF REINSURANCE
RECOVERIES.................. $1,005 $1,268 $1,486 $1,795 $2,057 $2,482 $2,899 $3,166 $3,609 $4,303 $4,537
LIABILITY RE-ESTIMATED AS OF:
One year later.............. 1,039 1,269 1,468 1,800 2,089 2,455 2,885 2,843 3,354 4,016
Two years later............. 1,030 1,128 1,388 1,830 2,089 2,383 2,546 2,704 3,038
Three years later........... 935 960 1,299 1,819 2,115 2,190 2,445 2,407
Four years later............ 783 910 1,303 1,891 1,972 2,085 2,214
Five years later............ 755 858 1,384 1,856 1,950 1,927
Six years later............. 775 871 1,384 1,820 1,752
Seven years later........... 789 884 1,392 1,644
Eight years later........... 811 945 1,245
Nine years later............ 867 795
Ten years later............. 724
CUMULATIVE REDUNDANCY (1)...... 281 473 241 151 305 555 685 759 571 287
CUMULATIVE PAID LOSSES, NET OF
REINSURANCE RECOVERIES, AS
OF:
One year later.............. $ 159 $ 223 $ 194 $ 267 $ 256 $ 317 $ 445 $ 234 $ 458 $ 812
Two years later............. 349 307 393 468 521 709 667 576 932
Three years later........... 404 403 499 689 865 921 934 932
Four years later............ 459 456 632 937 1,033 1,110 1,143
Five years later............ 481 486 831 1,102 1,198 1,199
Six years later............. 504 585 924 1,253 1,273
Seven years later........... 598 597 974 1,319
Eight years later........... 598 633 1,020
Nine years later............ 611 662
Ten years later............. 621
</TABLE>
(1) See "Management's Discussion and Analysis of Results of Operations and
Financial Conditions" for further discussion.
10
<PAGE>
The table below presents the claim development of the gross liability for
unpaid losses and loss expenses for the years 1992 through 1999:
ANALYSIS OF CONSOLIDATED LOSS AND LOSS EXPENSE RESERVE DEVELOPMENT
GROSS OF REINSURANCE RECOVERABLES
(In Millions)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------
ESTIMATED GROSS LIABILITY FOR UNPAID LOSSES AND
LOSS EXPENSES:.................................. $1,977 $2,269 $2,760 $3,238 $3,623 $3,972 $4,897 $5,369
LIABILITY RE-ESTIMATED AS OF:
One year later.................................. 1,996 2,309 2,764 3,244 3,221 3,763 4,735
Two years later................................. 2,037 2,323 2,721 2,872 3,164 3,496
Three years later............................... 2,043 2,373 2,494 2,793 2,902
Four years later................................ 2,134 2,198 2,414 2,572
Five years later................................ 2,067 2,208 2,268
Six years later................................. 2,065 2,022
Seven years later............................... 1,903
CUMULATIVE REDUNDANCY.............................. 74 247 492 666 721 476 162
</TABLE>
The following table presents an analysis of paid and unpaid losses and loss
expenses and a reconciliation of beginning and ending unpaid losses and loss
expenses for the years indicated:
RECONCILIATION OF UNPAID LOSSES AND LOSS EXPENSES
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
------------------------------------
Unpaid losses and loss expenses at beginning of year........ $4,896,643 $3,972,376 $3,623,334
Unpaid losses and loss expenses recoverable................. (593,960) (363,716) (457,373)
------------------------------------
Net unpaid losses and loss expenses at beginning of year.... 4,302,683 3,608,660 3,165,961
Increase (decrease) in net losses and loss expenses incurred
in respect of losses occurring in:
Current year............................................. 1,591,414 1,085,161 1,056,228
Prior year............................................... (287,110) (243,644) (317,379)
------------------------------------
Total net incurred loss and loss expenses............. 1,304,304 841,517 738,849
Interest incurred on experience reserves.................... - 1,798 866
Exchange rate effects....................................... (5,950) 718 (658)
Net loss reserves acquired through purchase of
subsidiaries.............................................. 30,003 580,879 34,593
Net loss and loss expenses paid in respect of losses
occurring in:
Current year............................................. 281,806 272,456 97,296
Prior year............................................... 811,696 458,433 233,655
------------------------------------
Total net paid losses................................. 1,093,502 730,889 330,951
Net unpaid losses and loss expenses at end of year.......... 4,537,538 4,302,683 3,608,660
Unpaid losses and loss expenses recoverable................. 831,864 593,960 363,716
------------------------------------
Unpaid losses and loss expenses at end of year.............. $5,369,402 $4,896,643 $3,972,376
------------------------------------
</TABLE>
11
<PAGE>
Losses incurred in 1999 grew significantly over 1998 for a number of
reasons. The Company acquired Mid Ocean and Brockbank in August 1998 and as a
consequence only recognized the effect of their operations for five months in
1998. Incurred losses for these entities were approximately $475 million in 1999
compared to $260 million in 1998. The Company was also affected by a number of
catastrophes in 1999 compared to 1998. The fourth quarter of 1999 generated
approximately $135 million of catastrophic losses to the Company, of which the
European storms in December account for the major part. The Company also
experienced a number of smaller catastrophe losses in 1999 that totaled
approximately $50 million. These losses included the Turkey earthquakes, the
Sydney hailstorms and the Oklahoma tornadoes. By comparison, the Company
incurred approximately $60 million in catastrophe losses relating to Hurricane
Georges and the SwissAir disaster in 1998. These losses were incurred in the
reinsurance operations.
The Lloyd's operations experienced loss deterioration on the U.K. motor
business written by Brockbank, principally relating to its 1998 and 1999
underwriting years of approximately $20 million. The motor business was sold,
realizing a gain of approximately $40 million included in fee and other income
in 1999. The Company retains residual liability on this business.
1999 incurred losses also include an increase of reinsurance loss reserves
of $95 million for NAC Re when it merged with the Company in June 1999. In
addition, the acquisition of Intercargo in June 1999 added approximately
$30 million to total incurred losses.
The decrease in prior year incurred losses is driven primarily by the
Company's insurance liability excess of loss reserves. The basis for
establishing IBNR is unlike most insurance companies due to the lack of industry
data. Consequently, the Company estimates loss reserves through actuarial models
based upon its own experience. When the Company commenced writing this type of
business in 1986, limited data was available and the Company made its best
estimate of loss reserves at that time. Over time, the amount of data has
increased, providing a larger statistical base for estimating reserves.
Redundancies in prior year loss reserves have occurred where loss experience has
developed more favorably than expected.
The increase in paid losses in 1999 and 1998 reflects the acquisition of
Mid Ocean and Brockbank in 1998. In addition, the nature of the Company's high
excess of loss liability and catastrophe business can result in loss payments
that are both irregular and significant. Similarly, 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
based upon historical experience. See generally "Management's Discussion and
Analysis of Results of Operations and Financial Condition - Cautionary Note
Regarding Forward-looking Statements".
CLAIMS ADMINISTRATION
Claims management for the insurance operations includes the review of
initial loss reports, creation of claims files, administration of a claims
database, generation of appropriate responses to claims reports, 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 management for the reinsurance operations includes the receipt of
loss notifications, the establishment of loss reserves and approval of loss
payments. Additionally, claims audits are conducted for both specific claims and
overall procedures at the offices of selected ceding companies.
Claims in respect of business written by the Lloyd's operations are
primarily notified by various central market bureaus. Where a syndicate is a
"leading" syndicate on a Lloyd's policy, its underwriters and claims adjusters
will deal with the broker or insured on behalf of itself and the following
market for any particular claim. This may involve appointing attorneys or loss
adjusters. The claims bureaus and the leading syndicate advise movement in loss
reserves to all syndicates participating on the risk. A claims department can,
at times, adjust the case reserves it records from those advised by the bureaus.
12
<PAGE>
INVESTMENTS
Management oversees the Company's investment strategy, establishes
guidelines for the various external managers and implements investment decisions
with the assistance of such managers. The current investment strategy seeks to
maximize investment income through a high-quality, diversified portfolio whilst
focusing on preserving principal and maintaining liquidity. In this regard, at
December 31, 1999, the Company's fixed income investment portfolio includes U.S.
and non-U.S. sovereign government obligations, corporate bonds and other
securities, 60% of which were rated Aa or AA or better by a nationally
recognized rating agency. The Company also maintains a portfolio of equity
securities. Under current investment guidelines, up to 30% of the Company's
investment portfolio may be invested in equity securities. Insurance laws and
regulations impose restrictions on the Company's investments whereby certain
types of investments such as unquoted equity securities, investments in
affiliates, real estate and collateral loans may not qualify as admitted assets.
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 December 31,
1999, 1998 or 1997.
For additional information concerning the Company's investments, see
"Management's Discussion and Analysis of Results of Operations and Financial
Condition - Investment Operations".
The following table reflects investment results for the Company for each of
the five years in the period ended December 31, 1999:
<TABLE>
<CAPTION>
NET PRE-TAX PRE-TAX ANNUALIZED
AVERAGE INVESTMENT REALIZED EFFECTIVE
YEAR ENDED DECEMBER 31 INVESTMENTS (1) INCOME (2) GAINS YIELD
- ---------------------- ------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1999................................................ $8,981,833 $525,318 $ 94,356 5.85%
1998................................................ $7,762,931 $417,290 $211,204 5.38%
1997................................................ $6,274,946 $345,115 $410,658 5.50%
1996................................................ $5,813,455 $304,823 $174,593 5.24%
1995................................................ $5,203,710 $288,989 $131,840 5.55%
</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 gains.
RATINGS
The Company's principal insurance and reinsurance subsidiaries have a
claims paying rating of "AA" from S&P and "A+" from A.M. Best Company, Inc. An
insurer rated "AA" by S&P has very strong financial security characteristics,
differing only slightly from those rated higher. An insurer rated "A+" by A.M.
Best has superior financial strength, operating performance and market profile
when compared to standards established by A.M. Best, and have a very strong
ability to meet their ongoing obligations to policyholders.
REGULATION
See Note 18 to the Consolidated Financial Statements.
TAX MATTERS
See Note 17 to the Consolidated Financial Statements.
13
<PAGE>
EMPLOYEES
At December 31, 1999, the Company and its subsidiaries employed
approximately 1,300 employees. None of these employees are represented by a
labor union, and the Company believes that its employee relations are excellent.
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
December 31, 1999, 1998 and 1997 was approximately $13 million, $9 million and
$7 million, respectively. 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 million, of which
$60 million has been spent through December 31, 1999. It is estimated that the
development will be completed sometime in 2001. See Note 11 to the Consolidated
Financial Statements for discussion of the Company's lease commitments.
ITEM 3. LEGAL PROCEEDINGS
The Company, through its subsidiaries, in common with the insurance and
reinsurance industry in general, is subject to litigation and arbitration in the
normal course of its business. As of December 31, 1999, the Company was not a
party to any material litigation or arbitration 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.
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.
14
<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 December 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Brian M. O'Hara........................ 51 President, Chief Executive Officer and Director of the
Company
Robert R. Lusardi...................... 43 Executive Vice President and Chief Financial Officer of the
Company
Mark E. Brockbank...................... 47 Executive Vice President of the Company and Chief Executive
Officer of Brockbank
Nicholas M. Brown, Jr.................. 45 Executive Vice President of the Company and President and
Chief Executive Officer of XL America
K. Bruce Connell....................... 47 Executive Vice President of the Company and President and
Chief Executive Officer of XL Capital Products
Paul S. Giordano....................... 37 Executive Vice President, General Counsel and Secretary of
the Company
Christopher V. Greetham................ 55 Executive Vice President and Chief Investment Officer of
the Company
Henry C. V. Keeling.................... 44 Executive Vice President of the Company and President and
Chief Executive Officer of XL Mid Ocean Re
Fiona Luck............................. 42 Executive Vice President of the Company, Group Operations
Clive R. Tobin......................... 47 Executive Vice President of the Company and President and
Chief Executive Officer of XL Insurance
</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 XL Insurance
and XL Mid Ocean Re and was Chief Executive Officer of XL Insurance 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.
Mark E. Brockbank has been Executive Vice President of the Company since
August 1998. Mr. Brockbank has been employed at Lloyd's since 1974 when he
joined Willis Faber Dumas as a marine broker. He became underwriter of syndicate
861 in 1983. He was appointed a Director of Brockbank Syndicate Management Ltd
in 1983 and of The Brockbank Group plc in 1988.
Nicholas M. Brown, Jr. has been Executive Vice President of the Company
since July 1999. He was President and Chief Executive Officer of NAC Re Corp
from January 1999, having previously served as President and Chief Operating
Officer of NAC and President and Chief Executive Officer of NAC Re from 1996.
Prior to joining NAC, Mr. Brown served as Executive Vice President and Chief
Operating Officer of St. Paul Fire and Marine Insurance Company from 1994 to
1996, and as President of St. Paul Specialty from 1993 to 1994. From 1976 though
1993, he served in various positions at Aetna Life and Casualty Companies.
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.
Mr. Connell previously served as President and Chief Operating
15
<PAGE>
Officer of XL Global Re from November 1997 to August 1998, President of XL
Global Re since December 1995 and as Senior Vice President of XL Insurance from
1990 to 1995.
Paul S. Giordano has been Executive Vice President and General Counsel of
the Company since June 1999. Mr. Giordano served as Senior Vice President since
January 1997 and was appointed Secretary of the Company on December 31, 1997.
Mr. Giordano was associated with Cleary, Gottlieb, Steen and Hamilton and
Clifford Chance in New York and London prior to joining the Company.
Christopher V. Greetham has been Executive Vice President of the Company
since December 1998 and has served as Chief Investment Officer of the Company
since 1996. 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.
Henry C.V. Keeling has been Executive Vice President of the Company and
Chief Executive Officer of XL Mid Ocean Re since August 1998. Mr. Keeling was
President and Chief Operating and Underwriting Officer of Mid Ocean Re from 1992
to 1998. He previously served as a director of Taylor Clayton (Underwriting
Agencies) Ltd and deputy underwriter for syndicate 51 at Lloyd's from 1984
through 1992.
Fiona Luck has been Executive Vice President of Group Operations of the
Company since July 1999. Ms. Luck was previously employed at ACE Bermuda as
Executive Vice President from 1998, and Senior Vice President from 1997. From
1992 to 1997, Ms. Luck was the Managing Director of the Marsh & McLennan Global
Broking office in Bermuda.
Clive R. Tobin has been Executive Vice President of the Company and
President and Chief Executive Officer of XL Insurance since July 1999, having
previously served as Executive Vice President of XL Insurance from 1998, and as
a Senior Vice President of XL Capital Products from February 1999. Mr. Tobin
previously served as President of Rockefeller Insurance Company and Acadia Risk
Management Services, Inc from 1986 to 1995.
16
<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.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
-----------------
1999:
1st Quarter............................................... $75.188 $56.750
2nd Quarter............................................... 66.500 56.750
3rd Quarter............................................... 57.688 42.188
4th Quarter............................................... 58.063 44.938
1998:
1st Quarter............................................... $77.500 $59.625
2nd Quarter............................................... 80.813 72.250
3rd Quarter............................................... 83.250 62.125
4th Quarter............................................... 77.688 63.938
</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 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 December 31, 1999 was 700.
(c) In 1999, four regular quarterly dividends were paid at $0.44 per share
to all shareholders of record on February 5, April 23, July 12 and
September 24.
The Company paid four regular quarterly dividends in 1998, three of $0.40
per share to all shareholders of record on February 6, April 16, and July 15 and
one of $0.44 per share to all 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, capital
and surplus requirements of the Company's operating subsidiaries and regulatory
restrictions.
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 laws and regulations of Bermuda,
the United States, and the United Kingdom, including those promulgated by the
Society of Lloyd's. See Note 18 to the Consolidated Financial Statements for
further discussion.
(d) Rights to purchase Class A Ordinary Shares were distributed as a
dividend at the rate of one Right for each Class A ordinary share held of record
as of the close of business on October 31, 1998. Each Right entitles holders of
XL Class A ordinary shares to buy one ordinary share at an exercise price of
$350. The Rights would be exercisable, and would detach from the Class A
ordinary shares, only if a person or group were to acquire 20% or more of XL's
outstanding Class A ordinary shares, or were to announce a tender or exchange
offer that, if consummated, would result in a person or group beneficially
owning 20% or more of XL's Class A ordinary shares. Upon a person or group
without prior approval of the Board acquiring 20% or more of XL's Class A
ordinary shares, each Right would entitle
17
<PAGE>
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 Rights.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data below includes the results of NAC
for all years presented and is based upon the Company's new fiscal year end of
December 31. The selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes thereto
presented under Item 8.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------------------------------------------------------------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net premiums earned................ $ 1,750,006 $ 1,324,291 $1,114,758 $1,038,643 $1,053,748
Net investment income.............. 525,318 417,290 345,115 304,823 288,989
Net realized gains on
investments .................... 94,356 211,204 410,658 174,593 131,840
Equity in net income of
affiliates ..................... 40,907 50,292 64,959 59,084 51,074
Losses and loss expenses (1)....... 1,304,304 841,517 738,849 739,058 772,096
Acquisition costs and operating
expenses........................ 689,005 436,598 318,107 277,801 269,427
Interest expense................... 37,378 33,444 29,622 22,322 15,648
Amortization of intangible
assets ......................... 49,141 26,881 7,403 368 368
Income before minority interest and
income tax expense.............. 431,159 686,962 841,509 537,594 468,113
Net income......................... 470,509 656,330 809,029 516,471 450,080
PER SHARE DATA:
Net income per
share - basic(2)(3)............. $ 3.69 $ 5.86 $ 7.95 $ 4.81 $ 3.82
Net income per
share - diluted(2)(3)........... $ 3.62 $ 5.68 $ 7.74 $ 4.73 $ 3.76
Weighted average shares
Outstanding - basic (3)............ 127,601 112,034 101,708 107,339 117,833
Weighted average shares
Outstanding - diluted (3).......... 130,304 116,206 105,005 109,908 120,496
Cash dividends per share (3)....... $ 1.76 $ 1.64 $ 1.36 $ 0.95 $ 0.71
BALANCE SHEET DATA:
Total investments.................. $ 9,122,591 $ 9,057,892 $6,562,609 $5,647,589 $5,234,208
Cash and cash equivalents.......... 557,749 480,874 383,594 321,140 787,759
Investments in affiliates.......... 479,911 154,668 524,866 414,891 351,669
Total assets....................... 15,090,912 13,581,140 9,070,031 7,823,375 7,424,468
Unpaid losses and loss expenses ... 5,369,402 4,896,643 3,972,376 3,623,334 3,238,156
Notes payable and debt............. 410,726 613,873 453,866 323,858 299,927
Shareholders' equity............... 5,577,078 5,612,603 3,195,749 2,637,533 2,564,422
Book value per share (3)........... $ 43.64 $ 43.59 $ 31.55 $ 25.31 $ 22.85
Fully diluted book value per share
(3) . $ 43.13 $ 43.20 $ 31.42 $ 25.24 $ 22.79
OPERATING RATIOS:
Loss and loss expense ratio (1).... 69.1% 63.6% 66.3% 71.2% 73.3%
Underwriting expense ratio (4)..... 34.3% 30.2% 27.9% 26.2% 25.6%
Combined ratio (5)................. 103.4% 93.8% 94.2% 97.4% 98.9%
</TABLE>
18
<PAGE>
1) The loss and loss expense ratio is the calculated by dividing the losses and
loss expenses incurred by the net premiums earned. In 1999, the loss and
loss expense ratio excludes an increase to reserves of $95 million
associated with the merger with NAC.
2) 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.
3) All share and per share information has been retroactively restated to give
effect to a one for one stock dividend paid to XL shareholders of record on
July 26, 1996. Cash dividends per share have not been adjusted for the
pooling effect of NAC.
4) The underwriting expense ratio is the sum of acquisition expenses and
operating expenses divided by net premiums earned. Operating expenses
relating to the corporate segment have not been included for purposes of
calculating the underwriting expense ratio.
5) The combined ratio is the sum of the loss and loss expense ratio and the
underwriting expense ratio. A combined ratio of under 100% indicates an
underwriting profit and over 100% indicates an underwriting loss.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The following is a discussion of the Company's results of operations and
financial condition. Prior period information presented is the combination of
the results formerly presented by XL Capital and NAC, as required for a business
combination accounted for by the pooling of interests method, which assumes NAC
had always been a part of the Company. It is also based upon the Company's new
fiscal year end of December 31. See Note 6 "Business Combinations" of the
audited Consolidated Financial Statements for further details. The Company's
results of operations and financial condition for 1998 were significantly
impacted by the acquisition of Mid Ocean in August 1998, which was accounted for
as a purchase business combination.
This "Management's Discussion and Analysis of Results of Operations and
Financial Condition" contains forward-looking statements which involve inherent
risks and uncertainties. Statements that are not historical facts, including
statements about our beliefs and expectations, are forward looking-statements.
These statements are based upon current plans, estimates and expectations.
Actual results may differ materially from those projected in such
forward-looking statements, and therefore you should not place undue reliance on
them. See "--Cautionary Note Regarding Forward-Looking Statements" for a list of
factors that could cause actual results to differ materially from those
contained in any forward-looking statement.
This discussion and analysis should be read in conjunction with the audited
Consolidated Financial Statements and notes thereto presented under Item 8.
INDUSTRY OVERVIEW
Abundant capacity and significant price competition continued to
characterize the property and casualty insurance and reinsurance industry during
1999. Excess capital and limited opportunities for growth in traditional markets
continued to generate merger and acquisition activity as companies attempt to
maintain or improve market share and performance. Perhaps more than ever, the
Company, together with the industry, faces a difficult challenge in generating
profitable growth.
1999 was among the worst years for insured catastrophic losses. The
industry suffered losses from, amongst other events, the Sydney hailstorms, the
Oklahoma tornadoes, Hurricane Floyd and the European windstorms. Despite these
losses, premium rates in 1999 did not increase significantly.
19
<PAGE>
RESULTS OF OPERATIONS
The following table presents an after tax analysis of the Company's net
income for the years ended December 31, 1999, 1998 and 1997 (U.S. dollars in
thousands except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
------------------------------
Net operating income
(excluding net realized gains on investments)........... $370,809 $457,402 $413,307
Net realized gains on investments......................... 99,700 198,928 395,722
------------------------------
Net income................................................ $470,509 $656,330 $809,029
------------------------------
Earnings per share - basic................................ $3.69 $5.86 $7.95
Earnings per share - diluted.............................. $3.62 $5.68 $7.74
</TABLE>
Net income decreased in 1999 compared to 1998 as a result of a decrease in
both net operating income and net realized gains on investments. The decrease in
net operating income in 1999 from 1998 is due to a decrease in underwriting
income. The primary reason for this decrease is losses incurred by the Company
of $125 million after tax, or $0.97 per share, as a result of two major European
windstorms in December 1999. Net operating income increased in 1998 over 1997
due to the acquisition of Mid Ocean in 1998. Net income decreased in 1998
compared to 1997 as a result of a decrease in net realized gains on investments.
Basic and diluted earnings per share decreased in 1999 over 1998 and in
1998 over 1997 due to both a decrease in net income, and, following the
acquisition of Mid Ocean, a net increase in the weighted average number of
shares issued and outstanding.
SEGMENTS
The Company is organized into four underwriting segments - insurance,
reinsurance, Lloyd's syndicates and financial services - and a corporate
segment, which includes the investment operations of the Company. See Part 1 and
Item 8, Note 3 to the Consolidated Financial Statements for further details.
INSURANCE OPERATIONS
The insurance business is written primarily by the following subsidiaries
of the Company: XL Insurance, XL Europe, XL Insurance Company of New York,
Greenwich Insurance, Indian Harbor Insurance, ECS and Intercargo. Insurance
business written includes general liability, other liability (including
directors and officers, professional and employment practices liability),
program business, property, marine, aviation, satellite and other product lines
(including U.S. Customs bonds, surety, political risk and specialty lines).
The following table summarizes the underwriting profit (loss) for this
segment (U.S. dollars in thousands):
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1999 99 VS 98 1998 98 VS 97 1997
<S> <C> <C> <C> <C> <C>
----------------------------------------------------
Net premiums earned............................ $463,069 12.9% $410,030 (4.4%) $428,774
Fee and other income........................... 7,584 (8.0%) 8,244 NM -
Losses and loss expenses....................... 309,079 15.4% 267,823 (24.0%) 352,203
Acquisition costs.............................. 65,318 37.0% 47,688 (13.6%) 55,199
Operating expenses............................. 70,929 42.7% 49,702 33.5% 37,232
----------------------------------------------------
Underwriting profit (loss)..................... $ 25,327 (52.3%) $ 53,061 NM $(15,860)
----------------------------------------------------
</TABLE>
NM=Not Meaningful
The overall increase in net premiums earned in the insurance segment in
1999 over 1998 is primarily a result of an increase in gross premiums written in
the primary property, aviation and satellite, marine and other lines of business
by the Company's subsidiaries in the U.S. See Note 3 to the Consolidated
Financial Statements. Net
20
<PAGE>
premiums earned in 1999 also reflect the purchase of Intercargo in May 1999, for
which approximately $33 million was earned from the date of purchase. Partially
offsetting this increase is a decrease in the general liability lines, where
there was a reduction in the amount of gross premiums written due to increased
competition. This decrease also accounts for the overall reduction in net
premiums earned in 1998 over 1997. High levels of competition continued,
particularly on a price basis and in coverage terms, although business retention
has remained in excess of 80% for the last three years. Generally, the Company's
response has been to move to higher attachment levels which result in lower
premiums as the Company moves further away from risk.
There was a small increase in the net premiums earned in 1999 over 1998 in
the other liability business, which comprises mostly professional lines, despite
a decrease in the amount of gross premiums written in 1999 compared to 1998. The
increase in net premiums earned is primarily as a result of several tailored
programs written in 1998, which are earned over a period greater than one year.
There were also increases in net premiums earned in 1998 over 1997 in the
property, marine, energy, aviation and satellite lines of business, mainly in
the U.S. where there were expanded opportunities on existing accounts, as well
as new business.
The source of fee and other income differs between 1999 and 1998. During
1998, the Company assisted in structuring a transaction that resulted in fee
income. These transactions tend to be irregular in nature and require an
investment of Company resources that are included in operating expenses. During
1999, the Company purchased ECS, which underwrites business on behalf of third
parties in exchange for commissions. This income will decline in the future as
ECS underwrites business on behalf of the Company.
The changes in the loss and loss expenses, acquisition costs and operating
expenses as shown above are discussed below as part of the analysis of the
Company's underwriting ratios.
The decrease in the underwriting profit in 1999 over 1998 in this segment
is due to higher loss and loss expense ratios in 1999 as reflected in the
underwriting expense ratios set forth below. The following table represents the
ratios for this segment for the three years ended December 31, 1999:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
----------------------
Loss and loss expense ratio................................. 66.7% 65.4% 82.1%
Underwriting expense ratio.................................. 29.4% 23.8% 21.6%
----------------------
Combined ratio.............................................. 96.1% 89.2% 103.7%
----------------------
</TABLE>
The increase in the loss ratio in 1999 over 1998 is the result of two
factors. The Company had an intercompany stop loss agreement in place in 1999
under which a subsidiary in the reinsurance segment was covered for losses
exceeding a specified loss ratio up to $100 million. The purpose of this
agreement is to efficiently manage statutory surplus levels across the Company.
As a result of catastrophic losses which occurred in 1999, the full amount of
losses of $100 million were included in the insurance segment and excluded from
the reinsurance segment. The loss and loss expense ratio would have been 45.2%
and the underwriting profit would have been $125 million had this stop loss
agreement not been in place. Offsetting this loss in 1999 and also causing the
decrease in the loss ratio in 1998 from 1997 was a reduction of insurance loss
reserves established on the Company's liability lines due to updated actuarially
determined reserve estimates. Due to the lack of industry data available, the
Company estimates loss reserves based upon its own experience. Over time, the
amount of data available has increased, providing a larger statistical base for
estimating reserves and loss experience has developed more favorably than
expected. In addition, reserves were reduced on specialty cover policies for the
years 1995 through 1997, which expired in 1998 and for which there was an
absence of expected losses on these policies.
The increase in the expense ratio over each of the years presented is due
to both the changes in the product mix towards U.S. primary business which tends
to have higher acquisition costs, and the additional operating expenses incurred
by the Company in establishing its start up operations in the U.S. and new lines
of business.
21
<PAGE>
REINSURANCE OPERATIONS
The reinsurance business is written by XL Mid Ocean Re, which writes
primarily property lines which are short-tail in nature, and NAC Re, which
primarily writes long-tail casualty business. Business written in this segment
includes casualty, property catastrophe, other property, marine, energy,
aviation and satellite and other lines, including political risk and specialty
lines.
The following table summarizes the underwriting profit (loss) for this
segment (U.S. dollars in thousands):
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1999 99 VS 98 1998 98 VS 97 1997
<S> <C> <C> <C> <C> <C>
----------------------------------------------------
Net premiums earned............................ $909,915 19.7% $760,409 10.8% $685,984
Losses and loss expenses....................... 597,269 31.1% 455,583 17.8% 386,646
Acquisition costs.............................. 224,359 31.2% 171,039 19.8% 142,818
Operating expenses............................. 103,264 20.7% 85,541 12.8% 75,829
----------------------------------------------------
Underwriting (loss) profit..................... $(14,977) NM $ 48,246 (40.2%) $ 80,691
----------------------------------------------------
</TABLE>
The increase in net premiums earned in 1999 over 1998 is due to two
factors: (i) the acquisition of Mid Ocean in August 1998 which results in only
five months of net premiums earned included in 1998 compared to twelve months in
1999, and (ii) increases in gross premiums written and earned in the casualty
reinsurance business in 1999 resulting primarily from a relatively small number
of large reinsurance transactions. The increase in net premiums earned in 1998
over 1997 is primarily due to the acquisition of Mid Ocean. This increase was
partially offset by declines in net premiums earned on the casualty business in
1998 over 1997 due to increased market competition and pricing and the Company's
decision not to renew accounts that were deemed not to meet the Company's
profitability standards.
Operating expenses increased in 1999 over 1998 and in 1998 over 1997 due to
the acquisition of Mid Ocean.
The changes in the underwriting result in the reinsurance segment for each
of the three years ended December 31 are due to changes in the underwriting
ratios as illustrated below.
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
----------------------
Loss and loss expense ratio................................. 65.6% 60.0% 56.4%
Underwriting expense ratio.................................. 36.0% 33.8% 31.9%
----------------------
Combined ratio.............................................. 101.6% 93.8% 88.3%
----------------------
</TABLE>
The increase in the loss ratio in this segment in 1999 over 1998 was due to
losses incurred by the Company from two major European windstorms which occurred
in December 1999, together with other insured catastrophes in Sydney and
Oklahoma, and from satellite losses earlier in the year. Property catastrophe
business has loss experience which is generally categorized as low frequency but
high severity in nature. This may result in volatility in the Company's
financial results for any fiscal year or quarter. Property catastrophe losses
generally are notified and paid within a short period of time from the covered
event. In addition, there was an increase in the loss ratio in 1999 over 1998 in
the casualty reinsurance business relating to reserve increases in accordance
with actuarial estimates, caused to a large extent by the deterioration in
premium rates. Actuarial assumptions are used to establish initial expected loss
ratios employed in the actuarial methodologies from which the reserve for loss
and loss expenses is derived. Such loss ratios are periodically adjusted to
reflect comparisons with actual claims development, inflation and other
considerations.
Net losses incurred in this segment in 1999 reflect a reduction of
$100 million relating to an intercompany reinsurance agreement with another of
the Company's subsidiaries in the insurance segment. The loss and loss expense
ratio would have been 76.6% and the underwriting loss would have been $115
million had this stop loss
22
<PAGE>
agreement not been in place. Net losses incurred in 1999 also exclude an
adjustment to reserves of $95 million following the merger with NAC.
The increase in the loss ratio in 1998 over 1997 is due to losses relating
to Hurricane Georges and SwissAir for approximately $60 million.
The increase in the expense ratio in 1999 over 1998 is primarily due to an
increase in profit commission payable to cedents of proportional business
written by XL Mid Ocean Re. Profitability on some contracts written in earlier
underwriting years has increased relative to original estimates, with the
resulting increases in profit commissions payable.
The Company's casualty business includes an element of asbestos and
environmental claims on business written prior to 1986. The Company's reserving
process includes a supplemental evaluation of claims liabilities from exposure
to asbestos and environmental claims, including related loss adjustment
expenses. However, the Company's loss and loss expense reserves for such
exposures, net of reinsurance, as of December 31, 1999, 1998, and 1997 is less
than 1% of its total reserves. A reconciliation of the Company's gross and net
liabilities for such exposures for the three years ending December 31, 1999 is
set forth in Note 7 of the Notes to Consolidated Financial Statements.
LLOYD'S SYNDICATES
The Lloyd's operations comprise Brockbank and Denham, both of which were
acquired in 1998. Brockbank provides underwriting and other services to five
Lloyd's syndicates, two of which are dedicated corporate syndicates whose
capital is provided by the Company. During 1999, these dedicated corporate
syndicates wrote a range of specialty lines, primarily of insurance but also
reinsurance, in parallel with other syndicates managed by Brockbank. Denham
provides similar services to one corporate syndicate whose capital is partially
provided by the Company and which specializes in liability coverages.
The following table summarizes the underwriting profit for this segment
(U.S. dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
-------------------
Net premiums earned......................................... $355,769 $153,852
Fee and other income........................................ 65,892 14,081
Losses and loss expenses.................................... 297,595 118,111
Acquisition costs........................................... 89,195 30,614
Operating expenses.......................................... 28,125 14,875
-------------------
Underwriting profit......................................... $ 6,746 $ 4,333
-------------------
</TABLE>
The increase in 1999 over 1998 in this segment is a result of the Brockbank
acquisition in August 1998. In addition, results for Denham were not significant
in 1998.
In 1999, fee and other income primarily relates to the sale by Brockbank of
its two motor insurance businesses, Admiral and Zenith, resulting in a gain of
$40.2 million. The Company expects there to be decreases in net premiums earned,
fee income and certain costs next year as a result of this sale. However, the
Company does not expect the overall profitability of its Lloyd's operations to
be significantly affected by such sales. Excluding the gain on sale, fee and
other income primarily relates to fees received from the management of Lloyd's
syndicates and profit commissions which are earned based upon the estimated
results of syndicates managed.
23
<PAGE>
The following table presents the underwriting ratios for this segment:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
---------------
Loss and loss expense ratio................................. 83.6% 76.8%
Underwriting expense ratio.................................. 33.0% 29.6%
---------------
Combined ratio.............................................. 116.6% 106.4%
---------------
</TABLE>
Losses incurred by the corporate syndicates of Brockbank attach at lower
levels and are therefore higher in frequency but lower in severity as compared
to the losses relating to the reinsurance and insurance segments of the Company.
The increase in the loss ratio in 1999 over 1998 is due to reserve increases
related to adverse development on the U.K. motor business prior to the sale for
which the Company still retains residual liability.
FINANCIAL SERVICES
The financial services business includes premiums received from credit
enhancement by financial guaranty insurance and reinsurance policies and credit
default swaps written in respect of asset-backed, municipal and corporate risk
obligations. Fee income included in this segment is comprised primarily of
income received from the two loss reserve transactions that were underwritten in
1999. Premiums received in respect of credit default swap transactions are also
included as fee income and earned over the life of the policies.
The following table summarizes the underwriting profit for this segment
(U.S. dollars in thousands):
<TABLE>
<CAPTION>
1999
<S> <C>
-------
Net premiums earned......................................... $21,253
Fee and other income........................................ 26,924
Losses and loss expenses.................................... 5,361
Acquisition costs........................................... 2,108
Operating expenses.......................................... 16,670
-------
Underwriting profit......................................... $24,038
-------
</TABLE>
Financial guaranty insurance premiums and credit default swap premiums are
earned over the life of the exposure and certain transactions such as
installment premiums are not recognized as premiums written until the premium is
received.
The following table presents the underwriting ratios for the financial
services segment:
<TABLE>
<CAPTION>
1999
<S> <C>
------
Loss and loss expense ratio................................. 25.2%
Underwriting expense ratio.................................. 88.4%
------
Combined ratio.............................................. 113.6%
------
</TABLE>
This segment writes business with an expected loss ratio of approximately
25%. The high expense ratio reflects the start up nature of this segment.
24
<PAGE>
INVESTMENT OPERATIONS
The following table illustrates the change in net investment income and net
realized gains and losses for the three years ended December 31, 1999 (U.S
dollars in thousands):
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1999 99 VS 98 1998 98 VS 97 1997
<S> <C> <C> <C> <C> <C>
----------------------------------------------------
Net investment income.......................... $525,318 25.9% $417,290 20.9% $345,115
Net realized investment gains.................. $ 94,356 NM $211,204 NM $410,658
Annualized effective yield..................... 5.85% - 5.38% - 5.50%
</TABLE>
External investment professionals manage the Company's portfolio under the
direction of management.
At December 31, 1999, total investments and cash, net of the payable for
investments purchased, were $9.1 billion, compared to $8.9 billion at
December 31, 1998. This increase includes the reinvestment of investment income
and realized gains, but is primarily due to the loss portfolio transfers
discussed further in "--Financial Condition and Liquidity". This increase was
net of any transfer of assets to limited investment partnerships, included in
investments in affiliates. As the Company's long-tail casualty business matures
over the next three to five years, it is possible that claims payments may
increase due to the additional exposure to events which occurred in prior years
but have not yet been paid. Funds available for investment may therefore be
reduced as compared to prior years due to such increased claims payments. The
Company's fixed income investments (including short-term investments and cash
equivalents) at December 31, 1999 represented approximately 88% of investments
available for sale and were managed by several independent investment managers
with different strategies. Of the fixed income securities, approximately 87% are
of investment grade, with 60% rated Aa or AA or better by a nationally
recognized rating agency.
The payable for investments purchased was $622.3 million at December 31,
1999 and $633.2 million at December 31, 1998. The payable balance at any one
time is the result of a timing difference as it is the Company's policy to
account for its investments on a trade basis.
The increase in investment income in 1999 over 1998 is primarily due to an
increase in the annualized effective yield on the portfolio. The increase in
investment income in 1998 over 1997 is due to an increase in the average asset
base, primarily due to the merger with Mid Ocean in August 1998 and the
Company's positive operational cash flow. The investment income from the asset
accumulation business assets transferred did not have a significant impact due
to the timing of the transfers to the Company which occurred in the third and
fourth quarters of 1999.
Net realized gains in 1999 and 1998 reflect the strong performance of the
equity market. In 1998, equity gains of $150.0 million were realized as some of
the Company's equity managers locked in gains where they felt valuations had
reached their targets. However, 1999 equity gains were offset by declining fixed
income markets, which had been strong throughout most of 1998. Due to declining
interest rates combined with widening spreads in the corporate and mortgage
markets, the fixed income sector allowed the Company opportunities to increase
the yield on its investment in 1999. As a result, the Company's investment
managers will continue to pursue a total return strategy to take advantage of
the higher yields. During 1997, both the fixed income and equity portfolios were
restructured, resulting in the 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 $11.3 million and $23.2 million for the
years ended December 31, 1999 and 1998, respectively.
25
<PAGE>
OTHER REVENUES AND EXPENSES
The following table sets forth other revenues and expenses of the Company
for the three years ended December 31, 1999 (U.S. dollars in thousands):
<TABLE>
<CAPTION>
% CHANGE % CHANGE
1999 99 VS 98 1998 98 VS 97 1997
<S> <C> <C> <C> <C> <C>
--------------------------------------------------
Equity in net income of affiliates................ $ 40,907 (18.7%) $50,292 (22.6%) $64,959
Amortization of intangible assets................. 49,141 NM 26,881 NM 7,403
Corporate operating expenses...................... 89,037 NM 37,139 NM 7,029
Interest expense.................................. 37,378 11.8% 33,444 12.9% 29,622
Minority interest................................. 220 NM 749 NM 308
Income tax (benefit) expense...................... (39,570) NM 29,883 (7.1%) 32,172
</TABLE>
NM=Not Meaningful
The decrease in equity in net income of affiliates in 1999 over 1998 and
1998 over 1997 is due to Mid Ocean. Partially offsetting the decrease in 1999
are earnings from new investments made in limited investment partnerships by the
Company during 1999. In 1998, seven months of earnings from the Company's equity
position in Mid Ocean were recognized, which ended in August 1998 upon the
acquisition of the balance of the outstanding Mid Ocean shares. A full year's
equity earnings from Mid Ocean were included in 1997.
The increase in the amortization of intangible assets in 1999 over 1998 and
1998 over 1997 mainly relates to the goodwill arising from the Mid Ocean
acquisition in 1998. In 1999, there is also additional goodwill amortization of
approximately $4.0 million arising from acquisitions of ECS and Intercargo.
Operating expenses in 1999 include $45.3 million of one-time charges
related to the merger with NAC. In 1998, they include $17.5 million of one-time
charges associated with the merger with Mid Ocean. Other increases are due to
the increase in the corporate infrastructure necessary to support the growing
worldwide operations of the Company.
Increases in interest expense in 1999 over 1998 and 1998 over 1997 is due
to the increase in the average long-term debt outstanding during the each of the
years. In 1999, this was used to finance the acquisitions of ECS and Intercargo,
and in both 1999 and 1998, the repurchase of shares.
The changes in the income tax expense of the Company principally reflect
the decline in the profitability of the U.S. operations for each year. In 1999,
a deterioration of the casualty book for business underwritten prior to the
merger with NAC resulted in a pre-tax net loss for U.S. operations, generating
an income tax benefit for the year. See Note 17 to the Consolidated Financial
Statements.
FINANCIAL CONDITION AND LIQUIDITY
As a holding company, the Company's assets consist primarily of its
investments in 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 and regulations of Bermuda, the United States, Ireland and the United
Kingdom, including those promulgated by the Society of Lloyd's which are
described more fully in Note 18 to the Consolidated Financial Statements. No
assurance can be given that the Company or its subsidiaries will be permitted to
pay dividends in the future. The Company's shareholders' equity at December 31,
1999 was $5.6 billion, of which $3.1 billion was retained earnings.
Certain aspects of the Company's business are characterized as having low
frequency and high severity exposures. This may result in volatility in both the
Company's results and operational cash flows. However, the Company continues to
generate significant positive cash flow from operating activities.
26
<PAGE>
In 1999, 1998 and 1997, the total amount of net losses paid by the Company
was $1,093.5 million, $730.9 million and $330.9 million, respectively. The
increase is primarily due to the acquisition of Mid Ocean in August 1998.
The Company establishes reserves to provide for estimated 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 larger claims. 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 any
multi-year policies at the time contracts are written.
In 1999, the Company completed the purchase of Intercargo and ECS for a
total of $222.8 million in cash. Both of these transactions are accounted for
under the purchase method of accounting, and resulted in goodwill of
$159.6 million. These transactions were financed in part through bank borrowings
and internal funds.
During 1999, the Company redistributed assets from investments available
for sale and cash for the following investments:
(1) The Company made minority investments in Highfields Capital Management
LP and MKP Capital Management LP and into the funds they manage totaling
$281.2 million.
(2) The Company invested $97.0 million in a joint venture with Les
Mutuelles du Mans Assurances Group to form a new French reinsurance company, Le
Mans Re.
(3) The Company invested a further $91.0 million in limited partnerships
and other investments.
These above investments account for the increase in investments in
affiliates and other investments.
The Company assumed two loss portfolio transfers during the second half of
the year which are accounted for on a deposit basis. These reserves are included
in deposit liabilities and policy benefit reserves with the corresponding assets
held in investments available for sale.
The Company has had several stock repurchase programs as part of its
capital management. On January 22, 1999, the Board of Directors discontinued the
Company's existing program with $148.8 million remaining and replaced it with an
authorization to repurchase $500 million. During the first six months of 1999,
the Company purchased 2.1 million shares at a cost of $126.8 million. In
June 1999, the Board of Directors rescinded the Company's share repurchase
program. On January 9, 2000 the Board of Directors authorized the repurchase of
shares up to $500 million. The repurchase of shares was announced in conjunction
with a small dividend increase of $0.04 per share per annum as part of the
Company's capital management strategy. The Company has purchased 3.7 million
shares up to March 17, 2000 at a cost of $165.8 million or $44.76 per share.
As at December 31, 1999, the Company had bank and loan facilities available
from a variety of sources, including commercial banks, totaling $2.36 billion
comprising 364-day facilities, 5-year facilities, notes payable and other loans
and letter of credit facilities. Debt and notes outstanding at December 31, 1999
were $410.7 million and letters of credit outstanding were $891.6 million.
Letters of credit issued and outstanding, 66% of which were collateralized by
the Company's investment portfolio, primarily support U.S. non-admitted business
and the Company's Lloyd's capital requirements.
During 1999 and 1998, borrowings under these facilities were $329 million
and $655 million, respectively, and repayments under the facilities were
$340 million and $495 million, respectively. The borrowings in 1999
27
<PAGE>
facilitated the repurchase of shares and the purchase of Intercargo and ECS. In
1998, borrowings include $300 million to fund the cash election available to
shareholders in connection with the Mid Ocean merger. Included in the 1998 notes
payable and debt was $100 million 5.25% Convertible Subordinate Debentures due
2002, which were converted in June 1999 by the issue of 1.8 million shares out
of treasury. Additional borrowings in 1998 were made to fund the Company's U.S.
operations. The total pre-tax interest expense on notes and debt outstanding
during the year ended December 31, 1999 and 1998 was $37.4 million and
$33.4 million, respectively. Associated with the Company's bank and loan
commitments are various loan covenants with which the Company was in compliance
throughout the period. See Note 10 to the Consolidated Financial Statements for
further details.
YEAR 2000 ISSUES
There was no significant impact of Year 2000 issues on the Company's
technology systems. Total costs incurred by the Company in ensuring its
technology systems were compliant through December 31, 1999 were not
significant. The Company did not experience any significant disruption due to
the impact of Year 2000 issues on its service providers.
The Company is exposed to risks associated with Year 2000 issues based upon
the underwriting exposures that it assumes. All insurance and reinsurance
subsidiaries of the Company examined the potential exposure to Year 2000-related
risks associated with the coverages that they provided. In some instances, Year
2000-related risks were 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 apparent lack of
significant Year 2000-related losses, the Company does not expect to have a
material exposure to Year 2000-related coverage claims. See generally
"--Cautionary Note Regarding Forward-Looking Statements".
FINANCIAL RISK MANAGEMENT
The Company is exposed to various market risks, including changes in
interest rates and foreign currency exchange rates. Market risk is the potential
loss arising from adverse changes in interest rates and foreign currency
exchange rates. The Company manages its market risks based on guidelines
established by management. The Company enters into derivatives and other
financial instruments primarily for risk management purposes.
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 analysis methods used by the Company to assess and
mitigate risk should not be considered projections of future events of losses.
See generally "--Cautionary Note Regarding Forward-Looking Statements".
The Company's investment portfolio consists of fixed income and equity
securities, denominated in both U.S. and foreign 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 5.8% or $438 million on the
Company's fixed income portfolio as of December 31, 1999.
In evaluating the impact of price changes of the equity portfolio, a 10%
change in equity prices would affect total return by approximately
$114 million.
The Company has short-term debt and long-term debt outstanding. Interest
rates on short-term debt are LIBOR based. Accordingly, any changes in interest
rates will affect interest expense.
28
<PAGE>
FOREIGN CURRENCY RISK MANAGEMENT
The Company uses foreign exchange contracts to manage its exposure to the
effects of fluctuating foreign currencies on the value of its foreign currency
fixed maturities and equity investments. These contracts are not designated as
specific hedges for financial reporting purposes and therefore realized and
unrealized gains and losses on them are recorded in income 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 may not
be entered into. At December 31, 1999, forward foreign exchange contracts with
notional principal amounts totaling $339.3 million were outstanding. The fair
value of these contracts as at December 31, 1999 was $341.1 million with
unrealized gains of $1.8 million. Losses of $2.7 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
December 31, 1999 would have resulted in approximately $34.6 million in
unrealized gains and $33.7 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 foreign currency
investments. These contracts are not designated as specific hedges, 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 December 31, 1999, the value of such contracts outstanding was not
significant.
The Company attempts to hedge directly the foreign currency exposure of a
portion of its foreign currency fixed maturity investments using forward foreign
exchange contracts that generally have maturities of three months or less and
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
December 31, 1999, the Company had, as hedges, foreign exchange contracts for
the sale of $94.0 million and the purchase of $7.5 million of foreign currencies
at fixed rates, primarily Euros (49% of net contract value), British pounds
(18%) and New Zealand Dollars (16%). The market value of fixed maturities
denominated in foreign currencies that were hedged and held by the Company as at
December 31, 1999 was $85.2 million.
Unrealized foreign exchange gains and losses on foreign exchange contracts
hedging foreign currency fixed maturity investments are deferred and included as
a component of shareholders' equity. As at December 31, 1999, unrealized
deferred losses amounted to $2.0 million and were offset by corresponding
increases 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 December 31, 1999,
realized deferred losses amounted to $0.5 million.
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 December 31, 1999, the portfolio held
$121.9 million in exposure to S&P 500 Index futures and underlying assets of
$122.0 million. Based on this value, a 10% increase or decrease in the price of
these futures would have resulted in exposure of $134.1 million and
$109.7 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
December 31, 1999, net realized gains from index futures totaled $11.3 million
as a result of the 19.5% 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 December 31, 1999, bond
and stock index futures outstanding were $241.1 million with underlying
investments having a market value of $2.5 billion (all 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 $24.1 million, respectively.
29
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to the Consolidated Financial Statements for a discussion on
recent accounting pronouncements.
CURRENT OUTLOOK
The Company believes competition in the property casualty insurance and
reinsurance industry will continue to be strong in 2000, exerting pressure on
rates in general across many product lines. Although the Company believes some
opportunities will exist in 2000 for growth in selected product lines, no
assurances can be made that growth in these lines will be sufficient to offset
the competitive pressures affecting the majority of the Company's 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; (iv) developments in the world's financial and
capital markets which adversely affect the performance of the Company's
investments; (v) changes in regulation or tax laws applicable to the Company,
its subsidiaries, brokers or customers; (vi) acceptance of the Company's
products and services, including new products and services; (vii) changes in the
availability, cost or quality of reinsurance; (viii) changes in the distribution
or placement of risks due to increased consolidation of insurance and
reinsurance brokers; (ix) the impact of the Year 2000-related issues on the
Company's underwriting exposures; (x) loss of key personnel; (xi) the effects of
mergers, acquisitions and divestitures; (xii) changes in rating agency policies
or practices; (xiii) changes in accounting policies or practices; and
(xiv) changes in general economic conditions, including inflation, foreign
currency exchange rates and other factors. The foregoing review of important
factors should not be construed as exhaustive and should be read in conjunction
with the 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 at December 31, 1999 and
1998...................................................... 32
Consolidated Statements of Income and Comprehensive income
for the years ended December 31, 1999, 1998 and 1997...... 33
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997 ............. 34
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... 35
Notes to Consolidated Financial Statements for the years
ended December 31, 1999, 1998 and 1997.................... 36
</TABLE>
30
<PAGE>
XL CAPITAL LTD
CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 1999 AND 1998
(U.S. dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
-------------------------
A S S E T S
Investments:
Fixed maturities, available for sale at fair value
(amortized cost: 1999, $7,835,919; 1998, $7,433,724)... $ 7,581,151 $ 7,512,903
Equity securities, at fair value (cost: 1999, $863,020;
1998, $1,127,590)...................................... 1,136,180 1,299,098
Short-term investments, at fair value (amortized cost:
1999, $405,375; 1998, $246,085)........................ 405,260 245,891
-------------------------
Total investments................................... 9,122,591 9,057,892
Cash and cash equivalents................................... 557,749 480,874
Investments in affiliates (cost: 1999, $478,266; 1998,
$141,590)................................................. 479,911 154,668
Other investments........................................... 165,613 44,085
Accrued investment income................................... 111,590 95,910
Deferred acquisition costs.................................. 275,716 204,271
Prepaid reinsurance premiums................................ 217,314 215,466
Premiums receivable......................................... 1,126,397 904,203
Reinsurance balances receivable............................. 149,880 124,771
Unpaid losses and loss expenses recoverable................. 831,864 593,960
Intangible assets (accumulated amortization: 1999, $118,663;
1998, $70,190)............................................ 1,626,946 1,502,828
Deferred tax asset, net..................................... 97,928 37,481
Other assets................................................ 327,413 164,731
-------------------------
Total assets........................................ $15,090,912 $13,581,140
-------------------------
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
Liabilities:
Unpaid losses and loss expenses............................. $ 5,369,402 $ 4,896,643
Deposit liabilities and policy benefit reserves............. 837,893 -
Unearned premiums........................................... 1,497,376 1,337,277
Notes payable and debt...................................... 410,726 613,873
Reinsurance balances payable................................ 387,916 183,660
Net payable for investments purchased....................... 622,260 633,181
Other liabilities........................................... 345,738 256,862
Minority interest........................................... 42,523 47,041
-------------------------
Total liabilities................................... $ 9,513,834 $ 7,968,537
-------------------------
Commitments and Contingencies
Shareholders' Equity:
Authorized, 999,990,000 ordinary shares, par value $0.01
Issued and outstanding:
Class A ordinary shares (1999, 124,691,541; 1998,
125,629,257)........................................... 1,247 1,256
Class B ordinary shares (1999, 3,115,873; 1998,
3,115,873)............................................. 31 31
Contributed surplus......................................... 2,520,136 2,508,062
Accumulated other comprehensive income...................... 19,311 235,185
Deferred compensation....................................... (28,797) (22,954)
Retained earnings........................................... 3,065,150 2,891,023
-------------------------
Total shareholders' equity.......................... $ 5,577,078 $ 5,612,603
-------------------------
Total liabilities and shareholders' equity.......... $15,090,912 $13,581,140
-------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements
31
<PAGE>
XL CAPITAL LTD
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(U.S. dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
------------------------------------
Revenues:
Net premiums earned....................................... $1,750,006 $1,324,291 $1,114,758
Net investment income..................................... 525,318 417,290 345,115
Net realized gains on sales of investments................ 94,356 211,204 410,658
Equity in net income of affiliates........................ 40,907 50,292 64,959
Fee and other income...................................... 100,400 22,325 -
------------------------------------
Total revenues...................................... 2,510,987 2,025,402 1,935,490
------------------------------------
Expenses:
Losses and loss expenses.................................. 1,304,304 841,517 738,849
Acquisition costs......................................... 380,980 249,341 198,017
Operating expenses........................................ 308,025 187,257 120,090
Interest expense.......................................... 37,378 33,444 29,622
Amortization of intangible assets......................... 49,141 26,881 7,403
------------------------------------
Total expenses...................................... 2,079,828 1,338,440 1,093,981
------------------------------------
Income before minority interest and income tax expense...... 431,159 686,962 841,509
Minority interest in net income of subsidiary............. 220 749 308
Income tax (benefit) expense.............................. (39,570) 29,883 32,172
------------------------------------
Net income.................................................. $ 470,509 $ 656,330 $ 809,029
------------------------------------
Change in net unrealized appreciation of investments........ (211,842) (15,414) 6,233
Foreign currency translation adjustments.................... (4,032) (872) (2,388)
------------------------------------
Comprehensive Income........................................ $ 254,635 $ 640,044 $ 812,874
------------------------------------
Weighted average ordinary shares and ordinary share
equivalents outstanding - basic........................... 127,601 112,034 101,708
------------------------------------
Weighted average ordinary shares and ordinary share
equivalents outstanding - diluted......................... 130,304 116,206 105,005
------------------------------------
Earnings per ordinary share and ordinary share
equivalent - basic........................................ $ 3.69 $ 5.86 $ 7.95
------------------------------------
Earnings per ordinary share and ordinary share
equivalent - diluted...................................... $ 3.62 $ 5.68 $ 7.74
------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements
32
<PAGE>
XL CAPITAL LTD
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
------------------------------------
Ordinary Shares:
Balance-beginning of year................................. $ 1,287 $ 1,013 $ 1,039
Issue of shares........................................... 1 15 6
Issue of shares - Mid Ocean acquisition................... - 291 -
Exercise of stock options................................. 5 3 4
Repurchase of treasury shares............................. (15) (35) (36)
------------------------------------
Balance-end of year................................... 1,278 1,287 1,013
------------------------------------
Contributed Surplus:
Balance-beginning of year................................. 2,508,062 506,452 500,599
Issue of shares........................................... 15,951 101,502 18,917
Issue of shares Mid Ocean acquisition..................... - 2,093,426 -
Exercise of stock options................................. 11,711 9,147 6,277
Repurchase of treasury shares............................. (15,588) (202,465) (19,341)
------------------------------------
Balance-end of year................................... 2,520,136 2,508,062 506,452
------------------------------------
Accumulated other comprehensive income:
Balance-beginning of year................................. 235,185 251,471 247,626
Net change in unrealized gains on investment portfolio,
net of tax............................................. (213,482) (10,352) (8,302)
Net change in unrealized gains on investment portfolio of
affiliate.............................................. 1,640 (5,062) 14,535
Currency translation adjustments.......................... (4,032) (872) (2,388)
------------------------------------
Balance-end of year................................... 19,311 235,185 251,471
------------------------------------
Deferred Compensation:
Balance-beginning of year................................. (22,954) (18,263) (9,825)
Issue of restricted shares................................ (13,603) (10,506) (13,675)
Amortization.............................................. 7,760 5,815 5,237
------------------------------------
Balance-end of year................................... (28,797) (22,954) (18,263)
------------------------------------
Retained Earnings:
Balance-beginning of year................................. 2,891,023 2,455,076 1,898,094
Net income................................................ 470,509 656,330 809,029
Cash dividends paid....................................... (212,659) (156,482) (120,607)
Repurchase of treasury shares............................. (83,723) (63,901) (131,440)
------------------------------------
Balance-end of year................................... 3,065,150 2,891,023 2,455,076
------------------------------------
Total shareholders' equity.................................. $5,577,078 $5,612,603 $3,195,749
------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements
33
<PAGE>
XL CAPITAL LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
---------------------------------------
Cash flows provided by operating activities:
Net income............................................... $ 470,509 $ 656,330 $ 809,029
Adjustments to reconcile net income to net cash provided by
operating activities:
Net realized gains on sales of investments............... (94,356) (211,204) (410,658)
Amortization of (discounts) premium on fixed
maturities............................................ (14,429) (14,718) (2,170)
Equity in net income of affiliates, net of cash
received.............................................. (34,506) (24,973) (34,395)
Amortization of deferred compensation.................... 7,657 5,815 5,237
Amortization of intangible assets........................ 49,141 26,881 7,403
Unpaid losses and loss expenses.......................... 411,396 323,857 314,449
Unearned premiums........................................ 131,767 52,161 (193,018)
Premiums receivable...................................... (166,027) 4,245 151,203
Unpaid losses and loss expenses recoverable.............. (212,928) (221,177) 94,349
Prepaid reinsurance premiums............................. (1,848) (45,961) (49,328)
Reinsurance balances receivable.......................... (25,109) (31,103) 16,419
Other.................................................... (25,632) 39,783 25,424
---------------------------------------
Total adjustments..................................... 25,126 (96,394) (75,085)
---------------------------------------
Net cash provided by operating activities................ 495,635 559,936 733,944
Cash flows used in investing activities:
Proceeds from sale of fixed maturities and short-term
investments........................................... 15,664,591 15,765,103 12,385,521
Proceeds from redemption of fixed maturities and
short-term investments................................ 134,565 516,418 187,441
Proceeds from sale of equity securities.................. 1,017,177 918,501 1,381,465
Purchases of fixed maturities and short-term
investments........................................... (16,075,719) (16,460,877) (12,615,821)
Purchases of equity securities........................... (803,728) (1,020,032) (1,147,601)
Deferred (gains) losses on forward contracts............. (509) (12,163) 8,247
Investments in affiliates................................ (348,543) (1,126) (43,184)
Acquisition of subsidiaries, net of cash acquired........ (173,206) 41,483 (660,137)
Other investments........................................ (120,717) 4,411 (6,016)
Deposit liabilities and policy benefit reserve........... 837,893 - -
Other assets............................................. (35,133) 13,430 (54,353)
---------------------------------------
Net cash provided (used) in investing activities............ 96,671 (234,852) (564,438)
Cash flows used in financing activities:
Issue of restricted shares............................... 69 514 387
Proceeds from exercise of stock options.................. 14,014 15,092 12,284
Repurchase of treasury shares............................ (99,344) (266,401) (154,720)
Dividends paid........................................... (212,659) (156,481) (120,607)
Proceeds from loans...................................... 328,700 655,000 530,000
Repayment of notes....................................... (100,000) - -
Repayment of loans....................................... (339,735) (495,000) (400,000)
Repayment of debentures.................................. (101,737) - -
Minority interest........................................ (4,900) 19,988 26,226
---------------------------------------
Net cash used in financing activities....................... (515,592) (227,288) (106,430)
Effects of exchange rate changes on cash on foreign currency
cash balances............................................. 161 (516) (622)
Increase in cash and cash equivalents....................... 76,875 97,280 62,454
Cash and cash equivalents-beginning of year................. $ 480,874 $ 383,594 $ 321,140
---------------------------------------
Cash and cash equivalents - end of year..................... $ 557,749 $ 480,874 $ 383,594
---------------------------------------
Taxes paid.................................................. $ 30,246 $ 31,200 $ 37,600
---------------------------------------
Interest paid............................................... $ 28,268 $ 32,800 $ 27,100
---------------------------------------
</TABLE>
See accompanying notes to Consolidated Financial Statements
34
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31 1999, 1998 and 1997
(U.S. dollars in thousands)
1. HISTORY
XL Capital Ltd (sometimes referred to as 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, in connection with EXEL's merger with Mid Ocean Limited, a
Cayman Islands corporation. The merger was accounted for as a purchase under
U.S. generally accepted accounting principles ("GAAP") and as such, results of
operations of Mid Ocean are included from August 1, 1998, the effective date of
the merger. In the merger, all of the shares of EXEL and Mid Ocean were
exchanged for shares in the Company according to two schemes of arrangement
under Cayman Islands law. 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 Capital 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.
In 1999, XL Capital merged with NAC Re Corp, a Delaware corporation. The
merger has been accounted for as a "pooling of interests" under U.S. GAAP. Under
pooling of interests accounting, it is assumed that XL Capital and NAC have been
merged from the date of incorporation of the Company, and accordingly, all prior
period information contained in this document includes the results of NAC. NAC
was organized in 1985 and, through its subsidiaries, writes property and
casualty insurance and reinsurance in the U.S., Canada and Europe. Subsequent to
the merger agreement, XL Capital amended its financial year from November 30 to
December 31 as a conforming pooling adjustment and to facilitate year end
reporting for its subsidiaries.
XL Insurance, a company organized under the laws of Bermuda, and its
subsidiaries are the Company's principal insurance subsidiaries. XL Insurance
was formed in 1986 in response to a shortage of high excess liability coverage
for Fortune 500 companies in the U.S. In 1990, XL Insurance formed XL Europe, an
insurance company organized under the laws of Ireland to serve European clients
and, in 1998, formed two companies now known as XL Insurance Company of New York
and XL Capital Assurance.
XL Mid Ocean Reinsurance is organized under the laws of Bermuda. On
August 7, 1998, XL Mid Ocean Re was formed through the merger of XL Global
Reinsurance and Mid Ocean Re. XL Global Re was formed in November 1997 through
the merger of XL Reinsurance and Global Capital Reinsurance following EXEL's
acquisition of GCR Holdings Limited, a Cayman Islands holding company, on
June 12, 1997. XL Reinsurance commenced operations on December 1, 1995 to write
specialty reinsurance business. Mid Ocean Re and Global Capital Re 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.
The Company further expanded into the U.S. in 1999 by completing the
acquisition of both Intercargo Corporation and ECS, Inc. Intercargo, through its
subsidiaries, underwrites specialty insurance products for companies engaged in
international trade, including U.S. Customs bonds and marine cargo insurance.
ECS is an underwriting manager, which specializes in environmental insurance
coverages and risk management services.
The Brockbank Group was acquired through the merger with Mid Ocean.
Brockbank is a company organized under the laws of the United Kingdom and is a
leading Lloyd's managing agency which provides underwriting and similar services
to five Lloyd's syndicates. Two of these syndicates are dedicated 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 on
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. As a managing agency, Brockbank receives
fees
35
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
1. HISTORY (CONTINUED)
and commissions in respect of underwriting services it provides to syndicates.
In the fourth quarter of 1999, Brockbank sold its two motor insurance
businesses, Admiral and Zenith. The Company expects there to be decreases in
premiums, fee income and certain costs, however it does not expect the overall
profitability of its Lloyd's operations to be materially affected by such sales.
Denham Syndicate Management Limited was acquired by NAC during 1998 and it
also provides underwriting and similar services to one corporate syndicate,
whose capital is partially provided by the Company. This syndicate writes a
specialized book of international business, concentrating on long-tail casualty
and non-marine physical damage.
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 that possess expertise in lines of business that the Company
wishes to write. 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 and related
risk management. In July 1999, the Company entered into a joint venture with Les
Mutuelles du Mans Assurances Group to form a new French reinsurance company, Le
Mans Re. The Company owns a 49% shareholding in the new company, which
underwrites a worldwide portfolio comprising all classes of non-life reinsurance
business together with a selective portfolio of life reinsurance business.
In 1999, the Company made strategic minority investments in two investment
management firms. The Company acquired minority investments in Highfields
Capital Management L.P., a global equity investment firm, and MKP Capital
Management, a New York-based fixed income investment manager specializing in
mortgage-backed securities.
In 1998, the Company entered into a joint venture with FSA Holdings Ltd to
write financial guaranty insurance and reinsurance. 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 Reeve Court Insurance, a Bermuda company organized as a
joint venture with such company's management for the purpose of providing life
insurance to high net worth individuals in 1998.
In 1997, the Company acquired a 75% holding in Latin America Re, a Bermuda
reinsurance company.
The Company formed Sovereign Risk Insurance as a joint venture in 1997.
Sovereign is a Bermuda-based managing general agency that writes political risk
insurance on a subscription basis on behalf of its shareholders.
In 1996, the Company acquired approximately 30% of Pareto Partners, a firm
that specializes in foreign currency management and related services.
36
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands)
2. 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 U.S.
generally accepted accounting principles ("GAAP"). They include the merger with
NAC, which occurred in June 1999, and which has been accounted for as a "pooling
of interests" under U.S. GAAP. They are also based upon the Company's new fiscal
year end of December 31. Results of operations, statements of position and cash
flows include NAC as though it had always been a part of the Company. All
material intercompany accounts and transactions have been eliminated. The
preparation of financial statements in conformity with GAAP 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.
(B) PREMIUMS AND ACQUISITION COSTS
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 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 and
unearned premiums are presented after deductions for reinsurance ceded to other
insurance companies.
Financial guaranty insurance premiums are earned over the life of the
exposure, and certain transactions such as installment premiums are not
recognized as premiums written until the premium is received.
Acquisition costs, which vary with and are primarily related to the
acquisition of policies, primarily commissions paid to brokers, are deferred and
amortized over the period the premiums are earned. Future earned premiums and
the anticipated losses, investment income 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 are expensed and
the commissions recorded thereon are earned on a monthly pro-rata basis over the
period the reinsurance coverage is provided. Amounts recoverable from reinsurers
are estimated in a manner consistent with the claim liability associated with
the reinsured policy. Provision is made for estimated unrecoverable reinsurance.
(D) INVESTMENTS
Investments are considered 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, net of tax, is included
in accumulated other comprehensive income. Any unrealized depreciation in value
considered by management to be other than temporary is charged to income in the
period that it is determined.
37
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Short-term investments comprise investments with a maturity equal to or
greater than 90 days but less than one year. Equity securities include
investments in open end mutual funds. 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 carried at fair value,
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) CASH EQUIVALENTS
Cash equivalents include fixed interest deposits placed with a maturity of
under 90 days when purchased.
(F) FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations whose functional currency is
other than the U.S. dollar are translated at year end exchange rates. Revenue
and expenses of such foreign operations are translated at average exchange rates
during the year. The effect of the translation adjustments for foreign
operations is recorded, net of applicable deferred income taxes, as a separate
component of accumulated other comprehensive income in shareholders' equity.
Other monetary assets and liabilities denominated in foreign currencies are
translated at the exchange rate in effect at the balance sheet date with the
resulting foreign exchange gains and losses recognized in income, unless the
foreign currency exposure is directly hedged as discussed above. Revenue and
expense transactions are translated at the average exchange rates prevailing
during the year.
(G) INVESTMENTS IN AFFILIATES
Investments in which the Company has significant influence over the
operations of its affiliates are carried under the equity method of accounting.
Under this method, the Company records its proportionate share of income or loss
for such investments in its results of operations.
(H) OTHER INVESTMENTS
The Company accounts for its other investments on a cost basis as it has no
significant influence over these entities. Investments are written down to their
realizable value where management considers there is a permanent decrease in
value. Income is recorded when received.
(I) 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 determined
that an impairment exists, the excess of the unamortized balance over the fair
value of the intangible asset will be charged to earnings at that time.
38
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(J) 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
based on amounts reported from insured or ceding companies and consultation with
independent legal counsel, and represents the estimated ultimate cost of events
or conditions that have been reported to or specifically identified by the
Company. Certain workers' compensation case reserves are considered fixed and
determinable and are subject to tabular reserving. Such tabular reserves are
discounted using an interest rate of 7%.
The Company recognizes as a component of loss reserves, the loss experience
accounts of policyholders for policies written on a multi-year basis where
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 the Company was 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 industries.
Management believes that the reserves for unpaid losses and loss expenses
are sufficient to pay any losses that fall within coverages assumed by the
Company. However, there can be no assurance that losses will not exceed the
Company's total reserves. The methodology of estimating loss reserves 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.
(K) DEPOSIT LIABILITIES AND POLICY BENEFIT RESERVES
Short duration contracts entered into by the Company which are not deemed
to transfer significant underwriting and/or timing risk are accounted for as
deposits, whereby liabilities are recorded for the same amount of premium
received. The Company will periodically re-assess the amount of the deposit
liabilities. Changes are recorded in the period they are determined as either
interest income where the contract does not transfer underwriting risk, or net
losses and loss expenses incurred where the contract does not transfer
significant timing risk.
Policy benefit reserves relate to long duration contracts written by the
Company which do not transfer significant mortality or morbidity risks, and are
accounted for as deposits, and liabilities for estimated future policy benefits
are established at the time such funds are received.
(L) INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred income taxes reflect the net tax effect of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. A
valuation allowance is established for any portion of a deferred tax asset that
management believes will not be realized.
(M) STOCK PLANS
The Company accounts for stock compensation plans in accordance with
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees". Accordingly, compensation expense for stock option
39
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
grants and stock appreciation rights is recognized to the extent that the fair
value of the stock exceeds the exercise price of the option at the measurement
date.
(N) PER SHARE DATA
Basic earnings per share is based on weighted average common shares
outstanding and excludes any dilutive effects of options and convertible
securities. Diluted earnings per share assumes the conversion of dilutive
convertible securities and the exercise of all dilutive stock options.
(O) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of certain assets and liabilities are based on published market
values, if available, or estimates of fair value of similar issues. Fair values
are reported in Notes 4 and 10.
(P) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
is required to be adopted in years beginning after June 15, 2000. The Company
has not yet completed its assessment of the effect of the adoption of this
standard on results of operations, financial condition or liquidity, but
believes it will not be significant.
3. SEGMENT INFORMATION
The Company is organized into four underwriting segments - insurance,
reinsurance, Lloyd's syndicates and financial services - in addition to a
corporate segment that includes the investment operations of the Company.
Certain business written by the Company has loss experience characterized as low
frequency and high severity. This may result in volatility in both the Company's
results and operational cash flows.
INSURANCE OPERATIONS
The insurance business is written primarily by the following: XL Insurance,
XL Europe, XL Insurance Company of New York, Greenwich Insurance, Indian Harbor
Insurance, ECS and Intercargo. Business written includes general liability,
other liability including directors and officers, professional and employment
practices liability, property, program business, marine, aviation, satellite and
other product lines including U.S. Customs bonds, surety, political risk and
specialty lines.
REINSURANCE OPERATIONS
The Company's reinsurance business is primarily written by NAC Re and XL
Mid Ocean Re. Business written includes treaty and facultative reinsurance to
primary insurers of casualty risks, principally: general liability; professional
liability; automobile and workers' compensation; commercial and personal
property risks; specialty risks including fidelity and surety and ocean marine;
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. The Company endeavors to manage its exposures to catastrophic
events by limiting the amount of its exposure in each geographic zone worldwide
and requires that its property catastrophe contracts provide for aggregate
limits and varying attachment points.
40
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
3. SEGMENT INFORMATION (CONTINUED)
LLOYD'S SYNDICATES
The Lloyd's operations are comprised of Brockbank and Denham. Corporate
syndicates write property, marine and energy, aviation and satellite, motor,
professional indemnity, liability coverage and other specialty lines, primarily
of insurance but also reinsurance. Effective January 1, 2000, the Company
discontinued writing direct motor business.
FINANCIAL SERVICES
Financial services premiums are written by XL Insurance through XL Capital
Products. Business written includes insurance and reinsurance solutions for
complex financial risks. These include financial insurance and reinsurance,
credit enhancement swaps and other collateralized transactions. 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 approached this market on a "net-line" basis, but may
cede a portion of some policies to third parties from time to time. In 1999, the
Company also commenced assuming large loss portfolios as part of its new asset
accumulation strategy.
The Company evaluates performance of each segment based on underwriting
profit or loss. Other items of revenue and expenditure of the Company are not
evaluated at the segment level. In addition, management does not consider the
allocation of assets by segment. The following is an analysis of the
underwriting profit or loss by segment together with a reconciliation of
underwriting profit or loss to net income:
<TABLE>
<CAPTION>
LLOYD'S FINANCIAL
YEAR ENDED DECEMBER 31, 1999 INSURANCE REINSURANCE SYNDICATES SERVICES TOTAL
<S> <C> <C> <C> <C> <C>
- ---------------------------- -------------------------------------------------------------
Net premiums earned.......................... $463,069 $909,915 $355,769 $21,253 $1,750,006
Fee and other income......................... 7,584 - 65,892 26,924 100,400
Net losses and loss expenses (1), (2)........ 309,079 597,269 297,595 5,361 1,209,304
Acquisition costs............................ 65,318 224,359 89,195 2,108 380,980
Operating expenses (3)....................... 70,929 103,264 28,125 16,670 218,988
-------------------------------------------------------------
Underwriting profit (loss)................... $ 25,327 $(14,977) $ 6,746 $24,038 $ 41,134
Net investment income........................ 525,318
Net realized gains on investments............ 94,356
Equity in net earnings of affiliates......... 40,907
Interest expense............................. 37,378
Amortization of intangible assets............ 49,141
Corporate operating expenses (3)............. 43,765
Loss reserve adjustment (1).................. 95,000
One time charges (3)......................... 45,272
Minority interest............................ 220
Income tax benefit........................... (39,570)
----------
Net income................................... $ 470,509
----------
Loss and loss expense ratio.................. 66.7% 65.6% 83.6% 25.2% 69.1%
Underwriting expense ratio................... 29.4% 36.0% 33.0% 88.4% 34.3%
-------------------------------------------------------------
Combined ratio............................... 96.1% 101.6% 116.6% 113.6% 103.4%
-------------------------------------------------------------
</TABLE>
41
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
3. SEGMENT INFORMATION (CONTINUED)
(1) Net losses and loss expenses exclude an increase to loss reserves of
$95.0 million associated with the merger with NAC.
(2) Net losses and loss expenses for the insurance segment include, and the
reinsurance segment exclude, $100.0 million relating to an intercompany stop
loss agreement. Total results are not affected. The loss and loss expense
ratio would have been 45.2% and 76.6% and the underwriting profit (loss)
would have been $125 million and $(115) million in the insurance and
reinsurance segments, respectively, had this stop loss agreement not been in
place.
(3) Operating expenses exclude corporate operating expenses, shown separately,
and one time charges of $45.3 million associated with the merger with NAC.
<TABLE>
<CAPTION>
LLOYD'S FINANCIAL
YEAR ENDED DECEMBER 31, 1998 INSURANCE REINSURANCE SYNDICATES SERVICES TOTAL
<S> <C> <C> <C> <C> <C>
- ---------------------------- -------------------------------------------------------------
Net premiums earned........................... $410,030 $760,409 $153,852 $ - $1,324,291
Fee and other income.......................... 8,244 - 14,081 - 22,325
Net losses and loss expenses.................. 267,823 455,583 118,111 - 841,517
Acquisition costs............................. 47,688 171,039 30,614 - 249,341
Operating expenses (1)........................ 49,702 85,541 14,875 - 150,118
-------------------------------------------------------------
Underwriting profit........................... $ 53,061 $ 48,246 $ 4,333 $ - $ 105,640
Net investment income......................... 417,290
Net realized gains on investments............. 211,204
Equity in net earnings of affiliates.......... 50,292
Interest expense.............................. 33,444
Amortization of intangible assets............. 26,881
Corporate operating expenses (1).............. 19,679
One time charges (1).......................... 17,460
Minority interest............................. 749
Income tax expense............................ 29,883
----------
Net income.................................... $ 656,330
----------
Loss and loss expense ratio................... 65.4% 60.0% 76.8% N/A 63.6%
Underwriting expense ratio.................... 23.8% 33.8% 29.6% N/A 30.2%
-------------------------------------------------------------
Combined ratio................................ 89.2% 93.8% 106.4% N/A 93.8%
-------------------------------------------------------------
</TABLE>
(1) Operating expenses exclude corporate operating expenses, shown separately,
and one time charges of $17.5 million associated with the merger with Mid
Ocean.
42
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
3. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
LLOYD'S FINANCIAL
YEAR ENDED DECEMBER 31, 1997 INSURANCE REINSURANCE SYNDICATES SERVICES TOTAL
<S> <C> <C> <C> <C> <C>
- ---------------------------- -------------------------------------------------------------
Net premiums earned........................... $428,774 $685,984 $ - $ - $1,114,758
Net losses and loss expenses.................. 352,203 386,646 - - 738,849
Acquisition costs............................. 55,199 142,818 - - 198,017
Operating expenses (1)........................ 37,232 75,829 - - 113,061
-------------------------------------------------------------
Underwriting profit (loss).................... $(15,860) $ 80,691 $ - $ - $ 64,831
Net investment income......................... 345,115
Net realized gains on investments............. 410,658
Equity in net earnings of affiliates.......... 64,959
Interest expense.............................. 29,622
Amortization of intangible assets............. 7,403
Corporate operating expenses (1).............. 7,029
Minority interest............................. 308
Income tax expense............................ 32,172
----------
Net income.................................... $ 809,029
----------
Loss and loss expense ratio................... 82.1% 56.4% N/A N/A 66.3%
Underwriting expense ratio.................... 21.6% 31.9% N/A N/A 27.9%
-------------------------------------------------------------
Combined ratio................................ 103.7% 88.3% N/A N/A 94.2%
-------------------------------------------------------------
</TABLE>
(1) Operating expenses exclude corporate operating expenses, shown separately.
43
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
3. SEGMENT INFORMATION (CONTINUED)
SUPPLEMENTAL SEGMENT AND GEOGRAPHIC INFORMATION
The following table is an analysis of the Company's gross premiums written,
net premiums written and net premiums earned by line of business:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
GROSS PREMIUM WRITTEN: 1999 1998 1997
<S> <C> <C> <C>
------------------------------------
Casualty insurance.......................................... $ 297,899 $ 411,405 $ 376,837
Casualty reinsurance........................................ 481,392 311,057 348,402
Property catastrophe........................................ 147,372 80,420 (82,294)
Other property.............................................. 424,666 315,013 258,957
Marine, energy, aviation and satellite...................... 212,452 108,701 84,021
Lloyd's syndicates.......................................... 591,520 162,773 -
Other....................................................... 287,619 254,170 149,462
------------------------------------
Total....................................................... $2,442,920 $1,643,539 $1,135,385
------------------------------------
<CAPTION>
NET PREMIUM WRITTEN: 1998 1997
------------------------------------
<S> <C> <C> <C>
Casualty insurance.......................................... $ 232,614 $ 301,362 $ 265,296
Casualty reinsurance........................................ 419,000 268,460 322,135
Property catastrophe........................................ 128,863 71,380 (82,902)
Other property.............................................. 311,312 231,690 191,026
Marine, energy, aviation and satellite...................... 152,783 82,484 68,111
Lloyd's syndicates.......................................... 423,880 145,691 -
Other....................................................... 233,431 223,197 116,779
------------------------------------
Total....................................................... $1,901,883 $1,324,264 $ 880,445
------------------------------------
<CAPTION>
NET PREMIUM EARNED: 1998 1997
------------------------------------
<S> <C> <C> <C>
Casualty insurance.......................................... $ 272,677 $ 287,438 $ 363,967
Casualty reinsurance........................................ 331,778 282,245 321,394
Property catastrophe........................................ 133,420 122,583 43,519
Other property.............................................. 324,571 233,045 189,159
Marine, energy, aviation and satellite...................... 163,112 92,147 65,016
Lloyd's syndicates.......................................... 355,769 153,852 -
Other....................................................... 168,679 152,621 131,703
------------------------------------
Total....................................................... $1,750,006 $1,324,291 $1,114,758
------------------------------------
</TABLE>
44
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
3. SEGMENT INFORMATION (CONTINUED)
The following table shows an analysis of the Company's net premiums written
by geographical location of subsidiary:
<TABLE>
<CAPTION>
NET PREMIUMS WRITTEN: 1999 1998 1997
<S> <C> <C> <C>
------------------------------------
Bermuda..................................................... $ 561,750 $ 534,092 $ 241,006
United States............................................... 684,468 497,364 541,362
Europe and other............................................ 655,665 292,808 98,077
------------------------------------
Total....................................................... $1,901,883 $1,324,264 $ 880,445
------------------------------------
</TABLE>
MAJOR CUSTOMERS
During 1999, 1998 and 1997, approximately 21%, 34% and 35% of the Company's
consolidated gross written premiums were generated from or placed by Marsh &
McLennan Companies. During 1999, 1998 and 1997, approximately 13%, 19% and 18%
of the Company's consolidated gross written premiums were generated from or
placed by AON Corporation and its subsidiaries. No other broker accounted for
more than 10% of gross premiums written in each of the three years ended
December 31, 1999.
4. INVESTMENTS
Net investment income is derived from the following sources:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
<S> <C> <C> <C>
------------------------------
Fixed maturities, short-term investments and cash
equivalents............................................... $538,169 $423,612 $346,373
Equity securities........................................... 11,835 19,596 21,046
------------------------------
Total investment income................................... 550,004 443,208 367,419
Investment expenses......................................... 24,686 25,918 22,304
------------------------------
Net investment income....................................... $525,318 $417,290 $345,115
------------------------------
</TABLE>
45
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
4. INVESTMENTS (CONTINUED)
The following represents an analysis of realized and the change in
unrealized appreciation on investments:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
<S> <C> <C> <C>
---------------------------------
Net realized gains (losses):
Fixed maturities and short-term investments:
Gross realized gains...................................... $ 116,226 $ 445,086 $ 203,278
Gross realized losses..................................... (214,196) (398,046) (167,146)
---------------------------------
Net realized gains (losses)............................ (97,970) 47,040 36,132
Equity securities:
Gross realized gains...................................... 254,779 613,186 400,751
Gross realized losses..................................... (62,453) (463,159) (26,225)
---------------------------------
Net realized gains..................................... 192,326 150,027 374,526
Net realized gain on sale of investment in affiliate........ - 14,137 -
---------------------------------
Net realized gains on investments...................... 94,356 211,204 410,658
---------------------------------
Change in unrealized appreciation:
Fixed maturities and short-term investments............... (333,868) (37,741) 98,212
Equity securities......................................... 101,652 41,819 (102,152)
Deferred gains on forward contracts....................... 762 (13,708) 8,247
Investment portfolio of affiliates........................ (11,438) (5,062) 14,535
Change in deferred income tax liability................... 31,050 (722) (12,609)
---------------------------------
Net change in unrealized appreciation on investments........ (211,842) (15,414) 6,233
---------------------------------
Total net realized and change in unrealized
appreciation on investments......................... $(117,486) $ 195,790 $ 416,891
---------------------------------
</TABLE>
46
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
4. INVESTMENTS (CONTINUED)
The cost (amortized cost for fixed maturities and short-term investments),
market value and related unrealized gains (losses) of investments are as
follows:
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1999 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- ----------------- -------------------------------------------------
Fixed maturities:
U.S. Government and Government agency............... $ 560,628 $ 1,011 $ (12,532) $ 549,107
Corporate........................................... 4,610,613 31,407 (234,730) 4,407,290
Mortgage-backed securities.......................... 1,118,104 682 (23,602) 1,095,184
U.S. States and political subdivisions of the
States.............................................. 779,328 7,850 (17,402) 769,776
Non-U.S. Sovereign Government....................... 767,246 10,809 (18,261) 759,794
-------------------------------------------------
Total fixed maturities........................... $7,835,919 $ 51,759 $(306,527) $7,581,151
-------------------------------------------------
Short-term investments:
U.S. Government and Government agency............... $ 82,475 - $ (63) $ 82,412
Corporate........................................... 315,834 229 (270) 315,793
Non-U.S. Sovereign Government....................... 7,066 - (11) 7,055
-------------------------------------------------
Total short-term investments..................... $ 405,375 $ 229 $ (344) $ 405,260
-------------------------------------------------
Total equity securities............................... $ 863,020 $377,302 $(104,142) $1,136,180
-------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1998 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- ----------------- -------------------------------------------------
Fixed maturities:
U.S. Government and Government agency............... $1,876,198 $ 19,878 $ (5,310) $1,890,766
Corporate........................................... 3,605,183 80,085 (83,383) 3,601,885
Mortgage-backed securities.......................... 1,027,383 13,353 (634) 1,040,102
U.S. States and political subdivisions of the
States.............................................. 237,864 46,926 (666) 284,125
Non-U.S. Sovereign Government....................... 687,096 27,229 (18,299) 696,026
-------------------------------------------------
Total fixed maturities........................... $7,433,724 $187,471 $(108,292) $7,512,903
-------------------------------------------------
Short-term investments:
U.S. Government and Government agency............... $ 27,816 $ 128 $ - $ 27,944
Corporate........................................... 200,204 69 (284) 199,989
Non-U.S. Sovereign Government....................... 18,065 - (107) 17,958
-------------------------------------------------
Total short-term investments..................... $ 246,085 $ 197 $ (391) $ 245,891
-------------------------------------------------
Total equity securities............................... $1,127,590 $242,798 $ (71,290) $1,299,098
-------------------------------------------------
</TABLE>
47
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
4. INVESTMENTS (CONTINUED)
The contractual maturities of fixed maturity securities are shown below.
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>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- -----------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
-------------------------------------------------
Due after 1 through 5 years......................... $2,091,280 $2,025,736 $2,390,830 $2,397,734
Due after 5 through 10 years........................ 1,816,040 1,773,639 2,104,804 2,139,561
Due after 10 years.................................. 2,810,495 2,686,592 1,910,707 1,935,506
Mortgage-backed securities.......................... 1,118,104 1,095,184 1,027,383 1,040,102
-------------------------------------------------
$7,835,919 $7,581,151 $7,433,724 $7,512,903
-------------------------------------------------
</TABLE>
At December 31, 1999 and 1998, approximately $89.4 million and
$92.0 million, respectively, of securities were on deposit with various U.S.
state or government insurance departments in order to comply with insurance
regulations.
Through its subsidiaries, the Company has two facilities available for the
issuance of letters of credit collateralized against the Company's investment
portfolio, which were up to a value of $791.4 million at December 31, 1999. At
December 31, 1999 and 1998, approximately $591.0 million and $348.9 million,
respectively, of letters of credit were issued and outstanding under these
facilities.
Included in cash and invested assets at December 31, 1999 and 1998 are
approximately $16.6 million and $22.4 million, respectively, of assets held in a
"holding company" escrow account arising from a tax allocation agreement between
certain of the Company's U.S. subsidiaries.
5. INVESTMENTS IN AFFILIATES
The following investments are accounted for on the equity basis:
In 1999, the Company acquired minority investments in Highfields Capital
Management L.P., a global equity investment firm, and MKP Capital Management, a
New York-based fixed income investment manager specializing in mortgage-backed
securities, and invested in the closed end funds they manage.
In 1999, the Company signed a joint venture agreement with Les Mutuelles du
Mans Assurances Group to form a new French reinsurance company, Le Mans Re. The
Company owns a 49% shareholding in the new company, which underwrites a
worldwide portfolio comprising all classes of non-life reinsurance business
together with a selective portfolio of life reinsurance business.
The Company owned 27.9% of the issued shares of Risk Capital Holdings as at
December 31, 1999 and 1998. Risk Capital provides reinsurance and other forms of
capital for insurance companies with capital needs that cannot be met by
reinsurance alone. Subsequent to year end, this investment was sold. See
Note 20 for further discussion.
The Company owns 30% of Pareto Partners, a partnership engaged in the
business of providing investment advisory and discretionary management services.
48
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
5. INVESTMENTS IN AFFILIATES (CONTINUED)
In 1998, the Company and FSA formed FSA International, a Bermuda company.
At December 31, 1999, the Company owned 20% of FSA International.
The Company owned approximately 25% of Mid Ocean until July 31, 1998.
Subsequent to this date, Mid Ocean was acquired by the Company and has been
consolidated.
6. BUSINESS COMBINATIONS AND CHANGE IN FISCAL YEAR END
(A) NAC RE CORP.
On June 18, 1999, the Company merged with NAC in an all-stock transaction.
Shareholders of NAC received 0.915 Company shares for each NAC share in a tax
free exchange. Approximately 16.9 million of the Company's Class A ordinary
shares were issued in this transaction. The merger transaction has been
accounted for as a pooling of interests under U.S. GAAP.
Following the merger, the Company changed its fiscal year end from
November 30 to December 31 as a conforming pooling adjustment. No adjustments
were necessary to conform NAC's accounting policies, although certain
reclassifications were made to the NAC financial statements to conform to the
Company's presentation.
The following table presents a reconciliation of the total revenues, net
income, and earnings per share of the Company as previously reported as adjusted
for the change in fiscal year end, combined with the results of NAC:
<TABLE>
<CAPTION>
CONSOLIDATED
CONSOLIDATED CONSOLIDATED SHAREHOLDERS'
DECEMBER 1998 TOTAL REVENUES NET INCOME EQUITY
- ------------------------------------------------------------ ---------------------------------------------
<S> <C> <C> <C>
XL Capital - year end November 30, 1998 as previously
reported.................................................. $1,217,648 $587,663 $4,817,880
Less one month December 31, 1997............................ 93,835 57,168
Add one month December 31, 1998............................. 202,210 29,785 43,998
---------------------------------------------
XL Capital - year end December 31, 1998 as adjusted before
combination with NAC...................................... 1,326,023 560,280 4,861,878
NAC - year end December 31, 1998............................ 699,379 96,050 750,725
---------------------------------------------
Combined results - year end December 31, 1998............... $2,025,402 $656,330 $5,612,603
---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BASIC EARNINGS DILUTED EARNINGS
PER SHARE PER SHARE
---------------------------------
<S> <C> <C>
XL Capital - year end November 30, 1998 as previously
reported.................................................. $6.32 $6.20
XL Capital - year end December 31, 1998 as adjusted before
combination with NAC...................................... $5.88 $5.77
NAC - year end December 31, 1998 (1)........................ $5.74 $5.22
Weighted average combined earnings per share as adjusted.... $5.86 $5.68
</TABLE>
(1) After giving effect to the exchange of 0.915 Company shares for each NAC
Share
49
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
6. BUSINESS COMBINATIONS AND CHANGE IN FISCAL YEAR END (CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED
CONSOLIDATED CONSOLIDATED SHAREHOLDERS'
DECEMBER 1997 TOTAL REVENUES NET INCOME EQUITY
<S> <C> <C> <C>
- -------------- ---------------------------------------------
XL Capital - year end November 30, 1997 as previously
reported.................................................. $1,159,026 $676,961 $2,479,130
Less one month December 31, 1996............................ 57,743 20,777 -
Add one month December 31, 1997............................. 93,835 57,168 59,558
---------------------------------------------
XL Capital-year end December 31, 1997 as adjusted before
combination with NAC...................................... 1,195,118 713,352 2,538,688
NAC - year end December 31, 1997............................ 740,372 95,677 657,061
---------------------------------------------
Combined results - year end December 31, 1997............... $1,935,490 $809,029 $3,195,749
---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BASIC EARNINGS DILUTED EARNINGS
PER SHARE PER SHARE
<S> <C> <C>
---------------------------------
XL Capital - year end November 30, 1997 as previously
reported.................................................. $7.95 $7.84
---------------------------------
XL Capital - year end December 31, 1997 as adjusted before
Combination with NAC...................................... $8.40 $8.30
NAC - year end December 31, 1997 (1)........................ $5.69 $5.21
Weighted average combined earnings per share, as adjusted... $7.95 $7.74
---------------------------------
</TABLE>
(1) After giving effect to the exchange of 0.915 Company shares for each NAC
Share.
(B) ECS, INC AND INTERCARGO CORPORATION
In 1999, the Company acquired ECS, an underwriting manager which
specializes in environmental insurance coverages and risk management services.
Commencing January 2000, ECS will underwrite policies on behalf of the Company's
insurance and reinsurance subsidiaries.
In 1999, the Company acquired Intercargo, which through its subsidiaries,
underwrites specialty insurance products for companies engaged in international
trade, including U.S. Customs bonds and marine cargo insurance.
The Intercargo and ECS acquisitions have been accounted for under the
purchase method of accounting. The combined purchase price was $222.8 million
and the resulting goodwill of $159.6 million is being amortized over 20 years.
Cash acquired as a result of the acquisition was $49.6 million.
(C) MID OCEAN LIMITED
In August 1998, the Company merged with Mid Ocean. Shareholders of Mid
Ocean received 1.0215 Company shares for each Mid Ocean share subject to a cash
election option which was taken up of $96 million. The merger with Mid Ocean was
accounted for as a purchase under U.S. GAAP and results of operations of Mid
Ocean are included from August 1, 1998. The total purchase price was
$2.2 billion; the fair value of Mid Ocean's net assets not already owned by the
Company was $0.9 billion with the balance of $1.3 billion representing goodwill
which is
50
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
6. BUSINESS COMBINATIONS AND CHANGE IN FISCAL YEAR END (CONTINUED)
being amortized over 40 years. On August 1, 1998, the consolidated balance sheet
of Mid Ocean included the following items at fair value:
<TABLE>
<S> <C>
Investments available for sale.............................. $1,668,224
Premiums receivable......................................... 445,540
Other assets................................................ 442,831
Total assets................................................ 2,556,595
Unpaid loss and loss expense reserves....................... 595,261
Unearned premium............................................ 458,994
Total liabilities........................................... 1,195,835
Shareholders' equity........................................ 1,360,760
</TABLE>
Cash and cash equivalents totaling $137 million is included in other
assets. Cash acquired as a result of this merger was $41 million.
See Note 22 for further details.
(D) GCR HOLDINGS LIMITED
In June 1997, the Company acquired GCR Holdings Limited in an all-cash
transaction. The acquisition was accounted for as a purchase under U.S. GAAP.
The total purchase price was $667 million, the fair value of GCR's net assets
was $402 million, with the balance of $265 million representing goodwill which
is being amortized over 20 years. Cash and cash equivalents of approximately
$7 million were acquired.
7. LOSSES AND LOSS EXPENSES
Unpaid losses and loss expenses are comprised of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1999 1998 1997
<S> <C> <C> <C>
------------------------------------
Reserve for reported losses and loss expenses............... $2,175,688 $2,062,046 $1,416,745
Reserve for losses incurred but not reported................ 3,193,714 2,834,597 2,555,631
------------------------------------
Unpaid losses and loss expenses............................. $5,369,402 $4,896,643 $3,972,376
------------------------------------
Losses and loss expenses incurred comprise:
Loss and loss expense payments.............................. $1,392,024 $ 849,777 $ 560,542
Change in unpaid losses and loss expenses................... 303,140 285,775 344,580
Reinsurance recoveries...................................... (390,860) (294,035) (166,273)
------------------------------------
Losses and loss expenses incurred........................... $1,304,304 $ 841,517 $ 738,849
------------------------------------
</TABLE>
51
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
7. LOSSES AND LOSS EXPENSES (CONTINUED)
The following table represents an analysis of paid and unpaid losses and
loss expenses and a reconciliation of the beginning and ending unpaid loss and
loss expenses for the years indicated:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
------------------------------------
Unpaid losses and loss expenses at beginning of year........ $4,896,643 $3,972,376 $3,623,334
Unpaid losses and loss expenses recoverable................. (593,960) (363,716) (457,373)
------------------------------------
Net unpaid losses and loss expenses at beginning of year.... 4,302,683 3,608,660 3,165,961
Increase (decrease) in net losses and loss expenses incurred
in respect of losses occurring in:
Current year.............................................. 1,591,414 1,085,161 1,056,228
Prior year................................................ (287,110) (243,644) (317,379)
------------------------------------
Total net incurred loss and loss expenses.............. 1,304,304 841,517 738,849
Interest incurred on experience reserves.................... - 1,798 866
Exchange rate effects....................................... (5,950) 718 (658)
Net loss reserves acquired through purchase of
subsidiaries.............................................. 30,003 580,879 34,593
Net loss and loss expenses paid in respect of losses
occurring in:
Current year.............................................. 281,806 272,456 97,296
Prior year................................................ 811,696 458,433 233,655
------------------------------------
Total net paid losses.................................. 1,093,502 730,889 330,951
Net unpaid losses and loss expenses at end of year.......... 4,537,538 4,302,683 3,608,660
Unpaid losses and loss expenses recoverable................. 831,864 593,960 363,716
------------------------------------
Unpaid losses and loss expenses at end of year.............. $5,369,402 $4,896,643 $3,972,376
------------------------------------
</TABLE>
Business written by the Company has loss experience characterized as low
frequency but high severity in nature. This may result in volatility in the
Company's financial results. Actuarial assumptions used to establish the
liability for losses and loss expenses are periodically adjusted to reflect
comparisons to actual loss and loss expense development, inflation and other
considerations.
Several aspects of the Company's casualty insurance operations complicate
the actuarial reserving techniques for loss reserves as compared to other
insurance operations. 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 insureds for similar claims.
While management believes it has made a reasonable estimate of ultimate losses,
the ultimate claims experience may not be as reliably predicted as may be the
case with other insurance operations, and there can be no assurance that losses
and loss expenses will not exceed the total reserves.
Losses incurred in 1999 grew significantly over 1998 for a number of
reasons. The Company acquired Mid Ocean and Brockbank in August 1998 and
consequently, only recognized the effect of their operations for five months in
1998. Incurred losses for these entities were approximately $475 million in 1999
compared to $260 million in 1998. The Company was also affected by a number of
catastrophes in 1999 compared to 1998. The fourth
52
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
7. LOSSES AND LOSS EXPENSES (CONTINUED)
quarter of 1999 generated approximately $135 million of catastrophic losses to
the Company, of which the European storms in December account for the major
part. The Company also experienced a number of smaller catastrophe losses in
1999 that totaled approximately $50 million. These losses included the Turkey
earthquakes, the Sydney hailstorms and the Oklahoma tornadoes. By comparison,
the Company incurred approximately $60 million in catastrophe losses relating to
Hurricane Georges and the SwissAir disaster in 1998. These losses were incurred
in the reinsurance operations.
The Lloyd's operations experienced loss deterioration on the U.K. motor
business written by Brockbank, principally relating to its 1999 and 1998
underwriting years of approximately $20 million. 1999 incurred losses also
include an increase to reinsurance loss reserves of $95 million for NAC when it
merged with the Company in June 1999. In addition, the acquisition of Intercargo
in June 1999 also added approximately $30 million to total incurred losses.
The decrease in prior year incurred losses is driven primarily by the
Company's insurance liability excess of loss reserves. The basis for
establishing IBNR is unlike most insurance companies due to the lack of industry
data. Consequently, the Company estimates loss reserves through actuarial models
based upon its own experience. When the Company commenced writing this type of
business in 1986, limited data was available and the Company made its best
estimate of loss reserves at that time. Over time, the amount of data has
increased, providing a larger statistical base for estimating reserves.
Redundancies in prior year loss reserves have occurred where loss experience has
developed more favorably than expected.
The increase in paid losses in 1999 and 1998 reflects the acquisition of
Mid Ocean and Brockbank in 1998. In addition, the source of the Company's high
excess of loss liability and catastrophe business can result in loss payments
that are both irregular and significant. Similarly, 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".
The Company's net incurred losses and loss expenses includes a provision of
$10.6 million, $1.2 million and $3.7 million in 1999, 1998 and 1997,
respectively, for estimates of actual and potential non-recoveries from
reinsurers. Such charges for non-recoveries relate mainly to reinsurance ceded
for casualty business written prior to 1986. Included in unpaid losses and loss
expenses at December 31, 1999, 1998 and 1997 is a reserve for potential
non-recoveries from reinsurers of $25.8 million, $14.5 million and
$13.8 million, respectively.
Except for certain workers' compensation unpaid losses, the Company does
not discount its liabilities for unpaid losses and loss expenses. The Company
utilizes tabular reserving for workers' compensation unpaid losses that are
considered fixed and determinable and discounts such losses using an interest
rate of 7% for financial statements prepared in accordance with GAAP and a 5%
interest rate for U.S. statutory accounting purposes. The tabular reserving
methodology results in applying a uniform and consistent criteria for
establishing expected future indemnity and medical payments (including an
explicit factor for inflation) and the use of mortality tables to determine
expected payment periods. Tabular unpaid losses and loss expenses, net of
reinsurance, at December 31, 1999, 1998 and 1997 were $85.7 million,
$61.3 million and $42.4 million, respectively. The related discounted unpaid
losses and loss expenses were $28.1 million, $20.7 million and $16.1 million as
of December 31, 1999, 1998 and 1997, respectively.
53
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
7. LOSSES AND LOSS EXPENSES (CONTINUED)
ASBESTOS AND ENVIRONMENTAL RELATED CLAIMS
The Company's reserving process includes a continuing evaluation of the
potential impact on unpaid liabilities from exposure to asbestos and
environmental claims, including related loss adjustment expenses. Liabilities
are established to cover both known and incurred but not reported claims.
A reconciliation of the opening and closing unpaid losses and loss expenses
related to asbestos and environmental exposure claims for the years indicated is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
<S> <C> <C> <C>
---------------------------
Net unpaid losses and loss expenses at beginning of year.... $34,850 $32,767 $28,500
Net incurred loss and loss expenses......................... 4,416 5,541 8,067
Less net paid losses and loss expenses...................... 3,060 3,458 3,800
---------------------------
Net increase in unpaid losses and loss expenses............. 1,356 2,083 4,267
Net unpaid losses and loss expenses at end of year.......... 36,206 34,850 32,767
Unpaid losses and loss expenses recoverable at end of
year...................................................... 49,022 43,211 37,905
---------------------------
Gross unpaid losses and loss expenses at end of year........ $85,228 $78,061 $70,672
---------------------------
</TABLE>
Incurred but not reported ("IBNR") losses, net of reinsurance, included in
the above table was $16.1 million in 1999, $17.0 million in 1998 and
$16.6 million in 1997. Unpaid losses recoverable are net of potential
uncollectable amounts.
As of December 31, 1999 and 1998, the Company had approximately 370 and 400
open claim files, respectively, for potential asbestos exposures and 245 and 760
open claim files, respectively, for potential environmental exposures.
Approximately 46% and 51% of the open claim files for 1999 and 1998,
respectively, are due to precautionary claim notices. Precautionary claim
notices are submitted by the ceding companies in order to preserve their right
to receive coverage under the reinsurance contract. Such notices do not contain
an incurred loss amount to the Company. The Company believes it has made
reasonable provision for its asbestos and environmental exposures and is unaware
of any specific issues that would materially affect its estimate for losses and
loss expenses. The estimation of loss and loss expense liabilities for asbestos
and environmental exposures is subject to much greater uncertainty than is
normally associated with the establishment of liabilities for certain other
exposures due to several factors, including: i) uncertain legal interpretation
and application of insurance and reinsurance coverage and liability; ii) the
lack of reliability of available historical claims data as an indicator of
future claims development; iii) an uncertain political climate which may impact,
among other areas, the nature and amount of costs for remediating waste sites;
and iv) the potential of insurers and reinsurers to reach agreements in order to
avoid further significant legal costs. Due to the potential significance of
these uncertainties, the Company believes that no meaningful range of loss and
loss expense liabilities beyond recorded reserves can be established. As these
uncertainties are resolved, additional reserve provisions, which could be
material in amount, may be necessary.
54
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
8. REINSURANCE
The Company utilizes reinsurance and retrocession agreements principally to
increase aggregate capacity and to reduce the risk of loss on business assumed.
The Company's reinsurance and retrocession agreements provide for recovery of a
portion of loss and loss expenses from reinsurers and reinsurance recoverables
are recorded as assets. The Company is liable if the reinsurers are unable to
satisfy their obligations under the agreements.
A 20% quota share reinsurance policy exists with several U.S. reinsurers
covering general liability insurance risks only. The maximum amount recoverable
from the reinsurers is the ceded percentage of the original policy limit on a
per occurrence basis, with an annual aggregate of 300% of the total premium
ceded.
There are a limited amount of retrocession agreements in place for the
Company's short tail reinsurance business assumed for common account reinsurance
on proportional contracts written and "high level" property catastrophe excess
of loss protection. For the long tail casualty reinsurance business written,
several reinsurance policies are in place to limit the Company's retention on
any one claim and also for multiple claims arising from two or more risks in a
single occurrence or event.
The Company's Lloyd's syndicates have traditionally purchased a significant
amount of reinsurance to protect against extraordinary loss or loss involving
one or more of the lines of business written. Reinsurance is purchased on an
excess of loss and quota share basis.
The effect of reinsurance and retrocessional activity on premiums written
and earned is shown below:
<TABLE>
<CAPTION>
PREMIUMS WRITTEN PREMIUMS EARNED
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------- ------------------------------------
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
Direct...................... 1,088,028 779,551 517,773 994,339 672,871 537,070
Assumed..................... 1,354,892 863,988 617,612 1,259,632 926,730 783,116
Ceded....................... (541,037) (319,275) (254,940) (503,965) (275,310) (205,428)
--------------------------------------------------------------------------
Net......................... $1,901,883 $1,324,264 $ 880,445 $1,750,006 $1,324,291 $1,114,758
--------------------------------------------------------------------------
</TABLE>
The Company recorded reinsurance recoveries on loss and loss expenses
incurred of $390.9 million, $294.0 million and $166.3 million for the years
ended December 31, 1999, 1998 and 1997, respectively. The Company is the
beneficiary of letters of credit, trust accounts and funds withheld in the
aggregate amount of $228.9 million at December 31, 1999, collateralizing
reinsurance recoverables with respect to certain retrocessionnaires.
Increases in all of the above balances in 1999 over 1998 and in 1998 over
1997 is primarily due to the acquisition of Mid Ocean in 1998.
9. DEPOSIT LIABILITIES AND POLICY BENEFIT RESERVE
During 1999, the Company entered into a contract that transfers
insufficient risk to be accounted for as reinsurance under SFAS No. 113. This
contract has been recorded as a deposit liability and is matched by an
equivalent amount of investments. At December 31, 1999, total deposit
liabilities are $310.4 million.
In December 1999, the Company entered into a contract reinsuring a
portfolio of life and annuity business that has been accounted for as an
investment contract under SFAS No. 97, with a corresponding liability for
estimated future policy benefits in the amount of $635.6 million. The Company
has contracted to transfer liabilities of $108.1 million to a third party for an
equivalent consideration
55
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
10. NOTES PAYABLE AND DEBT AND FINANCING ARRANGEMENTS
As at December 31, 1999, the Company had bank and loan facilities available
from a variety of sources including commercial banks totaling $2.16 billion
(1998: $2.24 billion) of which $410.7 million (1998: $613.9 million) was
outstanding. In addition, $891.6 million (1998: $348.9 million) of letters of
credit were outstanding, 66% of which were collateralized by the Company's
investment portfolio, primarily supporting U.S. non-admitted business,
intercompany quota share agreements between affiliates and the Company's Lloyd's
capital requirements.
The financing structure at December 31, 1999 was as follows:
<TABLE>
<CAPTION>
FACILITY COMMITMENT IN USE/OUTSTANDING
<S> <C> <C>
- ------ --------------------------------
DEBT:
Company term note......................................... $ 11,000 $ 11,000
2 facilities of 364 day Revolvers - total................. 650,000 -
2 facilities of 5 year Revolvers - total.................. 350,000 299,700
7.15% Senior Notes due 2005............................... 100,000 100,000
--------------------------------
$1,111,000 $410,700
--------------------------------
LETTERS OF CREDIT:
7 facilities - total...................................... $1,246,500 $891,600
--------------------------------
</TABLE>
<TABLE>
The financing structure at December 31, 1998 was as follows:
IN
FACILITY COMMITMENT USE/OUTSTANDING
- ------ ------------------------------
<S> <C> <C>
DEBT:
Company term note......................................... $ 11,000 $ 11,000
3 facilities of 364 day Revolvers - total................. 700,000 113,000
2 facilities of 5 year Revolvers - total.................. 350,000 190,000
7.15% Senior Notes due 2005............................... 100,000 99,900
8% Senior Notes due 1999.................................. 100,000 100,000
5.25% Convertible Subordinated Debentures due 2002........ 100,000 100,000
------------------------------
$1,361,000 $613,900
------------------------------
LETTERS OF CREDIT:
3 facilities - total...................................... $ 876,000 $348,900
------------------------------
</TABLE>
The 364-day facilities are provided by a syndicate of banks where the
borrowings are unsecured, and by a U.S. bank where the borrowings are
collateralized and guaranteed. There were no borrowings outstanding at
December 31, 1999. The weighted average interest rate on the funds borrowed
during 1999 was approximately 5.41% and approximately 5.9% during 1998.
Two syndicates of banks provide the two five-year facilities and borrowings
are unsecured. The amounts of $299.7 million and $190.0 million outstanding at
December 31, 1999 and 1998, respectively, relate primarily to the
$300.0 million borrowed to finance the cash option election available to
shareholders in connection with the Mid Ocean acquisition in August 1998. The
1999 outstanding amount also relates to the $109.7 million borrowed to finance
the acquisition of ECS and Intercargo during 1999. The weighted average interest
rate on funds borrowed during 1999 was approximately 5.43% and 5.7% during 1998.
56
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
10. NOTES PAYABLE AND DEBT AND FINANCING ARRANGEMENTS (CONTINUED)
In 1995, the Company issued $100.0 million of 7.15% Senior Notes due
November 15, 2005 through a public offering at a price of $99.9 million.
$100.0 million of 5.25% Convertible Subordinated Debentures due
December 15, 2002 were issued in December 1992 through a private offering. The
Debentures were called in June 1999 and converted to approximately 1.8 million
of the Company's shares.
$100.0 million of 8% Senior Notes due June 15, 1999 were issued in
June 1992 through a public offering. These Notes were repaid in June 1999
through additional borrowings and internal funds.
Total pre-tax interest expense on the borrowings described above was
$37.4 million, $33.4 million and $29.6 million for the years ended December 31,
1999, 1998 and 1997, respectively. Associated with the Company's bank and loan
commitments are various loan covenants with which the Company was in compliance
throughout the three year period.
The Company has seven letter of credit facilities available at
December 31, 1999, two from two syndicates of banks, three from U.K. banks and
two from U.S. banks. Two syndicates of banks and a U.K. bank provided the three
letter of credit facilities available at December 31, 1998. These facilities are
used to collateralize certain reinsureds' premium and unpaid loss reserves with
the Company and for Lloyd's capital requirements of the Company's corporate
syndicates. Of the letters of credit outstanding at December 31, 1999,
$591.0 million (1998: $348.9 million) were collateralized against the Company's
investment portfolio and $300.6 million (1998: Nil) were unsecured.
11. COMMITMENTS AND CONTINGENCIES
(A) 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 foreign currency
fixed maturities and equity investments. 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 in income 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 December 31, 1999 and 1998, forward
foreign exchange contracts with notional principal amounts totaling
$339.3 million and $322.4 million, respectively, were outstanding. The fair
value of these contracts as at December 31, 1999 was $341.1 million (1998:
$316.2 million) with unrealized losses of $1.8 million (1998: $6.2 million).
Losses of $2.7 million and gains of $17.0 million were realized during 1999 and
1998, respectively.
In addition, the Company also enters into foreign exchange contracts to buy
and sell foreign currencies in the course of trading its foreign currency
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 December 31, 1999 and 1998, the value of such contracts
outstanding was not significant.
57
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company attempts to hedge directly the foreign currency exposure of a
portion of its foreign currency 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
December 31, 1999, the Company had, as hedges, foreign exchange contracts for
the sale of $94.0 million and the purchase of $7.5 million of foreign currencies
at fixed rates, primarily Euros (49% of net contract value), British pounds
(18%) and New Zealand dollars (16%). The market value of fixed maturities
denominated in foreign currencies that were hedged and held by the Company as at
December 31, 1999 was $85.2 million.
Unrealized foreign exchange gains or losses on foreign exchange contracts
hedging foreign currency fixed maturity investments are deferred and included in
shareholders' equity. As at December 31, 1999 and 1998, unrealized losses
amounted to $2.0 million and $1.3 million, respectively, and were offset by
corresponding increases 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 December 31, 1999 and 1998, realized losses amounted to $0.5 million and
$0.7 million, respectively.
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.
(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 December 31, 1999, the portfolio held
$121.9 million (1998: $148.2 million) in exposure to S&P 500 Index futures and
underlying assets of $122.0 million (1998: $149.6 million). The value of the
futures is updated daily with the change recorded in income as a realized gain
or loss. For the years ended December 31, 1999 and 1998, net realized gains from
index futures totaled $11.3 million and $23.2 million, respectively.
Derivative investments are also utilized to add value to the portfolio
where market inefficiencies are believed to exist. At December 31, 1999, bond
and stock index futures outstanding were $241.1 million (1998: $235.6 million),
with underlying investments having a market value of $2.5 billion (1998:
$2.1 billion). All managers are prohibited by the Company's investment
guidelines from leveraging their positions.
(B) 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 December 31, 1999 and 1998.
(C) 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 $99.7 million and $33.0 million as at
December 31, 1999 and 1998, respectively, with commitments to invest a further
$131.8 million over the next ten years. The Company
58
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
received income from its investments of $9.4 million and $3.6 million for the
years ended December 31 1999 and 1998, 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.
(D) PROPERTIES
The Company rents space for its principal executive offices under leases
which expire up to 2009. Total rent expense for the years ended December 31,
1999, 1998 and 1997 was approximately $13 million, $9 million and $7 million,
respectively. Future minimum rental commitments under existing leases are
expected to be as follows:
<TABLE>
<S> <C>
Year ending December 31: 2000 $ 15,927
2001 14,888
2002 11,513
2003 10,806
2004 10,533
Later years 72,487
--------
Total minimum future rentals $136,154
========
</TABLE>
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 million, of which
$60 million has been spent to December 31, 1999. It is estimated that the
development will be completed sometime in 2001. Upon completion of the
development, it is expected that the Company's rental commitments will be
reduced.
(E) TAX MATTERS
The Company is a Cayman Islands corporation and, except as described below,
neither it nor its non-U.S. subsidiaries have 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, regulations or court decisions, there can be no assurance
that the Internal Revenue Service 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 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.
59
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(F) FINANCIAL GUARANTIES
The Company insures and reinsures financial guaranties issued to support
public and private borrowing arrangements. Financial guaranties are conditional
commitments which guaranty the performance of a customer to a third party. The
Company's potential liabilities in the event of nonperformance by the issuer of
the insured obligation is represented by its proportionate share of the
aggregate outstanding principal and interest payable ("insurance in force") on
such insured obligation. At December 31, 1999, the Company's aggregate insurance
in force was $5.2 billion. The Company manages its exposure to credit risk
through a structured underwriting process which includes detailed credit
analysis, review of and adherence to underwriting guidelines, surveillance
policies and procedures and the use of reinsurance.
12. SHARE CAPITAL
(A) AUTHORIZED AND ISSUED
The authorized share capital is 999,990,000 ordinary shares of a par value
of $0.01 each. 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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
<S> <C> <C> <C>
------------------------------
Balance - beginning of year................................. 128,745 101,282 104,192
Exercise of options......................................... 443 425 503
Issue of restricted shares.................................. 107 289 173
Repurchase of shares........................................ (1,488) (3,443) (3,586)
Issue of Class A shares..................................... - 27,076 -
Issue of Class B shares..................................... - 3,116 -
------------------------------
Balance - end of year....................................... 127,807 128,745 101,282
------------------------------
</TABLE>
The issue of shares in 1998 was in exchange for Mid Ocean shares and FSA
shares.
(B) SHARE REPURCHASES
The Company has had several stock repurchase plans in the past as part of
its capital management. In June 1999, the Board of Directors rescinded the
Company's share repurchase plans. On January 9, 2000 the Board of Directors
authorized the repurchase of shares up to $500 million.
(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 the 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.
60
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
12. SHARE CAPITAL (CONTINUED)
Restricted stock awards issued under the 1991 Performance Incentive Program
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 113,100
shares, 147,836 shares and 91,000 shares in 1999, 1998 and 1997, respectively.
Restricted stock awards granted by NAC prior to the merger amounted to 3,627
shares, 23,700 shares and 65,300 shares for the same respective periods. Vesting
for such shares generally occurs over a six year period.
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 the grant date. Effective
April 11, 1997, all options granted to non-employee directors are granted under
the 1991 Performance Incentive Program. 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 shares
calculated by dividing 110% of the deferred payment by the market value of the
Company's stock at the beginning of the fiscal year. Each anniversary
thereafter, 20% of these shares are distributed. Shares issued under the plan
totaled nil, 2,737 and 3,048 in 1999, 1998 and 1997, 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. Stock units totaling 1,217,
5,531 and 6,716 were provided for in 1999, 1998 and 1997, respectively.
As a result of the merger with Mid Ocean during August 1998, 791,573 Mid
Ocean options were converted to options of XL Capital. These are 10 year options
that generally vest over 3 years.
Following the merger with NAC, new option plans were created in the Company
to adopt the NAC plans. Options generally have a five or six year vesting
schedule, with the majority expiring 10 years from the date of grant; the
remainder having no expiration. A stock plan is also maintained for non-employee
directors. Options expire 10 years from the date of grant and are fully
exercisable six months after their grant date.
In 1999, the Company adopted the 1999 Performance Incentive Plan under
which 1,250,000 options were available and issued to employees who were not
directors or executive officers of the Company.
(D) FAS 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 awards
61
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
12. SHARE CAPITAL (CONTINUED)
granted in 1999, 1998 and 1997, and net income and earnings per share would have
been reduced to the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
<S> <C> <C> <C>
------------------------------
Net income - as reported.................................... $470,509 $656,330 $809,029
Net income - pro-forma...................................... $437,592 $635,239 $798,140
Basic earnings per share - as reported...................... $ 3.69 $ 5.86 $ 7.95
Basic earnings per share - pro-forma........................ $ 3.43 $ 5.67 $ 7.85
Diluted earnings per share - as reported.................... $ 3.62 $ 5.68 $ 7.74
Diluted earnings per share - pro-forma...................... $ 3.36 $ 5.47 $ 7.60
</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>
1999 1998 1997
<S> <C> <C> <C>
---------------------------------
Dividend yield.............................................. 3.43% 1.81% 1.89%
Risk free interest rate..................................... 5.90% 4.76% 5.51%
Expected volatility......................................... 24.66% 24.72% 23.49%
Expected lives.............................................. 7.5 years 9.2 years 9.0 years
</TABLE>
Total stock based compensation recognized in net income was $7.7 million in
1999, $5.8 million in 1998 and $5.2 million in 1997.
(E) OPTIONS
Following is a summary of stock options and related activity:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- -------------------- --------------------
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............... 7,685,414 $50.61 5,744,063 $35.28 5,271,579 $29.27
Granted....................................... 3,207,492 $57.06 1,749,885 $68.27 1,036,305 $57.20
Granted - Mid Ocean conversion................ - - 791,573 $72.44 - $ -
Exercised..................................... (421,163) $27.57 (425,251) $30.06 (506,891) $19.99
Canceled...................................... (189,020) $55.25 (174,856) $40.12 (56,930) $40.97
-------------------------------------------------------------------
Outstanding - end of year..................... 10,282,723 $46.50 7,685,414 $46.79 5,744,063 $35.28
-------------------------------------------------------------------
Options exercisable........................... 5,287,657 4,288,434 3,043,676
-------------------------------------------------------------------
Options available for grant................... *1,028,853 * 2,455,190 * 4,082,135
-------------------------------------------------------------------
</TABLE>
* Available for grant includes shares which may be granted on either stock
options or restricted stock.
62
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
12. SHARE CAPITAL (CONTINUED)
The following table summarizes information about the Company's stock
options (including stock appreciation rights) for options outstanding as of
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ------------------------------------
AVERAGE
AVERAGE REMAINING AVERAGE
RANGE OF NUMBER OF EXERCISE CONTRACTUAL NUMBER OF EXERCISE
EXERCISE PRICES OPTIONS (000S) PRICE LIFE (YEARS) OPTIONS (000S) PRICE
- ----------------------- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10.44 - $32.38........ 2,045 $22.30 3.7 2,023 $21.79
$32.92 - $50.00........ 4,548 $44.52 5.9 2,109 $39.40
$51.24 - $64.69........ 2,516 $56.58 7.6 776 $59.46
$73.00 - $79.25........ 1,231 $74.71 9.6 443 $74.74
--------------------------------------------------------------------------------------------
$10.44 - $79.25........ 10,340 $46.65 7.6 5,351 $38.58
--------------------------------------------------------------------------------------------
</TABLE>
(F) VOTING
XL's Articles of Association restrict the voting power of any person to
less than 10% of total voting power.
(G) SHARE RIGHTS PLAN
Rights to purchase Ordinary Shares were distributed as a dividend at the
rate of one Right for each outstanding Ordinary Share held of record as of the
close of business on October 31, 1998. Each Right entitles holders of XL
Ordinary Shares to buy one ordinary share at an exercise price of $350. The
Rights would be exercisable, and would detach from the Ordinary Shares, only if
a person or group were to acquire 20% or more of XL's outstanding Ordinary
Shares, or were to announce a tender or exchange offer that, if consummated,
would result in a person or group beneficially owning 20% or more of XL's
Ordinary Shares. Upon a person or group without prior approval of the Board
acquiring 20% or more of XL's Ordinary Shares, each Right would entitle the
holder (other than such an acquiring person or group) to purchase XL Ordinary
Shares (or, in certain circumstances, 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. The Company has initially reserved 119,073,878 Ordinary Shares being
authorized and unissued for issuance upon exercise of the Rights.
13. RETIREMENT PLANS
The Company maintains both defined contribution and defined benefit
retirement plans, which vary for each subsidiary. Plan assets are invested
principally in equity securities and fixed maturities.
The Company has a qualified defined contribution plan which is managed
externally and whereby employees and the Company contribute a certain percentage
of the employee's gross salary into the plan each month. The Company's
contribution generally vests over 5 years.
63
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
13. RETIREMENT PLANS (CONTINUED)
At NAC, a qualified non-contributory defined benefit pension plan exists to
cover substantially all its U.S. employees. Benefits are based on years of
service and compensation, as defined in the plan, during the highest consecutive
three years of the employee's last ten years of employment.
Under this plan, the Company's policy is to make annual contributions to
the plan that are deductible for federal income tax purposes and that meet the
minimum funding standards required by law. The contribution level is determined
by utilizing the entry age cost method and different actuarial assumptions than
those used for pension expense purposes. This plan also includes a non-qualified
supplemental defined benefit plan designed to compensate individuals to the
extent their benefits under the Company's qualified plan are curtailed due to
Internal Revenue Code limitations. The projected benefit obligation, accumulated
benefit obligation and fair value of the assets for this plan with accumulated
benefit obligations in excess of the plan assets were $4.6 million,
$2.5 million and Nil, respectively, as of December 31, 1999 and $5.0 million,
$2.5 million and Nil, respectively as of December 31, 1998. The discount rates
used in determining the actuarial present value of benefit obligations were 7.7%
and 6.5% for 1999 and 1998, respectively. The rate of increase for future
compensation levels was 6.5% for 1999 and 5.5% for 1998. The assumed rate of
return on plan assets was 9.0% for both 1999 and 1998.
NAC also maintains a qualified contributory defined contribution plan for
substantially all its U.S. employees and a qualified non-contributory defined
contribution plan for all its U.K. employees.
The Company's expenses for its retirement plans is not considered to be
significant.
14. OTHER COMPREHENSIVE INCOME
The balances of each classification, net of deferred taxes, within
accumulated other comprehensive income is as follows:
<TABLE>
<CAPTION>
NET UNREALIZED FOREIGN CURRENCY
APPRECIATION ON TRANSLATION ACCUMULATED OTHER
INVESTMENTS ADJUSTMENTS COMPREHENSIVE INCOME
---------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Beginning balance................................. $ 230,068 $ 5,117 $ 235,185
Current year change............................... (211,842) (4,032) (215,874)
---------------------------------------------------------
Ending balance.................................... $ 18,226 $ 1,085 $ 19,311
---------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998
Beginning balance................................. $ 245,482 $ 5,989 $ 251,471
Current year change............................... (15,414) (872) (16,286)
---------------------------------------------------------
Ending balance.................................... $ 230,068 $ 5,117 $ 235,185
---------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
Beginning balance................................. $ 239,249 $ 8,377 $ 247,626
Current year change............................... 6,233 (2,388) 3,845
---------------------------------------------------------
Ending balance.................................... $ 245,482 $ 5,989 $ 251,471
---------------------------------------------------------
</TABLE>
64
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
14. OTHER COMPREHENSIVE INCOME (CONTINUED)
The related tax effects allocated to each component of other comprehensive
income were as follows:
<TABLE>
<CAPTION>
BEFORE TAX TAX EXPENSE NET OF TAX
AMOUNT (BENEFIT) AMOUNT
<S> <C> <C> <C>
-------------------------------------
YEAR ENDED DECEMBER 31, 1999
Unrealized gains (losses) on investments:
Unrealized gains arising during year...................... $(148,536) $(36,394) $(112,142)
Less reclassification adjustment for gains realized in
income................................................. 94,356 (5,344) 99,700
-------------------------------------
Net unrealized losses....................................... (242,892) (31,050) (211,842)
Foreign currency translation adjustments.................... (6,308) (2,276) (4,032)
-------------------------------------
Other comprehensive income.................................. $(249,200) $(33,326) $(215,874)
-------------------------------------
YEAR ENDED DECEMBER 31, 1998
Unrealized gains (losses) on investments:
Unrealized gains arising during year...................... $ 196,512 $ 12,998 $ 183,514
Less reclassification adjustment for gains realized in
income................................................. 211,204 12,276 198,928
-------------------------------------
Net unrealized gains (losses)............................... (14,692) 722 (15,414)
Foreign currency translation adjustments.................... (1,342) (470) (872)
-------------------------------------
Other comprehensive income.................................. $ (16,034) $ 252 $ (16,286)
YEAR ENDED DECEMBER 31, 1997
Unrealized gains (losses) arising during year............. $ 429,246 $ 27,291 $ 401,955
Less reclassification adjustment for gains realized in
income................................................. 410,404 14,682 395,722
-------------------------------------
Net unrealized gains (losses)............................... 18,842 12,609 6,233
Foreign currency translation adjustments.................... (3,674) (1,286) (2,388)
-------------------------------------
Other comprehensive income.................................. $ 15,168 $ 11,323 $ 3,845
-------------------------------------
</TABLE>
15. CONTRIBUTED SURPLUS
Under the laws of the Cayman Islands, the use of the Company's contributed
surplus is restricted to the issue of fully paid shares (i.e. stock dividend or
stock split) and the payment of any premium on the redemption of ordinary
shares.
16. DIVIDENDS
The following dividend information relates to the Company without inclusion
of the pooling effect with NAC:
In 1999, four regular quarterly dividends were paid at $0.44 per share to
shareholders of record at February 5, April 23, July 12 and September 24.
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.
65
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
17. TAXATION
Under current Cayman Islands law, the Company is not subject to any taxes
in the Cayman Islands on either income or capital gains. The Company has
received an undertaking that, in the event of any such taxes being imposed, the
Company will be exempted from Cayman Islands income or capital gains taxes until
June 2018.
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
provision for federal income taxes has been determined on the basis of the
income of each of the Company's U.S. subsidiaries as if a tax return had been
prepared on an individual Company basis. Should the U.S. subsidiaries pay a
dividend to the Company, withholding taxes will apply.
Bermuda presently imposes no income, withholding or capital gains taxes and
the 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.
XL Europe has been approved to carry on business in the International
Services Centre in Dublin. Under Section 39 of the Finance Act 1990, XL Europe
is entitled to benefit from a 10% tax rate on profits (including investment
income) until 2005.
Brockbank, NAC Re International and XL Mid Ocean Re's London branch office
are subject to United Kingdom corporation taxes. Other branches of the Company
are subject to relevant local taxes.
The income tax provision in the consolidated statement of income gives
effect to the permanent differences between financial and taxable income as
applied for each relevant subsidiary. Due to the fact that the Company and
certain subsidiaries are not subject to direct U.S. income taxes and that
certain U.S. subsidiaries have tax-exempt income, the Company's effective income
tax rate for its U.S. operation is less than the statutory U.S. Federal tax
rate.
The tax charge (benefit) in each of the three years ended December 31, 1999
is comprised of amounts from the various taxable jurisdictions in which the
Company operates. For all countries other than the U.S., there generally is no
significant difference between the effective tax rate and the statutory rate in
that jurisdiction. For U.S. operating income (loss), the effective rate differs
from the statutory rate of 35% due primarily to tax-exempt investment income in
all years and merger related costs in 1999.
Significant components of the provision for income taxes attributable to
operations were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
<S> <C> <C> <C>
-----------------------------
CURRENT (BENEFIT) EXPENSE:
U.S....................................................... $(27,098) $10,490 $ 43,754
Non U.S................................................... 9,664 14,680 11,745
-----------------------------
Total current (benefit) expense............................. (17,434) 25,170 55,499
-----------------------------
DEFERRED (BENEFIT) EXPENSE:
U.S....................................................... (17,534) 4,729 (23,205)
Non U.S................................................... (4,602) (16) (122)
-----------------------------
Total Deferred (benefit) expense............................ (22,136) 4,713 (23,327)
-----------------------------
TOTAL TAX (BENEFIT) EXPENSE............................... $(39,570) $29,883 $ 32,172
-----------------------------
</TABLE>
66
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
17. TAXATION (CONTINUED)
The U.S. subsidiaries current U.S. taxable income for the years ended
December 31, 1999 and 1997 is based on regular taxable income. The current U.S.
tax expense for the year ended December 31, 1998 is based on alternative minimum
taxable income.
U.S. and Non-U.S. taxes paid in the years ended December 31, 1999, 1998 and
1997 were approximately $30 million, $31 million and $38 million, respectively.
The Company's current tax liability is included in "other liabilities" in the
accompanying financial statements and amounted to $11 million in 1999 and
$26 million in 1998.
Significant components of the Company's deferred tax assets and
liabilities, which principally relate to U.S. subsidiaries, as of December 31,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-------------------
1999 1998
<S> <C> <C>
-------------------
DEFERRED TAX ASSET:
Net unpaid loss reserve discount.......................... $ 81,672 $ 84,008
Net unearned premiums..................................... 10,264 19,888
Unrealized depreciation on investments.................... 11,995 --
Compensation liabilities.................................. 8,960 6,978
Other..................................................... 12,516 3,331
-------------------
Deferred tax asset, gross of valuation allowance............ 125,407 114,205
Valuation allowance......................................... (11,995) -
-------------------
Deferred tax asset, net of valuation allowance.............. 113,412 114,205
-------------------
DEFERRED TAX LIABILITY:
Deferred policy acquisition costs......................... $ 6,850 $ 33,896
Unrealized appreciation on investments.................... - 31,050
Currency translation adjustments.......................... 566 2,755
Other..................................................... 8,068 9,023
-------------------
Deferred tax liability...................................... 15,484 76,724
-------------------
NET DEFERRED TAX ASSET...................................... $ 97,928 $ 37,481
-------------------
</TABLE>
Shareholders' equity at December 31, 1999 and 1998 reflects tax benefits of
$1.5 million and $5.6 million, respectively, related to compensation expense
deductions for stock options exercised for one of the Company's U.S.
subsidiaries.
18. 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 payment of
such dividends is restricted by applicable laws of Bermuda, Ireland, U.S. and
United Kingdom, including Lloyd's. The Company relies primarily on cash
dividends from XL Insurance and Mid Ocean.
67
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
18. STATUTORY FINANCIAL DATA (CONTINUED)
BERMUDA
Under The Insurance Act, 1978, (as amended by the Insurance Act Amendment
1995) amendments thereto and related regulations of Bermuda, XL Insurance and XL
Mid Ocean Re 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.
XL Insurance's and XL Mid Ocean Re's statutory capital and surplus,
statutory net income and the minimum statutory capital and surplus required by
the Act were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
XL INSURANCE XL MID OCEAN RE
---------------------------------- ----------------------------------
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------
Statutory net income.......... $ 83,019 $ 309,244 $189,281 $ 155,534 $ 108,290 $ 57,995
-----------------------------------------------------------------------
Statutory capital and
surplus..................... $1,381,299 $1,255,284 $882,366 $2,062,421 $1,966,200 $512,367
-----------------------------------------------------------------------
Minimum statutory capital and
surplus Required by the
Act......................... $ 338,609 $ 307,205 $310,240 $ 196,254 $ 100,000 $100,000
-----------------------------------------------------------------------
</TABLE>
The primary difference between statutory net income and statutory capital
and surplus for the Company's subsidiaries, as shown above, and net income and
shareholders' equity presented in accordance with GAAP are deferred acquisition
costs.
Under the Act, XL Insurance and XL Mid Ocean Re 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 statutory requirements.
XL Insurance and XL Mid Ocean Re have not been affected by this.
UNITED STATES
The Company's U.S. insurance and reinsurance subsidiaries are subject to
regulatory oversight under the insurance statutes and regulations of the
jurisdictions in which they conduct business.
Consolidated statutory net income and surplus of NAC Re, as reported to the
insurance regulatory authorities, differs in certain respects from the amounts
as prepared in accordance with GAAP. The main differences between statutory net
income and GAAP income relates to deferred acquisition costs and deferred income
taxes. The main differences between statutory surplus and shareholders' equity,
in addition to deferred acquisition costs and deferred income tax net assets,
are intangible assets, unrealized appreciation on investments, and any
unauthorized/authorized reinsurance charges.
68
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
18. STATUTORY FINANCIAL DATA (CONTINUED)
The following table shows statutory net income and GAAP net income (loss)
and consolidated statutory surplus and consolidated shareholders' equity of NAC
Re.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
<S> <C> <C> <C>
------------------------------
NET INCOME:
Statutory net income........................................ $ 8,948 $101,862 $ 70,292
------------------------------
GAAP net income (loss)...................................... $ (1,060) $ 98,586 $ 99,692
------------------------------
SHAREHOLDERS' EQUITY:
Consolidated statutory surplus.............................. $440,102 $737,114 $702,222
------------------------------
GAAP Consolidated shareholder's equity...................... $700,725 $750,725 $657,061
------------------------------
</TABLE>
NAC Re is subject to New York insurance law, which imposes certain
restrictions on the payment of cash dividends and tax reimbursements. Generally,
NAC Re may pay cash dividends only out of statutory earned surplus. However, the
maximum amount of dividends that may be paid in any twelve month period without
the prior approval of the New York Insurance Department is the lesser of net
investment income or 10% of statutory surplus as such terms are defined in the
New York insurance law. Statutory earned surplus at December 31, 1999 is $(27.7)
million and consequently, NAC Re cannot make a dividend distribution. In
addition, the Company was required to make a commitment to New York State
insurance regulators not to pay dividends out of NAC Re for two years without
prior regulatory approval. Statutory earned surplus at December 31, 1998 was
$231.9 million and the maximum amount NAC Re was able to pay without such
regulatory approval, based on 10% of statutory surplus as of December 31, 1998
was approximately $73.7 million.
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, Kansas and Arizona. Brockbank
Insurance Services, Inc., is licensed in California as a fire and casualty
broker, surplus lines broker and special lines surplus lines broker.
The insurance laws of each state of the U.S. and of many foreign countries
regulate the sale of insurance within their jurisdiction by alien insurers, such
as XL Insurance and XL Mid Ocean Re. 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, amongst 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 assurances, 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.
IRELAND
XL Europe is permitted to cover risks throughout the European Community
(subject to certain restrictions) pursuant to the "Third Directive" relating to
non-life insurance. Its head office is in Ireland and it is subject to
regulation under Irish regulatory authority. The principal legislation and
regulations governing the insurance activities of Irish insurance companies are
the Insurance Acts 1909 to 1990 (the "Irish Acts") and a comprehensive network
of
69
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
18. STATUTORY FINANCIAL DATA (CONTINUED)
regulations and statutory provisions empowering the making of regulations of
which the most relevant are the European Communities (Non-Life Insurance)
Regulations, 1976, the European Communities (Non-Life Insurance Accounts)
Regulations, 1995, the European Communities (Non-Life Insurance) Framework
Regulations, 1994 and related administrative rules (the "Irish Regulations".)
XL Europe's insurance activities are subject to extensive regulation in
Ireland, principally under the Irish Acts and Irish Regulations, which impose on
insurers headquartered in Ireland minimum solvency and reserve standards and
auditing and reporting requirements and grant to the Minister of State for
Science, Technology and Commerce (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 medium of the Department of
Enterprise, Trade and Employment.
UNITED KINGDOM
The United Kingdom Financial Services Authority ("U.K. FSA") regulates
reinsurance entities that are "effecting and carrying on" insurance business in
the United Kingdom. Both XL Mid Ocean Re, through its London branch and NAC Re,
through its London subsidiary, "effect and carry on" business in the United
Kingdom and are therefore regulated by the U.K. FSA.
LLOYD'S
The Company, Brockbank and Denham are subject to the regulatory
jurisdiction of the Council of Lloyd's (the "Council"). Unlike other financial
markets in the U.K., Lloyd's is not subject to direct U.K. government regulation
through The Financial Services Act of 1986 but, instead, is self regulating by
virtue of the Lloyd's Act of 1982 through the bye-laws, regulations and codes of
conduct written by the Council, which governs the market. It is expected that
the new Financial Services Authority will take a supervisory regulatory role
during 2000. Under the Council, there are two boards, the Market Board and the
Regulatory Board. The former is led by a number of the 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 managing agency. The Company has been
approved as both a "major shareholder" and a "controller" of its corporate Names
(the "CCVs") and managing agencies.
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.
70
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
18. STATUTORY FINANCIAL DATA (CONTINUED)
OTHER REGULATION
The Company is subject to regulation in Australia, Singapore, Madrid, Latin
America and Germany as a result of its representative offices and branches in
such jurisdictions.
19. EARNINGS PER SHARE
The following table sets forth the computation of the basic and diluted
earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
------------------------------
1999 1998 1997
<S> <C> <C> <C>
------------------------------
BASIC EARNINGS PER SHARE:
Net income.................................................. $470,509 $656,330 $809,029
Weighted average ordinary shares outstanding................ 127,601 112,034 101,708
Basic earnings per share.................................... $ 3.69 $ 5.86 $ 7.95
------------------------------
DILUTED EARNINGS PER SHARE:
Net income.................................................. $470,509 $656,330 $809,029
Add back after-tax interest on convertible debentures....... 1,752 3,504 3,504
------------------------------
Adjusted net income......................................... $472,261 $659,834 $812,533
------------------------------
Weighted average ordinary shares outstanding - basic........ 127,601 112,034 101,708
Average stock options outstanding (1)....................... 1,872 2,152 1,277
Conversion of convertible debentures (2).................... 831 2,020 2,020
------------------------------
Weighted average ordinary shares outstanding - diluted...... 130,304 116,206 105,005
------------------------------
Diluted earnings per share.................................. $ 3.62 $ 5.68 $ 7.74
------------------------------
</TABLE>
(1) Net of shares repurchased under the treasury stock method.
(2) 1998 and 1997 reflect the assumed conversion of the NAC 5.25% Convertible
Subordinated Debentures due 2000. The Debentures were called in June 1999
and the actual conversion is reflected in 1999.
20. SUBSEQUENT EVENTS
On January 17, 2000, the Company entered into a stock repurchase agreement
with Risk Capital Holdings. Under this agreement, in exchange for its shares in
Risk Capital and $3.6 million in cash, the Company will receive the effective
remaining ownership in Latin America Re and 1.4 million shares and 100,000
warrants in Annuity & Life Re, in which the Company has an existing 7% position.
The total value of the transaction was $62.8 million.
71
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
21. UNAUDITED QUARTERLY FINANCIAL DATA
The following is a summary of the unaudited quarterly financial data for
1999 and 1998 based upon the Company's amended year end of December 31 and the
pooling with NAC:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
-----------------------------------------
1999
Net premiums earned..................................... $386,753 $414,386 $488,729 $460,138
Net investment income................................... 135,680 132,593 126,560 130,485
Net realized gains on interest.......................... 67,476 17,584 (12,671) 21,967
Equity in net income (loss) of affiliates............... (7,307) 16,642 15,372 16,200
Fee and other income.................................... 10,551 3,870 28,800 57,179
-----------------------------------------
Total revenues.......................................... $593,153 $585,075 $646,790 $685,968
-----------------------------------------
Income before income tax expense and minority interest.. $214,114 $ 28,886 $139,427 $ 48,732
-----------------------------------------
Net Income.............................................. $209,811 $ 62,708 $137,402 $ 60,588
-----------------------------------------
Net income per share and share equivalent - basic....... $ 1.63 $ 0.49 $ 1.08 $ 0.57
-----------------------------------------
Net income per share and share equivalent - diluted..... $ 1.58 $ 0.48 $ 1.07 $ 0.56
-----------------------------------------
1998
Net premiums earned..................................... $274,149 $264,568 $384,136 $401,438
Net investment income................................... 92,923 87,183 111,320 125,864
Realized gains on investments........................... 77,349 58,400 28,476 46,979
Equity in net income tax expense........................ 15,501 20,721 17,451 (3,381)
Fee and other income.................................... 4,172 1,437 8,567 8,149
-----------------------------------------
Total revenues.......................................... $464,094 $432,309 $549,950 $579,049
-----------------------------------------
Income before income tax expense and minority interest.. $193,833 $171,313 $148,882 $172,934
-----------------------------------------
Net income.............................................. $186,301 $165,422 $140,271 $164,336
-----------------------------------------
Net income per share and share equivalent - basic....... $ 1.84 $ 1.63 $ 1.20 $ 1.28
-----------------------------------------
Net income per share and share equivalent - diluted..... $ 1.78 $ 1.58 $ 1.17 $ 1.25
-----------------------------------------
</TABLE>
72
<PAGE>
XL CAPITAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(U.S. dollars in thousands)
22. UNAUDITED CONDENSED PRO FORMA FINANCIAL INFORMATION
Unaudited condensed pro forma financial information shown below relates to
the Company's acquisition of Mid Ocean in August 1998 and is based upon the
assumption that Mid Ocean had been a part of the Company's operations since
January 1, 1997.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
1998 1997
<S> <C> <C>
-----------------------
Net premiums earned......................................... $1,588,791 $1,607,768
Net investment income....................................... 494,389 443,031
Net realized gains on sale of investments................... 260,608 378,213
Equity in earnings (loss) of affiliates..................... (1,897) 3,748
Fee and other income........................................ 28,006 24,710
-----------------------
Total revenues............................................ 2,369,887 2,457,470
-----------------------
Losses and loss expenses.................................... 921,018 966,909
Acquisition costs and operating expenses.................... 514,877 450,893
Interest expense............................................ 44,839 46,311
Amortization of intangible assets........................... 45,464 37,560
-----------------------
Total expenses............................................ 1,526,198 1,501,673
-----------------------
Income before minority interest and income tax expense...... 843,689 955,797
Minority interest and income tax............................ 34,535 45,653
-----------------------
Net income................................................ $ 809,154 $ 910,144
-----------------------
Net income per share
Basic..................................................... $ 6.33 $ 7.08
Diluted................................................... $ 6.13 $ 6.89
Weighted average shares outstanding (000's)
Basic..................................................... 127,883 128,550
Diluted................................................... 132,036 132,173
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no changes in or any disagreements with accountants
regarding accounting and financial disclosure within the twenty-four months
ending December 31, 1999.
73
<PAGE>
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 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 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 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 by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
(a) Financial Statements, Financial Statement Schedules
and Exhibits.
- Report of PricewaterhouseCoopers LLP on
Financial Statements and Financial Statement
Schedules....................................... 79
- Report of Ernst and Young LLP on Financial
Statements and Financial Statement Schedules.... 80
</TABLE>
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>
- Consolidated Summary of Investments - Other than
Investments in Related Parties, as of December 31,
1999.................................................... I 81
- Condensed Financial Information of Registrant, as of
December 31, 1999 and 1998 and for the years ended
December 31, 1999, 1998, and 1997....................... II 82
- Reinsurance, for the years ended December 31, 1999, 1998
and 1997................................................ IV 85
- Supplementary Information Concerning Property/Casualty
Insurance Operations for the years ended December 31,
1999, 1998 and 1997..................................... VI 86
</TABLE>
74
<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's 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 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, incorporated by reference to Exhibit 10.6.2 to the
Company's Annual Report on Form 10-K (No. 1-10804) for the
year ended November 30, 1998.
10.7 XL Capital Ltd Stock Plan for Non-employee 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, incorporated by reference to Exhibit 10.9.1 to the
Company's Annual report on form 10-K (No. 1-10804) for the
year ended November 30, 1998
10.9.2 Amendment to Mid Ocean Limited 1993 Long Term Incentive and
Share Award Plan, incorporated by reference to Exhibit
10.9.2 to the Company's Annual Report on Form 10-K (No.
1-10804) for the year ended November 30, 1998.
10.10.1 Mid Ocean Ltd. Stock & Deferred Compensation Plan for
Non-employee Directors, incorporated by reference to Exhibit
10.10.1 to the Company's Annual Report on Form 10-K (No.
1-10804) for the year ended November 30, 1998.
10.10.2 Form of Severance Contract between NAC Re Corp. and the
executive officers of NAC Re incorporated herein by
reference to the Company's Annual Report on Form 10-K of NAC
Re for the year ended December 30, 1988.
10.10.3 1997 incentive and capital Accumulation Plan incorporated by
reference to Exhibit A to the NAC Re definitive Proxy
Statement filed with the Securities and Exchange Commission.
</TABLE>
75
<PAGE>
<TABLE>
<C> <S>
10.11.1 Mark E. Brockbank Employment Agreement, incorporated by
reference to Exhibit 10.11.1 to the Company's Annual Report
on Form 10-K (No. 1-10804) for the year ended November 30,
1998.
10.11.2 Henry C.V. Keeling Employment Agreement, incorporated by
reference to Exhibit 10.11.2 to the Company's Annual Report
on Form 10-K (No. 1-10804) for the year ended November 30,
1998.
10.11.4 Robert J. Newhouse, Jr. Employment Agreement, incorporated
by reference to Exhibit 1 to the Company's Annual Report on
Form 10-K (No. 1-10804) for the year ended November 30,
1998.
10.11.5 Michael A. Butt Employment Agreement, incorporated by
reference to Exhibit 10.11.5 to the Company's Annual Report
on Form 10-K (No. 1-10804) for the year ended November 30,
1998.
10.12.1 Amendment to Brockbank Service Agreement, incorporated by
reference to Exhibit 10.12.1 to the Company's Annual Report
on Form 10-K (No. 1-10804) for the year ended November 30,
1998.
10.12.2 Amendment to Keeling Service Agreement, incorporated by
reference to Exhibit 10.12.2 to the Company's Annual Report
on Form 10-K (No. 1-10804) for the year ended November 30,
1998.
10.12.3 Amendment to Newhouse Service Agreement, incorporated by
reference to Exhibit 10.12.3 to the Company's Annual Report
on Form 10-K (No. 1-10804) for the year ended November 30,
1998.
10.12.4 Amendment to Butt Service Agreement, incorporated by
reference to Exhibit 10.12.4 to the Company's Annual Report
on Form 10-K (No. 1-10804) for the year ended November 30,
1998.
10.13.1 Robert J. Newhouse Consulting Agreement, incorporated by
reference to Exhibit 10.13.1 to the Company's Annual Report
on Form 10-K (No. 1-10804) for the year ended November 30,
1998.
10.13.2 Ronald L. Bornheutter Consulting Agreement dated as of
July 1, 1999.
10.13.3 Ronald L. Bornheutter Settlement Agreement dated as of
June 30, 1999.
10.13.4 Employment Contract with Nicholas M. Brown, Jr. dated as of
June 30, 1998, incorporated herein by reference to NAC Re's
quarterly report on Form 10Q for June 30, 1998.
10.13.5 Amended and Restated Employment Agreement with Nicholas M.
Brown, Jr., dated as of June 18, 1999.
10.14.1 Credit Agreement (5-Year) between Mid Ocean Limited and The
Chase Manhattan Bank, incorporated by reference to Exhibit
10.14.1 to the Company's Annual Report on Form 10-K (No.
1-10804) for the year ended November 30, 1998.
10.14.2 Amendment No. 1 to Credit Agreement (5-Year) between Mid
Ocean Limited and The Chase Manhattan Bank, incorporated by
reference to Exhibit 10.14.2 to the Company's Annual Report
on Form 10-K (No. 1-10804) for the year ended November 30,
1998.
10.14.3 Amendment No. 2 to Credit Agreement (5-Year) between Mid
Ocean Limited and The Chase Manhattan Bank.
10.14.4 Amendment No. 3 to Credit Agreement (5-Year) between Mid
Ocean Limited and The Chase Manhattan Bank.
10.14.5 Credit Agreement (364-Day) between Mid Ocean Limited and The
Chase Manhattan Bank, incorporated by reference to Exhibit
10.14.3 to the Company's Annual Report on Form 10-K (No.
1-10804) for the year ended November 30, 1998.
10.14.6 Amendment No. 1 to Credit Agreement (364-Day) between Mid
Ocean Limited and The Chase Manhattan Bank, incorporated by
reference to Exhibit 10.14.4 to the Company's Annual Report
on Form 10-K (No. 1-10804) for the year ended November
30,1998.
10.14.7 Loan Agreement between XL America, Inc. and Three Rivers
Funding Corporation, incorporated by reference to Exhibit
10.14.5 to the Company's Annual Report on Form 10-K (No.
1-10804) for the year ended November 30,1998.
</TABLE>
76
<PAGE>
<TABLE>
<C> <S>
10.14.8 Letter of Credit Facility and Reimbursement Agreement by and
among XL Insurance Company, Ltd. et al. and Mellon Bank,
N.A., incorporated by reference to Exhibit 10.14.6 to the
Company's Annual Report on Form 10-K (No. 1-10804) for the
year ended November 30,1998.
10.14.9 First Amendment to Letter of Credit Facility Reimbursement
Agreement by and among XL Insurance Company, Ltd. et al. and
Mellon Bank N.A., incorporated by reference to Exhibit
10.14.7 to the Company's Annual Report on Form 10-K (No.
1-10804) for the year ended November 30,1998.
10.14.10 Second Amendment to Letter of Credit Facility Reimbursement
Agreement by and among XL Insurance Company, Ltd. et al. and
Mellon Bank N.A., incorporated by reference to Exhibit
10.14.8 to the Company's Annual Report on Form 10-K (No.
1-10804) for the year ended November 30,1998.
10.14.11 Short Term Revolving Credit Agreement between XL 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,
incorporated by reference to Exhibit 10.14.9 to the
Company's Annual Report on Form 10-K (No. 1-10804) for the
year ended November 30, 1998.
10.14.12 First Amendment to Short Term Revolving Credit Agreement
between XL Insurance Company, Ltd. and Mellon Bank N.A.,
incorporated by reference to Exhibit 10.14.10 to the
Company's Annual Report on Form 10-K (No. 1-10804) for the
year ended November 30, 1998.
10.14.13 Second Amendment to Short Term Revolving Credit Agreement
between XL Insurance Company, Ltd. and Mellon Bank N.A.,
incorporated by reference to Exhibit 10.14.11 to the
Company's Annual Report on Form 10-K (No. 1-10804) for the
year ended November 30, 1998.
10.14.14 Third Amendment to Short Term Revolving Credit Agreement
between XL Insurance company, Ltd. and Mellon Bank N.A.,
incorporated by reference to Exhibit 10.14.12 to the
Company's Annual Report on Form 10-K (No. 1-10804) for the
year ended November 30, 1998.
10.14.15 Fourth Amendment to Short Term Revolving Credit Agreement
between XL Insurance Company, Ltd. and Mellon Bank N.A.,
incorporated by reference to Exhibit 10.14.13 to the
Company's Annual Report on Form 10-K (No. 1-10804) for the
year ended November 30, 1998.
10.14.16 Revolving Credit Agreement Between XL Insurance Company,
Ltd. and Mellon Bank N.A., incorporated by reference to
Exhibit (b)(2) of the GCR Schedule 14D-1, incorporated by
reference to Exhibit 10.14.14 to the Company's Annual Report
on Form 10-K (No. 1-10804) for the year ended November 30,
1998.
10.14.17 First Amendment to Revolving Credit Agreement between XL
Insurance Company, Ltd. and Mellon Bank N.A., incorporated
by reference to Exhibit 10.14.15 to the Company's Annual
Report on Form 10-K for the year ended November 30, 1998.
10.14.18 Second Amendment to Revolving Credit Agreement between XL
Insurance Company, Ltd. and Mellon Bank N.A., incorporated
by reference to Exhibit 10.14.16 to the Company's Annual
Report on Form 10-K for the year ended November 30, 1998.
10.14.19 Third Amendment to Revolving Credit Agreement between XL
Insurance Company, Ltd. and Mellon Bank, N.A.
10.14.20 Fourth Amendment to Revolving Credit Agreement between XL
Insurance Company, Ltd. and Mellon Bank, N.A.
10.14.21 Fifth Amendment to Revolving Credit Agreement between XL
Insurance Company, Ltd. and Mellon Bank, N.A.
10.14.22 Short Term Revolving Credit Agreement between XL Capital Ltd
et al and Mellon Bank, N.A.
10.14.23 First Amendment to Short Term Revolving Credit Agreement
between XL Capital Ltd et al. and Mellon Bank, N.A.
</TABLE>
77
<PAGE>
<TABLE>
<C> <S>
10.14.24 Letter of Credit Facility and Reimbursement Agreement dated
as of June 30, 1999 by and among XL Insurance Ltd et al. and
Mellon Bank, N.A.
10.14.25 First Amendment to Letter of Credit Facility and
Reimbursement Agreement dated as of June 30, 1999 by and
among XL Insurance Ltd et al. and Mellon Bank, N.A.
10.14.26 Letter of Credit Facility and Reimbursement Agreement dated
as of December 30, 1999 by and among XL Insurance Ltd et al.
and Mellon Bank, N.A.
10.14.27 First Amendment to Letter of Credit Facility and
Reimbursement Agreement dated as of December 30, 1999 by and
among XL Insurance Ltd et al. and Mellon Bank, N.A.
10.14.28 Letter of Credit Agreement dated as of December 17, 1999 by
and among XL Insurance Ltd, XL Mid Ocean Reinsurance Ltd and
The Chase Manhattan Bank.
10.14.29 Letter of Credit Facility Agreement dated as of
December 17, 1999 by and among XL Capital Ltd et al. and ING
Bank, N.V. (London Branch)
10.14.30 Amendment No. 1 to Letter of Credit Facility Agreement dated
as of December 17, 1999 by and among XL Capital Ltd et al.
and ING Bank, N.V. (London Branch)
11.1 Statement regarding computation of per share earnings.
21.1 List of subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Ernst & Young LLP
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 1999.
78
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of XL Capital Ltd.:
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheets, the related consolidated statements of
income and comprehensive income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of XL
Capital Ltd. and its subsidiaries at December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedules listed in Item 14(a) of this Form 10-K, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein. These financial statements and financial statement schedules
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits. We conducted our audits of these statements and
schedules in accordance with generally accepted auditing standards 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. We did not
audit the financial statements or financial statement schedules of NAC Re Corp.
as at December 31, 1998, which statements reflect total assets of $3.2 billion
as of December 31, 1998 and total revenues of $699.4 million and $740.4 million
for the years ended December 31, 1998 and 1997, respectively. Those statements
were audited by other auditors whose report thereon has been furnished to us,
and our opinion expressed herein, insofar as it relates to the amounts included
for NAC Re Corp. for those dates, is based solely on the report of the other
auditors.
We previously audited and reported on the consolidated balance sheets, the
related consolidated statements of income and comprehensive income, of
shareholders' equity and of cash flows and the supplemental schedules of XL
Capital Ltd. and its subsidiaries as at and for the two years ended
November 30, 1998 prior to their restatement for the 1999 pooling of interests
and change in fiscal year. We also audited the combination of the accompanying
consolidated balance sheet as of December 31, 1998 and the consolidated
statements of income and comprehensive income, of shareholders' equity and of
cash flows for the two years ended December 31, 1998, after restatement for the
1999 pooling of interest. In our opinion, such consolidated statements have been
properly combined on the basis described in Note 6 of the consolidated financial
statements.
PRICEWATERHOUSECOOPERS LLP
New York, New York
February 9, 2000
79
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
NAC Re Corporation:
We have audited the consolidated balance sheet of NAC Re Corporation and
subsidiaries as of December 31, 1998 and the related consolidated statements of
income, stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1998 (not presented separately herein). Our audits
also included the financial statements schedules listed in the Index at Item 14
of the 1998 NAC Re Corporation annual report on Form 10-K (not presented
separately herein). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
NAC Re Corporation and subsidiaries at December 31, 1998, and the consolidated
results of their operations and cash flows for each of the two years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all respects, the information set forth therein.
Ernst & Young LLP
New York, New York
February 3, 1999
Except for Note 15, as to which the date is
February 15, 1999
80
<PAGE>
XL CAPITAL LTD
SUPPLEMENTAL SCHEDULE I
CONSOLIDATED SUMMARY OF INVESTMENTS--OTHER THAN
INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1999
(U.S dollars in thousands)
<TABLE>
<CAPTION>
AMOUNT AT
WHICH SHOWN
COST OR IN 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......................................... $ 560,628 $ 558,202 $ 558,202
U.S states and political subdivisions of the States.... 779,328 769,776 769,776
Non-U.S. sovereign governments......................... 767,245 759,794 759,794
Mortgage-backed securities............................. 1,118,105 1,086,089 1,086,089
All other corporate.................................... 4,610,613 4,407,290 4,407,290
-------------------------------------
Total fixed maturities.............................. $7,835,919 $7,581,151 $7,581,151
-------------------------------------
Equity Securities:.......................................... $ 863,020 $1,136,180 $1,136,180
-------------------------------------
Short-term investments...................................... $ 405,375 $ 405,260 $ 405,260
-------------------------------------
Total investments........................................... $9,104,314 $9,122,591 $9,122,591
-------------------------------------
</TABLE>
(1) Investments in fixed maturities and short-term investments are shown at
amortized cost.
81
<PAGE>
XL CAPITAL LTD
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS--PARENT COMPANY ONLY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
-----------------------
A S S E T S
Portfolio Investments:
Fixed maturities at fair value (amortized cost: 1999,
$101,233; 1998, $244,713).............................. $ 99,816 $ 245,713
Short-term investments at fair value (amortized cost:
1999, $43,563; 1998, $5,569)........................... 43,499 5,698
-----------------------
Total portfolio investments............................ 143,315 251,411
Cash and cash equivalents................................... 125,619 148,681
Investments in subsidiaries on an equity basis.............. 6,296,880 5,983,598
Investments in limited partnership.......................... 39,352 20,378
Accrued investment income................................... 539 1,967
Other assets................................................ 9,026 3,888
-----------------------
Total assets........................................... $6,614,731 $6,409,923
-----------------------
L I A B I L I T I E S
Amount due to subsidiaries.................................. 909,610 $ 679,799
Accounts payable and accrued liabilities.................... 128,043 117,521
-----------------------
Total liabilities...................................... $1,037,653 $ 797,320
-----------------------
S H A R E H O L D E R S' E Q U I T Y
Ordinary shares............................................. $ 1,278 $ 1,287
Contributed surplus......................................... 2,520,136 2,508,062
Accumulated other comprehensive income...................... 19,311 235,185
Deferred compensation....................................... (28,797) (22,954)
Retained earnings........................................... 3,065,150 2,891,023
-----------------------
Total shareholders' equity............................. 5,577,078 $5,612,603
-----------------------
Total liabilities and shareholders' equity............. $6,614,731 $6,409,923
-----------------------
</TABLE>
82
<PAGE>
XL CAPITAL LTD
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF INCOME AND COMPREHENSIVE INCOME--PARENT COMPANY ONLY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(U.S. dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
------------------------------
Net investment income....................................... $ 1,890 $ 2,738 $ 64
Net realized gains (losses)................................. (278) 458 -
Equity in net income of subsidiaries (Dividends were Nil,
$117,900 and $186,548 in 1999, 1998 and 1997,
respectively.............................................. 560,166 632,521 749,554
Equity in net income of affiliate........................... - 49,878 62,135
Income from limited partnership............................. 4,947 3,599 4,342
------------------------------
Total revenues.............................................. 566,725 689,194 816,095
Operating expenses.......................................... 96,216 32,864 7,066
------------------------------
Net income.................................................. 470,509 $656,330 $809,029
------------------------------
Change in net unrealized appreciation on investments........ (3,084) 1,603 -
------------------------------
Comprehensive income........................................ $467,425 $657,933 $809,029
------------------------------
</TABLE>
83
<PAGE>
XL CAPITAL LTD
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF CASH FLOWS - PARENT COMPANY ONLY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(U.S dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
---------------------------------
Cash flows provided by operating activities:
Net income................................................ $ 470,509 $ 656,330 $ 809,029
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........................................... (557,317) (503,838) (553,607)
Equity in net income of affiliate net of dividends..... - (31,410) (34,849)
Accrued investment income.............................. 1,428 (1,967) -
Amount due from subsidiaries........................... 229,811 651,753 37,151
Accounts payable and accrued liabilities............... 10,522 116,402 (444)
Amortization of intangible assets...................... 31,348 10,494 -
Amortization of deferred compensation.................. 7,657 5,815 5,237
Amortization of discounts on fixed maturities.......... 366 335 -
Other assets........................................... (5,138) (631) (64)
---------------------------------
Total adjustments................................... (281,323) 246,495 (546,576)
---------------------------------
Net cash provided by operating activities........... 189,186 902,825 262,453
---------------------------------
Cash flows provided by (used in) investing activities:
Proceeds from sale of fixed maturities and short-term
Investments............................................ 118,756 198,893 -
Proceeds from redemption of fixed maturities and
short-term investments................................. 107,885 53,325 -
Purchases of fixed maturities and short term
investments............................................ (121,995) (501,957) -
Investment in limited partnership......................... (18,974) (1,129) 203
---------------------------------
Net cash provided (used in) by investing activities.... 85,672 (250,868) 203
---------------------------------
Cash flows used in financing activities:
Issuance of restricted shares............................. 69 514 387
Proceeds from exercise of options......................... 14,014 15,092 12,284
Dividends paid............................................ (212,659) (156,481) (120,607)
Repurchase of treasury shares............................. (99,344) (362,401) (154,720)
---------------------------------
Net cash used in financing activities............... (297,920) (503,276) (262,656)
---------------------------------
Net change in cash and cash equivalents............. (23,062) $ 148,681 -
Cash and cash equivalents - beginning of year............... $ 148,681 - -
---------------------------------
Cash and cash equivalents - end of year..................... $ 125,619 $ 148,681 -
---------------------------------
</TABLE>
84
<PAGE>
XL CAPITAL LTD
SCHEDULE IV--REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(U.S dollars in thousands)
<TABLE>
<CAPTION>
CEDED ASSUMED
GROSS TO OTHER FROM OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
<S> <C> <C> <C> <C>
-------------------------------------------------
1999................................................ $1,088,028 $541,037 $1,354,892 $1,901,883
-------------------------------------------------
1998................................................ $ 779,551 $319,275 $ 863,988 $1,324,264
-------------------------------------------------
1997................................................ $ 517,773 $254,940 $ 617,612 $ 880,445
-------------------------------------------------
</TABLE>
85
<PAGE>
XL CAPITAL LTD
SCHEDULE VI
SUPPLEMENTARY INFORMATION
CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(U.S dollars in thousands)
<TABLE>
<CAPTION>
LOSSES AND LOSS EXPENSES
INCURRED RELATED TO
RESERVES ------------------------ PAID
DEFERRED FOR LOSSES RESERVES FOR NET LOSSES
ACQUISITION AND LOSS UNEARNED NET EARNED INVESTMENT CURRENT PRIOR AND LOSS
COSTS EXPENSES PREMIUMS PREMIUMS INCOME YEAR (1) YEAR (2) EXPENSES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
1999................. $275,716 $5,369,402 $1,497,376 $1,750,006 $525,318 $1,591,414 $(287,110) $1,093,502
---------------------------------------------------------------------------------------------------------
1998................. $204,271 $4,896,643 $1,337,277 $1,324,291 $417,290 $1,085,161 $(243,617) $ 730,889
---------------------------------------------------------------------------------------------------------
1997................. $113,566 $3,972,376 $ 824,369 $1,114,758 $345,115 $1,056,228 $(317,379) $ 330,951
---------------------------------------------------------------------------------------------------------
<CAPTION>
AMORTIZATION
OF DEFERRED NET
ACQUISITION PREMIUMS
COSTS WRITTEN
<S> <C> <C>
-------------------------
1999................. $380,980 $1,901,883
-------------------------
1998................. $249,341 $1,324,264
-------------------------
1997................. $198,017 $ 880,445
-------------------------
</TABLE>
86
<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.
<TABLE>
<S> <C> <C>
XL CAPITAL LTD
By /s/ BRIAN M. O'HARA
---------------------------------------------
Brian M. O'Hara
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
March 17,2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ BRIAN M. O'HARA President, Chief Executive
------------------------------------------------ Officer and Director March 17, 2000
Brian M. O'Hara (Principal Executive Officer)
Executive Vice President and
Chief
/s/ ROBERT R. LUSARDI Financial Officer (Principal
------------------------------------------------ Financial March 17, 2000
Robert R. Lusardi Officer and Principal
Accounting
Officer)
/s/ MICHAEL ESPOSITO JR.
------------------------------------------------ Director and Chairman of the March 17, 2000
Michael Esposito, Jr. Board of Directors
/s/ RONALD L. BORNHUETTER
------------------------------------------------ Director March 17, 2000
Ronald L. Bornhuetter
/s/ MICHAEL A. BUTT
------------------------------------------------ Director March 17, 2000
Michael A. Butt
/s/ ROBERT CLEMENTS
------------------------------------------------ Director March 17, 2000
Robert Clements
/s/ SIR BRIAN CORBY
------------------------------------------------ Director March 17, 2000
Sir Brian Corby
/s/ ROBERT R. GLAUBER
------------------------------------------------ Director March 17, 2000
Robert R. Glauber
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ ROBERT V. HATCHER, JR.
------------------------------------------------ Director March 17, 2000
Robert V. Hatcher, Jr.
/s/ IAN R. HEAP
------------------------------------------------ Director March 17, 2000
Ian R. Heap
/s/ PAUL JEANBART
------------------------------------------------ Director March 17, 2000
Paul Jeanbart
/s/ JOHN LOUDON
------------------------------------------------ Director March 17, 2000
John Loudon
/s/ DANIEL MCNAMARA
------------------------------------------------ Director March 17, 2000
Daniel McNamara
/s/ ROBERT J. NEWHOUSE, JR.
------------------------------------------------ Director March 17, 2000
Robert J. Newhouse, Jr.
/s/ ROBERT S. PARKER
------------------------------------------------ Director March 17, 2000
Robert S. Parker
/s/ CYRIL RANCE
------------------------------------------------ Director March 17, 2000
Cyril Rance
/s/ ALAN Z. SENTER
------------------------------------------------ Director March 17, 2000
Alan Z. Senter
/s/ JOHN T. THORNTON
------------------------------------------------ Director March 17, 2000
John T. Thornton
/s/ ELLEN E. THROWER
------------------------------------------------ Director March 17, 2000
Ellen E. Thrower
/s/ JOHN WEISER
------------------------------------------------ Director March 17, 2000
John Weiser
</TABLE>
88
<PAGE>
Exhibit 10.13.2
CONSULTING AGREEMENT
This CONSULTING AGREEMENT ("Agreement"), made and entered into as of July
1, 1999, by and between NAC RE CORPORATION, a Delaware corporation (the
"Company"), and RONALD L. BORNHUETTER ("Bornhuetter").
WHEREAS, Bornhuetter has terminated his employment with the Company
effective as of the date hereof; and
WHEREAS, the Company wishes to continue to avail itself of the services of
Bornhuetter as a Consultant to the Company, and Bornhuetter is willing to
continue to perform services in that capacity on behalf of the Company;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the Company and
Bornhuetter (each individually, a "Party," and collectively, the "Parties")
agree as follows:
1. GENERAL.
The Company engages Bornhuetter as a consultant for the period as set
forth in Section 2 to provide the services as set forth in Section 3, subject to
the other terms and conditions set forth in this Agreement.
2. TERM OF SERVICE.
The term of Bornhuetter's service under this Agreement shall commence as
of July 1, 1999 (the "Effective Date") and shall terminate on the second
anniversary of the Effective Date unless there is an earlier termination of
Bornhuetter's service pursuant to Section 7 (the "Term of Service").
3. SERVICES.
During the Term of Service, it is the intention of the Parties that
Bornhuetter serve as a consultant to the Company. As a consultant, Bornhuetter
shall perform such consulting duties and render such advice, including, but not
by way of limitation, duties and advice relating to integration of the Company
with XL Capital Ltd. ("XL") following the Company's merger with a subsidiary of
XL and international reinsurance matters, as the Chief Executive Officer (the
"CEO") of XL may reasonably specify. The CEO may request Bornhuetter to render
such services for up to 20 days per calendar quarter, subject to Bornhuetter's
reasonable convenience and his other business commitments. Bornhuetter shall
serve as a member of the Board of Directors of XL, if appointed thereto, and of
such other boards as may be
<PAGE>
mutually agreed upon by the Parties. Bornhuetter's services shall be rendered in
New York, Connecticut and such other locations as may be mutually agreed upon by
the Parties.
4. FEES.
During the Term of Service, Bornhuetter shall receive a base annual fee of
$250,000 (the "Base Annual Fee") payable in 12 monthly installments of
$20,833.33 each at the end of each month, together with any applicable
directors' fees.
5. BUSINESS EXPENSES.
(a) DOCUMENTED EXPENSES. Bornhuetter shall be entitled to receive prompt
and full reimbursement for all reasonable business expenses (other than office
and secretarial expenses) incurred by him in rendering services to the Company
under this Agreement, provided that Bornhuetter shall provide documentation of
such expenses in accordance with the usual practices of the Company. Such
reimbursement shall include up to $10,000 per year for expenses related to
Bornhuetter's actuarial society activities.
(b) OFFICE ALLOWANCE. In addition, the Company shall pay Bornhuetter an
allowance of $10,000 per year for office and secretarial expenses.
6. INDEPENDENT CONTRACTOR STATUS.
As a Consultant, Bornhuetter's status shall be that of independent
contractor. Bornhuetter acknowledges that the Company will not withhold any
federal, state or local taxes from the fees to be paid hereunder.
7. TERMINATION OF SERVICE.
(a) TERMINATION BY THE COMPANY OTHER THAN DUE TO DEATH, DISABILITY OR FOR
CAUSE. In the event the Company terminates Bornhuetter's service for any reason
other than death, as provided in Section 7(b), Disability, as provided in
Section 7(c), or Cause, as provided in Section 7(d), the Company shall pay to
Bornhuetter the monthly sum of $20,833.33 until June 30, 2001.
(b) TERMINATION DUE TO DEATH. In the event Bornhuetter's service is
terminated due to his death, the Company shall pay to his designated beneficiary
or other legal representative the monthly installment of the Base Annual Fee for
the month in which Bornhuetter's death occurs, as well as any unreimbursed
business expenses. The Company shall have no further obligation to pay advisory
fees under this Agreement.
(c) TERMINATION DUE TO DISABILITY. In the event Bornhuetter's service is
terminated due to his Disability, the Company shall pay Bornhuetter the monthly
installment
<PAGE>
of the Base Annual Fee for the month in which termination occurs, as well as any
unreimbursed business expenses. The Company shall have no further obligation to
pay advisory fees under this Agreement. For this purpose, "Disability" shall
mean any physical or mental disability which renders Bornhuetter incapable of
carrying out his duties or responsibilities under this Agreement, provided that
Bornhuetter shall not be considered to have suffered such disability unless he
shall have been unable to carry out such duties or responsibilities for a period
of at least 180 consecutive days. A determination of Disability will be subject
to the certification of a qualified medical doctor appointed by the Company and
reasonably acceptable to Bornhuetter.
(d) TERMINATION VOLUNTARILY OR FOR CAUSE. In the event Bornhuetter
terminates his service under this Agreement voluntarily or Bornhuetter's service
is terminated by the Company for Cause, the Company shall pay Bornhuetter the
monthly installment of the Base Annual Fee for the month in which termination
occurs, prorated to the date of termination, as well as any unreimbursed
business expenses and the office expense allowance described in Section 5(b),
pro rated to the date of termination. The Company shall have no further
obligation to pay advisory fees under this Agreement. Termination for Cause
shall mean a termination of Bornhuetter's service following his commission of a
felony, a termination because Bornhuetter, in carrying out his duties hereunder,
has engaged in willful gross misconduct resulting in material harm to the
Company, or a termination because Bornhuetter has breached Section 8 or Section
9 of this Agreement. A voluntary termination shall be deemed to include (i) the
failure or refusal by Bornhuetter to accept an appointment to the Board of
Directors of XL or any affiliate of XL or the Company and (ii) Bornhuetter's
resignation from the Board of Directors of XL or from the Board of Directors of
the Company or any affiliate of XL or the Company without the consent of the
Board of Directors of XL.
8. NON-COMPETITION AND NON-SOLICITATION.
(a) NON-COMPETE. Bornhuetter shall not engage in competition with the
Company so long as he is serving as a director of XL, the Company or any
affiliate of XL or the Company. Bornhuetter may resign as director at any time,
in which case the provisions of Section 7(d) shall apply. Exception will be made
for his providing actuarial services and for any opportunities for which he
received written consent from the Company. "Competition" shall mean engaging in
any activity for a Competitor, whether as an employee, consultant, officer or
director, or shareholder (except as a less than one percent shareholder of a
publicly traded company) or otherwise. A "Competitor" shall mean any corporation
or other entity which competes with the Company's business, as determined on the
Effective Date. Bornhuetter's actuarial activities shall not be considered a
violation of this Section 8.
(b) NON-SOLICIT. During the Term of Service, Bornhuetter shall not induce
any employees of the Company, XL or any of their affiliates to terminate their
employment,
<PAGE>
nor shall Bornhuetter solicit or encourage any customers or any corporation or
other entity in a joint venture relationship with the Company, XL or any of
their affiliates, to terminate their or its relationship with the Company, XL or
any of their affiliates or to violate any agreement with any of them.
(c) TERMINATION OF NON-COMPETE/NON-SOLICIT. The provisions of Sections
8(a) and 8(b) shall terminate upon the earlier to occur of (i) 24 months from
the Effective Date or (ii) Bornhuetter's resignation from the Board of Directors
of XL, the Company, or any affiliate of XL or the Company.
9. CONFIDENTIAL INFORMATION AND TRADE SECRETS.
Bornhuetter hereby acknowledges that he has had and in the future may have
access to and become acquainted with various trade secrets and proprietary
information of the Company, XL and their affiliates not available to competitors
of the Company, XL and their affiliates including, without limitation,
information relating to their products, product development, trade secrets,
customers, suppliers, finances, management, operations and business plans and
strategies. Bornhuetter covenants that he will not, directly or indirectly,
disclose or use such information except as is necessary and appropriate in
connection with the rendering by him of services to the Company under this
Agreement or except as may be required by a court of law, a governmental agency
having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with
jurisdiction to order him to divulge, disclose or make accessible such
information; provided, however, that Bornhuetter agrees that, before making such
disclosure, he shall promptly notify the Company and shall cooperate with the
Company in seeking a protective order and/or other appropriate restrictions on
disclosure. All management studies, business or strategic plans and budgets of
or relating to the Company, XL and their affiliates and all notebooks and other
printed, typed or written materials, documents and data containing the
information described in this Section 9 that were furnished to Bornhuetter
during his employment with the Company or are furnished to Bornhuetter in his
capacity as a consultant shall, as between Bornhuetter and the Company, be the
sole and exclusive property of the Company and all of such materials shall be
returned to the Company promptly following the termination of Bornhuetter's
service under this Agreement.
10. COOPERATION IN LITIGATION.
Bornhuetter shall cooperate and generally make himself available, subject
to the provisions of Section 3, to give testimony and assistance in connection
with any litigation, arbitration proceeding, government hearing or investigation
involving the Company, XL or any of their affiliates. The Company shall
reimburse Bornhuetter, or advance to him all reasonable expenses incurred in
connection with his testimony, cooperation or assistance under this Section 10.
Such expenses shall include reasonable out-of-pocket travel expenses and
<PAGE>
reasonable fees and disbursements for independent counsel for Bornhuetter, if
Bornhuetter reasonably determines, based on an opinion of counsel furnished to
the Company prior to incurring such fees and expenses, which opinion is
reasonably satisfactory to the Company, that the litigation, arbitration
proceeding, government hearing or investigation is of a nature which requires
that he have independent representation. Such expenses shall be reimbursed or
advanced promptly after Bornhuetter's submission to the Company of statements in
such reasonable detail as the Company may require.
11. ARBITRATION; EQUITABLE RELIEF.
Any disputes arising under or in connection with this Agreement shall be
resolved by binding arbitration, to be held in New York, in accordance with the
rules and procedures of the American Arbitration Association. Judgment upon the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Each Party shall bear his or its own costs of the
arbitration or litigation, including, without limitation, his or its attorneys'
fees. Nothing herein shall prevent the Company from seeking equitable relief in
court in connection with any breach or proposed breach by the Executive of the
provisions of Sections 8 and 9. For the purpose of any such equitable relief,
the Executive hereby submits to the exclusive jurisdiction of the courts of the
state of New York and the federal courts of the United States of America located
in such state and hereby waives, and agrees not to assert, as a defense in any
action, suit or proceeding for such equitable relief, that he is not subject
thereto. Executive agrees that service of process in such action, suit or
proceeding shall be deemed in every respect effective service of process upon
him if given in the manner set forth in Section 13 or if effected by any legally
permitted method of service.
12. ASSIGNMENT.
This Agreement shall be binding on and inure to the benefit of the Parties
hereto and their respective heirs, personal representatives, successors and
assigns. 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 pursuant to a merger or consolidation in which the Company is
not the surviving 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
Company, as contained in this Agreement, either contractually or as a matter of
law. None of Bornhuetter's rights or obligations under this Agreement may be
assigned or transferred by him other than his rights to compensation and
benefits, which may be transferred only by will or operation of law or pursuant
to Section 19 below.
<PAGE>
13. NOTICE.
Any written notice required to be given by one Party to the other Party
hereunder shall be deemed effected if delivered by messenger or overnight
courier or mailed by registered mail, return receipt requested:
To the Company at: One Greenwich Plaza
Greenwich, CT 06836-2568
Attention: General Counsel
To Bornhuetter at: 29 Old Stone Bridge Road
Cos Cob, CT 06807
or such other address as may be stated in notice given as hereinbefore provided.
14. GOVERNING LAW.
The validity, interpretation and performance of this Agreement shall be
governed by the laws of the State of New York, without regard to the principles
of conflicts of law.
15. SEVERABILITY.
If any one or more of the provisions contained in this Agreement is held
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision hereof.
16. SURVIVORSHIP.
Wherever appropriate to the intention of the Parties, the respective
rights and obligations of the Parties shall survive any termination or
expiration of the Term of Service.
17. AMENDMENT/WAIVER.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by Bornhuetter and an authorized officer of the
Company. No waiver by either Party of any breach by the other Party of any
condition or provision contained in 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 Bornhuetter or an authorized officer of the Company, as the case may
be.
<PAGE>
18. HEADINGS.
The headings of the sections and subsections 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.
19. BENEFICIARIES.
Bornhuetter shall be entitled, to the extent permitted under any
applicable law, to select and change a beneficiary or beneficiaries to receive
any compensation or benefit payable hereunder following Bornhuetter's death by
giving the Company written notice thereof. In the event of Bornhuetter's death
or a judicial determination of his incompetence, reference in this Agreement to
Bornhuetter shall be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and Bornhuetter has hereunto set his hand as of the day and year first above
written.
NAC RE CORPORATION
By:
---------------------------------------
-------------------------------------------
Ronald L. Bornhuetter
<PAGE>
Exhibit 10.13.3
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (the "Agreement") is made and entered into as of
June 30, 1999, by and between RONALD L. BORNHUETTER ("Executive"), NAC RE
CORPORATION, a Delaware corporation, and NAC REINSURANCE CORPORATION, a New York
corporation (together, the "Company").
STATEMENT OF PURPOSE
Executive has been employed by the Company under the terms of that certain
Employment Agreement between Executive and the Company dated October 30, 1996
(the "Employment Agreement"). The Employment Agreement provides that Executive
will be entitled to receive certain payments and benefits if his employment is
terminated.
Executive's employment with the Company ceased effective as of June 30,
1999. The Company and Executive wish to confirm in this Agreement that Executive
has terminated his employment for Good Reason pursuant to Section 8(c) of the
Employment Agreement and to specify the termination payments and other benefits
that will be provided to Executive under the Employment Agreement and certain
other documents, contracts and plans, as well as certain other consideration,
and to settle in full all matters and claims, contractual and non-contractual,
relating to Executive's employment with the Company.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, the parties hereto agree as follows:
1. RESIGNATION; RETIREMENT.
Executive hereby resigns from his position as Chief Executive Officer of
the Company and resigns his membership on the Board of Directors of the Company
and his position as Chairman thereof, effective June 18, 1999. Executive agrees
that he will resign from any and all offices and directorships of any and all
affiliates of the Company promptly following the request of such Board of
Directors. Effective as of June 30, 1999 (the "Termination Date"), Executive
shall cease to be an employee of the Company or any affiliate. For the purposes
of all Company benefit plans and programs, including, without limitation, the
Supplemental Pension pursuant to Section 5 of the Employment Agreement, such
termination of employment shall be treated as a retirement.
2. TERMINATION PAYMENTS AND BENEFITS.
Executive shall receive the following payments and benefits as a result of
his termination of employment:
<PAGE>
-2-
(a) LUMP SUM CASH SEVERANCE. On or before July 15, 1999, the Company shall
pay to Executive a lump sum cash severance payment and accrued bonus obligations
in the aggregate amount of $4,659,812, representing the following:
Amount pursuant to Section 8(b)(i)(B) $3,946,785
of the Employment Agreement
Annual Incentive Plan $144,394
Long-term Incentive Plan $568,633
(b) STOCK OPTIONS. All of Executive's currently outstanding stock options,
listed on Exhibit A hereto, are fully vested and exercisable, have been
converted into options to purchase the number of shares of common stock of XL
Capital Ltd. ("XL") reflected in Exhibit A, and shall remain exercisable until
the expiration of the exercise period provided in the applicable option
agreement (but in no event beyond its maximum stated term), as provided in
Exhibit A.
(c) SUPPLEMENTAL PENSION. In accordance with Section 5 of the Employment
Agreement, the Company shall pay to Executive $162,892 per year in equal monthly
installments commencing August 1, 1999. Such benefit shall be paid to Executive
for his lifetime and, following his death, 50% of such amount shall continue to
be paid to his surviving spouse for her lifetime commencing on the first day of
the month immediately after the date of Executive's death. Funding of the
benefit under this Section 2(c) shall be provided through a "Rabbi Trust"
established by the Company. The Company will maintain the assets of the trust at
a level at least equal to the lump sum value of future payments, determined
using the following accepted actuarial principles and assumptions: for
mortality, the UP 1984 Mortality Table, and for interest, the applicable
interest rate, as then in effect, used by the Pension Benefit Guaranty
Corporation to value immediate annuities in connection with the termination of a
single-employer plan under the Employee Retirement Income Security Act of 1974,
as amended. To the extent the assets held in the trust exceed the foregoing lump
sum value, the excess amount shall be returned to the Company or shall remain in
the trust for the contingency of future increases in the lump sum value, as
elected by the Company.
(d) CONTINUATION OF MEDICAL, VISION AND DENTAL BENEFITS. The Company shall
provide Executive and his spouse with medical, vision and dental benefits on the
same basis as such benefits were provided prior to the Termination Date, by
purchasing and maintaining equivalent medical, vision and dental coverage on
Executive's behalf, for a period of 36 months commencing July 1, 1999. After
July 2002, the Company shall use its best efforts to continue the eligibility of
Executive and his spouse in its group insurance benefits; provided, however,
that the costs of such benefits shall be borne by Executive.
<PAGE>
-3-
(e) CONTINUATION OF LIFE INSURANCE BENEFIT. Commencing July 1, 1999 and
continuing until June 30, 2002, the Company shall maintain for the benefit of
Executive life insurance coverage with an aggregate death value of $750,000.
Commencing July 1, 2002, the Company shall purchase and maintain at its expense
for the remainder of Executive's life, and for Executive's benefit, life
insurance coverage having an aggregate death value of $100,000. Executive shall
be the owner of and shall have the right to designate or change the beneficiary
or beneficiaries of the insurance described in this Section 2(e), and such
insurance shall be provided in a form whereby Executive may create an
irrevocable trust as the owner of such insurance.
(f) OTHER BENEFITS. Executive is a participant in the benefit plans listed
in Exhibit B hereto. This Agreement shall not change the terms of such plans or
the benefits earned by or due to Executive thereunder for services rendered to
the Company through the Termination Date. The benefits earned by or due to
Executive in accordance with the terms of such plans shall be paid or provided
by the Company or such plans (as the case may be) when due (whether such due
date is on, before or after the Termination Date), and full payments and
provision of benefits shall discharge fully all obligations of the Company and
such plans with respect to Executive's benefits under such plans. In addition,
the Company shall pay to Executive a lump sum amount equal to $48,293.21 (the
value of 19.5 vacation days based on six months of employment in 1999), payable
in accordance with the Company's general practices for reimbursement for unpaid
vacation days.
3. TAX WITHHOLDING AND REPORTING.
The Company shall be entitled to withhold from the benefits and payments
described herein all income and employment taxes required to be withheld by
applicable law.
4. RELEASE OF THE COMPANY.
Executive, on behalf of himself and his heirs, personal representatives,
successors and assigns, hereby releases and forever discharges the Company, its
affiliates, and each and every one of their respective present and former
directors, officers, employees, agents, successors and assigns from and against
any and all claims, demands, damages, actions, causes of action, costs and
expenses, which Executive now has, may ever have had or may have hereafter upon
or by reason of any matter, cause or thing occurring, done or omitted to be done
prior to the date of this Agreement, that constitute "Employment-Related Claims"
or rights and claims Executive has or might have under the Worker Adjustment and
Retraining Notification Act, the Age Discrimination in Employment Act of 1967,
as amended ("ADEA"), Title VII of the Civil Rights Act of 1964, as amended, and
the Americans with Disabilities Act of 1990, as amended; PROVIDED, HOWEVER, that
this release shall not apply to any claims which Executive may have for the
payments or provision of the benefits under this Agreement or programs described
or referenced in this Agreement, including the Exhibits hereto, and that
<PAGE>
-4-
this release shall not apply to any rights Executive may have to obtain
contribution in the event of the entry of judgment against him as a result of
any act or failure to act for which both Executive and the Company are jointly
responsible. For purposes of this Agreement, "Employment -- Related Claims"
means all rights and claims Executive has or may have related to his employment
by or status as an employee, officer or director of the Company or any of its
affiliates or to the termination of that employment or status or to any
employment practices and policies of the Company or its affiliates.
Executive acknowledges and agrees that he has read this release in its
entirety and that this release is a general release of all known and unknown
claims, including rights and claims arising under ADEA. Executive and the
Company further acknowledge and agree that:
(i) This release does not release, waive or discharge any rights or
claims that may arise for actions or omissions which occur after the
date of this Agreement;
(ii) Executive is entering into this Agreement and releasing, waiving and
discharging rights or claims only in exchange for consideration
which he is not already entitled to receive;
(iii) Executive has been advised, and is being advised by this release, to
consult with an attorney before executing this Agreement;
(iv) Executive has been advised, and is being advised by this release,
that he has up to twenty-one (21) days within which to consider this
release; and
(v) Executive is aware that this release will not become effective or
enforceable until seven (7) days following his execution of this
Agreement and that he may revoke this release at any time during
such period by delivering (or causing to be delivered) to the
Company at the address provided in Section 11 hereof written notice
of his revocation of this release no later than 5:00 p.m. eastern
time on the seventh (7th) full date following his execution of this
Agreement.
5. RELEASE OF EXECUTIVE.
In consideration of Executive's entering into this Agreement, the Company,
for itself, its officers and directors, its affiliates and their respective
predecessors, successors and assigns hereby releases and forever discharges
Executive and his heirs, personal representatives, successors and assigns from
and against any and all claims, demands, damages, actions, causes of action,
costs and expenses, of whatever kind or nature, in law, equity or otherwise,
<PAGE>
-5-
which the Company or any of said entities now has, may ever have had or may have
hereafter upon or by reason of any matter, cause or thing occurring, done or
omitted to be done prior to the date of this Agreement, including without
limitation all rights and claims the Company or any of said entities or any
third parties (including officers, directors and employees of the Company or its
affiliates) have or might have as a result of Executive's status as an officer,
director or employee of the Company or any of said entities or the termination
of that status; PROVIDED, HOWEVER, that this release shall not apply to any
claims the Company may have which arise out of or relate to the conviction of
Executive for the commission of a crime involving dishonesty with respect to the
Company, its affiliates or their respective predecessors. As of the date of this
Agreement, the Company has no knowledge of any potential claim against Executive
arising out of any of the events described above.
6. INDEMNIFICATION.
The Company and/or its affiliates shall indemnify and hold harmless
Executive, his heirs and his personal representatives to the fullest extent
permitted by applicable law, as now or hereafter in effect, with respect to any
acts, omissions or events that occurred while Executive was an employee of the
Company or any affiliate or served the Company, any affiliate or any other
corporation or enterprise of any kind in any capacity at the request of the
Company or any affiliate (an "Enterprise"). Without limiting the generality of
the foregoing, such indemnification shall include the prompt payment or
reimbursement to Executive for (a) all of Executive's reasonable expenses,
including attorneys' fees and court costs, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding or in connection
with any appeal thereof, to which Executive may be a party by reason of any
action taken or failure to act under or in connection with his service for the
Company, any affiliate or an Enterprise, and (b) all amounts required to be paid
in settlement or in satisfaction of a judgment in connection with any such
action, suit or proceeding; provided, however, that the Company and any
affiliate shall not be required to indemnify or hold harmless Executive, his
heirs or personal representatives in any matter whatsoever in the event and to
the extent that there is a final and nonappealable judgment by a court of
competent jurisdiction that the liability incurred by Executive resulted from
his gross negligence, fraud or willful malfeasance.
7. GROSS-UP PAYMENT.
In the event that any payments or benefits (the "Severance Payments")
provided for in this Agreement (including, but not limited to, the rights
provided under Section 2(b)) are subject to the tax (the "Excise Tax") imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended, or any
successor provision, the Company shall pay to the Executive an additional amount
(the "Gross-Up Payment") such that the net amount retained by the Executive,
after deduction of any Excise Tax on the Severance Payments and any federal,
state and local income taxes and Excise Tax (including interest and penalties)
upon the pay-
<PAGE>
-6-
ment provided for in this Section 7, shall be equal to the Severance Payments.
The determination whether any payments made pursuant to this Agreement are
subject to the Excise Tax shall be based on the opinion of tax counsel selected
by the Executive and reasonably acceptable to the Company. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal, state and local income taxes at the highest marginal rate of income
taxation applicable to any individual residing in the jurisdiction in which the
Executive resides in the calendar year in which the Gross-Up Payment is to be
made. In the event that the Excise Tax is subsequently determined to be less
than the amount initially determined hereunder, the Executive shall promptly
repay to the Company the portion of the Gross-Up Payment attributable to such
reduction. In the event that the Excise Tax is subsequently determined to exceed
the amount initially determined hereunder, the Company shall promptly make an
additional Gross-Up Payment in respect of such excess.
8. CONFIDENTIALITY.
(a) For the period during which this Agreement has not been publicly
disclosed by the Company, Executive hereby covenants and agrees to keep in full
confidence all information concerning this Agreement except (i) to the extent
disclosure is or may be required by a statute (or regulation thereunder), by a
court of law, by any governmental agency having supervisory authority over the
business of the Company or by any administrative or legislative body (including
a committee thereof) with apparent jurisdiction to order him to divulge,
disclose or make accessible such information, (ii) to the extent disclosure to
Executive's legal counsel and personal financial advisors is reasonably
necessary in connection with Executive's consideration of the terms of this
Agreement or Executive's personal financial dealings, or (iii) to members of his
immediate family.
(b) The Company hereby covenants and agrees to keep in full confidence all
information concerning this Agreement except (i) to the extent disclosure is or
may be required by a statute (or regulation thereunder), by a court of law, by
any governmental agency having supervisory authority over the business of the
Company or by any administrative or legislative body (including a committee
thereof) with apparent jurisdiction to order the Company to divulge, disclose or
make accessible such information, (ii) to the extent disclosure to the Company's
legal counsel and auditors is reasonably necessary or (iii) to those persons
within the Company, who as reasonably determined by the Company, must know about
it in carrying out their duties.
(c) Executive and the Company acknowledge and agree that each shall be
entitled to enforce specifically the covenants in this Section 8 by seeking an
injunction to prevent violation thereof in addition to any other remedies
available at law or in equity.
<PAGE>
-7-
9. MUTUAL NONDISPARAGEMENT.
Executive shall not intentionally make any public statements, encourage
others to make statements or release information intended to disparage or defame
the Company or any of its affiliates or any of their respective directors or
officers. The Company shall not intentionally make any public statements,
encourage others to make statements or release information intended to disparage
or defame Executive's reputation. Notwithstanding the foregoing, nothing in this
Section 9 shall prohibit any person from making truthful statements when
required by order of a court or other body having jurisdiction.
10. ARBITRATION; EQUITABLE RELIEF.
Any disputes arising under or in connection with this Agreement shall be
resolved by binding arbitration, to be held in New York, New York, in accordance
with the rules and procedures of the American Arbitration Association. Judgment
upon the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Each party shall bear his or its own costs of the
arbitration or litigation, including, without limitation, his or its attorneys'
fees. Nothing herein shall prevent either party from seeking equitable relief in
court in connection with any breach or proposed breach of the provisions of
Sections 8 and 9. For the purpose of any such equitable relief, the parties
hereby submit to the exclusive jurisdiction of the courts of the state of New
York and the federal courts of the United States of America located in such
state and hereby waive, and agree not to assert, as a defense in any action,
suit or proceeding for such equitable relief, that he or it is not subject
thereto. The parties agree that service of process in such action, suit or
proceeding shall be deemed in every respect effective service of process upon
him or it if given in the manner set forth in Section 11, or if effected by any
legally permitted method of service.
11. NOTICES.
All notices, requests, demands or other communications under this
Agreement shall be in writing and shall be deemed effected when delivered by
messenger or overnight courier or by registered mail, return receipt requested,
to the party to whom such notice is being given as follows:
To the Company at: One Greenwich Plaza
Greenwich, CT 06836-2568
Attention: General Counsel
To Executive at: 29 Old Stone Bridge Road
Cos Cob, CT 06807
<PAGE>
-8-
or such other address as may be stated in notice given as hereinbefore provided.
Either party may change his or its address or the name of the person to whose
attention the notice or other communication shall be directed from time to time
by serving notice thereof upon the other party as provided herein.
12. ENTIRE AGREEMENT.
This Agreement, together with the attachments to it, the agreements,
plans, contracts, documents and programs described or referenced herein, and the
Consulting Agreement between the Company and Executive effective as of July 1,
1999, constitutes the entire agreement between the Company and Executive, and
supersedes and invalidates any previous agreements or contracts not so described
or referenced herein, including, without limitation, the Employment Agreement,
such that the Company shall have no further liability or responsibility under
the Employment Agreement. No representations, inducements, promises or
agreements, oral or otherwise, which are not embodied herein, shall be of any
force or effect.
13. MISCELLANEOUS.
This Agreement, and the rights and obligations of the parties hereto,
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to principles of conflicts of law. If any provision
hereof is unenforceable, such provision shall be fully severable, and this
Agreement shall be construed and enforced as if such unenforceable provision had
never comprised a part hereof, the remaining provisions hereof shall remain in
full force and effect, and the court construing the Agreement shall add as a
part hereof a provision as similar in terms and effect to such unenforceable
provision as may be enforceable, in lieu of the unenforceable provision. As used
in this Agreement, the term "affiliate" means a corporation which is a member of
the same controlled group of corporations (within the meaning of Section 1563(a)
of the Code) as the Company. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns. No provision of this Agreement may be
modified, waived or discharged unless such modification, waiver or discharge is
agreed to in writing and signed by Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of any similar or dissimilar provisions or conditions
at the same or any prior or subsequent time. The headings of the sections and
subsections 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.
<PAGE>
-9-
14. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
<PAGE>
-10-
IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company
has caused this Agreement to be executed by its duly authorized representative,
all as of the date first above written.
NAC RE CORPORATION
By:
---------------------------------------------
NAC REINSURANCE CORPORATION
By:
---------------------------------------------
-------------------------------------------------
Ronald L. Bornhuetter
<PAGE>
EXHIBIT A
STATUS OF RONALD BORNHUETTER'S OPTIONS
(ASSUMING RETIREMENT AND TERMINATION UPON THE CHANGE IN CONTROL ("CC") 6/30/99
CONVERTED TO OPTIONS TO PURCHASE XL SHARES)
<TABLE>
<CAPTION>
- ---------------------- --------------------------- --------------------------- --------------------------
LAST DATE
DATE XL SHARES PLAN TO EXERCISE
- ---------------------- --------------------------- --------------------------- --------------------------
<S> <C> <C> <C>
9/88 154,406 1989 Plan 6/30/00
12/90 21,960 1989 Plan 6/30/00
9/91 19,215 1989 Plan 6/30/00
3/92 22,875 1989 Plan 6/30/00
9/92 19,215 1989 Plan 6/30/00
- ---------------------- --------------------------- --------------------------- --------------------------
9/93 29,280 1993 Plan 9/7/031
8/94 10,522 1993 Plan 6/30/04
9/95 34,312 1993 Plan 6/30/04
9/96 22,875 1993 Plan 6/30/04
10/96 60,390 1993 Plan 6/30/04
10/96 31,110 1993 Plan 6/30/04
- ---------------------- --------------------------- --------------------------- --------------------------
6/97 31,110 1997 Plan 6/30/04
6/98 31,110 1997 Plan 6/30/04
- ---------------------- --------------------------- --------------------------- --------------------------
</TABLE>
- ----------
1 Exercisable no later than option expiration date
<PAGE>
EXHIBIT B
RONALD BORNHUETTER
<TABLE>
<CAPTION>
BENEFIT PLAN CONTINUING BENEFITS
- ---------------------------------------------- -----------------------------------------------------
<S> <C>
401(k) Employee Savings Plan Basic match ceases June 30, 1999;
1999 discretionary match to be contributed March 31,
2000
Non-qualified Excess Saving Plan Basic match ceases June 30, 1999;
1999 discretionary match to be accrued March 31, 2000
Pension - NAC Re Corp. Retirement Program Payments of $41,364 per year, commencing July 1, 1999,
assuming 50% joint and survivor annuity benefit
- NAC Re Corp. Benefits Equalization Payments of $173,352 per year, commencing July 1,
1999, assuming 50% joint and survivor annuity benefit
Stock Purchase Plan Eligibility discontinued. Refund of $21,250 to be
paid July 15, 1999
Car lease Lease to be transferred to individual name as of June
30, 1999
</TABLE>
<PAGE>
Exhibit 10.13.5
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, made as of June 18, 1999, by
and among XL Capital Ltd ("AXL"), Dasher Acquisition Corp. ("ACQUISITION"), NAC
Re Corporation ("NAC RE") and NAC Reinsurance Corporation ("NAC") (collectively,
NAC Re and NAC shall be referred to as the "COMPANY" or the "EMPLOYER"), and
Nicholas M. Brown, Jr. ("EXECUTIVE").
W I T N E S S E T H
WHEREAS, as of June 10, 1998, the Company and the Executive entered into
an employment agreement (the "AGREEMENT"); and
WHEREAS, XL, Acquisition and the Company have entered into an Agreement
and Plan of Merger (the "MERGER AGREEMENT"); and
WHEREAS, XL, Acquisition and the Company wish to have the Executive
continue his employment under the Agreement through the consummation of the
merger transactions contemplated by the Merger Agreement (such consummation date
hereafter referred to as the "CIC DATE") and thereafter, as modified in certain
respects, and the Executive wishes to continue such employment.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements contained herein and other good and valuable consideration, the
parties hereto hereby agree to continue Executive's employment in accordance
with the terms of the Agreement, which continues in full force and effect, and
hereby amend and restate the Agreement in its entirety as follows effective as
of the CIC Date:
1. CERTAIN DEFINED TERMS. In addition to terms defined elsewhere herein,
the following terms shall have the following meanings when used in this
Agreement with initial capital letters:
(a) "ANNUAL INCENTIVE PLAN" shall mean: (i) prior to the CIC Date, the NAC
Re Corp. Amended and Restated Annual Incentive Plan ("NAC RE AIP") as referred
to in Exhibit 10.11 of the NAC Re Corp. 1997 Annual Report on Form 10-K ("FORM
10-K"); following the CIC Date and prior to February 28, 2002, either the NAC Re
AIP or the annual incentive plan maintained by XL for its senior executives ("XL
AIP"), as designated by the Executive prior to November 1 of each year; and
(iii) on or after February 28, 2002, the XL AIP.
<PAGE>
-2-
(b) "BOARD" shall mean, prior to the CIC Date, the Board of Directors of
NAC Re Corp., and following the CIC Date, the Board of Directors of XL and the
Board of Directors of XL America, Inc.
(c) "CAUSE" shall mean Executive's willful breach of duty in the course of
his employment or Executive's habitual neglect of his employment duties in a
manner that materially impacts the business or reputation of Employer unless
such breach or neglect is of a nature that reasonably can be corrected and is
corrected within sixty (60) days following written notice to Executive in
respect thereof. For purposes of this Section 1(c), no act or failure to act on
Executive's part shall be deemed "willful" unless done, or omitted to be done,
by Executive not in good faith and without reasonable belief that his action or
omission was in the best interest of Employer. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters (3/4) of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice to Executive and an opportunity for Executive,
together with Executive's counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, Executive was guilty of conduct set
forth above in this Section 1(c) and specifying the particulars thereof in
detail.
(d) "CHANGE IN CONTROL" shall mean, through the CIC Date, a change in
control of NAC Re Corp. A Change in Control of NAC Re Corp. shall be deemed to
have occurred on the CIC Date.
In the event XL has, as of the CIC Date, or thereafter enters into, with
any of its senior executives agreements with respect to the change in control of
XL which provide for greater benefits than due under Section 7(c) hereof in such
situation on a change in control of XL, a similar agreement shall be offered to
Executive to receive such amounts in lieu of the amounts due hereunder.
(e) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(f) "COMMON STOCK," prior to the CIC Date, shall mean the common stock,
ten cents (104) par value, of NAC Re Corp., and after the CIC Date, shall mean
the common stock, one cent ($.01) par value, of XL Capital Ltd.
(g) "COMPENSATION" shall mean the sum of (i) Executive's annual base
salary pursuant to Section 5(a) hereof and (ii) Executive's annual bonus at
target pursuant to Section 5(b) hereof.
(h) "COMPENSATION COMMITTEE" shall mean the Compensation Committee of the
Board.
<PAGE>
-3-
(i) "DISABILITY" shall mean permanent and total disability as such term is
defined in the Employer's long term disability plan in effect on the Effective
Date. Any question as to the existence of Disability upon which Executive and
Employer cannot agree shall be determined by a qualified independent physician
selected by Executive (or, if Executive is unable to make such selection, such
selection shall be made by any adult member of Executive's immediate family or
Executive's legal representative), and approved by Employer, said approval not
to be unreasonably withheld. The determination of such physician made in writing
to Employer and to Executive shall be final and conclusive for all purposes of
this Agreement.
(j) "EFFECTIVE DATE" shall mean June 10, 1998. This Amendment and
Restatement of the Employment Agreement shall be effective as of the CIC Date.
(k) "FINAL AVERAGE COMPENSATION" shall mean Executive's highest average
annual Compensation earned during any consecutive thirty-six (36) complete
months (or lesser actual period of receiving Compensation) during the period of
sixty (60) complete months (or lesser actual period of receiving Compensation)
immediately preceding Executive's termination of employment with Employer.
(l) "GOOD REASON" shall mean, for all purposes other than with respect to
all restricted Common Stock which has been issued to Executive but is unvested
as of the CIC Date and all options to acquire Common Stock or stock appreciation
rights ("SARS") which have been granted to Executive but remain unvested as of
the CIC Date (the "EXECUTIVE EQUITY RIGHTS"), the occurrence, without (other
than with respect to (iv)) Executive's express written consent, of any of the
following circumstances:
(i) the assignment to Executive of any duties inconsistent with his
offices and status as of the Effective Date (or any offices and status to
which Executive has been promoted at the time), or a substantial
diminution in the nature or status of Executive' s responsibilities (other
than as the result of the Company no longer being a public company);
(ii) the failure of Employer to retain Executive as Chief Executive
Officer of NAC Re or in any other capacities set forth in Section 2 hereof
or a failure to maintain Executive as the most senior executive with
regard to the operations of XL, Employer and their affiliates in North
America with the powers, authorities and duties commensurate with such
positions, subject to Executive's obligations to report to the CEO of XL
(in his capacity as Executive Vice President of XL), the Board of
Employer, the Board of Directors of XL and the Board of Directors of XL
America, Inc.;
<PAGE>
-4-
(iii) a reduction in Executive's annual base salary as in effect on
the Effective Date, on January 1, 1999, or as the same may be increased
from time to time;
(iv) an election by the Executive, on at least 30 days' written
notice given at any time after July 31, 2001, to terminate his employment
between September 1, 2001, and February 28, 2002 inclusive, for any reason
(or no reason);
(v) the relocation of the office in which Executive is located on
the Effective Date to a location more than forty-five (45) miles
therefrom;
(vi) a material reduction in the aggregate benefits and compensation
provided to Executive under employee pension and welfare benefit plans and
incentive compensation, stock option and stock ownership plans from that
which existed immediately prior to the CIC Date, or a failure to provide
cash and equity incentives at a level comparable to similarly situated
executives of XL;
(vii) the failure of Employer to obtain a satisfactory agreement
from any successor (other than any successor resulting from the
transactions contemplated by the Merger Agreement) to assume and agree to
perform this Agreement, as contemplated in Section 11 hereof;
(viii) termination of Executive's employment as a result of his
death or Disability prior to March 1, 2002;
(ix) any purported termination of Executive's employment by Employer
for Cause for which Executive is not given notice of such termination in
accordance with Section 1(c) hereof; for purposes of this Agreement, no
such purported termination shall be effective;
(x) any other material breach of this Agreement by Employer or XL,
including but not limited to any material breach of Section 2(b) hereof;
(xi) Brian O'Hara ceasing to be Chief Executive Officer of XL, Brian
O'Hara not being Chief Executive Officer of the parent entity in the group
of entities controlling, controlled by, or under common control with XL,
or Executive being required to report to anyone other than the Chief
Executive Officer of XL (in Executive's capacity as Executive Vice
President of XL), the Board of the Employer, the Board of Directors of XL
or the Board of Directors of XL America, Inc.;
(xii) the failure of either Employer or XL to make normal equity
grants to Executive for 1999 in accordance with past practices of NAC Re
and XL, as the case may be, based on Executive's level of position;
provided, however, that such
<PAGE>
-5-
XL grant may be reduced by a number of shares equal to the product of (A)
the number of shares subject to the 1999 NAC Re grant (as converted to XL
options) multiplied by (B) a fraction, the numerator of which shall be the
number of days from the date of the 1999 XL grant through the first
anniversary of the 1999 NAC Re grant and the denominator of which shall be
365.
Notwithstanding anything in this Section 1(l) to the contrary, neither of
the following shall constitute "GOOD REASON": (A) any diminution of duties
resulting from the fact that NAC Re ceases to be a publicly traded, independent
reinsurance company as a result of the consummation of the transactions
contemplated by the Merger Agreement, and (B) any change in duties resulting
from failure to continue the Executive as Co-Chairman, or Chairman, of the
management committees specified in Section 2(d) of this Agreement if such
committees are discontinued, provided that he is offered similar titles and
responsibilities with the replacements (if any) therefor.
Executive's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance constituting Good Reason
hereunder. Executive may terminate his employment for Good Reason (other than
pursuant to paragraphs (ii), (iv) (v) or (viii), with regard to which the
remainder of this paragraph shall not apply) only if Executive shall provide the
Company with not less than sixty (60) days' written notice of intent to
terminate for Good Reason, which notice shall set forth in reasonable detail the
facts and circumstances claimed to provide the basis for Executive's termination
for Good Reason, and the Company shall not have cured or remedied its violation
within sixty (60) days following its receipt of such written notice. If within
sixty (60) days following the date on which such notice of termination is given,
Employer notifies Executive that a dispute exists concerning the grounds for
termination, the date of termination for determining the timing of any
obligation under this Agreement shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties or by
arbitration pursuant to Section 15 hereof; provided, further, that the date of
termination shall be extended by a dispute only if such notice of dispute is
given in good faith and Employer pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, Employer
will continue to pay Executive his full Compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, annual base
salary) and continue Executive as a participant in all other incentive
compensation, benefit and insurance plans in which Executive was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 1(1), unless resolution of such
dispute is unreasonably delayed by Executive. Amounts paid under this Section
1(1) are in addition to all other amounts due under this Agreement and shall not
be offset against or reduce any other amounts due under this Agreement.
<PAGE>
-6-
Notwithstanding the above, for all purposes relating to the Executive
Equity Rights (as such term is defined in this Section 1(l), the definition of
"GOOD REASON" shall not be amended as of the CIC Date but shall remain as
defined prior to this amendment and restatement, which definition is set forth
in Appendix "A" to this Amended and Restated Employment Agreement.
(m) "GRANT DATE" shall mean the date on which the Board or the
Compensation Committee approves the grant of a non-qualified option to purchase
Common Stock (or a stock appreciation right) or the award of restricted Common
Stock to Executive
(n) "LONG-TERM INCENTIVE PLAN" shall mean: (i) with respect to grants made
thereunder prior to the CIC Date, the NAC Re Corp. Long-Term Incentive Plan
("NAC RE LTIP") as referred to in Exhibit 10.12 to the Form 10-K; (ii) with
respect to grants made thereunder following the CIC Date and prior to February
28, 2002, either the NAC Re LTIP or the long-term incentive plan maintained by
XL for its senior executives ("XL LTIP"), as designated by Executive prior to
November 1 of each year; and (iii) with respect to grants made thereunder on or
after February 28, 2002, the XL LTIP.
(o) "TERM" shall mean the term provided in Section 4 hereof.
(p) "CIC DATE" shall mean the consummation date of the merger transactions
referred to in the Merger Agreement.
(q) "MATERIAL CAUSE" shall mean Executive's willful (as defined in Section
1(c)) actions or inactions intended to result in material damage to XL or the
Employer. Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Material Cause unless and until there shall have been
delivered to Executive a copy of a resolution duly adopted by the affirmative
vote of not less than three-quarters (3/4) of the entire membership of the Board
at a meeting of the Board called and held for such purpose (after reasonable
notice to Executive and an opportunity for Executive, together with Executive's
counsel, to be heard before the Board), finding that, in the good faith opinion
of the Board, Executive was guilty of conduct set forth above in this Section
1(q) and specifying the particulars thereof in detail.
(r) "MERGER AGREEMENT" shall mean the Agreement and Plan of Merger among
XL Capital Ltd ("XL"), NAC Re Acquisition Corp. ("ACQUISITION"), and NAC Re
Corporation ("NAC RE") dated as of February 15, 1999.
2. EMPLOYMENT; DUTIES.
(a) Commencing on the CIC Date, Executive shall be employed as the
Employer's, XL's and their affiliates' most senior executive with regard to
property and casualty
<PAGE>
-7-
insurance and reinsurance operations in North America (subject to his
obligations to report to the CEO of XL (in his capacity as Executive Vice
President of XL), the Board of the Employer, the Board of XL and the Board of XL
America, Inc.), including but not limited to: (a) Chief Executive Officer,
President and Chairman of the Board of NAC Re, and (in his discretion) of its
principal operating subsidiaries; (b) Executive Vice President of XL; (c)
President and CEO of XL America, Inc.; and (d) Co-chairman of the XL Reinsurance
Executive Management Board and Chairman of the XL North American Insurance
Executive Management Board (with continuation in these chairmanships subject to
future changes in XL's business and management structures, provided he is given
similar titles and responsibilities with the replacements, if any, therefor.
(b) As CEO of XL America, Inc., Executive will have management and profit
and loss responsibility for all current and future North American property and
casualty insurance and reinsurance operations and related service businesses
except to the extent that all or part of such responsibility is allocated to
other executives of XL or its subsidiaries with the express written consent of
Executive. As CEO of XL America, Inc. and NAC Re, Executive will have full
management and supervisory responsibility for all current and future employees
of XL America, Inc. and NAC Re and NAC Re's principal operating subsidiaries,
except to the extent such responsibilities are reasonably delegated to others or
shared with individuals outside of NAC Re or XL America, Inc., respectively,
with the express written consent of Executive.
3. DIRECTORSHIPS. Executive has been appointed to, and shall continue to
serve on, the Boards of Directors of NAC Reinsurance Corporation, Greenwich
Insurance Company, and Indian Harbor Insurance Company. It is agreed that
Executive will be considered for membership on the XL Board of Directors if the
current practice of restricting membership to one member of management is
revised.
4. TERM. The term of this Agreement shall commence on the Effective Date
and shall continue through June 30, 2003, unless terminated earlier pursuant to
Section 7 hereof.
5. COMPENSATION AND BENEFITS DURING THE TERM.
(a) Base Salary: Executive's annual base salary shall be FIVE HUNDRED AND
FIFTEEN THOUSAND DOLLARS ($515,000.00), and shall be SIX HUNDRED AND TWENTY-FIVE
THOUSAND DOLLARS ($625,000), effective January 1, 1999, and shall be reviewed
annually for increase commencing March 2000 in conjunction with normal salary
administration.
(b) Annual Bonus Opportunity. During the Term, Executive shall participate
in the Annual Incentive Plan at the following levels of annual base salary
earned during
<PAGE>
-8-
each such year based on corporate performance in accordance with the terms of
the Annual Incentive Plan and the determination of the Compensation Committee:
(i) NAC Re AIP: 45% (0-90% opportunity);
(ii) XL AIP: comparable to that of other senior
executives of comparable position at XL.
(c) Long-Term Bonus Opportunity: During the Term, Executive shall
participate in the Long-Term Incentive Plan at the following target levels of
annual base salary earned during the applicable performance period; provided,
however, that for any performance period in which Executive has not received
annual base salary during the entire period, annual base salary during any
partial year shall be annualized:
(i) NAC Re LTIP: prior to January 1, 1999 - 55% (0-110%
opportunity); effective with respect to
measurement periods ending after
January 1, 1999 - 60% (0-120%
opportunity);
(ii) XL LTIP: comparable to that of other senior
executives of comparable position at XL.
(d) Special Stock Option Grant:
(i) On or prior to the Effective Date, Executive shall be granted
stock appreciation rights ("SARS"), which will automatically convert into
non-qualified options on November 11, 1998, with respect to one hundred
and twenty five thousand (125,000) shares of Common Stock, twenty percent
(20%) of which shall vest on each of the five (5) anniversaries of the
Grant Date, provided that Executive is employed by Employer on those
dates. The exercise price of the foregoing SARs shall be the fair market
value of a share of Common Stock on the Grant Date.
(ii) Nothing herein shall have the effect of modifying or
superseding the terms of any SARs or stock option grants or restrictive
stock grants to which the Executive may be entitled pursuant to his prior
employment contract.
(iii) Options or SARs granted pursuant to this Agreement shall be
subject to the terms and conditions of the Company's stock option plans
and shall expire, unless exercised, ten (10) years following the Grant
Date.
<PAGE>
-9-
(iv) Upon the consummation of the merger transactions contemplated
by the Merger Agreement, each outstanding stock option into which an SAR
granted under this section shall have been converted, and all other
outstanding SAR, stock option, or restricted stock grants then held by
Executive or to which he may then be entitled pursuant to a prior
employment contract, shall be deemed to constitute an option or other
equity grant with respect to common stock of XL Capital, Ltd upon the
terms set forth in Section 1.6 of the Merger Agreement.
To the extent necessary to cause the condition set forth in Section 6.1(g)
of the Merger Agreement to be satisfied, the Executive hereby waives the rights
he may have, if any, to receive a lump sum cash amount with respect to any
outstanding Stock Options.
(e) Annual Stock Option Grant: Executive shall be given the opportunity to
be granted additional options or SARs with respect to shares of Common Stock
with an underlying market value at the time of grant of 100-125% of Executive's
annual base salary at the time of grant in accordance with and commencing upon
Employer's next regular grant of options following the Effective Date; provided,
however, that nothing contained in this Section 5(f) shall confer upon Executive
any right to such additional options or SARs. Following the CIC Date, any
opportunity for a grant of options or other equity grants, including grants of
SARs and restricted stock, will be in respect of common stock of XL Capital Ltd,
in accordance with the terms set forth in Section 1.6 of the Merger Agreement
and the relevant plans and policies of XL applicable to senior executives of XL
at a level comparable to Executive; provided, however, that nothing contained in
this Section 5(e) shall confer upon Executive any right to such options or other
equity grants.
(f) Supplemental Retirement Benefit:
(i) If Executive's employment terminates with Employer and its
affiliates on or after his attaining age fifty (50), Executive shall be
paid a lifetime annual retirement benefit, commencing within thirty (30)
days following the date of such retirement, equal to fifty percent (50%)
of Executive's Final Average Compensation, reduced by benefits from any
defined benefit pension plans maintained by Employer or its affiliates and
any defined benefit pension plans maintained by any previous employers.
Any retirement benefit that is payable prior to age sixty (60) shall be
reduced by five percent (5%) per year for each year prior to age sixty
(60); e.g. at age fifty (50) the benefit would equal twenty five percent
(25%) of Executive's Final Average Compensation. The benefit will be paid
to Executive for his lifetime and, upon his death, fifty percent (50%) of
his benefit will be paid to his surviving spouse, if any, for her
lifetime. In the event of the Executive's death after age fifty (50) but
prior to retirement, a benefit shall be paid to the Executive's surviving
spouse, if any, for her lifetime
<PAGE>
-10-
equal to the benefit which would have been payable to the spouse assuming
Executive had retired the day preceding the date of death and then died.
(ii) If Executive's employment terminates with Employer and its
affiliates during the term of this contract but prior to his attaining age
fifty (50), for the purpose of allowing Executive to vest in the
retirement benefit as set forth in (i) above, Employer or its affiliates
shall provide Executive with additional service credit, in addition to
actual service credit for purposes of determining the eligibility for the
retirement benefit in subsection (i), above, equal to four (4) years
service credit plus service credit equal to the greater of three (3) years
credit or credit for the balance of the contract term. In the event of
Executive's death during the term of this contract but prior to attaining
age fifty (50), a benefit shall be paid to the Executive's surviving
spouse, if any, assuming the Executive had terminated employment the day
preceding the date of his death and then died.
(iii) (1) If Executive's employment terminates with Employer and its
affiliates due to his Disability, a supplemental disability benefit shall
be payable under the terms of this Agreement. The amount of such
supplemental disability benefit shall equal the difference between (x)
fifty percent (50%) of Executive's Final Average Compensation and (y) the
benefit received by Executive under the long term disability plan of
Employer or its affiliates. Such supplemental benefit shall be payable at
the same time and under the same terms as the long term disability plan
benefit. This supplemental disability benefit shall cease when benefits
under the long term disability plan cease.
(iv) (2) Upon cessation of disability benefits at age sixty-five
(65), the Executive will become eligible for a retirement benefit under
paragraph (i) of this Section 5 (f). In the event supplemental disability
benefits cease prior to age (65) and the Executive does not return to work
with the Company or its affiliates, for purposes of this Section 5 (f) the
Executive shall be considered to have terminated employment or died, as
appropriate, as of the date supplemental disability benefits ceased.
(v) The calculation of the benefits payable pursuant to this Section
5(f) shall be performed by the actuary for the defined benefit pension
plan(s) of the Employer or its affiliates, if any, otherwise by an
independent actuary selected by the Employer or its affiliates, whose
calculation shall be final and binding on all persons. The benefits
payable pursuant to this Section 5(f) shall be unfunded and the Executive
will not be considered to have received a taxable economic benefit prior
to the time at which benefits are actually payable hereunder. Accordingly,
the Employer or its affiliates shall not be required to segregate any of
its assets for the benefit of the Executive
<PAGE>
-11-
and the Executive shall have only a contractual right against the Employer
or its affiliates for the benefits payable hereunder.
(g) Relocation: Employer has relocated Executive to New Canaan,
Connecticut in accordance with Employer's relocation policy. As such, Employer
has agreed to pay to Executive a mortgage subsidy of $20,260 per year through
December 2002. Employer shall pay to Executive, with respect to any payments in
connection with relocation that are subject to federal, state or local taxation,
an additional amount so that Executive shall incur no such taxes with respect to
such payments.
(h) Pension and Welfare Benefit Programs: Executive shall be entitled to
participate, on a basis and to the extent consistent with Executive's senior
executive position (and on a basis no less favorable than other senior
executives), in any employee pension or welfare benefit plan, employee stock
purchase plan and other so-called fringe benefit programs from time to time in
effect for the benefit of employees of Employer generally and/or for any group
of employees of which Executive is a member, provided that Executive meets the
eligibility requirements of any such plan or program. Executive shall continue
to receive short-term and long-term disability coverage, life insurance, medical
insurance and dental insurance reasonably comparable to that in effect as of the
Effective Date.
(i) Other Executive Benefits: (1) During the Term, Employer shall (i)
provide Executive with an automobile of a make and model commensurate with
Executive's position and shall pay all costs of insurance, maintenance and
operation for such automobile; (ii) provide Executive with reasonable financial
planning and tax services; and (iii) reimburse Executive for reasonable club
dues and initiation fees at a club of Executive's choice which is important to
the conduct of the business of Employer and which is used for business purposes.
(2) During the Term, Employer shall, subject to Executive's
reasonable cooperation in doing so, obtain and pay all costs of a life insurance
policy in the amount of $4,000,000 with respect to which Executive shall be the
insured and shall have the right to designate a beneficiary, and shall fully
gross up Executive for any income tax on the provision of such life insurance
and the gross-up payment.
(3) During the Term through February 28, 2002, Employer, through
insurance or out of its own assets, shall provide that Executive shall receive a
lump sum payment of $4,000,000 at such time as he shall incur a Disability for
the first time and shall fully gross up Executive for any income taxes on the
providing of such benefit (other than on the payment of the benefit) and the
gross-up payment.
(j) VACATION: During the Term, Executive shall be entitled to no less than
five (5) weeks paid vacation per year.
<PAGE>
-12-
(k) SIGNING BONUS: Upon the execution of this Amended and Restated
Employment Agreement and consummation of the merger transaction contemplated by
the Merger Agreement, Executive shall be entitled to a special sign-on bonus in
the amount of $1,000,000, which shall be paid as soon as practicable thereafter.
6. OTHER ACTIVITIES. During the Term, Executive is expected to devote to
Employer's business his full business time and attention so as to assure full
and efficient performance of Executive's duties hereunder. During the Term,
Executive shall not, without Employer's prior written consent, engage or
participate, directly or indirectly, in any other business as a sole proprietor,
partner, employee, officer, shareholder, trustee, paid advisor or paid
consultant or accept appointment or election as a director or in any other
fiduciary or honorary capacity in any other business, venture or project;
provided, however, that nothing in this Agreement shall preclude Executive from
devoting nonbusiness time and efforts to charitable, social and civic matters to
the extent that such activities do not interfere with Executive's performance of
his duties under this Agreement and provided, further, however, that Executive
shall not be precluded from making investments as described in the proviso to
the first sentence of Section 8(a) hereof.
7. TERMINATION. Executive's employment under this Agreement may be
terminated by Employer at any time without prior notice, subject to the
requirement of prior notice if such termination is for Cause. Executive's
employment under this Agreement may be terminated by Executive upon not less
than two (2) months' prior notice, other than in the case of termination on
account of Executive's unforeseen health problems, Disability or Good Reason. If
Executive's employment under this Agreement is terminated, the following
provisions shall apply:
(a) Termination of Employment after February 28, 2002 by Employer for a
Reason other than Cause or by Executive for Good Reason: If, before the end of
the Term and after February 28, 2002, Employer terminates Executive's employment
for a reason other than Cause, or if Executive terminates employment on account
of Good Reason, Employer shall pay to Executive, within thirty (30) days
following the date of such termination, a lump sum amount equal to the sum of
(i) Executive's then annual base salary plus (ii) the amounts that would be paid
to Executive under the Annual Incentive Plan and the Long-Term Incentive Plan at
Executive's targets for the year or performance period, as the case may be,
during which such termination occurs, which sum is multiplied by three (3).
(b) Termination of Employment after February 28, 2002, by Employer for
Cause, by Executive other than for Good Reason, or on account of Death or
Disability, or at any time by Employer for Material Cause: If Executive's
employment is terminated (i) after February 28, 2002, by Employer for Cause, by
Executive other than for Good Reason, or on account of Executive's death or
Disability, or (ii) by Employer at any time for Material Cause,
<PAGE>
-13-
Executive, or his estate in the case of his death, shall receive from Employer,
within thirty (30) days following the date of termination, a lump sum amount
equal to Executive's annual base salary which is accrued but unpaid as of the
date of termination and any amounts, if any, due under Sections 5(i)(2) and (3)
hereof.
(c) Termination of Employment as a result of Death or Disability, by
Employer other than for Cause or Material Cause, or by Executive for Good
Reason, in each case prior to March 1, 2002: (1) If, prior to March 1, 2002,
Executive's employment is terminated as a result of death or Disability, by
Employer other than for Material Cause, or by Executive for Good Reason,
Employer shall pay to Executive, within thirty (30) days following such
termination, a lump sum amount equal to the sum of (w) Executive's annual base
salary which is accrued but unpaid as of the date of termination, plus (x) the
portions, if any, of amounts under the Annual Incentive Plan and Long-Term
Incentive Plan that were earned by Executive but unpaid as of the date of
termination, which, in the event bonuses are discretionary, will be determined
in good faith, without regard to the termination, based on the level of bonuses
for comparable executives, plus (y) the greater of 2.99 and the number of years
including fractions thereof, remaining from the CIC Date until June 30, 2003,
times the sum of (I) Executive's then annual base salary plus (II) the amounts
that would be paid to Executive under the Annual Incentive Plan and the
Long-Term Incentive Plan at Executive's targets as in effect immediately prior
to the CIC Date, as increased until the date of payment of the amount described
above in this Section 7(c)(y), at an annual compounded rate of 8%, plus (z) any
amounts, if any, due under Sections 5(i)(2) and (3) hereof. In no event shall
the sums of (I) and (II) be less than $1,218,250.
(2) In addition, if, prior to March 1, 2002, Executive's employment
is terminated by Employer other than for Cause (but not as a result of death or
Disability) or by Executive for Good Reason, Executive shall vest in all issued
but unvested restricted Common Stock and granted but unvested options to acquire
Common Stock or stock appreciation rights then held by Executive. The parties
acknowledge that solely for purposes of this Section 7(c)(2) (but not any other
part of this Section 7), Executive's rights to terminate for Good Reason
pursuant to Section (l)(iv) of Appendix A as a result of the consummation of the
merger transactions contemplated by the Merger Agreement are not waived and
shall continue throughout the Term.
(d) Non-Exclusivity of Rights: Nothing in this Agreement shall prevent or
limit Executive's present or future participation in any benefit, bonus,
incentive, or other plan or program provided by Employer for which Executive may
qualify, nor shall this Agreement limit or otherwise affect rights that
Executive may have under any stock option or other agreements with Employer.
Amounts or benefits that are vested or that Executive is otherwise entitled to
receive under any plan or program of Employer at, or subsequent to, the date of
termination of Executive's employment shall be payable in accordance with such
plan or pro-
<PAGE>
-14-
gram; provided, however, that any compensation and benefits received by
Executive pursuant to this Agreement shall be in lieu of (but, if necessary to
give effect to this provision, shall be reduced by) any and all compensation and
benefits that Executive is entitled to receive or may become entitled to receive
under any reduction in force or severance pay plan, program or practice that
Employer now has in effect or may hereafter put into effect and shall be applied
toward satisfying any severance pay and benefits required under federal or state
law to be paid or provided to Executive.
(e) Excise Tax Gross Up: If an excise tax under Section 4999 of the Code
or any comparable tax that is in excess of ordinary federal income taxes, as may
be in effect from time to time, is imposed on amounts paid to Executive
hereunder, or otherwise in connection with or relating to the transactions
contemplated by the Merger Agreement or any future transaction involving XL or
its affiliates, then Executive shall be reimbursed by Employer in an amount
equal to such excise tax and any further tax due on amounts reimbursed
hereunder, upon request, at th1e time Executive is required to make a payment
thereof.
8. NON-COMPETITION; CONFIDENTIAL INFORMATION.
(a) Executive agrees that during the Term, and if Executive's employment
is terminated by Executive other than for Good Reason, for a period of twelve
(12) months following the date of termination of this Agreement, Executive shall
not (i) engage anywhere within the geographical areas in which NAC Re Corp. and
its subsidiaries or affiliates (for purposes of this Section 8, the "NAC RE
GROUP") have conducted their business operations as of the Effective Date or at
any time prior to the date of termination of Executive's employment directly or
indirectly, alone or as a shareholder, principal, agent, partner, officer,
director, employee or consultant of any other organization, in the business
conducted by the NAC Re Group as a material component of its reinsurance
operations, in direct competition with the NAC Re Group; provided, however, that
it is acknowledged and agreed that this Section 8(a)(i) does not prohibit
Executive from engaging in the reinsurance business where the Executive is only
incidentally engaged in any activity which is a material component of the
operations of the NAC Re Group; and Executive further agrees that during the
Term, and if Executive's employment is terminated by Executive other than for
Good Reason, for a period of twenty-four (24) months following the date of
termination of this Agreement Executive shall not (ii) divert to any competitor
of the NAC Re Group any customer of the NAC Re Group; provided, however, that
Executive may invest in stocks, bonds, or other securities of any similar
business (but without otherwise participating in such similar business) if (A)
such stocks, bonds, or other securities are listed on any national or regional
securities exchange or have been registered under Section 12(g) of the Exchange
Act; and (B) his investment does not exceed, in the case of any class of the
capital stock of any one issuer, one percent (1%) of the issued and outstanding
shares, or, in the case of other securities, one percent (1%) of the aggregate
principal amount thereof issued and outstanding. If at any time the provisions
of
<PAGE>
-15-
this Section 8 shall be determined to be invalid or unenforceable, by reason of
being vague or unreasonable as to area, duration or scope of activity, this
Section 8 shall be considered divisible and shall become and be immediately
amended to only such area, duration and scope of activity as shall be determined
to be reasonable and enforceable by the court or other body having jurisdiction
over the matter; and Executive agrees that this Section 8, as so amended, shall
be valid and binding as though any invalid or unenforceable provision had not
been included herein. Nothing in this Section 8 shall prevent or restrict
Executive from engaging in any business or industry other than those designated
herein in any capacity.
(b) Executive also agrees that, during the Term, and if Executive's
employment is terminated by Executive other than for Good Reason, for a period
of twenty-four (24) months following the date of termination of this Agreement,
Executive shall not solicit any officer, employee or consultant of the NAC Re
Group to leave their employ for other employment;
(c) Executive shall not at any time after the date of termination of
employment reveal to anyone other than authorized representatives of the NAC Re
Group, or use for Executive's own benefit, any trade secrets, customer
information or other information that has been designated as confidential by the
NAC Re Group or is understood by Executive to be confidential without the
written authorization of the Board in each instance, unless such information is
or becomes available to the public or is otherwise public knowledge or in the
public domain for reasons other than Executive's acts or omissions.
(d) If Executive materially breaches any of the obligations under this
Section 8, Employer shall have no further compensation or benefit obligations
pursuant to this Agreement or pursuant to the Annual Incentive Plan or the
Long-Term Incentive Plan but shall remain obligated for compensation and
benefits for periods prior to such breach as provided in any other plans,
policies or practices then applicable to Executive in accordance with the terms
thereof. Executive hereby acknowledges that Employer's remedies at law for any
breach of Executive's obligations under this Section 8 would be inadequate, and
Executive and Employer agree that in addition to any other remedies provided for
herein or otherwise available at law, temporary and permanent injunctive relief
may be granted in any proceeding which may be properly brought by Employer to
enforce the provisions of this Section 8 without the necessity of proof of
actual damages.
9. NO MITIGATION OBLIGATION; NO SET-OFF OR COUNTERCLAIMS. In no event
shall Executive be obligated to seek other employment by way of mitigation of
the amounts payable to Executive under any of the provisions of this Agreement.
Any amounts that may be earned by Executive other than from Employer shall not
reduce Employer's obligation to make any payments hereunder. The amounts payable
by Employer hereunder shall not be subject to any right of set-off that Employer
may assert against Executive.
<PAGE>
-16-
10. TAXES. Employer may withhold from any amounts payable under this Agreement
all federal, state, city, or other taxes as Employer is required to withhold
pursuant to any law, regulation or ruling. Executive shall bear all expense of,
except as otherwise contemplated herein, and be solely responsible for, all
federal, state, local or foreign taxes due with respect to any payment received
hereunder.
11. SUCCESSORS AND BINDING AGREEMENT.
(a) Employer will require any successor, whether direct or indirect, by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of Employer, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that Employer is
required to perform it. Failure of Employer to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle Executive to compensation from Employer in the
same amount and on the same terms as Executive would be entitled hereunder if
Executive had terminated his employment for Good Reason following a Change in
Control, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the date on which
Executive's employment with Employer was terminated. As used in this Agreement
"Employer" shall include any successor to Employer's business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise. Except as provided above, Employer may not assign this
Agreement. As of the CIC Date, XL agrees to guarantee payment of the obligations
of the Employer under this Agreement. Such guarantee shall be a guarantee of
payment, not collections. With respect to such guarantee, XL and Executive agree
to resolve any disputes as provided in Section 15 hereof and as part of the same
arbitration in which Executive and Employer participate.
(b) This Agreement shall inure to the benefit of, and be enforceable by,
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive dies while
any amount is still payable hereunder, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
Executive's devisee, legatee or other designee or, if there is no such designee,
to Executive's estate.
12. NOTICES. For the purpose of this Agreement notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below, provided that all notices to Employer
shall be directed to the attention of the Office of the General Counsel of NAC
Re Corp., or to such other address as either party may have furnished to the
other in
<PAGE>
-17-
writing in accordance herewith, except that notice of change of address shall be
effective only upon receipt:
Employer:
NAC Re Corp.
Office of the General Counsel
One Greenwich Plaza
P.O. Box 2568
Greenwich, CT 06386-2568
Executive:
Nicholas M. Brown, Jr.,
297 Smith Ridge Road
New Canaan, Connecticut 06840
XL Capital Ltd or Dasher Acquisition Corp.:
XL Capital Ltd
Cumberland House
One Victoria Street
Hamilton HM 11 Bermuda
Attn: General Counsel
13. GOVERNING LAW. The validity, interpretation, construction, and
performance of this Agreement shall be governed by and construed in accordance
with the substantive laws of the State of New York, without giving effect to the
principles of conflict of laws of such State, to the extent not preempted by
applicable federal law.
14. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
15. ARBITRATION. Any dispute arising out of or in any way relating to this
Agreement or Executive's employment with Employer, including, without
limitation, any claims Executive may assert under the Age Discrimination in
Employment Act of 1967, as amended, shall be resolved by arbitration in
Connecticut through the Stamford, Connecticut office of the American Arbitration
Association in accordance with the Model Employment Arbitration Procedures of
the American Arbitration Association except to the extent such provisions are
modified as hereinafter provided. The arbitration proceeding shall be conducted
<PAGE>
-18-
by three (3) arbitrators. Executive and Employer shall each designate one (1)
arbitrator, each of whom shall be an attorney admitted to practice in one or
more states who has ten (10) or more years of experience in employment matters,
and the arbitrators so selected shall thereafter designate a third arbitrator
(who shall be a member of the National Academy of Arbitrators) by mutual
agreement. The arbitrators shall have no authority to modify any provision of
this Agreement or to award a remedy for a dispute involving this Agreement other
than a benefit specifically provided under or by virtue of this Agreement. The
decision of the arbitrators shall be final and binding on Employer and
Executive. Employer and Executive shall each pay their own legal fees associated
with arbitration proceedings hereunder, but the fees of the arbitrators and any
other costs associated with such arbitration proceedings shall be shared
equally, provided, however, that in connection with any arbitration arising out
of the failure of Employer to pay all or any part of the payments due hereunder
on account of a termination prior to January 1, 2002, Employer shall reimburse
Executive his legal fees and disbursements, as well as his share of the cost of
the arbitrators and the other arbitration costs, if Executive should prevail on
any material matter in the arbitration.
16. MERGER. This Agreement (coupled with other ancillary written
agreements to which Employer and Executive are a party such as stock option and
restricted stock agreements) expresses in full the understanding of Employer and
Executive, and all promises, representations, understandings, arrangements and
prior agreements with regard to Executive's employment by Employer are merged
herein.
17. WAIVER. Failure by either party hereto to insist upon strict adherence
to any one or more of the covenants or terms contained herein, on one or more
occasions, shall not be construed to be a waiver nor deprive such party of the
right to require strict compliance with the same thereafter.
18. AMENDMENTS. No amendments hereto, or waivers or releases of
obligations or liabilities hereunder, shall be effective unless agreed to in
writing by all parties hereto.
19. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
20. INDEMNIFICATION. XL and the Employer shall indemnify and hold
Executive harmless to the fullest extent permitted by applicable law with regard
to any action or inaction taken by Executive as a director or officer of
Employer or XL or the affiliates of either following the CIC Date. XL and
Employer shall cover Executive under director and officer liability insurance to
the highest level either covers any other officer or director following the CIC
Date and both during and after the Term hereof, so long as Executive may be
subject to any liability for actions or inactions he took following the CIC Date
while a director or offi-
<PAGE>
-19-
cer of Employer or XL or affiliates of either, but no longer than six (6) years
following the end of the Term except as to any claim made prior thereto. In
addition, each of XL and Employer agree that the Executive shall be entitled to
the rights, benefits and remedies afforded under Section 5.11 of the Merger
Agreement and may enforce the same against XL and the Employer.
<PAGE>
-20-
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Employment Agreement to be executed as of the year and day first above
written, to be effective as of the CIC Date, and this Amended and Restated
Employment Agreement shall in no event take effect in the event of the
termination and abandonment of the Merger Agreement.
XL Capital Ltd NAC Re Corporation
By: By:
------------------------ ------------------------
Dasher Acquisition Corp. NAC Reinsurance Corporation
By: By:
------------------------ ------------------------
----------------------------
Nicholas M. Brown, Jr.
<PAGE>
APPENDIX "A"
As stated in Section 1(l) of the Agreement, for all purposes with respect
to the Executive Equity Rights (as such term is defined in Section 1(l) of the
Agreement), the definition of "GOOD REASON" shall remain as set forth in Section
1(l) of the Agreement prior to the execution of this Amended and Restated
Employment Agreement, which definition is set forth below:
A(l) "GOOD REASON" shall mean the occurrence, without Executive's
express written consent, of any of the following circumstances unless, in
the case of paragraphs (i), (vi), (vii), (viii) or (ix), such
circumstances are fully corrected within sixty (60) days following
Executive's written notice to Employer in respect thereof:
A(i) the assignment to Executive of any duties inconsistent
with his offices and status as of the Effective Date (or any offices
and status to which Executive has been promoted at the time), or a
substantial diminution in the nature or status of Executive's
responsibilities;
A(ii) the failure of Employer to retain Executive as Chief
Executive Officer of NAC Re Corp. or to appoint Executive as
Chairman of the Board as set forth in sections 2 and 3 hereof;
A(iii) a reduction in Executive's annual base salary as in
effect on the Effective Date, on January 1, 1999 or as the same may
be increased from time to time;
A(iv) in the event of a Change in Control, any circumstances
in which Executive is not Chief Executive Officer of a publicly
traded, independent reinsurance company; for the purposes of this
provision, "independent reinsurance company" is deemed to mean that
a single shareholder or group, other than an investment advisor
holding shares for others, does not own 20% or more of the Company's
stock;
A(v) the relocation of the office in which Executive is
located on the Effective Date to a location more than forty-five
(45) miles therefrom;
A(vi) a material reduction in the aggregate benefits and
compensation provided to Executive under Employer's employee pension
and welfare benefit plans and incentive compensation, stock option
and stock ownership plans;
A-1
<PAGE>
A(vii) the failure of Employer to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 11 hereof;
A(viii) the failure to Employer to offer to renew Executive's
employment contract, within eighteen (18) months preceding its
expiration, with terms which are at least as favorable as those set
forth herein; or
A(ix) any purported termination of Executive's employment by
Employer for Cause for which Executive is not given notice of such
termination in accordance with Section 1(c) hereof; for purposes of
this Agreement, no such purported termination shall be effective.
"EXECUTIVE'S continued employment shall not constitute consent to,
or a waiver of rights with respect to, any circumstance constituting Good Reason
hereunder. In the event of a termination of Executive's employment by Executive
for Good Reason, Executive shall provide Employer not less than sixty (60) days'
notice of such termination. Such notice shall indicate that such termination is
for Good Reason and shall set forth in reasonable detail the facts and
circumstances claimed to provide the basis for Executive's termination for Good
Reason. If within sixty (60) days following the date on which such notice of
termination is given, Employer notifies Executive that a dispute exists
concerning the grounds for termination, the date of termination for determining
the timing of any obligation under this Agreement shall be the date on which the
dispute is finally determined, either by mutual written agreement of the parties
or by arbitration pursuant to Section 15 hereof; provided, further, that the
date of termination shall be extended by a dispute only if such notice of
dispute is given in good faith and Employer pursues the resolution of such
dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, Employer will continue to pay Executive his full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, annual base salary) and continue Executive as a participant in all other
incentive compensation, benefit and insurance plans in which Executive was
participating when the notice giving rise to the dispute was given, until the
dispute is finally resolved in accordance with this Section 1(l), unless
resolution of such dispute is unreasonably delayed by Executive. Amounts paid
under this Section 1(l) are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due under
this Agreement."
A-2
<PAGE>
Exhibit 10.14.3
EXECUTION COUNTERPART
AMENDMENT NO. 2 TO CREDIT AGREEMENT (5-YEAR)
AMENDMENT NO. 2 dated as of June 30, 1999, between MID OCEAN
LIMITED, a corporation duly organized and validly existing under the laws of the
Cayman Islands (the "Company"); each of the other Obligors identified under the
caption "OBLIGORS" on the signature pages hereto; 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, as amended by Amendment
No. 1 dated as of August 5, 1998 (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, including adding XL Capital, XL Insurance and XL
Mid Ocean (as such terms are defined below) as borrowers and guarantors
thereunder and accordingly, the parties hereto hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this
Amendment No. 2, terms defined in the Credit Agreement are used herein as
defined therein.
Section 2. Amendments. Effective as of the Amendment Date as
provided in Section 5 below, the Credit Agreement is hereby 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 is hereby 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:
"Borrower" shall mean each of the Company, XL Capital, XL Insurance
and XL Mid Ocean.
Amendment No. 2 to Credit Agreement (5-Year)
<PAGE>
-2-
"Borrowers' Jurisdiction" shall mean (a) Bermuda, (b) the Cayman
Islands and (c) any other country (i) where any Borrower is licensed or
qualified to do business or (ii) from which payments hereunder are made by
any Borrower.
"Consolidated Tangible Net Worth" shall mean at any date the
consolidated stockholders' equity of XL Capital 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, 1998, in the book value of any asset
owned by XL Capital 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.
"Designated Lender" shall mean, with respect to any Designating
Lender, an Eligible Designee designated by it pursuant to Section 11.06(j)
hereof as a Designated Lender for purposes of this Agreement.
"Designating Lender" shall mean, with respect to each Designated
Lender, the Bank that designated such Designated Lender pursuant to
Section 11.06(j) hereof.
"Eligible Designee" shall mean a special purpose corporation that
(i) is organized under the laws of the United States or any state thereof,
(ii) is engaged in making, purchasing or otherwise investing in commercial
loans in the ordinary course of its business and (iii) issues (or the
parent of which issues) commercial paper rated at least A-1 or the
equivalent thereof by Standard & Poor's or P-1 or the equivalent thereof
by another recognized rating service.
"Guarantor" shall mean each of the Company, XL Capital, XL Insurance
and XL Mid Ocean.
"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
Amendment No. 2 to Credit Agreement (5-Year)
<PAGE>
-3-
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 insurance payment liabilities, as
such, and liabilities in the ordinary course of such person's business as
an insurance or reinsurance company or corporate member of Lloyd's or as a
provider of financial services or contracts (other than in connection with
the provision of financing to such Person or any of such Person's
Affiliates) shall not be deemed to constitute Indebtedness.
"Obligors" shall mean each Borrower and each Guarantor.
"Total Funded Debt" shall mean, at any time, all Indebtedness of XL
Capital and its Subsidiaries which would at such time be classified in
whole or in part as a liability on consolidated balance sheet of XL
Capital in accordance with GAAP.
"XL Capital" shall mean XL Capital Ltd, a corporation duly organized
and validly existing under the laws of the Cayman Islands.
"XL Insurance" shall mean XL Insurance Ltd, a limited liability
company duly organized and validly existing under the laws of Bermuda.
"XL Mid Ocean" shall mean XL Mid Ocean Reinsurance Ltd, a limited
liability company duly organized and validly existing under the laws of
Bermuda.
2.03. The following definitions in Section 1.01 of the Credit
Agreement are hereby amended as follows:
(i) The definitions of "Affiliate", "Business Day", "ERISA
Affiliate" and "ERISA Plan" are amended by deleting the references
therein to "the Company" and replacing them with "any Borrower".
(ii) The definitions of "Administrative Agent's Account",
"Agreed Foreign Currency", "Applicable Lending Office",
"Eurocurrency Loans", "Foreign Benefit Plan" and "Material
Subsidiary" are amended by deleting the references therein to "the
Company" and replacing them with "the Borrowers".
Amendment No. 2 to Credit Agreement (5-Year)
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(iii) The definitions of "Board of Directors", "Board
Resolution", "Interest Period" and "Officer" are amended by deleting
the references therein to "the Company" and replacing them with "the
relevant Borrower".
(iv) The definitions of "Change of Control", "Deferred
Acquisition Expenses", "Fiscal Dates", "Material Adverse Effect",
"Net Worth" and "Total Debt" are amended by deleting the references
therein to "the Company" and replacing them with "XL Capital".
2.04 Section 1.01 of the Credit Agreement is hereby amended by
deleting the definition of "Assumed Reinsurance" and "Tangible Net Worth".
2.05 The Credit Agreement is hereby amended by deleting each
reference therein to "Mid Ocean Reinsurance" and replacing it with "XL Mid
Ocean".
2.06. The Credit Agreement is hereby amended as follows by:
(i) deleting each reference to "Company Jurisdiction" and
replacing it with "Borrowers' Jurisdiction";
(ii) deleting each reference to "the Company" in Sections
2.01, 4.01(a), 4.01(b), 4.02, 4.05, 4.07(d), 7.03, 7.04, 7.06, 9(a),
9(b), 9(c), 9(e), 9(f), 9(g), 9(h), 10.03, 10.04, 11.06(g), 11.06(h)
and 11.06(i) and replacing it with "any Borrower";
(iii) deleting each reference to "the Company" in Sections
1.02(b), 2.02, 2.03, 2.04, 2.07, 2.08, 2.09, 3.01, 3.02, 4.07(c),
5.01(b), 5.01(c), 5.01(d), 5.02, 5.05(b), 6.02, 7.09, 7.16, 8.01(g),
8.01(h), 8.01(i), 10.05, 10.06, 10.08, 11.03, 11.06(b), 11.06(c),
11.06(f), 11.12, 11.14(a) and 11.07, and replacing it with "each
Borrower";
(iv) deleting the first reference to "The Company" in Section
4.01(c) and replacing it with "Each Borrower" and deleting the
subsequent references to "the Company" in such Section and replacing
them with "such Borrower";
(v) deleting the first, second and third references to "the
Company" in Section 4.06 and replacing them with "any Borrower",
deleting the subsequent references to "the Company" in such Section
and replacing them with "such Borrower" and deleting the reference
to "such Company" and replacing it with "such Borrower";
Amendment No. 2 to Credit Agreement (5-Year)
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(v) deleting the first reference to "The Company" in Section
4.07(a) and replacing it with "Each Borrower" and the subsequent
references to "the Company" in such Section and replacing them with
"such Borrower";
(vi) deleting the first reference to "The Company" in Section
4.07(b) and replacing it with "any Borrower" and the subsequent
references to "the Company" in such Section and replacing them with
"such Borrower";
(vii) deleting the first reference to "The Company" in Section
5.01(a) and replacing it with "Each Borrower", deleting the second
and third references to "the Company" in such Section and replacing
them with "such Borrower", deleting the reference to "such Company"
in such Section and replacing it with "such Borrower" and deleting
the reference to "any Company" in such Section and replacing it with
"any Borrower";
(viii) deleting the first reference to "the Company" in
Section 5.03 and replacing it with "any Borrower" and deleting the
second reference to the "Company" in such Section and replacing it
with "such Borrower";
(ix) deleting the first reference to "The Company" in Section
5.04 and replacing it with "Each Borrower" and deleting the second
reference to "the Company" in such Section and replacing it with
"such Borrower";
(x) deleting the first reference to "The Company agrees" in
Section 5.05(a) and replacing it with "The Borrowers agree",
deleting the third and fifth references to "the Company" in such
Section and replacing them with "such Borrower", and replacing the
second, fourth, sixth and seventh references to "the Company" in
such Section and replacing them with "any Borrower";
(xi) deleting the first and third references to "the Company"
in Section 5.06 and replacing them with "any Borrower" and deleting
the second and fourth references to "the Company" in such Section
and replacing them with "such Borrower";
(xii) deleting the first and second references to "the
Company" in Section 6.01(a) and replacing them with "each Borrower"
and deleting the third and fourth references to the "Company" and
replacing them with "such Borrower";
Amendment No. 2 to Credit Agreement (5-Year)
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(xiii) deleting the first reference to "the Company" in
Section 6.01(b) and replacing it with "XL Capital", deleting the
second reference to "the Company" and replacing it with "Mid Ocean
Limited, XL Mid Ocean and XL Insurance", deleting the third
reference to "the Company" and replacing it with "the Borrowers" and
deleting the fourth reference to "the Company" and replacing it with
"each Borrower";
(xiv) deleting all references to the Company in the final
unnumbered paragraph of Section 6.01 and replacing them with "the
Borrowers";
(xv) deleting the reference to "the Company" in the first
sentence of Section 7 and replacing it with "the relevant Borrower";
(xvi) deleting the reference to "the Company" in Sections 7.01
and 7.12 and replacing it with "the relevant Borrower";
(xvii) deleting the first, third, fourth and fifth references
to "the Company" in Section 7.05 and replacing them with "each
Borrower" and deleting the second reference to "the Company" in such
Section and replacing it with "such Borrower";
(xviii) deleting each reference to "the Company nor any of its
Subsidiaries" in Sections 7.08, 7.10 and 7.11 and replacing them
with "any Borrower nor any of its Subsidiaries";
(xix) deleting the first three references to "the Company" in
Section 9(d) and replacing them with "any Borrower" and deleting the
last reference to "the Company" in such Section and replacing it
with "such Borrower";
(xx) deleting the first reference to "the Company" in the last
paragraph of Section 9 and replacing it with "any Borrower" and
deleting each other reference to "the Company" in such paragraph and
replacing them with "the Borrowers";
(xxi) deleting the first reference to "the Company" in Section
10.01 and replacing it with "any Borrower" and deleting the second
reference to "the Company" in such Section and replacing it with
"each Borrower";
(xxii) deleting the reference to "any Company" in Section
11.02 and replacing it with "any Borrower";
Amendment No. 2 to Credit Agreement (5-Year)
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(xxiii) deleting the first two references to "the Company" in
Section 11.04 and replacing them with "each Borrower" and deleting
the last reference to "the Company" in such Section and replacing it
with "any Borrower";
(xxiv) deleting the first reference to "the Company" in
Section 11.06(e) and replacing it with "any Borrower" and deleting
the remaining references to "the Company" in such Section and
replacing them with "each Borrower";
(xxv) deleting each reference to "the Company" in the first
paragraph of Section 11.10 and replacing it with "each Borrower" and
deleting the reference to "the Company" in the second paragraph of
Section 11.10 and replacing it with "any Borrower";
(xxvi) deleting each reference to "the Company" in Sections
11.11 and 11.13 and replacing it with "the Borrowers"; and
(xxvii) deleting the first reference to "The Company" in
Section 11.14(b) and replacing it with "Each Borrower" and deleting
the remaining references to "the Company" in such Section and
replacing them with "the relevant Borrower".
2.07. Section 7 of the Credit Agreement is hereby amended by adding,
immediately following Section 7.17, a new Section 7.18 to read as follows:
"7.18. Year 2000 Compliance. XL Capital has (i) initiated a review
and assessment of all areas within its and each of its Subsidiaries'
business and operations (including those affected by material suppliers,
vendors and customers) that could be adversely affected by the risk that
computer applications used by XL Capital or any of its Subsidiaries (or
material suppliers, vendors and customers other than those affecting
customers that may give rise to claims under insurance policies issued by
XL Capital or any Subsidiary of XL Capital) may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to
any date after December 31, 1999 (the "Year 2000 Problem") and (ii)
developed a plan and timetable for addressing the Year 2000 Problem on a
timely basis. Based on the foregoing, XL Capital believes that all
computer applications of XL Capital and its Subsidiaries that are material
to its or any of its Subsidiaries' business and operations are reasonably
expected on a timely basis to be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000 ("Year 2000
Compliant"), except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect."
Amendment No. 2 to Credit Agreement (5-Year)
<PAGE>
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2.08. Section 8.01(a) of the Credit Agreement is hereby amended in
its entirety as follows:
"(a) Within 60 days after the end of each of the first three
quarterly fiscal periods of each fiscal year of XL Capital, consolidated
statements of operations and cash flows of XL Capital 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 XL Capital and its Subsidiaries as at the end of such
period, setting forth in each case in comparative form the corresponding
consolidated 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 XL Capital'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
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 XL Capital 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);".
2.09. Section 8.01(b) of the Credit Agreement is hereby amended in
its entirety as follows:
"(b) as soon as practicable and in any event within 100 days after
the end of each fiscal year of XL Capital, consolidated statements of
operations and cash flows of XL Capital and its Subsidiaries for such
fiscal year and the related consolidated balance sheet of XL Capital 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
XL Capital'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 Price
WaterhouseCoopers LLP 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 XL Capital and its Subsidiaries as at the end of, and for, such fiscal
year in accordance with generally accepted accounting principles in the
Amendment No. 2 to Credit Agreement (5-Year)
<PAGE>
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United States of America; and with 100 days after the end of each fiscal
year of each of the Borrowers and within 60 days after the end of each
fiscal quarter of each such fiscal year, a certificate dated as of the end
of such fiscal year or quarter, signed on behalf of each Borrower by a
principal financial officer thereof, (i) stating that as of the date
thereof no Event of Default has occurred and is continuing or exists, or
if an Event of 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
Borrower, (ii) stating in reasonable detail the information and
calculations necessary to establish compliance with the provisions of
Section 8.06 hereof 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;"
2.10. Sections 8.01(c), (d), (e) and (f) of the Credit Agreement are
deleted in their entirety and replaced with the words "[Intentionally omitted]";
and the unnumbered sentence at the end of Section 8.01 of the Credit Agreement
is deleted in its entirety.
2.11. Clause (j) of Section 8.05 of the Credit Agreement is hereby
redesignated as clause (k) and clauses (h) and (i) of Section 8.05 of the Credit
Agreement are hereby amended in their entirety and a new clause (j) is hereby
added to read as follows:
"(h) Liens securing reimbursement obligations of any of the
Borrowers or their Subsidiaries with respect to letters of credit;
(i) Liens securing Indebtedness incurred so long as such
Indebtedness does not exceed $400,000,000 in the aggregate at any one time
outstanding;
(j) Liens securing Indebtedness outstanding on June 30, 1999 and
listed in Schedule 8.05(j) hereof; and"
2.12. Section 8.06 of the Credit Agreement is hereby amended to read
in its entirety as follows:
"8.06 Certain Financial Covenants.
(a) Consolidated Tangible Net Worth. XL Capital will not, at any
time, permit its Consolidated Tangible Net Worth to be less than
$2,566,000,000.
(b) Ratio of Total Funded Debt to Consolidated Tangible Net Worth.
XL Capital will not permit the ratio of (i) the sum of (x) Total Funded
Debt plus (y) the aggregate undrawn face amount of all letters of credit
(as to which reimbursement obligations are
Amendment No. 2 to Credit Agreement (5-Year)
<PAGE>
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unsecured) issued for the account of, or guaranteed by, XL Capital or any
of its consolidated Subsidiaries to (ii) Consolidated Tangible Net Worth
to be greater than 0.35 at any time."
2.13. Section 8 of the Credit Agreement is hereby amended by adding,
immediately following Section 8.13, a new Section 8.14 to read as follows:
"8.14. Year 2000 Compliance. Promptly after any Borrower's discovery
or determination thereof, notice (in reasonable detail) that any computer
application that is material to its or any of its Subsidiaries' business
and operations will not be Year 2000 Compliant (as defined in Section 7.18
hereof), except to the extent that such failure could not reasonably be
expected to have a Material Adverse Effect."
2.14. Section 8.12 of the Credit Agreement is hereby deleted in its
entirety and replaced with "[Intentionally omitted]", and each reference to
"Section 8.12" in the Credit Agreement is hereby deleted.
2.15. Section 11.06(a) shall be amended to read in its entirety as
follows:
"(a) No Borrower may assign any of its rights or obligations
hereunder without the prior consent of all the Banks and the
Administrative Agent."
2.16. Section 11.06 of the Credit Agreement is hereby amended by
adding thereto a new paragraph (j) as follows:
"(j) Designated Lenders. Notwithstanding anything to the contrary
contained herein, any Bank (a "Designating Lender") may grant to an
Eligible Designee identified as such (and as a Designated Lender) in
writing from time to time by such Designating Lender to the Administrative
Agent and the Borrowers, the option to provide to the Borrowers all or any
part of any Loan that such Designating Lender would otherwise be obligated
to make to any Borrower pursuant to this Agreement; provided that nothing
herein shall constitute a commitment by such Designated Lender to make any
Loan, (ii) if a Designated Lender elects not to exercise such option or
otherwise fails to provide all or any part of such Loan, the Designating
Lender shall be obligated to make such Loan pursuant to the terms hereof.
The making of a Loan by a Designated Lender hereunder shall utilize the
Commitment of the Designating Lender to the same extent, and as if, such
Loan were made by such Designating Lender. Each party hereto hereby agrees
that no Designated Lender shall be liable for any indemnity or similar
payment obligation under this Agreement (all liability for which shall
remain with the Designating Lender). In furtherance of the foregoing, each
party hereto hereby agrees (which agreement shall
Amendment No. 2 to Credit Agreement (5-Year)
<PAGE>
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survive the termination of this Agreement) that, prior to the date that is
one year and one day after the payment in full of all outstanding
commercial paper or other senior indebtedness of any Designated Lender, it
will not institute against, or join any other Person in instituting
against, such Designated Lender any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under the laws of the
United States or any State thereof. As to any Loans or portion thereof
made by it, each Designated Lender shall have all the rights that a Bank
making such Loans or portion thereof would have had under this Agreement
and otherwise; provided that (i) its voting rights under this Agreement
shall be exercised solely by its Designating Lender, (ii) its Designating
Lender shall be deemed to hold its relevant Note as agent for such
Designated Lender to the extent of the Loans or portion thereof funded by
such Designated Lender and (iii) the designation of a Designated Lender
and the funding of Loans by a Designated Lender shall in no event (x)
subject any of the Borrowers to any delay in the making of a Loan, (y)
cause or give rise to any obligation of any of the Borrowers to indemnify
or hold harmless such Designated Lender or any other Person (including
without limitation pursuant to Sections 5.05 and 11.03 hereof) except to
the extent such obligation would have arisen in favor of the Designating
Lender or another Person if the Designating Lender (rather than such
Designated Lender) had made all of such Designated Lender's Loans and such
Designated Lender had not been designated as such hereunder, or (z) render
the performance of any provisions of the Agreement illegal, void or
unenforceable under any provision of law. Each Designating Lender shall
act as administrative agent for its Designated Lender and give and receive
notices and other communications on behalf of its Designated Lender. Any
payments for the account of any Designated Lender shall be paid to its
Designating Lender as administrative agent for such Designated Lender and
neither the Borrowers nor the Administrative Agent shall be responsible
for any Designating Lender's application of such payments. In addition,
any Designated Lender may (i) with notice to, but without the prior
written consent of, XL Capital and the Administrative Agent and without
paying any processing fee therefor, assign all or a portion of its
interests in any Loans to the Designating Lender or to any financial
institutions (consented to by XL Capital and the Administrative Agent)
providing liquidity and/or credit support to or for the account of such
Designated Lender to support the funding or maintenance of Loans and (ii)
disclose on a confidential basis any non-public information relating to
its Loans or portions thereof to any rating agency, commercial paper
dealer or provider of any surety, guarantee or credit or liquidity
enhancement to such Designated Lender. This Section 11.06(j) may not be
amended without the written consent of each Designating Lender which has
designated a Designated Lender."
2.17. The Credit Agreement is hereby amended by adding a new Section
12 to read as follows:
Amendment No. 2 to Credit Agreement (5-Year)
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"Section 12. Guarantee.
12.01. The Guarantee. Each Guarantor hereby jointly and severally
guarantees to each Bank and the Administrative Agent and their respective
successors and assigns the prompt payment in full when due (whether at
stated maturity, by acceleration or otherwise) of the principal of and
interest on the Loans made by the Banks to each of the Borrowers (other
than such Guarantor in its capacity as a Borrower hereunder) and all other
amounts from time to time owing to the Banks or the Administrative Agent
by such Borrowers under this Agreement, in each case strictly in
accordance with the terms thereof (such obligations being herein
collectively called the "Guaranteed Obligations"). Each Guarantor hereby
further jointly and severally agrees that if any such Borrower shall fail
to pay in full when due (whether at stated maturity, by acceleration or
otherwise) any of the Guaranteed Obligations, such Guarantor will promptly
pay the same, without any demand or notice whatsoever, 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.
12.02. Obligations Unconditional. The obligations of the Guarantors
under Section 12.01 hereof are absolute and unconditional, joint and
several, irrespective of the value, genuineness, validity, regularity or
enforceability of the obligations of the Borrowers under this Agreement or
any other agreement or instrument referred to herein or 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 that might otherwise constitute a legal or equitable discharge
or defense of a surety or guarantor, it being the intent of this Section
12 that the obligations of the Guarantors hereunder shall be absolute and
unconditional, joint and several, under any and all circumstances. Without
limiting the generality of the foregoing, it is agreed that the occurrence
of any one or more of the following shall not alter or impair the
liability of the Guarantors 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
this Agreement or any other agreement or instrument referred to herein
shall be done or omitted; or
Amendment No. 2 to Credit Agreement (5-Year)
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(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 this Agreement
or any other agreement or instrument referred to herein 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.
The Guarantors hereby expressly waive diligence, presentment, demand
of payment, protest and all notices whatsoever, and any requirement that
the Administrative Agent or any Bank exhaust any right, power or remedy or
proceed against any Borrower under this Agreement or any other agreement
or instrument referred to herein, or against any other Person under any
other guarantee of, or security for, any of the Guaranteed Obligations.
12.03. Reinstatement. The obligations of the Guarantors under this
Section 12 shall be automatically reinstated if and to the extent that for
any reason any payment by or on behalf of any Borrower 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 or reorganization or otherwise, and the
Guarantors jointly and severally agree that they will indemnify the
Administrative Agent and each Bank on demand for all reasonable costs and
expenses (including fees of counsel) incurred by the Administrative Agent
or such Bank in connection with such rescission or restoration, including
any such 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 or similar law.
12.04. Subrogation. The Guarantors hereby jointly and severally
agree that until the payment and satisfaction in full of all Guaranteed
Obligations and the expiration and termination of the Commitments of the
Banks under this Agreement they shall not exercise any right or remedy
arising by reason of any performance by them of their guarantee in Section
12.01 hereof, whether by subrogation or otherwise, against any Borrower or
any other guarantor of any of the Guaranteed Obligations or any security
for any of the Guaranteed Obligations.
12.05. Remedies. The Guarantors jointly and severally agree that, as
between the Guarantors and the Banks, the obligations of the Borrowers
under this Agreement may be declared to be forthwith due and payable as
provided in Section 9 hereof (and shall be deemed to have become
automatically due and payable in the circumstances provided in Section 9
hereof) for purposes of Section 12.01 hereof notwithstanding any stay,
injunction or other prohibition preventing such declaration (or such
obligations from
<PAGE>
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becoming automatically due and payable) as against any Borrower and that,
in the event of such declaration (or such obligations being deemed to have
become automatically due and payable), such obligations (whether or not
due and payable by any Borrower) shall forthwith become due and payable by
the Guarantors for purposes of Section 12.01 hereof.
12.06. Instrument for the Payment of Money. Each Guarantor hereby
acknowledges that the guarantee in this Section 12 constitutes an
instrument for the payment of money, and consents and agrees that any Bank
or the Administrative Agent, at its sole option, in the event of a dispute
by such Guarantor in the payment of any moneys due hereunder, shall have
the right to bring motion-action under New York CPLR Section 3213.
12.07. Continuing Guarantee. The guarantee in this Section 12 is a
continuing guarantee, and shall apply to all Guaranteed Obligations
whenever arising.
12.08. Rights of Contribution. The Guarantors hereby agree, as
between themselves, that if any Guarantor shall become an Excess Funding
Guarantor (as defined below) by reason of the payment by such Guarantor of
any Guaranteed Obligations, each other Guarantor shall, on demand of such
Excess Funding Guarantor (but subject to the next sentence), pay to such
Excess Funding Guarantor an amount equal to such Guarantor's Pro Rata
Share (as defined below and determined, for this purpose, without
reference to the properties, debts and liabilities of such Excess Funding
Guarantor) of the Excess Payment (as defined below) in respect of such
Guaranteed Obligations. The payment obligation of a Guarantor to any
Excess Funding Guarantor under this Section 12.08 shall be subordinate and
subject in right of payment to the prior payment in full of the
obligations of such Guarantor under the other provisions of this Article
and such Excess Funding Guarantor shall not exercise any right or remedy
with respect to such excess until payment and satisfaction in full of all
of such obligations.
For purposes of this Section 12.08, (i) "Excess Funding
Guarantor" means, in respect of any Guaranteed Obligations, a Guarantor
that has paid an amount in excess of its Pro Rata Share of such Guaranteed
Obligations, (ii) "Excess Payment" means, in respect of any Guaranteed
Obligations, the amount paid by an Excess Funding Guarantor in excess of
its Pro Rata Share of such Guaranteed Obligations and (iii) "Pro Rata
Share" means, for any Guarantor, the ratio (expressed as a percentage) of
(x) the amount by which the aggregate present fair saleable value of all
properties of such Guarantor (excluding any shares of stock of any other
Guarantor) exceeds the amount of all the debts and liabilities of such
Guarantor (including contingent, subordinated, unmatured
<PAGE>
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and unliquidated liabilities, but excluding the obligations of such
Guarantor hereunder and any obligations of any other Guarantor that have
been Guaranteed by such Guarantor) to (y) the amount by which the
aggregate fair saleable value of all properties of all of the Guarantors
exceeds the amount of all the debts and liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities, but excluding the
obligations of the Guarantors under this Section 12) of all of the
Guarantors, determined (A) with respect to any Guarantor that is a party
hereto on the date hereof, as of the date hereof, and (B) with respect to
any other Guarantor, as of the date such Guarantor becomes a Guarantor
hereunder.
12.09. General Limitation on Guarantee Obligations. In any action or
proceeding involving any state corporate law, or any state or Federal
bankruptcy, insolvency, reorganization or other law affecting the rights
of creditors generally, if the obligations of any Guarantor under Section
12.01 hereof would otherwise, taking into account the provisions of
Section 12.08 hereof, be held or determined to be void, invalid or
unenforceable, or subordinated to the claims of any other creditors, on
account of the amount of its liability under Section 12.01 hereof, then,
notwithstanding any other provision hereof to the contrary, the amount of
such liability shall, without any further action by such Guarantor, any
Bank, the Administrative Agent or any other Person, be automatically
limited and reduced to the highest amount that is valid and enforceable
and not subordinated to the claims of other creditors as determined in
such action or proceeding."
2.18. Exhibits and Schedules.
(i) Exhibit E to the Credit Agreement is hereby replaced in its
entirety with Exhibit E attached to this Amendment No. 2, and each reference in
the Credit Agreement to such Exhibit E shall be deemed to refer to the Exhibit E
attached to this Amendment No. 2.
(ii) Schedule 8.05(j) attached to this Amendment No. 2 shall be
deemed attached to and made a part of the Credit Agreement.
Section 3. Addition of Borrowers and Guarantors. Mid Ocean Limited
hereby agrees to become and be a Guarantor under, and each of XL Capital, XL
Insurance and XL Mid Ocean hereby agrees to become and be a Borrower and a
Guarantor under, and as defined, in the Credit Agreement (as amended hereby) and
agrees to be bound by the terms of the Credit Agreement (as so amended) as a
Guarantor and/or Borrower, as the case may be.
Section 4. Representations and Warranties. Each Obligor hereby
represents and warrants to the Administrative Agent and the Banks that (i) the
representations and warranties set
Amendment No. 2 to Credit Agreement (5-Year)
<PAGE>
-16-
forth in Section 7 of the Credit Agreement are, both on the date hereof and as
of the Amendment Date (as defined in Section 5 below), true and complete as if
made on each such date (and after giving effect to this Amendment No. 2) and as
if each reference in said Section 7 to "this Agreement" includes reference to
this Amendment No. 2 and (ii) both immediately prior to and as of the date
hereof, no Default shall have occurred and be continuing.
Section 5. Conditions Precedent. The amendments to the Credit
Agreement under Section 2 above shall become effective upon fulfillment on or
prior to a date (prior to July 31, 1999) designated in writing to the
Administrative Agent by XL Capital (the "Amendment Date") of each of the
following conditions precedent:
(a) Corporate Documents. Receipt by the Administrative Agent of
certified copies of the organizational documents of each Obligor and of
all corporate authority for each Obligor (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
each Obligor 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 such Obligor to the contrary).
(b) Opinions of Counsel to the Company. Receipt by the
Administrative Agent of opinions of (i) Cahill Gordon & Reindel, (ii)
Conyers, Dill & Pearman, (iii) Paul S. Giordano, Esq. and (iv) Hunter &
Hunter, respectively, the Borrowers' and/or Guarantors' counsel in form
and substance satisfactory to the Administrative Agent (and the Obligors
hereby instruct each such counsel to deliver such opinions to the Banks
and the Administrative Agent).
(c) Representations and Warranties. The representations and
warranties contained in Section 4 above shall be true and correct, and
receipt by the Administrative Agent of a certificate of each Obligor to
that effect.
(d) Payments. Evidence (satisfactory to the Administrative Agent) of
payment of all fees and expenses payable to the Administrative Agent
and/or the Banks in connection with this Amendment No. 2 as heretofore
agreed.
(e) Other Documents. Receipt by the Administrative Agent of such
other documents as the Administrative Agent or any Bank or special New
York counsel to Chase may reasonably request.
Amendment No. 2 to Credit Agreement (5-Year)
<PAGE>
-17-
Section 6. Miscellaneous. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 2 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. 2 by signing any such counterpart. This
Amendment No. 2 shall be governed by, and construed in accordance with, the law
of the State of New York.
Amendment No. 2 to Credit Agreement (5-Year)
<PAGE>
-18-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 2 to be duly executed and delivered as of the day and year first above
written.
OBLIGORS
MID OCEAN LIMITED
as Borrower and as Guarantor
By /s/Brian M. O'Hara
--------------------------------
Title: Chairman
XL CAPITAL LTD
as Borrower and as Guarantor
By /s/Brian M. O'Hara
--------------------------------
Title: President & Chief Executive Officer
XL INSURANCE LTD
as Borrower and as Guarantor
By /s/Brian M. O'Hara
--------------------------------
Title: Chairman
XL MID OCEAN REINSURANCE LTD
as Borrower and as Guarantor
By /s/Brian M. O'Hara
--------------------------------
Title: Chairman
Amendment No. 2 to Credit Agreement (5-Year)
<PAGE>
-19-
BANKS
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
By /s/ Donald Rands
--------------------------------
Title: Vice President
CITIBANK N.A.
By /s/ Michael Taylor
--------------------------------
Title: Vice President
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN
ISLANDS BRANCHES
By /s/ Clinton M. Johnson
--------------------------------
Title: Director
By /s/ John S. McGill
--------------------------------
Title: Director
MELLON BANK, N.A.
By /s/ Karla Maloof
--------------------------------
Title: Vice President
ROYAL BANK OF CANADA
By /s/ Y.J. Bernard
--------------------------------
Amendment No. 2 to Credit Agreement (5-Year)
<PAGE>
-20-
Title: Manager
THE BANK OF BERMUDA LIMITED
By /s/ Michael Collins
--------------------------------
Title: Senior Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Sebastian Rocco
--------------------------------
Title: Senior Vice President
STATE STREET BANK AND TRUST COMPANY
By /s/ Edward M. Anderson
--------------------------------
Title: Vice President
BANQUE NATIONALE DE PARIS
By /s/ PhilTruesdale
--------------------------------
Title: Vice President
By /s/
--------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/
--------------------------------
Amendment No. 2 to Credit Agreement (5-Year)
<PAGE>
-21-
Title: Senior Relationship Manager
Amendment No. 2 to Credit Agreement (5-Year)
<PAGE>
EXHIBIT E
[Form of Promissory Note]
PROMISSORY NOTE
___________, 1999
FOR VALUE RECEIVED, [INSERT NAME OF BORROWER], a corporation
organized under the laws of the ________________ (the "Borrower") 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 Borrower 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 Borrower,
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 Borrower
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 Borrower under the
Credit Agreement (5-Year) dated as of September 2, 1997 (as modified and
supplemented and in effect from time to time, the "Credit Agreement") between
each of the Borrowers party thereto (including the Borrower), each of the
Guarantors party thereto, 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>
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.
[NAME OF OBLIGOR]
By_________________________
Title:
Promissory Note
<PAGE>
SCHEDULE OF LOANS
This Note evidences Loans made under the within-described Credit
Agreement to the Borrower, 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:
Prin-
cipal 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
---- ---- ---- -------- ---- ---- ------- ------ --
Promissory Note
<PAGE>
Schedule 8.05(j) (Permitted Liens)
Liens securing Indebtedness (not in excess of $150,000,000) now or hereafter
incurred under the 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, dated as of December 22, 1998.
Promissory Note
<PAGE>
Exhibit 10.14.4
EXECUTION COUNTERPART
AMENDMENT NO. 3 TO CREDIT AGREEMENT (5-YEAR)
AMENDMENT NO. 3 dated as of February 25, 2000, between MID OCEAN
LIMITED, a corporation duly organized and validly existing under the laws of the
Cayman Islands (the "Company"); each of the other Obligors identified under the
caption "OBLIGORS" on the signature pages hereto; 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, as amended by Amendment
No. 1 dated as of August 5, 1998 and Amendment No. 2 dated as of June 30, 1999
(the "Credit Agreement"), providing, subject to the terms and conditions
thereof, for loans to be made by said Banks to the Borrowers in an aggregate
principal amount not exceeding $100,000,000. The Obligors, 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. 3, terms defined in the Credit Agreement are used herein as
defined therein.
Section 2. Amendments. Effective as of the Amendment Date as
provided in Section 4 below, the Credit Agreement is hereby 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 is hereby amended by
adding the following new definition and inserting the same in the appropriate
alphabetical location as follows:
"Asset Accumulation Lien" means a Lien on amounts received, and on
actual or imputed investment income on such amounts received, relating and
identified to specific insurance payment liabilities or to liabilities
arising in the ordinary course of any Obligor's or any of their
Subsidiary's business as an insurance or reinsurance company or corporate
member of The Council of Lloyd's or as a provider of financial services or
contracts, or the proceeds thereof, in each case held in a segregated
trust or other account and securing such liabilities; provided, that in no
case shall an Asset Accumulation Lien
Amendment No. 3 to Credit Agreement (5-Year)
<PAGE>
-2-
secure Indebtedness and any Lien which secures Indebtedness shall not be
an Asset Accumulation Lien.
"Consolidated Net Worth" shall mean, at any time, the consolidated
stockholders' equity of a Borrower and its consolidated Subsidiaries.
2.03. Section 8.01 of the Credit Agreement is hereby amended by
adding at the end thereof a new paragraph (j) thereof to read as follows:
"(j) Information Regarding Asset Accumulation Liens. At the time of
furnishing each certificate furnished pursuant to paragraph (b) of this
Section 8.01, a statement, certified as true and correct by a principal
financial officer of XL Capital, setting forth on a consolidated basis for
XL Capital and its consolidated Subsidiaries as of the end of the fiscal
year or quarter to which such certificate relates (A) the aggregate book
value of assets which are subject to Asset Accumulation Liens and the
aggregate book value of liabilities which are secured by Asset
Accumulation Liens (it being understood that the reports required by
paragraphs (a) and (b) of this Section 8.01 shall satisfy the requirement
of this clause (A) of this paragraph (j) if such reports set forth
separately, in accordance with GAAP, line items corresponding to such
aggregate book values) and (B) a calculation showing the portion of each
of such aggregate amounts which portion is attributable to transactions
among wholly-owned Subsidiaries of XL Capital."
2.04. Section 8.05 of the Credit Agreement is hereby amended by
relettering clause (k) thereof as clause (l) and adding a new clause (k)
to read as follows:
"(k) Asset Accumulation Liens; and"
2.05. Clause (b) of Section 8.06 of the Credit Agreement is hereby
amended to read in its entirety as follows:
"(b) Ratio of Total Adjusted Funded Debt to Consolidated Capital. XL
Capital will not permit its ratio of (i) Total Adjusted Funded Debt to (ii) the
sum of Total Adjusted Funded Debt plus Consolidated Net Worth to be greater than
0.35 to 1 at any time. As used herein, the term "Total Adjusted Funded Debt"
shall mean, at any time, the sum of (x) Total Funded Debt at such time plus (y)
the aggregate undrawn face amount of all letters of credit (as to which
reimbursement obligations are not secured by marketable securities with a value
at least equal to the face amount of such letters of credit) issued for the
account of, or guaranteed by, XL Capital or any of its consolidated Subsidiaries
at such time (irrespective of whether the beneficiary thereof is an Affiliate)."
Amendment No. 3 to Credit Agreement (5-Year)
<PAGE>
-3-
Section 3. Representations and Warranties. Each Obligor hereby
represents and warrants to the Administrative Agent and the Banks that (i) the
representations and warranties set forth in Section 7 of the Credit Agreement
are, both on the date hereof and as of the Amendment Date (as defined in Section
4 below), true and complete as if made on each such date (and after giving
effect to this Amendment No. 3) and as if each reference in said Section 7 to
"this Agreement" includes reference to this Amendment No. 3 and (ii) both
immediately prior to and as of the date hereof, no Default has occurred and is
continuing.
Section 4. Condition Precedent. The amendments to the Credit
Agreement under Section 2 above shall become effective upon the execution and
delivery of this Amendment No. 3 to the Administrative Agent (the "Amendment
Date").
Section 5. Miscellaneous. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 3 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. 3 by signing any such counterpart. This
Amendment No. 3 shall be governed by, and construed in accordance with, the law
of the State of New York.
Amendment No. 3 to Credit Agreement (5-Year)
<PAGE>
-4-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 3 to be duly executed and delivered as of the day and year first above
written.
OBLIGORS
MID OCEAN LIMITED
as Borrower and as Guarantor
By /s/ H.C.V. Keeling
-----------------------------------------
Title: President
XL CAPITAL LTD
as Borrower and as Guarantor
By /s/ Brian M. O'Hara
-----------------------------------------
Title: President & CEO
XL INSURANCE LTD
as Borrower and as Guarantor
By /s/ Christopher Coelho
-----------------------------------------
Title: Chief Financial Officer
XL MID OCEAN REINSURANCE LTD
as Borrower and as Guarantor
By /s/ H.C.V. Keeling
-----------------------------------------
Title: President & CEO
Amendment No. 3 to Credit Agreement (5-Year)
<PAGE>
-5-
BANKS
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
By /s/ Donald Rands
-----------------------------------------
Title: Vice President
CITIBANK N.A.
By /s/ Michael Taylor
-----------------------------------------
Title: Vice President
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN
ISLANDS BRANCHES
By /s/ John S. McGill
-----------------------------------------
Title: Director
By /s/ Alan Krouk
-----------------------------------------
Title: Assistant Vice President
MELLON BANK, N.A.
By /s/ Karla Maloof
-----------------------------------------
Title: Vice President
ROYAL BANK OF CANADA
By /s/ Y.J. Bernard
-----------------------------------------
Title: Manager
Amendment No. 3 to Credit Agreement (5-Year)
<PAGE>
-6-
THE BANK OF BERMUDA LIMITED
By /s/
-----------------------------------------
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Sebastian Rocco
-----------------------------------------
Title: Senior Vice President
STATE STREET BANK AND TRUST COMPANY
By /s/
-----------------------------------------
Title: Vice President
BANQUE NATIONALE DE PARIS
By /s/ Phil Truesdale
-----------------------------------------
Title: Vice President
By /s/
-----------------------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/ John Hopmans
-----------------------------------------
Title: Managing Director
Amendment No. 3 to Credit Agreement (5-Year)
<PAGE>
Exhibit 10.14.19
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS THIRD 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, and the Second
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 insertin 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')".
(b) Section 6.03(e) of the Credit Agreement is hereby amended to
read as follows:
<PAGE>
(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, 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:______________________________________
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
-2-
<PAGE>
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:______________________________________
THE CHASE MANHATTAN BANK,
as a Bank
By:_________________________________________
Title:______________________________________
THE BANK OF BERMUDA LIMITED,
as a Bank
-3-
<PAGE>
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:______________________________________
BANK AUSTRIA AKTIENGESELLSCHAFT,
as a Bank
By:_________________________________________
Title:______________________________________
By:_________________________________________
-4-
<PAGE>
Title:______________________________________
-5-
<PAGE>
Exhibit 10.14.20
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, dated as of
June 30, 1999 (this "Amendment"), by and among XL Insurance Ltd (formerly known
as X.L. Insurance Company, Ltd.) and XL Mid Ocean Reinsurance Ltd (formerly
known as X.L. Mid Ocean Reinsurance Company, Ltd., and successor to X.L. Global
Reinsurance Company, Ltd.) (the "Original Borrowers"), XL Insurance Ltd and EXEL
Acquisition Ltd. (the "Original Guarantors"), XL Capital Ltd, a corporation
organized under the laws of the Cayman Islands, British West Indies ("XL
Capital"), MELLON BANK, N.A., as 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 Original Borrowers, the Original 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,
and the Second Amendment thereto, dated as of August 3, 1998, and the Third
Amendment thereto, dated as of December 4, 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 Original Borrowers; and
WHEREAS, XL Capital is the parent company of the Original Borrowers
and the Original Guarantors and XL Capital desires to become a Borrower and a
Guarantor under the Credit Agreement;
WHEREAS, XL Mid Ocean Reinsurance Ltd ("XL Mid Ocean") desires to
become a Guarantor under the Credit Agreement;
WHEREAS, the Original Borrowers and XL Capital have requested the
Banks to make certain additional changes to the Credit Agreement;
WHEREAS, the Banks are willing to amend the Credit Agreement as set
forth below; and
<PAGE>
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) The Credit Agreement is hereby amended (i) by replacing the term
"X.L. Insurance" each place it appears in the Agreement with the term "XL
Insurance", (ii) by replacing the term "X.L. Reinsurance" each place it appears
in the Credit Agreement with the term "XL Mid Ocean", (iii) by replacing the
term "EXEL Limited" each place it appears in the Agreement with the term "XL
Capital" and (iv) by replacing the term "EXEL Limited's" each time it appears in
the Agreement with the term "XL Capital's".
(b) Section 1.01 of the Credit Agreement is hereby amended by
deleting the respective definitions of the terms "Guarantors", "EXEL Limited",
"X.L. Insurance", and "X.L. Reinsurance" appearing therein and by adding
thereto, in appropriate alphabetical sequence, the following definitions:
"Borrowers" shall mean XL Insurance, XL Mid Ocean and XL
Capital and "Borrower" shall mean any one of them.
"Designated Lender" means, with respect to any
Designating Lender, an Eligible Designee designated by it
pursuant to Section 9.13(f) as a Designated Lender for
purposes of this Agreement.
"Designating Lender" means, with respect to each
Designated Lender, the Bank that designated such Designated
Lender pursuant to Section 9.13(f).
"Eligible Designee" means a special purpose corporation
that (i) is organized under the laws of the United States or
any state thereof, (ii) is engaged in making, purchasing or
otherwise investing in commercial loans in the ordinary
-2-
<PAGE>
course of its business and (iii) issues (or the parent of
which issues) commercial paper rated at least A-1 or the
equivalent thereof by Standard & Poor's Ratings Group or the
equivalent thereof by another generally recognized rating
service.
"Guarantors" shall mean XL Insurance, XL Mid Ocean, XL
Capital and EXEL Acquisition Ltd. and "Guarantor" shall mean
any one of them.
"XL Capital" shall mean XL Capital Ltd, a corporation
formed under the laws of the Cayman Islands, British West
Indies, which was formerly known as EXEL Limited and which is
a Borrower and a Guarantor under this Agreement.
"XL Insurance" shall mean XL Insurance Ltd, a Bermuda
limited liability corporation and a Borrower and a Guarantor
under this Agreement.
"XL Mid Ocean" shall mean XL Mid Ocean Reinsurance Ltd,
a Bermuda limited liability corporation and a Borrower and a
Guarantor under this Agreement.
(c) Section 1.02 of the Credit Agreement, titled Construction, is
hereby amended by adding at the end thereof the following:
As used herein, the phrase "neither Borrower" shall be deemed
to mean "no Borrower", the phrase "either Borrower" shall be
deemed to mean "any Borrower", the phrase "neither Guarantor"
shall be deemed to mean "no Guarantor" and the phrase "either
Guarantor" shall be deemed to mean "any Guarantor".
(d) New Exhibit A-3 (form of XL Capital promissory note) to the
Credit Agreement is hereby added in the form attached to this Fourth Amendment
and Section 2.01(c) of the Credit Agreement is hereby amended to read as
follows:
(c) Revolving Credit Notes. The obligation of each
Borrower to repay the amount of the Loans made to it by each
Bank and to pay interest
-3-
<PAGE>
thereon shall be evidenced in part by promissory notes of the
Borrowers, one to each Bank, dated the Closing Date (in the
case of XL Insurance and XL Mid Ocean) or dated the date of
effectiveness of the Fourth Amendment to this Agreement (in
the case of XL Capital) (the "Notes") in substantially the
form attached hereto as Exhibit A-1 (in the case of XL
Insurance), Exhibit A-2 (in the case of XL Mid Ocean) and
Exhibit A-3 (in the case of XL Capital), with the blanks
appropriately filled, payable to the order of such Bank in a
face amount equal to such Bank's Committed Amount as of the
date of such Fourth Amendment.
(e) The Credit Agreement is hereby amended by adding, immediately
following Section 3.14, a new Section 3.15 to read as follows:
3.15. Year 2000 Compliance. XL Capital has (i) initiated
a review and assessment of all areas within its and each of
its Subsidiaries' business and operations (including those
affected by material suppliers, vendors and customers) that
could be adversely affected by the risk that computer
applications used by XL Capital or any of its Subsidiaries (or
material suppliers, vendors and customers other than risks
affecting customers that may give rise to claims under
insurance policies issued by XL Capital or any Subsidiary of
XL Capital) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and
any date after December 31, 1999 (the "Year 2000 Problem") and
(ii) developed a plan and timetable for addressing the Year
2000 Problem on a timely basis. Based on the foregoing, XL
Capital believes that all computer applications of XL Capital
and its Subsidiaries that are material to its or any of its
Subsidiaries' business and operations are reasonably expected
on a timely basis to be able to perform properly
date-sensitive functions for all dates before and after
January 1, 2000 ("Year 2000 Compliant"), except to the extent
that a failure to do so could not reasonably be expected to
have a Material Adverse Effect.
-4-
<PAGE>
(f) Sections 5.01(a) and 5.01(b) of the Credit Agreement are hereby
amended to read as follows:
(a) Annual Reports. As soon as practicable and in any
event within 100 days after the close of each fiscal year of
such Borrower, audited consolidated statements of income,
retained earnings and cash flows of such Borrower and its
consolidated Subsidiaries, for such fiscal year and a
consolidated audited balance sheet of such Borrower 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 XL Insurance and XL Mid Ocean, 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 Borrower 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 (it being
understood that delivery of XL Capital's Report on Form 10-K
filed with the Securities and Exchange Commission shall
satisfy the requirement of this Section 5.01(a) to deliver the
annual financial statements of XL Capital so long as the
financial information required to be in such report is
substantially the same as the financial information required
by this Section 5.01(a)).
(b) Quarterly Statements. Within sixty days after the
end of the first, second and third quarterly accounting
periods in each fiscal year of such Borrowers, copies of the
unaudited consolidated balance sheets of such Borrower and its
consolidated Subsidiaries as of the end of such accounting
period and of the consolidated income statements of such
Borrower 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 or, in the case
of XL Insurance and XL Mid Ocean, SAP, subject to year-end
audit adjustments and certified by the principal financial
officer of such Borrower to have been prepared in accordance
with generally accepted accounting principles consistently
-5-
<PAGE>
applied by such Borrower except as explained in such
certificate (it being understood that delivery of XL Capital's
Report on Form 10-Q filed with the Securities and Exchange
Commission shall satisfy the requirement of this Section
5.01(b) to deliver the quarterly financial statements of XL
Capital so long as the financial information required to be in
such report is substantially the same as the financial
information required by this Section 5.01(b)).
(g) Section 5.01 of the Credit Agreement is hereby further amended
by adding at the end thereof a new paragraph (i) to read as follows:
(i) Year 2000 Compliance. Promptly after any Borrower's
discovery or determination thereof, notice (in reasonable
detail) that any computer application that is material to its
or any of its Subsidiaries' business and operations will not
be Year 2000 Compliant (as defined in Section 3.15), except to
the extent that such failure could not reasonably be expected
to have a Material Adverse Effect.
(h) Section 6.03 of the Credit Agreement is hereby amended (i) by
deleting the period and inserting the phrase "; or" at the end of paragraph (e)
thereof, deleting the phrase "; or" and inserting a period at the end of
paragraph (f) thereof and deleting paragraph (g) thereof and (ii) by deleting,
in Section 6.03(e), the phrase "Section 6.08(b) or Section 6.08(c) hereof" and
inserting in lieu thereof the phrase "Section 6.08(b), Section 6.08(c) or
Section 6.08(g) hereof".
(i) Section 6.05 of the Credit Agreement if hereby amended by
deleting the phrase "net premiums earned from insurance operations" appearing
therein and inserting in lieu thereof the phrase "net premiums earned from
insurance or reinsurance operations".
(j) Sections 6.06, 6.07, 6.08 and 6.09 of the Credit Agreement are
hereby amended to read as follows:
6.06. Ratio of Total Funded Debt to Consolidated
Tangible Net Worth. XL Capital will not permit its ratio of
(i) the sum of (x) Total Funded Debt plus (y) the aggregate
undrawn face
-6-
<PAGE>
amount of all letters of credit (as to which reimbursement
obligations are unsecured) issued for the account of, or
guaranteed by, XL Capital or any of its consolidated
Subsidiaries to (ii) Consolidated Tangible Net Worth to be
greater than 0.35 at any time.
6.07. Consolidated Tangible Net Worth. XL Capital will
not permit its Consolidated Tangible Net Worth to be less than
$2,566,000,000.00 at any time.
6.08. Indebtedness. No Borrower shall, nor shall any
Borrower 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 Loan Documents;
(b) Other Secured Indebtedness (including secured
reimbursement obligations with respect to letters of credit)
of any Borrower or any Subsidiary in an aggregate principal
amount (for all Borrowers and Subsidiaries) not exceeding
$400,000,000 at any time outstanding;
(c) Secured reimbursement obligations of any Borrower or
any Subsidiary with respect to letters of credit not exceeding
$800,000,000 in the aggregate for all Borrowers and
Subsidiaries;
(d) Unsecured Indebtedness, so long as upon the
incurrence thereof no Event of Default or Potential Default
would occur or exist;
(e) Accounts or claims payable and accrued and deferred
compensation (including options) incurred in the ordinary
course of business by any Borrower or any Subsidiary;
(f) Indebtedness incurred in transactions described in
Section 6.03(f); and
-7-
<PAGE>
(g) Indebtedness described in Schedule 6.08(g) hereto.
6.09. Claims Paying Ratings. Each of XL Insurance and XL
Mid Ocean shall maintain at all times a claims-paying rating
of at least "A" from Standard & Poor's Ratings Group and from
A.M. Best Company.
(k) Section 9.13 of the Credit Agreement is hereby amended by adding
thereto, as a new paragraph (f) thereof, the following:
(f) Designated Lenders. Notwithstanding anything to the
contrary contained herein, any Bank (a "Designating Lender")
may grant to an Eligible Designee identified as such (and as a
Designated Lender) in writing from time to time by such
Designating Lender to the Administrative Agent and the
Borrowers, the option to provide to the Borrowers all or any
part of any Loan that such Granting Bank would otherwise be
obligated to make to any Borrower pursuant to this Agreement;
provided that nothing herein shall constitute a commitment by
such Designated Lender to make any Loan and (ii) if a
Designated Lender elects not to exercise such option or
otherwise fails to provide all or any part of such Loan, the
Designating Lender shall be obligated to make such Loan
pursuant to the terms hereof. The making of a Loan by a
Designated Lender hereunder shall utilize the Committed Amount
of the Designating Lender to the same extent, and as if, such
Loan were made by such Designating Lender. Each party hereto
hereby agrees that no Designated Lender shall be liable for
any indemnity or similar payment obligation under this
Agreement (all liability for which shall remain with the
Designating Lender). In furtherance of the foregoing, each
party hereto hereby agrees (which agreement shall survive the
termination of this Agreement) that, prior to the date that is
one year and one day after the payment in full of all
outstanding commercial paper or other senior indebtedness of
any Designated Lender, it will not institute against, or join
any other person in
-8-
<PAGE>
instituting against, such Designated Lender any bankruptcy,
reorganization, arrangement, insolvency or liquidation
proceedings under the laws of the United States or any State
thereof. As to any Loans or portion thereof made by it, each
Designated Lender shall have all the rights that a Bank making
such Loans or portion thereof would have had under this
Agreement and otherwise; provided that (i) its voting rights
under this Agreement shall be exercised solely by its
Designating Lender, (ii) its Designating Lender shall be
deemed to hold its relevant Note as agent for its Designated
Lender to the extent of the Loans or portion thereof funded by
such Designated Lender and (iii) the designation of a
Designated Lender and the funding of Loans by a Designated
Lender shall in no event (x) subject any of the Borrowers to
any delay in the making of a Loan, (y) cause or give rise to
any obligation of any of the Borrowers to indemnify or hold
harmless such Designated Lender or any other person (including
without limitation pursuant to Sections 2.11 and 9.04 of this
Agreement) except to the extent such obligation would have
arisen in favor of the Designating Lender or another person if
the Designating Lender (rather than such Designated Lender)
had made all of such Designated Lender's Loans and such
Designated Lender had not been designated as such hereunder,
or (z) render the performance of any provision of the
Agreement illegal, void or unenforceable under any provision
of law. Each Designating Lender shall act as administrative
agent for its Designated Lender and give and receive notices
and other communications on behalf of its Designated Lender.
Any payments for the account of any Designated Lender shall be
paid to its Designating Lender as administrative agent for
such Designated Lender and neither the Borrowers nor either
Agent shall be responsible for any Designating Lender's
application of such payments. In addition, any Designated
Lender may (i) with notice to, but without the prior written
consent of, XL Capital and the Administrative Agent and
without paying any processing fee therefor, assign all or a
portion of its interests in any Loans to the Designating
Lender or to any
-9-
<PAGE>
financial institutions (consented to by XL Capital and the
Administrative Agent) providing liquidity and/or credit
support to or for the account of such Designated Lender to
support the funding or maintenance of Loans and (ii) disclose
on a confidential basis any non-public information relating to
its Loans or portions thereof to any rating agency, commercial
paper dealer or provider of any surety, guarantee or credit or
liquidity enhancement to such Designated Lender. This section
may not be amended without the written consent of each
Designating Lender which has designated a Designated Lender.
(l) In Section 1.01 of the Credit Agreement, the introductory
paragraph of the definition of the term "Indebtedness" is hereby amended to read
as follows:
"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 or
reinsurance company or corporate member of Lloyds or as a
provider of financial services or contracts (in each case
other than in connection with the provision of financing to
such Person or any of such Person's Affiliates) shall not be
deemed to constitute Indebtedness):
(m) Section 7.01(e) is hereby amended to read as follows:
(e) Any Borrower or any Subsidiary of any Borrower 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 or any obligation for borrowed money under
the Short Term Revolving Credit Agreement, dated as of June
30, 1999, as amended, to which each of the Borrowers is a
party, in each case 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
-10-
<PAGE>
created or contained in such Short Term Revolving Credit
Agreement, 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 or to cause or permit the
holder or holders of any obligation under such Short Term
Revolving Credit Agreement to cause such obligation to become
due prior to its stated maturity or to terminate its
commitment under such Short Term Revolving Credit Agreement;
(n) Section 2.01(a) of the Credit Agreement is hereby amended by
adding thereto, as a new last sentence thereof, the following:
Notwithstanding anything to the contrary in this Agreement, XL
Capital shall not request any Loan to be made to it, and no
Loan shall be made to XL Capital, until all of the Banks have
executed and delivered the Fourth Amendment to this Agreement
or have otherwise consented in writing to XL Capital becoming
a Borrower hereunder.
SECTION 2. Addition of XL Capital as Borrower and Guarantor and of
XL Mid Ocean as Guarantor. Each of XL Mid Ocean and XL Capital hereby agrees to
become and be a Guarantor under, and as defined in, the Credit Agreement (as
amended hereby) and agrees to be bound by the terms of the Credit Agreement (as
so amended) as a Guarantor. XL Capital hereby agrees to become and be a Borrower
under, and as defined in, the Credit Agreement (as amended hereby) and agrees to
be bound by the terms of the Credit Agreement (as so amended) as a Borrower.
SECTION 3. Conditions to Effectiveness. This Fourth Amendment shall
become effective upon the execution hereof by the Original Borrowers, the
Original Guarantors, XL Capital Ltd, the Required Banks and the Agent and upon
the fulfillment on or prior to a date (prior to July 31, 1999) designated in
writing to the Agent by XL Capital (the "Amendment Date") of the following
additional conditions (it being understood that no Loans under the Credit
Agreement as amended hereby shall be made to XL Capital until all the Banks have
executed this Amendment or have
-11-
<PAGE>
otherwise consented in writing to XL Capital becoming a Borrower under the
Credit Agreement as amended hereby):
(a) Proceedings and Incumbency. There shall have been delivered to
the Agent with sufficient copies for each Bank a certificate with respect
to each Borrower (which term shall include for all purposes of this
Section XL Capital Ltd) in form and substance satisfactory to the Agent
dated the Amendment Date and signed on behalf of each Borrower or EXEL
Acquisition, as the case may be, by the Secretary or an Assistant
Secretary of such Borrower, certifying as to: (a) true copies of all
corporate action taken by such Borrower relative to this Amendment, and
the other Loan Documents applicable to it, and (b) the names, true
signatures and incumbency of the officer or officers of such Borrower
authorized to execute and deliver this Agreement and the other Loan
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 and by-laws for XL Capital and (ii) a
certificate of good standing for XL Capital certified by the appropriate
Official Body of the Cayman Islands, British West Indies.
(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 Amendment Date, of Cahill Gordon & Reindel, Conyers,
Dill & Pearman, Paul S. Giordano, Esq., and Hunter & Hunter, respectively,
the Borrowers' and Guarantors' counsel, in form satisfactory to the Agent,
which together are substantially to the effects, but with reference to
this Amendment and the Credit Agreement as amended hereby, set forth in
the opinions delivered by counsel to the Borrowers and the Guarantors on
the Closing Date.
(d) Details, Proceedings, Notes and other Documents. All legal
details and proceedings in connection with the transactions contemplated
by this Agreement shall be satisfactory to the Required Banks, and each
Bank shall have received all such counterpart originals or certified or
other copies of the Loan Documents (including a Note issued
-12-
<PAGE>
by XL Capital for each Bank meeting the requirements of Section 2.03 of
the Credit Agreement as hereby amended) and such other documents and
proceedings in connection with such transactions, in form and substance
satisfactory to it, as any Bank have reasonably requested.
(e) Fees and Expenses. The Borrowers shall have paid all fees and
other compensation to be paid by them hereunder on or prior to the
Amendment Date.
(f) Representation and Warranties. The representations and
warranties contained in Article III of the Credit Agreement shall be true
on and as of the Amendment Date with the same effect as though made on and
as of the Amendment Date, after giving effect to this Fourth Amendment (it
being understood that references in such Article III to the Credit
Agreement shall be deemed for this purpose to be references to this Fourth
Amendment and to the Credit Agreement as amended hereby) and the Agent
shall have received a certificate of each Borrower and each Guarantor to
such effect.
SECTION 4. 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 5. 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 6. 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.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first above written.
XL INSURANCE LTD
as Borrower and as Guarantor
By: /s/ Brian M. O'Hara
-----------------------------------
Title: Chairman
--------------------------------
XL MID OCEAN REINSURANCE LTD,
as Borrower and as Guarantor
By: /s/ Brian M. O'Hara
-----------------------------------
Title: Chairman
--------------------------------
EXEL ACQUISITION LTD.,
as a Guarantor
By: /s/ Brian M. O'Hara
-----------------------------------
Title: Chairman
--------------------------------
XL CAPITAL LTD,
as Borrower and as Guarantor
By: /s/ Brian M. O'Hara
-----------------------------------
Title: President & Chief Executive
Officer
--------------------------------
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<PAGE>
MELLON BANK, N.A., as a Bank
and as Agent
By: /s/ Karla K. Maloof
-----------------------------------
Title: Vice President
--------------------------------
BANK OF TOKYO - MITSUBISHI LTD.,
as a Bank
By: ___________________________________
Title: ________________________________
DEUTSCHE BANK AG, NEW YORK OR CAYMAN
ISLANDS BRANCHES,
as a Bank
By: /s/ Clinton M. Johnson
-----------------------------------
Title: Director
--------------------------------
By: /s/ John S. McGill
-----------------------------------
Title: Director
--------------------------------
THE BANK OF NOVA SCOTIA,
as a Bank
By: /s/ J.R. Trimble
--------------------------------
Title: Senior Relationship Manager
-----------------------------
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<PAGE>
THE CHASE MANHATTAN BANK,
as a Bank
By: /s/ Donald Rands
-----------------------------------
Title: Vice President
--------------------------------
THE BANK OF BERMUDA LIMITED,
as a Bank
By: /s/ Michael W. Collins
-----------------------------------
Title: Senior Vice President
--------------------------------
ROYAL BANK OF CANADA,
as a Bank
By: /s/ V. Abdelmessih
----------------------------------
Title: Senior Account Manager
--------------------------------
BANQUE NATIONALE DE PARIS,
as a Bank
By: /s/ Phil Truesdale
----------------------------------
Title: Vice President
-------------------------------
By:/s/ Veronique Marcus
---------------------------------
Title: Vice President
------------------------------
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<PAGE>
BANK OF AMERICA NT&SA,
as a Bank
By: /s/ Nita Savage
-----------------------------------
Title: Vice President
--------------------------------
CREDIT LYONNAIS NEW YORK BRANCH,
as a Bank
By: /s/ Sebastian Rocco
-----------------------------------
Title: Senior Vice President
--------------------------------
By: ___________________________________
Title: ________________________________
BANK AUSTRIA AKTIENGESELLSCHAFT,
as a Bank
By: ___________________________________
Title: ________________________________
By: ___________________________________
Title: ________________________________
-17-
<PAGE>
Exhibit 10.14.21
02.24.00
FIFTH AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO REVOLVING CREDIT AGREEMENT, dated as of
February 25, 2000 (this "Amendment"), by and among XL Insurance Ltd, XL Mid
Ocean Reinsurance Ltd, EXEL Acquisition Ltd. and XL Capital Ltd, as Guarantors
and, except in the case of EXEL Acquisition, as Borrowers (the Guarantors and
the Borrowers being referred to herein collectively as the "XL Parties"), MELLON
BANK, N.A., as 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 XL Parties, 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 August 3, 1998, the Third Amendment thereto, dated as of December 4,
1998 and the Fourth Amendment thereto, dated as of June 30, 1999, 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 XL Parties have requested the Banks to make certain
additional changes to the Credit Agreement;
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.
<PAGE>
(a) Section 1.01 of the Credit Agreement is hereby amended by adding
thereto, in appropriate alphabetical sequence, the following definitions:
"Asset Accumulation Lien" means a Lien on amounts
received, and on actual and imputed investment income on such
amounts received, relating and identified to specific
insurance payment liabilities or to liabilities arising in the
ordinary course of any Borrower's or Subsidiary's business as
an insurance or reinsurance company or corporate member of
Lloyd's or as a provider of financial services or contracts,
or the proceeds thereof, in each case held in a segregated
trust or other account and securing such liabilities;
provided, that in no case shall an Asset Accumulation Lien
secure Indebtedness and any Lien which secures Indebtedness
shall not be an Asset Accumulation Lien.
"Total Adjusted Funded Debt" shall have the meaning
given that term in Section 6.06 hereof.
(b) Section 5.01 of the Credit Agreement is hereby amended by adding
at the end thereof a new paragraph (j) thereof to read as follows:
(j) Information Regarding Asset Accumulation
Liens. At the time of furnishing each certificate furnished
pursuant to paragraph (c) of this Section 5.01, a statement,
certified as true and correct by a principal financial officer
of XL Capital, setting forth on a consolidated basis for XL
Capital and its consolidated Subsidiaries as of the end of the
fiscal year or quarter to which such certificate relates (A)
the aggregate book value of assets which are subject to Asset
Accumulation Liens and the aggregate book value of liabilities
which are secured by Asset Accumulation Liens (it being
understood that the reports required by paragraphs (a) and (b)
of this Section 5.01 shall satisfy the requirement of this
clause (A) of this paragraph
Fifth Amendment
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<PAGE>
(j) if such reports set forth separately, in accordance with
GAAP, line items corresponding to such aggregate book values)
and (B) a calculation showing the portion of each of such
aggregate amounts which portion is attributable to
transactions among wholly-owned Subsidiaries of XL Capital.
(c) 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 the phrase "; or" and by adding at the end of such Section a new
paragraph (g) to read as follows:
(g) Asset Accumulation Liens.
(d) Section 6.06 of the Credit Agreement is hereby amended as
follows:
6.06. Ratio of Total Adjusted Funded Debt to
Consolidated Capital. XL Capital will not permit its ratio of
(i) Total Adjusted Funded Debt to (ii) the sum of Total
Adjusted Funded Debt plus Consolidated Net Worth to be greater
than 0.35 at any time. As used herein, the term "Total
Adjusted Funded Debt" shall mean, at any time, the sum of (x)
Total Funded Debt at such time plus (y) the aggregate undrawn
face amount of all letters of credit (as to which
reimbursement obligations are not secured by marketable
securities with a value at least equal to the face amount of
such letters of credit) issued for the account of, or
guaranteed by, XL Capital or any of its consolidated
Subsidiaries at such time (irrespective of whether the
beneficiary thereof is an Affiliate).
SECTION 2. Conditions to Effectiveness. This Fifth Amendment shall
become effective upon the execution and delivery hereof by the XL Parties, the
Required Banks and the Agent.
SECTION 3. Effect of Amendment. The Credit Agreement, as amended by
this Amendment, is in all respects ratified,
Fifth Amendment
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<PAGE>
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.
Fifth Amendment
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first above written.
XL INSURANCE LTD
as Borrower and as Guarantor
By: /s/ Clive R. Tobin
-------------------------------------
Title: President
----------------------------------
XL MID OCEAN REINSURANCE LTD,
as Borrower and as Guarantor
By: /s/ Henry C.V. Keeling
-------------------------------------
Title: President
----------------------------------
EXEL ACQUISITION LTD.,
as a Guarantor
By: /s/ Brian M. O'Hara
-------------------------------------
Title: Director
----------------------------------
XL CAPITAL LTD,
as Borrower and as Guarantor
By: /s/ Brian M. O'Hara
-------------------------------------
Title: President & CEO
----------------------------------
Fifth Amendment
-5-
<PAGE>
MELLON BANK, N.A., as a Bank
and as Agent
By: /s/ Karla Maloof
-------------------------------------
Title: Vice President
----------------------------------
BANK OF TOKYO - MITSUBISHI LTD.,
as a Bank
By: _____________________________________
Title: __________________________________
DEUTSCHE BANK AG, NEW YORK OR CAYMAN
ISLANDS BRANCHES,
as a Bank
By: /s/ John S. McGill
-------------------------------------
Title: Director
----------------------------------
By: /s/ Alan Krouk
-------------------------------------
Title: Assistant Vice President
----------------------------------
THE BANK OF NOVA SCOTIA,
as a Bank
By: /s/ John Hopmans
-------------------------------------
Title: Managing Director
----------------------------------
Fifth Amendment
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<PAGE>
THE CHASE MANHATTAN BANK,
as a Bank
By: /s/ Donald Rands
-------------------------------------
Title: Vice President
----------------------------------
THE BANK OF BERMUDA LIMITED,
as a Bank
By: /s/
-------------------------------------
Title: Vice President
----------------------------------
ROYAL BANK OF CANADA,
as a Bank
By: /s/
-------------------------------------
Title: Senior Manager
----------------------------------
BANQUE NATIONALE DE PARIS,
as a Bank
By: /s/ Phil Truesdale
-------------------------------------
Title: Vice President
----------------------------------
By: /s/ Veronique Marcus
-------------------------------------
Title: Vice President
----------------------------------
Fifth Amendment
-7-
<PAGE>
BANK OF AMERICA, N.A.
as a Bank
By: /s/ Debra Basler
-------------------------------------
Title: Vice President
----------------------------------
CREDIT LYONNAIS NEW YORK BRANCH,
as a Bank
By: /s/ Sebastian Rocco
-------------------------------------
Title: Senior Vice President
----------------------------------
By: _____________________________________
Title: __________________________________
BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE,INC., as a Bank
By: _____________________________________
Title: __________________________________
By: _____________________________________
Title: __________________________________
FLEET NATIONAL BANK, as a Bank
By: /s/ Anson Harris
-------------------------------------
Title: Vice President
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Fifth Amendment
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Exhibit 10.14.22
070299
$500,000,000
SHORT TERM REVOLVING CREDIT AGREEMENT
BETWEEN
XL CAPITAL LTD, XL INSURANCE LTD and XL MID OCEAN REINSURANCE LTD,
as Borrowers and Guarantors
AND
THE BANKS PARTIES HERETO FROM TIME TO TIME
AND
MELLON BANK, N.A.,
as Administrative Agent
AND
THE CHASE MANHATTAN BANK,
as Syndication Agent
DATED AS OF
June 30, 1999
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SHORT TERM REVOLVING CREDIT AGREEMENT, dated and effective as of June 30,
1999, by and between XL CAPITAL LTD ("XL Capital"), a corporation organized
under the laws of the Cayman Islands, British West Indies, XL INSURANCE LTD ("XL
Insurance"), a Bermuda limited liability corporation, and XL MID OCEAN
REINSURANCE LTD, a Bermuda limited liability corporation ("XL Mid Ocean"), as
borrowers and as guarantors, (XL Capital, XL Insurance and XL Mid Ocean are
sometimes referred to hereinafter individually as "Borrower" and collectively as
the "Borrowers" and sometimes referred to hereinafter individually as
"Guarantor" and collectively as the "Guarantors"), the Banks (as defined further
below) parties hereto from time to time, MELLON BANK, N.A., as Administrative
Agent for the Banks hereunder (in such capacity, together with successors in
such capacity, the "Administrative Agent") and THE CHASE MANHATTAN BANK, as
Syndication Agent for the Banks hereunder (in such capacity, together with
successors in such capacity, the "Syndication Agent") (the Administrative Agent
and the Syndication Agent being hereinafter sometimes referred to collectively
as the "Agents" and individually as "Agent").
PRELIMINARY STATEMENT
WHEREAS, the Banks have agreed to make available to the Borrowers a Short
Term Revolving 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 Borrowers, each Agent
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:
"Alternate Base Rate" and "Alternate Base Rate Option" shall have the
meaning assigned those terms in Section 2.04(a)(i) hereof.
"Alternate Base Rate Loan" shall mean any Loan bearing interest under the
Alternate Base Rate Option.
"Alternate Base Rate Portion" of any Loan or Loans shall mean at any time
the portion, including the whole, of such Loan or Loans bearing interest at such
time under the Alternate Base Rate Option.
"Affiliate" shall mean an entity which is directly or indirectly
controlled by a Borrower or which controls a Borrower or which is under common
control with any of the Borrowers.
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"Agreement" shall mean this Agreement as amended, modified or supplemented
from time to time.
"Applicable Margin" shall have the meaning given that term in Section
2.04(b) hereof.
"Assets" at any time shall mean the assets of any Borrower, as the context
requires, at such time, determined in accordance with GAAP or SAP, as
appropriate.
"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.
"Base Rate" shall have the meaning given that term in Section 2.04(a)(i)
hereof.
"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.
"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 XL Capital; (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 XL Capital; or (c)
a majority of the members of XL Capital'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.
"Closing Date" shall mean July 2, 1999, or such later date prior to August
1, 1999 as may be specified by XL Capital by one day's written notice to the
Administrative Agent.
"Co-Agents" shall mean The Bank of Nova Scotia, Citibank, N. A., Credit
Lyonnais New York Branch and Deutsche Bank AG.
"Committed Amount" shall have the meaning given that term in Section
2.01(a) hereof.
"Commitment" of any Bank shall mean such Bank's Committed Amount and the
"Commitments" of the Banks shall mean the Committed Amounts of the Banks.
"Consolidated Net Worth" shall mean at any date the consolidated
stockholders' equity of a Borrower and its consolidated Subsidiaries.
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"Consolidated Tangible Net Worth" shall mean at any date the consolidated
stockholders' equity of a 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, 1998, in the book value
of any asset owned by the applicable 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.
"Corresponding Source of Funds" shall mean in the case of any Euro-Rate
Loan, the proceeds of hypothetical receipts by a Notional Euro-Rate Funding
Office of one or more Dollar deposits in the interbank Eurodollar market at the
beginning of the Euro-Rate Funding Period applicable to such Loan, having
maturities approximately equal to such Maturity Period and in an aggregate
amount approximately equal to such Loan.
"Designated Lender" means, with respect to any Designating Lender, an
Eligible Designee designated by it pursuant to Section 9.13(f) as a Designated
Lender for purposes of this Agreement.
"Designating Lender" means, with respect to each Designated Lender, the
Bank that designated such Designated Lender pursuant to Section 9.13(f).
"Dollar," "Dollars" and the symbol $ shall mean lawful money of the United
States of America.
"Eligible Designee" means a special purpose corporation that (i) is
organized under the laws of the United States or any state thereof, (ii) is
engaged in making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business and (iii) issues (or the parent of which issues)
commercial paper rated at least A-1 or the equivalent thereof by Standard &
Poor's Ratings Services or the equivalent thereof by another generally
recognized rating service.
"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.
"Euro-Rate" and "Euro-Rate Option" shall have the meanings assigned to
those terms in Section 2.04(a)(ii) hereof.
"Euro-Rate Loan" shall mean any Loan bearing interest under the Euro-Rate
Option.
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"Euro-Rate Portion" of any Loan or Loans shall mean at any time the
portion, including the whole, of such Loan or Loans bearing interest at any time
under the Euro-Rate Option.
"Event of Default" shall mean any of the Events of Default described in
Article VII hereof.
"Expiration Date" shall mean June 28, 2000.
"Facility Fee" shall have the meaning given that term in Section 2.02(a)
hereof.
"Funding Periods" shall have the meaning given that term in Section
2.04(c) hereof.
"Funding Breakage Date" shall have the meaning given that term in Section
2.10(b) hereof.
"Funding Segment" of the Euro-Rate Portion of the Loans at any time shall
mean the entire principal amount of such Portion to which at the time in
question there is applicable a particular Funding Period beginning on a
particular day and ending on a particular day.
"GAAP" shall have the meaning set forth in Section 1.03 hereof.
"Guaranteed Obligations" shall have the meaning given that term in Section
10.01 hereof.
"Guarantors" shall mean XL Capital, XL Insurance and XL Mid Ocean and
"Guarantor" shall mean any one of them.
"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 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 or
reinsurance company or corporate member of Lloyds or as a provider of financial
services or contracts (in each case other than in connection with the provision
of financing to 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;
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(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 Borrower that offers insurance products, including but not
limited to XL Europe.
"Law" shall mean any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any Official Body.
"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 mean a loan or loans made by any Bank to any of
the Borrowers under this Agreement.
"Loan Document" or "Loan Documents" shall mean this Agreement, any Note
and any other documents or instruments executed and delivered in connection
herewith or therewith.
"London Business Day" shall mean a Business Day (as herein defined) which
is also a day for dealing in deposits in Dollars by and among banks in the
London interbank market.
"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 Borrower and its Subsidiaries taken as a whole; or (b) the
ability of a Borrower to perform any of its payment or other material
obligations under this Agreement or the applicable Note; or (c) the legality,
validity, binding effect or enforceability against a Borrower of any Loan
Document that by its terms purports to bind such Borrower.
"Notes" shall mean the promissory notes of the respective Borrowers
executed and delivered under this Agreement, together with all extensions,
renewals, refinancings or refundings in whole or part and "Note" shall mean any
one of the Notes.
"Notional Euro-Rate Funding Office" shall have the meaning given to that
term in Section 2.12(a) hereof.
"Obligations" shall mean the obligations of any Borrower to repay the
aggregate unpaid principal amount of all loans, and pay all interest accrued
thereon, all Facility Fees accruing and all
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other liabilities of such Borrower arising pursuant to the terms of this
Agreement or the other Loan Documents.
"Office," when used in connection with the Administrative Agent, shall
mean its office located at One Mellon Bank Center, Pittsburgh, Pennsylvania
15258, or at such other office or offices of the Administrative Agent or branch,
subsidiary or affiliate thereof as may be designated in writing from time to
time by the Administrative Agent to the Borrowers and the Banks.
"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.
"Option" shall mean the Alternate Base Rate Option or the Euro-Rate
Option, as the case may be.
"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.
"Portion" shall mean the Alternate Base Rate Portion or the Euro-Rate
Portion, as the case may be.
"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.
"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.
"Pro Rata" shall mean from or to each Bank in proportion to its percentage
of the aggregated Committed Amounts of all of the Banks.
"Register" shall have the meaning given that term in Section 9.13(d)
hereof.
"Regular Payment Date" shall mean the last day of each March, June,
September and December after the date hereof, commencing September 30, 1999.
"Required Banks" shall mean at any time Banks which have respective
Committed Amounts equal to or greater than 51% of the aggregate Committed
Amounts of all Banks or, if the obligations of the Banks to make loans shall
have terminated, Banks which have outstanding Loans in a principal amount equal
to or greater than 51% of the aggregate principal amount of all Loans
outstanding at such time.
"SAP" shall mean, as to each Borrower and each Insurance Subsidiary, the
statutory accounting practices prescribed or permitted by the relevant Official
Body for such 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.
"Standard Notice" shall mean an irrevocable notice provided to the
Administrative Agent on a Business Day which is
(i) the same Business Day in the case of any Alternate Base
Rate Loan; and
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(ii) at least three London Business Days in advance in the
case of any Euro-Rate Loan.
Standard Notice must be provided no later than: 10:00 o'clock a.m., Pittsburgh
time, on the last day permitted for such notice. 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 Administrative Agent.
"Subsidiary" of a Borrower at any time shall mean any corporation (or
similar entity) 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 a Borrower or one or more Subsidiaries.
"Total Exposure" of any Bank at any time shall mean the sum of the
outstanding principal amount of all of such Bank's Loans, whether such Loans are
made to XL Insurance, XL Capital or XL Mid Ocean.
"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.
"Transfer Supplement" shall have the meaning given that term in Section
9.13(c)(iv) hereof.
"Treasury Rate" as of any Funding Breakage Date shall mean the rate per
annum determined by the applicable Bank (which determination shall be
conclusive) to be the semiannual equivalent yield to maturity (expressed as a
semiannual equivalent and decimal and, in the case of United States Treasury
bills, converted to a bond equivalent yield) for the United States Treasury
securities maturing on the last day of the corresponding Funding Period and
trading in the secondary market in reasonable volume (or if no such securities
mature on such date, the rate determined by standard securities interpolation
methods as applied to the series of securities maturing as close as possible to,
but earlier than, such date, and the series of such securities maturing as close
as possible to, but later than, such date).
"XL Capital" shall mean XL Capital Ltd, a corporation organized under the
laws of the Cayman Islands, British West Indies.
"XL Insurance" shall mean XL Insurance Ltd, a Bermuda limited liability
corporation.
"XL Mid Ocean" shall mean XL Mid Ocean Reinsurance Ltd, a Bermuda limited
liability corporation.
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 either Agent include good
faith estimates by such Agent (in the case of quantitative determinations) and
good faith belief of such Agent (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 at the
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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 financial covenants in 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 could or would materially change a Borrower's financial
results or position from that reflected in such Borrower's financial statements
prior to such change, such Borrower shall notify the Bank as soon as
practicable.
ARTICLE II
THE CREDITS
2.01. Revolving Credit Loans.
(a) Revolving Credit Commitments. Subject to the terms and conditions and
relying upon the representations and warranties herein set forth, each Bank,
severally and not jointly, agrees to make loans ("Loans") to a Borrower 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 Loans may be outstanding to more
than one of the Borrowers at any time). A Bank shall have no obligation to make
any Loan if, after such Loan is made, such Bank's Total Exposure would exceed
such Bank's Committed Amount. Each Bank's "Committed Amount" at any time shall
be equal to the amount set forth as its "Initial Committed Amount" below its
name on the signature pages hereof, as such amount may have been reduced under
Section 2.02(c) hereof at such time, and subject to transfer to or from another
Bank as provided in Section 9.13 hereof.
(b) Nature of Credit. Within the limits of time and amount set forth in
this Section 2.01, and subject to the provisions of this Agreement, the
Borrowers may borrow, repay and reborrow Loans hereunder.
(c) Revolving Credit Notes. The obligation of the Borrowers to repay the
unpaid principal amount of the Loans made to it by each Bank and to pay interest
thereon shall be evidenced in part by promissory notes of the Borrowers, one to
each Bank, dated the Closing Date (the "Notes") in substantially the form
attached hereto as Exhibit A-1 (in the case of XL Insurance), Exhibit A-2 (in
the case of XL Mid Ocean) or Exhibit A-3 (in the case of XL Capital), with the
blanks appropriately filled, payable to the order of such Bank in a face amount
equal to such Bank's Initial Committed Amount.
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(d) Maturity. To the extent not due and payable earlier, the Loans shall
be due and payable on the Expiration Date.
2.02. Facility Fee; Initial Fee, Reduction of the Committed Amounts.
(a) Facility Fee. XL Capital agrees to pay to the Administrative Agent for
the account of each Bank a facility fee (the "Facility 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 seven basis points (0.07%), payable on such Bank's Committed Amount (whether
used or unused) in effect on such day. Such fee shall be payable quarterly on
the last day of each March, June, September and December after the Closing Date,
and on the Expiration Date, for the preceding period for which such fee has not
been paid.
(b) Initial Fee. XL Capital agrees to pay on the Closing Date to the
Administrative Agent for the account of each Bank an initial fee equal to five
basis points (0.05%), payable on such Bank's Committed Amount on the Closing
Date.
(c) Reduction of the Committed Amounts. XL Capital may at any time or from
time to time reduce Pro Rata the Committed Amounts of the Banks to an aggregate
amount (which may be zero) not less than the sum of the unpaid principal amount
of the Loans then outstanding plus the principal amount of all Loans not yet
made as to which notice has been given by the Borrower under Section 2.03
hereof. Any reduction of the Committed Amounts shall be in an aggregate minimum
amount of $20,000,000 and in an amount which is an integral multiple of
$10,000,000. Reduction of the Committed Amounts shall be made by providing not
less than three Business Days' notice (which notice shall be irrevocable) to
such effect to the Administrative Agent, which will promptly advise the Banks of
such notice. After the date specified in such notice the Facility Fee shall be
calculated upon the Committed Amounts as so reduced.
2.03. Making of Loans. Whenever a Borrower desires that the Banks make
Loans, XL Capital shall provide Standard Notice to the Administrative Agent
setting forth the following information (a separate notice being required for
each such type of Loans):
(a) Whether the proposed Loans are to be made to XL Insurance, to XL
Capital or to XL Mid Ocean;
(b) The date, which shall be a Business Day, on which such proposed Loans
are to be made;
(c) The aggregate principal amount of such proposed Loans, which shall be
the sum of the principal amounts selected pursuant to clause (d) of this Section
2.06, and which shall be an integral multiple of $1,000,000.00 not less than
$10,000,000.00;
(d) The interest rate Option or Options selected in accordance with
Section 2.04(a) hereof and the principal amounts selected in accordance with
Section 2.04(d) hereof of the Alternate Base Rate Portion and each Funding
Segment of the Euro-Rate Portion of such proposed Loans; and
(e) With respect to each such Funding Segment of such proposed Loans, the
Funding Period to apply to such Funding Segment, selected in accordance with
Section 2.04(c) hereof.
Standard Notice having been so provided, the Administrative Agent shall promptly
notify each Bank of the information contained therein and of the amount of such
Bank's Loan. Unless any applicable condition specified in Article IV hereof has
not been satisfied, on the date specified in such Standard Notice each Bank
shall make the proceeds of its Loan available to the Administrative Agent at the
Administrative Agent's Office, no later than 12:00 o'clock Noon, Pittsburgh
time, in funds immediately available at such Office. The Administrative Agent
will make the funds so received available to the applicable Borrower in funds
immediately available at the Administrative Agent's Office.
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2.04. Interest Rates.
(a) Optional Bases of Borrowing. The unpaid principal amount of the Loans
shall bear interest for each day until due on one or more bases selected by the
Borrower from among the interest rate Options set forth below. Subject to the
provisions of this Agreement the applicable Borrower may select different
Options to apply simultaneously to different Portions of its Loans and may
select different Funding Segments to apply simultaneously to different parts of
the Euro-Rate Portion of such Loans. The aggregate number of Funding Segments
applicable to the Euro-Rate Portion of the Loans at any time shall not exceed
six.
(i) Alternate Base Rate Option: The Alternate Base Rate Option is a
rate per annum (the "Alternate Base Rate") (computed on the basis of a
year of 365 or 366 days, as the case may be) for each day equal to the
higher of: (A) the Base Rate for such day or (B) the Federal Funds
Effective Rate for such day plus 0.50% per annum. "Base Rate" as used
herein shall mean the interest rate per annum announced from time to time
by the Administrative Agent as its prime rate. "Federal Funds Effective
Rate" for any day shall mean the rate per annum (rounded upward to the
nearest 1/100 of 1 %) determined by the Administrative Agent (which
determination shall be conclusive) to be the rate per annum announced by
the Federal Reserve Bank of New York (or any successor) on such day as
being the weighted average of the rates on overnight Federal funds
transactions arranged by Federal funds brokers on the previous trading
day, as computed and announced by such Federal Reserve Bank (or any
successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal
Funds Effective Rate" as of the date of this Agreement; provided, that if
such Federal Reserve Bank (or its successor) does not announce such rate
on any day, the "Federal Funds Effective Rate" for such day shall be the
Federal Funds Effective Rate for the last day on which such rate was
announced. Changes in the Alternate Base Rate shall take effect on the
date the Administrative Agent announces a change in the Base Rate or the
Federal Reserve Bank announces a change in the Federal Funds Effective
Rate, as the case may be;
(ii) Euro-Rate Option: The Euro-Rate Option is a rate per annum
(based on a year of 360 days and actual days elapsed) for each day equal
to the Euro-Rate for such day plus the Applicable Margin for such day.
"Euro-Rate" for any day, as used herein, shall mean for each Funding
Segment of the Euro-Rate Portion corresponding to a proposed or existing
Euro-Rate Funding Period the rate per annum determined by the
Administrative Agent by dividing (the resulting quotient to be rounded
upward to the nearest 1/100 of 1%) (A) the rate of interest (which shall
be the same for each day in such Euro-Rate Funding Period) determined in
good faith by the Administrative Agent in accordance with its usual
procedures (which determination shall be conclusive) to be the average of
the rates per annum for deposits in Dollars offered to major money center
banks in the London interbank market at approximately 11:00 a.m., London
time, two London Business Days prior to the first day of such Euro-Rate
Funding Period for delivery on the first day of such Euro-Rate Funding
Period in amounts comparable to such Funding Segment and having maturities
comparable to such Funding Period by (B) a number equal to 1.00 minus the
Euro-Rate Reserve Percentage.
The "Euro-Rate" may also be expressed by the following formula:
[average of the rates offered to major money ]
[center banks in the London interbank market ]
Euro-Rate = [determined by the Administrative Agent per subsection (A) ]
-------------------------------------------------------------
[1.00 - Euro-Rate Reserve Percentage ]
"Euro-Rate Reserve Percentage" for any day shall mean the percentage
(expressed as a decimal, rounded upward to the nearest 1/100 of 1%), as
determined in good faith by the Administrative Agent (which determination
shall be conclusive), which is in effect on such day as
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prescribed by the Board of Governors of the Federal Reserve System (or any
successor) representing the maximum reserve requirement (including,
without limitation, supplemental, marginal and emergency reserve
requirements) with respect to eurocurrency funding (currently referred to
as "Eurocurrency liabilities") of a member bank in such System. The
Euro-Rate shall be adjusted automatically as of the effective date of each
change in the Euro-Rate Reserve Percentage. The Euro-Rate Option shall be
calculated in accordance with the foregoing whether or not any Bank is
actually required to hold reserves in connection with its eurocurrency
funding or, if required to hold such reserves, is required to hold
reserves at the "Euro-Rate Reserve Percentage" as herein defined.
The Administrative Agent shall give prompt notice to the applicable
Borrower and to the Banks of the Euro-Rate determined or adjusted in
accordance with the definition of the Euro-Rate, which determination or
adjustment shall be conclusive if made in good faith.
(b) Applicable Margin. "Applicable Margin" shall mean 0.380% plus
the Utilization Rate for such day. "Utilization Rate" shall mean (x)
0.125% 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) 0.05% for any day on which the
aggregate outstanding principal amount of all Loans under this Agreement
exceeds 33%, but is less than or equal to 66%, of the sum of the Committed
Amounts of all Banks on such day and (z) zero for each other day.
(c) Funding Periods. At any time when a Borrower shall select,
convert to or renew the Euro-Rate Option to apply to any part of the Loans, such
Borrower shall specify one or more periods (the "Funding Periods") during which
each such Option shall apply, such Funding Periods being as set forth below:
Interest Rate Option Available Funding Periods
- -------------------- -------------------------
Euro-Rate Option One, two, three, six or twelve months or, if
acceptable to all Banks, one or two weeks
("Euro-Rate Funding Period");
provided, that:
(i) Each Euro-Rate Funding Period shall begin on a London Business
Day, and the term "month", when used in connection with a Euro-Rate
Funding Period, shall be construed in accordance with prevailing practices
in the interbank eurodollar market at the commencement of such Euro-Rate
Funding Period, as determined in good faith by the Administrative Agent
(which determination shall be conclusive); and
(ii) A Borrower may not select a Funding Period that would end after
the Expiration Date.
(d) Transactional Amounts. Every selection of, conversion from, conversion
to or renewal of an interest rate Option and every payment or prepayment of any
Loans shall be in a principal amount such that after giving effect thereto the
aggregate principal amount of the Alternate Base Rate Portion of the Loans, or
the aggregate principal amount of each Funding Segment of the Euro-Rate Portion
of the Loans, shall be as set forth below:
Portion or Funding Segment Allowable Aggregate Principal Amounts
- -------------------------- -------------------------------------
Alternate Base Rate Portion and $10,000,000 plus an integral
Each Funding Segment of the multiple of $1,000,000.
Euro-Rate Portion
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(e) Euro-Rate Unascertainable; Impracticability. If
(i) on any date on which a Euro-Rate would otherwise be set the
Administrative Agent (in the case of clauses (A) or (B) below) or any Bank
(in the case of clause (C) below) shall have determined in good faith
(which determination shall be conclusive) that:
(A) adequate and reasonable means do not exist for
ascertaining such Euro-Rate,
(B) a contingency has occurred which materially and adversely
affects the interbank eurodollar market, or
(C) the effective cost to such Bank of funding a proposed
Funding Segment of the Euro-Rate Portion from a Corresponding Source
of Funds shall exceed the Euro-Rate applicable to such Funding
Segment, or
(ii) at any time any Bank shall have determined in good faith (which
determination shall be conclusive) that the making, maintenance or funding
of any part of the Euro-Rate Portion has been made impracticable or
unlawful by compliance by such Bank or a Notional Euro-Rate Funding Office
in good faith with any applicable Law or guideline or interpretation or
administration thereof by any Official Body charged with the
interpretation or administration thereof or with any applicable request or
directive of any such Official Body (whether or not having the force of
law);
then, and in any such event, the Administrative Agent or such Bank, as the case
may be, may notify the Borrowers of such determination (and any Bank giving such
notice shall notify the Administrative Agent, which shall advise the other Banks
of such notice). Upon such date as shall be specified in such notice (which
shall not be earlier than the date such notice is given), the obligation of each
of the Banks to allow the Borrowers to select, convert to or renew the Euro-Rate
Option shall be suspended until the Administrative Agent or such Bank, as the
case may be, shall have later notified the Borrowers (and any Bank giving such
notice shall notify the Administrative Agent) of the Administrative Agent's or
such Bank's determination in good faith (which determination shall be
conclusive) that the circumstance giving rise to such previous determination no
longer exist.
If any Bank notifies the Borrowers of a determination under subsection
(ii) of this Section 2.04(e), the Euro-Rate Portion of the Loans of such Bank
(the "Affected Bank") shall automatically be converted to the Alternate Base
Rate Option as of the date specified in such notice (and accrued interest
thereon shall be due and payable on such date).
If at the time the Administrative Agent or a Bank makes a determination
under subsection (i) or (ii) of this Section 2.04(e) and XL Capital previously
has notified the Administrative Agent that a Borrower wishes to select, convert
to or renew the Euro-Rate Option with respect to any proposed Loans but such
Loans have not yet been made, such notification shall be deemed to provide for
selection of, conversion to or renewal of the Alternate Base Rate Option instead
of the Euro-Rate Option, with respect to such Loans or, in the case of a
determination by a Bank, such Loans of such Bank.
2.05. Conversion or Renewal of Interest Rate Options.
(a) Conversion or Renewal. Subject to the provisions of Section 2.10(b)
hereof, and if no Event of Default or Potential Default shall have occurred and
be continuing or shall exist, a Borrower may convert any part of its Loans from
any interest rate Option or Options to one or more different interest rate
Options and may renew the Euro-Rate Option as to any Funding Segment of the
Euro-Rate Portion:
(i) At any time with respect to conversion from the Alternate Base
Rate Option; or
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(ii) At the expiration of any Funding Period with respect to
conversions from or renewals of the Euro-Rate Option as to the Funding
Segment corresponding to such expiring Funding Period.
Whenever a Borrower desires to convert or renew any interest rate Option or
Options, XL Capital shall provide to the Administrative Agent Standard Notice
setting forth the following information (and the Agent shall promptly advise the
Banks of such information):
(w) The date, which shall be a Business Day, on which the proposed
conversion or renewal is to be made;
(x) The principal amounts selected in accordance with Section
2.04(d) hereof of the Alternate Base Rate Portion and each Funding Segment
of the Euro-Rate Portion to be converted from or renewed;
(y) The interest rate Option or Options selected in accordance with
Section 2.04(a) hereof and the principal amounts selected in accordance
with Section 2.04(d) hereof of the Alternate Base Rate Portion and each
Funding Segment of the Euro-Rate Portion to be converted to; and
(z) With respect to each Funding Segment to be converted to or
renewed, the Funding Period selected in accordance with Section 2.04(c)
hereof to apply to such Funding Segment.
Standard Notice having been so provided, after the date specified in such
Standard Notice, interest shall be calculated upon the principal amount of the
Loans as so converted or renewed. Interest on the principal amount of any part
of the Loans converted or renewed (automatically or otherwise) shall be due and
payable on the conversion or renewal date.
(b) Failure to Convert or Renew. Absent due notice from XL Capital of
conversion or renewal in the circumstances described in Section 2.05(a)(ii)
hereof, any part of the Euro-Rate Portion for which such notice is not received
shall be converted automatically to the Alternate Base Rate Option on the last
day of the expiring Funding Period.
2.06. Prepayments Generally. Whenever a Borrower desires or is required to
prepay any part of its Loans, XL Capital shall provide Standard Notice to the
Administrative Agent setting forth the following information (and the Agent
shall promptly advise the Banks of such information):
(a) Whether such prepayment is to be applied to the Loans outstanding to
XL Insurance, XL Capital or XL Mid Ocean;
(b) The date, which shall be a Business Day, on which the proposed
prepayment is to be made;
(c) The total principal amount of such prepayment, which shall be the sum
of the principal amounts selected pursuant to clause (d) of this Section 2.06;
and
(d) The principal amounts selected in accordance with Section 2.04(d)
hereof of the Alternate Base Rate Portion and each part of each Funding Segment
of the Euro-Rate Portion to be prepaid.
Standard Notice having been so provided, on the date specified in such Standard
Notice, the principal amounts of the Alternate Base Rate Portion and each part
of the Euro-Rate Portion specified in such notice, together with interest on
each such principal amount to such date, shall be due and payable.
2.07. Optional Prepayments. Each Borrower shall have the right at its
option from time to time to prepay its Loans in whole or part without premium or
penalty (subject, however, to Section 2.10(b) hereof):
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(a) At any time with respect to any part of the Alternate Base Rate
Portion, provided, however, that such prepayment shall be in a principal amount
of $10,000,000 or an integral multiple of $1,000,000 in excess thereof; or
(b) At the expiration of any Funding Period with respect to prepayment of
the Euro-Rate Portion with respect to any part of the Funding Segment
corresponding to such expiring Funding Period, provided, however, that such
prepayment shall be in a principal amount of $10,000,000 or an integral multiple
of $1,000,000 in excess thereof.
Any such prepayment shall be made in accordance with Section 2.06 hereof.
2.08. Interest Payment Dates. Interest on the Alternate Base Rate Portion
shall be due and payable on each Regular Payment Date. Interest on each Funding
Segment of the Euro-Rate Portion shall be due and payable on the last day of the
corresponding Euro-Rate Funding Period and, if such Euro-Rate Funding Period is
longer than three months, also every third month during such Funding Period.
After maturity of any part of the Loans (by acceleration or otherwise), interest
on such part of the Loans shall be due and payable on demand.
2.09. Pro Rata Treatment; Payments Generally; Interest on Overdue Amounts.
(a) Pro Rata Treatment. Each borrowing and conversion and renewal of
interest rate Options hereunder shall be made, and all payments made in respect
of principal, interest, and Facility Fees due from the Borrowers hereunder or
under the Notes shall be applied, Pro Rata from and to each Bank, except for
payments of interest involving an Affected Bank as provided in Section 2.04(e)
hereof and payments to a Bank subject to a withholding deduction under Section
2.11(c) hereof. The failure of any Bank to make a Loan shall not relieve any
other Bank of its obligation to lend hereunder, but neither either Agent nor any
Bank shall be responsible for the failure of any other Bank to make a Loan.
(b) Payments Generally. All payments and prepayments to be made by a
Borrower in respect of principal, interest, fees, indemnity, expenses or other
amounts due from such Borrower hereunder or under any Loan 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 to a Bank subject to a withholding deduction under
Section 2.11(c) hereof. Except for payments under Sections 2.10 and 9.04 hereof,
such payments shall be made to the Administrative Agent at its Office in Dollars
in funds immediately available at such Office, and payments under Sections 2.10
and 9.04 hereof shall be made to the applicable Bank at such domestic account as
it shall specify to the Borrowers from time to time in funds immediately
available at such account. Any payment or prepayment received by the
Administrative 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 Administrative Agent shall distribute to the Banks all such payments
received by it from a Borrower as promptly as practicable after receipt by the
Administrative Agent.
(c) Interest on Overdue Amounts. To the extent permitted by law, after
there shall have become due (by acceleration or otherwise) principal, interest,
fees, indemnity, expenses or any other amounts due from the Borrowers hereunder
or under any other Loan 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 the following:
(i) In the case of any part of the Euro-Rate Portion of any Loans,
(A) until the end of the applicable then-current Funding Period at a rate
per annum 2% above the rate otherwise applicable to such part, and (B)
thereafter in accordance with the following clause (ii); and
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<PAGE>
(ii) In the case of any other amount due from a Borrower hereunder
or under any Loan Document, 2% above the then-current Alternate Base Rate
Option applicable to Loans.
To the extent permitted by law, interest accrued on any amount which has become
due hereunder or under any Loan Document shall compound on a day-by-day basis,
and hence shall be added daily to the overdue amount to which such interest
relates.
2.10. Additional Compensation in Certain Circumstances.
(a) Increased Costs or Reduced Return Resulting From Taxes, Reserves,
Capital Adequacy Requirements, Expenses, Etc. 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 or any Notional Euro-Rate Funding Office to
any tax or changes the basis of taxation with respect to this Agreement,
the Notes, the Loans or payments by the Borrowers of principal, interest,
facility fee or other amounts due from the Borrowers hereunder or under
the Notes (except for taxes on the overall net income or overall gross
receipts of such Bank or such Notional Euro-Rate Funding Office imposed by
the jurisdictions (federal, state and local) in which the Bank's principal
office or Notional Euro-Rate Funding 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 or any Notional
Euro-Rate Funding Office (other than requirements expressly included
herein in the determination of the Euro-Rate hereunder),
(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 any
Notional Euro-Rate Funding Office, or (B) otherwise applicable to the
obligations of any Bank or any Notional Euro-Rate Funding Office under
this Agreement, or
(iv) imposes upon any Bank or any Notional Euro-Rate Funding Office
any other condition or expense with respect to this Agreement, the Notes
or its making, maintenance or funding of any Loan,
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, any Notional Euro-Rate Funding Office or, in the case of clause (iii)
hereof, any Person controlling a Bank, with respect to this Agreement, the Notes
or the making, maintenance or funding of any Loan (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 being deemed for this purpose to have made, maintained or funded each
Funding Segment of the Euro-Rate Portion from a Corresponding Source of Funds),
such Bank may from time to time notify the Borrowers 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 or
such Notional Euro-Rate Funding Office for such increase, reduction or
imposition. Such amount shall be due and payable by any applicable Borrower 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 Alternate Base Rate Option applicable to
Loans. A certificate by such Bank as to the amount due and payable under this
Section 2.10(a) from time to time and the method of calculating such amount
shall be conclusive. Each Bank agrees that it will use good faith
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efforts to notify the Borrowers of the occurrence of any event that would give
rise to a payment under this Section 2.10(a); 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 Borrowers' obligations hereunder.
(b) Funding Breakage. In addition to all other amounts payable hereunder,
if and to the extent for any reason any part of any Funding Segment of any
Euro-Rate Portion of the Loans becomes due (by acceleration or otherwise), or is
paid, prepaid or converted to another interest rate Option (whether or not such
payment, prepayment or conversion is mandatory or automatic and whether or not
such payment or prepayment is then due), on a day other than the last day of the
corresponding Funding Period (the date such amount so becomes due, or is so
paid, prepaid or converted, being referred to as the "Funding Breakage Date"),
the applicable Borrower shall pay each Bank an amount ("Funding Breakage
Indemnity") determined by such Bank as follows:
(i) first, calculate the following amount: (A) the principal amount
of such Funding Segment of the Loans owing to such Bank which so became
due, or which was so paid, prepaid or converted, times (B) the greater of
(x) zero or (y) the rate of interest applicable to such principal amount
on the Funding Breakage Date minus the Treasury Rate as of the Funding
Breakage Date, times (C) the number of days from and including the Funding
Breakage Date to but not including the last day of such Funding Period,
times (D) 1/360;
(ii) the Funding Breakage Indemnity to be paid by such Borrower to
such Bank shall be the amount equal to the present value as of the Funding
Breakage Date (discounted at the Treasury Rate as of such Funding Breakage
Date, and calculated on the basis of a year of 365 or 366 days, as the
case may be, and actual days elapsed) of the amount described in the
preceding clause (i) (which amount described in the preceding clause (i)
is assumed for purposes of such present value calculation to be payable on
the last day of the corresponding Funding Period).
Such Funding Breakage Indemnity shall be due and payable on demand, and each
Bank shall, upon making such demand, notify the Administrative Agent of the
amount so demanded. In addition, such Borrower shall, on the due date for
payment of any Funding Breakage Indemnity, pay to such Bank an additional amount
equal to interest on such Funding Breakage Indemnity from the Funding Breakage
Date to but not including such due date at the Alternate Base Rate Option
applicable to Loans (calculated on the basis of a year of 360 days and actual
days elapsed). The amount payable to each Bank under this Section 2.10(b) shall
be determined in good faith by such Bank, and such determination shall be
conclusive.
2.11. Taxes.
(a) Payments Net of Taxes. All payments made by the Borrowers under this
Agreement or any other Loan 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 each Agent and each Bank, income or franchise
taxes imposed on such Agent or such Bank by the jurisdiction under the
laws of which such 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 or Agent 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 make or book
Loans are located or any political subdivision or taxing authority thereof
or therein
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(all such non-excluded taxes, levies, imposts, deductions, charges or
withholdings being hereinafter called "Taxes"), unless the Borrower is required
to withhold or deduct Taxes. If any Taxes are required to be withheld or
deducted from any amounts payable to either Agent or any Bank under this
Agreement or any other Loan Document, the applicable Borrower shall pay the
relevant amount of such Taxes and the amounts so payable to such Agent or such
Bank shall be increased to the extent necessary to yield to such 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 Loan Documents. Whenever any Taxes are paid by a Borrower with respect to
payments made in connection with this Agreement or any other Loan Document, as
promptly as possible thereafter, such Borrower shall send to the Administrative
Agent for its own account or for the account of the other Agent or such Bank, as
the case may be, a certified copy of an original official receipt received by
such Borrower showing payment thereof. If a Bank or either Agent 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 a Borrower, or with respect to
which a Borrower has paid additional amounts pursuant to this Section 2.11, such
Bank or Agent shall promptly after the date of such receipt pay over the amount
of such refund to such Borrower (but only to the extent of indemnity payments
made, or additional amounts paid, by a Borrower under this Section 2.11 with
respect to Taxes giving rise to such refund and only to the extent that such
Bank or Agent has determined that the amount of any such refund is directly
attributable to payments made under this Agreement), net of all reasonable
expenses of such Bank or Agent (including additional Taxes attributable to such
refund, as determined by such Bank or Agent) and without interest (other than
interest, if any, paid by the relevant Official Body with respect to such
refund). A Borrower receiving any such payment from a Bank or Agent shall, upon
demand, pay to such Bank or Agent any amount paid over to such Borrower by such
Bank or Agent (plus penalties, interest or other charges) in the event such Bank
or Agent is required to repay any portion of such refund to such Official Body.
Nothing in this Section 2.11(a) shall entitle a Borrower to have access to the
records of any Bank or Agent, including, without limitation, tax returns.
(b) Indemnity. Each Borrower hereby indemnifies each Agent and each of the
Banks for the full amount of all Taxes attributable to payments by or on behalf
of such Borrower hereunder or under any of the other Loan Documents, any Taxes
paid by such 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 such Agent or such Bank as a result of any
failure to pay such Taxes, except by reason of unreasonable delay by such Agent
or Bank in notifying the Borrower or in making payment after payment was
received from the Borrower), whether or not such Taxes were correctly or legally
asserted. Such indemnification shall be made within 30 days from the date such
Bank or such Agent, as the case may be, makes written demand therefor.
(c) Withholding and Backup Withholding. Each Bank or Agent 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 any
payment is due to be made to it hereunder or under any other Loan Document, it
will furnish to the Borrowers and the Administrative 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 or Agent is entitled to receive payments under this
Agreement and the other Loan 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 Borrowers and the Administrative Agent a Form
1001 or 4224 and Form W-8 or W-9, or successor applicable forms, agrees to
deliver to the Borrowers and the Administrative
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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 Borrowers and the Administrative
Agent, certifying in the case of a Form 1001 or Form 4224 that such Bank or
Agent is entitled to receive payments under this Agreement or any other Loan
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 or Agent advises the Borrowers and the Administrative 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.
2.12. Funding by Branch, Subsidiary or Affiliate.
(a) Notional Funding. Each Bank shall have the right from time to time,
prospectively or retrospectively, without notice to the Borrowers, to deem any
branch, subsidiary or affiliate of such Bank to have made, maintained or funded
any part of the Euro-Rate Portion at any time. Any branch, subsidiary or
affiliate so deemed shall be known as a "Notional Euro-Rate Funding Office."
Such Bank shall deem any part of the Euro-Rate Portion of the Loans or the
funding therefor to have been transferred to a different Notional Euro-Rate
Funding Office if such transfer would avoid or cure an event or condition
described in Section 2.04(e)(ii) hereof or would lessen compensation payable by
a Borrower under Section 2.10(a) hereof, and if such Bank determines in its sole
discretion that such transfer would be practicable and would not have a material
adverse effect on such part of the Loans, such Bank or any Notional Euro-Rate
Funding Office (it being assumed for purposes of such determination that each
part of the Euro-Rate Portion is actually made or maintained by or funded
through the corresponding Notional Euro-Rate Funding Office). Notional Euro-Rate
Funding Offices may be selected by such Bank without regard to such Bank's
actual methods of making, maintaining or funding Loans or any sources of funding
actually used by or available to such Bank.
(b) Actual Funding. Each Bank shall have the right from time to time to
make or maintain any part of the Euro-Rate Portion by arranging for a branch,
subsidiary or affiliate of such Bank to make or maintain such part of the
Euro-Rate Portion. Such Bank shall have the right to (i) hold any applicable
Note payable to its order for the benefit and account of such branch, subsidiary
or affiliate or (ii) request the applicable Borrower to issue one or more
promissory notes in the principal amount of such Euro-Rate Portion, in
substantially the form attached hereto as Exhibit A-1, A-2 or A-3, as the case
may be, with the blanks appropriately filled, payable to such branch, subsidiary
or affiliate and with appropriate changes reflecting that the holder thereof is
not obligated to make any additional Loans to such Borrower. Each Borrower
agrees to comply promptly with any request under subsection (ii) of this Section
2.12(b). If any Bank causes a branch, subsidiary or affiliate to make or
maintain any part of the Euro-Rate Portion hereunder, all terms and conditions
of this Agreement shall, except where the context clearly requires otherwise, be
applicable to such part of the Euro-Rate Portion and to any note payable to the
order of such branch, subsidiary or affiliate to the same extent as if such part
of the Euro-Rate Portion were made or maintained and such note were a Note
payable to such Bank's order.
2.13. Extensions of Expiration Date. The Borrowers may, at their option,
give the Administrative Agent written notice (an "Extension Request") not more
than 90 days, nor less than 60 days, prior to the then effective Expiration
Date, of the Borrowers' desire to extend the then effective Expiration Date to a
date which is not later than 364 days after the "Reset Date". The "Reset Date"
means the date which is 30 days prior to the then effective Expiration Date. The
Administrative Agent shall promptly inform the Banks of such Extension Request.
Each Bank that agrees with such Extension Request shall deliver to the
Administrative Agent its express written consent thereto no later than the Reset
Date. No extension shall
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become effective unless agreed to by the Required Banks on or prior to the Reset
Date. If all Banks have not in writing expressly consented to any such Extension
Request by the Reset Date, then the Administrative Agent shall so notify the
Borrowers and the Borrowers, at their option, may, as of the then effective
Expiration Date, (i) replace any Bank which has not agreed to such Extension
Request (a "Nonextending Bank") with another commercial lending institution
reasonably satisfactory to the Administrative Agent (a "Replacement Bank") by
giving notice of the name of such Replacement Bank to the Administrative Agent
not later than five Business Days prior to the then effective Expiration Date or
(ii) pay the Loans of such Nonextending Bank. Upon notice from the
Administrative Agent, such Nonextending Bank shall, as of the then effective
Expiration Date, assign all of its interests hereunder to such Replacement Bank
in accordance with the provisions of Section 9.13 hereof. If the Required Banks
shall have consented to such Extension Request, then, on the then effective
Expiration Date, after payment by the Borrower (or, if applicable, by a
Replacement Bank) of all amounts payable hereunder to each Nonextending Bank,
the Expiration Date shall be deemed to have been extended to, and shall be, the
date specified in such Extension Notice. The Administrative Agent shall promptly
after any such extension advise the Banks of any decrease in the aggregate
Committed Amounts of the Banks and of the respective Committed Amounts of all
Banks. Each Bank may agree or not agree to any such Extension Request in its
sole and absolute discretion and any Bank not agreeing (or not responding) to an
Extension Request shall not be deemed to have extended the Expiration Date
regardless of whether a Replacement Bank is obtained.
ARTICLE III
REPRESENTATIONS AND WARRANTIES.
Each Borrower represents and warrants that:
3.01. Organization and Qualification. Such Borrower 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 Borrower and each of its Subsidiaries has the power and authority to own
its properties and assets, and to carry on its business as currently 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 Borrower's Subsidiaries setting forth their respective
jurisdictions of incorporation is set forth in Schedule 3.01 hereto. Such
Borrower 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 the Administrative
Agent.
3.02. Corporate Power and Authorization. Such Borrower has corporate power
and authority to, make and carry out this Agreement and any other Loan Document
to which it is a party to make the borrowings provided for herein, to execute
and deliver this Agreement and, in the case of such Borrower, the applicable
Notes 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 Borrower has furnished to the
Administrative Agent with sufficient copies for each Bank copies of the audited
consolidated financial statements of such Borrower and its consolidated
Subsidiaries including a consolidated balance sheet and related statements of
income and retained earnings for the fiscal year ending November 30, 1998. Such
financial statements fairly present the financial position of such Borrower and
its consolidated Subsidiaries as of the date of such reports and the
consolidated results of their operations and cash flows for the fiscal period
then
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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 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 Borrower 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 Borrower and after
taking into account the nature of such Borrower's business and activities) to
have a Material Adverse Effect if adversely determined.
3.05. No Adverse Changes. Since November 30, 1998, 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 Borrower or of any applicable Law or of any
material agreement or instrument to which such Borrower 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 Borrower 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 Borrower. This Agreement constitutes, and
the applicable Notes when duly executed and delivered by such Borrower pursuant
to the provisions hereof will constitute, legal, valid and binding obligations
of such Borrower 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 Borrower have
been properly prepared, executed and filed. All taxes, assessments, fees and
other governmental charges upon such Borrower 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 Borrower are adequate for all open years and
for its current fiscal period as determined in accordance with GAAP.
3.09. Use of Proceeds. Such Borrower will use the proceeds from any
borrowing hereunder for general corporate purposes (which may include
acquisitions and may include refinancing of other indebtedness). Such 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. Such 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 Borrower and each Subsidiary of
such Borrower 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
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and to carry on their respective businesses as currently conducted and currently
planned to be conducted without, to the best knowledge of such Borrower,
conflict with the rights of others.
3.11. Accurate and Complete Disclosure. All information provided by or on
behalf of any Borrower to either Agent or any Bank 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 such 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 Borrowers, 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 Borrower and each Affiliate of such
Borrower 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 Borrower and each of its Subsidiaries is
and has been in full compliance with all applicable Environmental Laws. Such
Borrower 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 currently
proposed to be owned and operated.
3.14. Not an Investment Company. Such Borrower is not an Investment
Company required to be registered under the Investment Company Act of 1940.
3.15. Year 2000 Compliance. XL Capital has (i) initiated a review and
assessment of all areas within its and each of its Subsidiaries' business and
operations (including those affected by material suppliers, vendors and
customers) that could be adversely affected by the risk that computer
applications used by XL Capital or any of its Subsidiaries (or material
suppliers, vendors and customers other than risks affecting customers that may
give rise to claims under insurance policies issued by XL Capital or any
Subsidiary of XL Capital) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999 (the "Year 2000 Problem") and (ii) developed a plan and
timetable for addressing the Year 2000 Problem on a timely basis. Based on the
foregoing, XL Capital believes that all computer applications of XL Capital and
its Subsidiaries that are material to its or any of its Subsidiaries' business
and operations are reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and after January 1, 2000
("Year 2000 Compliant"), except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect.
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 the
Administrative Agent with sufficient copies for each Bank a certificate with
respect to each Borrower in form and substance
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satisfactory to the Administrative Agent dated the Closing Date and signed on
behalf of each Borrower by the Secretary or an Assistant Secretary of such
Borrower, certifying as to: (a) true copies of all corporate action taken by
such Borrower 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 Borrower authorized to execute and deliver this Agreement and
the other Loan 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
Administrative Agent with sufficient copies for each Bank (i) certified copies
of the articles of incorporation and by-laws for each Borrower and (ii) a
certificate of good standing for each Borrower and any subsidiary of such
Borrower certified by the appropriate Official Body of Bermuda or of the Cayman
Islands, British West Indies, as the case may be.
(c) Opinions of Counsel. There shall have been delivered to the
Administrative Agent with sufficient copies for each Bank written opinions
addressed to the Banks, dated the Closing Date, of Cahill Gordon & Reindel,
Conyers, Dill & Pearman, Hunter & Hunter and Paul S. Giordano, Esq.,
respectively, the Borrowers' 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 each Bank, and each Bank 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 such Bank have reasonably requested.
(e) Fees and Expenses. The Borrowers 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) Termination of Commitments under Prior Agreements. The commitments of
the respective banks under the Short Term Revolving Credit Agreement, dated as
of June 6, 1997, as amended, to which XL Insurance and XL Mid Ocean are parties,
and the Credit Agreement (364-day), dated as of September 2, 1997, as amended to
which Mid Ocean Limited is a party, shall have been terminated and arrangements
satisfactory to the Agents shall have been made to pay all amounts owing to the
respective banks thereunder with the proceeds of Loans hereunder or with other
funds of the Borrowers.
4.02. Borrowings. The obligations of each Bank to make any Loan hereunder
are subject to the accuracy as of the date hereof of the representations and
warranties herein contained, to the performance by each 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 Default and Potential
Defaults. 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, and on the date of each Loan
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 Loans
to be made on such date. Failure of the Administrative Agent to receive notice
from the applicable 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
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date of such Loan with the same effect as though made on and as of such date and
(ii) on the date of such Loan no Event of Default or Potential Default 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 Committed Amounts.
ARTICLE V
AFFIRMATIVE COVENANTS
The Borrowers hereby covenant to each Agent and each Bank as follows:
5.01. Reporting and Information Requirements. Each Borrower shall deliver
to the Administrative Agent with sufficient copies for each Bank:
(a) Annual Reports. As soon as practicable and in any event within 100
days after the close of each fiscal year of such Borrower, audited consolidated
statements of income, retained earnings and cash flows of such Borrower and its
consolidated Subsidiaries, for such fiscal year and a consolidated audited
balance sheet of such Borrower 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 XL Insurance and XL Mid Ocean, 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 Borrower 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 (it being understood that delivery
of XL Capital's Report on Form 10-K filed with the Securities and Exchange
Commission shall satisfy the requirement of this Section 5.01(a) to deliver the
annual financial statements of XL Capital so long as the financial information
required to be in such report is substantially the same as the financial
information required by this Section 5.01(a)).
(b) Quarterly Statements. Within sixty days after the end of the first,
second and third quarterly accounting periods in each fiscal year of such
Borrowers, copies of the unaudited consolidated balance sheets of such Borrower
and its consolidated Subsidiaries as of the end of such accounting period and of
the consolidated income statements of such Borrower 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 or, in the case of XL
Insurance and XL Mid Ocean, SAP, subject to year-end audit adjustments and
certified by the principal financial officer of such Borrower to have been
prepared in accordance with generally accepted accounting principles
consistently applied by such Borrower except as explained in such certificate
(it being understood that delivery of XL Capital's Report on Form 10-Q filed
with the Securities and Exchange Commission shall satisfy the requirement of
this Section 5.01(b) to deliver the quarterly financial statements of XL Capital
so long as the financial information required to be in such report is
substantially the same as the financial information required by this Section
5.01(b)).
(c) Compliance Certificates. Within 100 days after the end of each fiscal
year of the Borrowers 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 each Borrower 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 Borrower, (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
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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
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 Borrower setting forth the details thereof and any action with
respect thereto taken or contemplated to be taken by the Borrowers.
(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 Borrower 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 Borrower's investment policy, underwriting
policy or other business policy.
(i) Year 2000 Compliance. Promptly after any Borrower's discovery or
determination thereof, notice (in reasonable detail) that any computer
application that is material to its or any of its Subsidiaries' business and
operations will not be Year 2000 Compliant (as defined in Section 3.15), except
to the extent that such failure could not reasonably be expected to have a
Material Adverse Effect.
5.02. Preservation of Existence and Franchises. Each Borrower 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. Each Borrower 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. Each Borrower 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. Each Borrower 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 Borrower or any Subsidiary of such Borrower any obligation in
respect of any property leased by such Borrower or such Subsidiary in addition
to such Borrower's obligations under the applicable document creating such
Borrower'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 Borrower 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;
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(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 Borrower 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 Borrower or such Subsidiary;
provided that, unless and until foreclosure, distraint, levy, sale or similar
proceedings shall have been commenced, such Borrower 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 Borrower 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.
5.07. Compliance with Applicable Laws. Each Borrower 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 Borrower or any Subsidiary of such Borrower 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 Borrower to perform its obligations under this Agreement or the
Notes issued by it.
5.08. Use of Proceeds. Each Borrower shall use the proceeds of all Loans
hereunder for its general corporate purposes (which may include funding
acquisitions and paying dividends).
5.09. Continuation Of and Change In Business. Each Borrower 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 Borrower shall permit such Persons as any Bank may
reasonably designate to visit and inspect any of the properties of such
Borrower, to discuss its affairs with its financial management, and provide such
other information relating to the business and financial condition of such
Borrower at such times as such Bank may reasonably request. Each Borrower hereby
authorizes its financial management to discuss with any Bank the affairs of such
Borrower.
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ARTICLE VI
NEGATIVE COVENANTS
Each Borrower covenants to each Agent and to each Bank as follows:
6.01. Mergers and Acquisitions. (a) No Borrower shall 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 Borrower may merge with any other corporation, including a
Subsidiary, if such Borrower shall be the surviving corporation; and
(ii) if the written consent of the Required Banks is obtained, any
Borrower may merge into or consolidate with any other corporation if the
corporation into which such Borrower is merged or which is formed by such
consolidation shall expressly assume all obligations of such Borrower
under this Agreement.
(b) No Borrower shall 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. No Borrower shall, 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 the Borrower'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; 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 Borrower or its
Subsidiaries.
6.03. Liens. No Borrower shall, 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;
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(c) Liens on property securing all or part of the purchase price thereof
to such Borrower and Liens (whether or not assumed) existing on property at the
time of purchase thereof by such Borrower (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 Borrower,
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 Borrower;
(e) Liens securing Indebtedness permitted by Section 6.08(b), Section 6.08
(c) and Section 6.08(g) hereof covering assets whose market value is not
materially greater than the amount of the Indebtedness secured thereby, plus a
commercially reasonable margin; or
(f) Liens on cash and securities of a Borrower 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 the
Borrowers' investment policy as in effect on the date of this Agreement.
6.04. Transactions With Affiliates. No Borrower shall, 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 Borrower, or directly or indirectly
agree to do any of the foregoing, except transactions among the Borrowers and
their wholly-owned Subsidiaries and transactions with Affiliates in good faith
in the ordinary course of such Borrower's business consistent with past practice
and on terms no less favorable to such Borrower 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. No Borrower will, 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 Borrower and its Subsidiaries are
engaged on the Closing Date and any businesses reasonably related thereto or in
the financial services industry. No Borrower will permit, at any time, its net
premiums earned from insurance or reinsurance operations to comprise less than
50% of gross revenues of such Borrower (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. XL
Capital will not permit its ratio of (i) the sum of (x) Total Funded Debt plus
(y) the aggregate undrawn face amount of all letters of credit (as to which
reimbursement obligations are unsecured) issued for the account of, or
guaranteed by, XL Capital or any of its consolidated Subsidiaries to (ii)
Consolidated Tangible Net Worth to be greater than 0.35 at any time.
6.07. Consolidated Tangible Net Worth. XL Capital will not permit its
Consolidated Tangible Net Worth to be less than $2,566,000,000.00 at any time.
6.08. Indebtedness. No Borrower shall, nor shall any Borrower 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:
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(a) Indebtedness to the Banks pursuant to this Agreement and the other
Loan Documents;
(b) Secured Indebtedness (including secured reimbursement obligations with
respect to letters of credit) of any Borrower or any Subsidiary in an aggregate
principal amount (for all Borrowers and Subsidiaries) not exceeding $400,000,000
at any time outstanding;
(c) Other secured reimbursement obligations of any Borrower or any
Subsidiary with respect to letters of credit not exceeding $800,000,000 in the
aggregate at any time outstanding for all Borrowers and Subsidiaries;
(d) Unsecured Indebtedness, so long as upon the incurrence thereof no
Event of Default or Potential Default would occur or exist;
(e) Accounts or claims payable and accrued and deferred compensation
(including options) incurred in the ordinary course of business by any Borrower
or any Subsidiary; and
(f) Indebtedness incurred in transactions described in Section 6.03(f);
and
(g) Indebtedness described on Schedule 6.08(g) hereto.
6.09. Claims Paying Ratings. Each of XL Insurance and XL Mid Ocean shall
maintain at all times a claims-paying rating of at least "A" from Standard &
Poor's Ratings Services and from A.M. Best Company.
6.10. Private Act. No Borrower shall become subject to a Private Act other
than 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 Borrower shall default in the payment when due of the principal of
any Loan;
(b) Any Borrower shall default in the payment when due of any interest,
Facility 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) Any Borrower shall default in the observance, performance or
fulfillment of any covenant contained in Article VI hereof;
(d) Any Borrower 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 Borrower from the Administrative Agent or the holder of any Note
issued hereunder;
(e) Any Borrower or any Subsidiary of any Borrower 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
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or more or any obligation for borrowed money under the Revolving Credit
Agreement, dated as of June 6, 1997, as amended, to which each of the Borrowers
is a party, in each case 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 or contained in such Revolving
Credit Agreement, 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 or to cause or permit the holder
or holders of any obligation under such Revolving Credit Agreement to cause such
obligation to become due prior to its stated maturity or to terminate its
commitment under such Revolving Credit Agreement;
(f) One or more judgments for the payment of money shall have been entered
against any Borrower 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 Borrower, 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) XL Capital shall cease to own, beneficially and of record, directly or
indirectly all of the outstanding voting shares of capital stock of XL Insurance
and of XL Mid Ocean, except for a nominal number of shares owned by nominee
shareholders required by the Bermuda Companies Law;
(i) A Change in Control shall occur;
(j) 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 each
Guarantor or any Guarantor 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 and the Notes, or any other Person
shall assert any of the foregoing;
(k) A decree or order by a court having jurisdiction in the premises shall
have been entered adjudging any Borrower a bankrupt or insolvent, or approving
as properly filed a petition seeking reorganization of such Borrower under the
Bermuda Companies Law or the companies laws of the Cayman Islands, British West
Indies, 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 Borrower 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
(l) Any Borrower 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 the companies laws of the Cayman Islands, British West
Indies 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 Borrower in
furtherance of any of the aforesaid purposes;
then, (i) as to any Event of Default specified under subsections (a) through (j)
of this Article VII, the Banks shall be under no further obligation to make
Loans hereunder and the Administrative Agent by written request of the Required
Banks may, by written notice to the Borrowers, declare the unpaid balance of all
Loans then outstanding and interest accrued thereon and all other liabilities of
the
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Borrowers hereunder and thereunder to be forthwith due and payable, and the same
shall thereupon become and be immediately due and payable, without presentment,
demand, protest or notice or any kind, all of which are hereby expressly waived;
and (ii) as to any Event of Default specified under subsections (k) or (l) of
this Article VII, the Banks shall be under no further obligation to make Loans
hereunder and the unpaid balance of all Loans outstanding hereunder and interest
accrued thereon and all other liabilities of the Borrowers hereunder and
thereunder shall be immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived.
ARTICLE VIII
THE AGENTS
8.01. Appointment. Each Bank hereby appoints Mellon Bank, N.A. to act as
Administrative Agent for such Bank under this Agreement and the other Loan
Documents and appoints The Chase Manhattan Bank to act as Syndication Agent for
such Bank under this Agreement and the other Loan Documents. Each Bank hereby
irrevocably authorizes each Agent to take such action on behalf of such Bank
under the provisions of this Agreement and the other Loan Documents, and to
exercise such powers and to perform such duties, as are expressly delegated to
or required of such 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 Administrative Agent and The Chase Manhattan Bank agrees to act as
Syndication Agent, in each case on behalf of the Banks on the terms and
conditions set forth in this Agreement and the other Loan Documents, subject to
its right to resign as provided in Section 8.10 hereof. Each Bank hereby
irrevocably authorizes each Agent to execute and deliver each of the Loan
Documents and to accept delivery of such of the other Loan Documents as may not
require execution by such Agent. Each Bank agrees that the rights and remedies
granted to an Agent under the Loan Documents shall be exercised exclusively by
such 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.
8.02. General Nature of Each Agent's Duties. Notwithstanding anything to
the contrary elsewhere in this Agreement or in any other Loan Document:
(a) Neither Agent shall have any duties or responsibilities except
those expressly set forth in this Agreement and the other Loan Documents,
and no implied duties or responsibilities on the part of either Agent
shall be read into this Agreement or any Loan Document or shall otherwise
exist.
(b) The duties and responsibilities of each Agent under this
Agreement and the other Loan Documents shall be mechanical and
administrative in nature, and neither Agent shall have a fiduciary
relationship in respect of any Bank.
(c) Each Agent is and shall be solely the agent of the Banks.
Neither Agent assumes, 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 Loan Documents).
(d) Neither Agent shall be under any obligation to take any action
hereunder or under any other Loan Document if such Agent believes in good
faith that taking such action may conflict with any Law or any provision
of this Agreement or any other Loan Document, or may require such Agent to
qualify to do business in any jurisdiction where it is not then so
qualified.
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8.03. Exercise of Powers. Each Agent shall take any action of the type
specified in this Agreement or any other Loan Document as being within such
Agent's rights, powers or discretion in accordance with directions from the
Required Banks (or, to the extent this Agreement or such Loan 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, each 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 Loan Document
expressly requires the direction or consent of the Required Banks (or some other
Person or set of Persons), in which case such 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. Neither
Agent shall have any liability to any Person as a result of (x) either Agent
acting or refraining from acting in accordance with the directions of the
Required Banks (or other applicable Person or set of Persons), (y) either 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 such Agent
has discretionary power to take such action, or (z) either 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 Loan Document:
(a) Neither Agent shall be liable for any action taken or omitted to be
taken by it under or in connection with this Agreement or any other Loan
Document, unless caused by its own gross negligence or willful misconduct.
(b) Neither Agent shall be responsible for (i) the execution, delivery,
effectiveness, enforceability, genuineness, validity or adequacy of this
Agreement or any other Loan 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 Loan Document,
(iii) any failure of any Loan Party or Bank to perform any of their respective
obligations under this Agreement or any other Loan 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 Loan Documents or otherwise
from time to time.
(c) Neither Agent shall 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 Loan Document on the part of
any Borrower, (ii) the business, operations, condition (financial or otherwise)
or prospects of any Borrower 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) Neither 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 Loan Document to be furnished by such Agent to such
Bank.
8.05. Administration by the Agents.
(a) Each 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 Loan Document) purportedly made by or on
behalf of the proper party or parties, and neither Agent shall have any duty to
verify the identity or authority of any Person giving such notice or other
communication.
(b) Each Agent may consult with legal counsel (including, without
limitation, in-house counsel for such Agent or in-house or other counsel for any
Borrower), independent public accountants and any other
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experts selected by it from time to time, and neither Agent shall 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) Each Agent may conclusively rely upon the truth of the statements and
the correctness of the opinions expressed in any certificates or opinions
furnished to either Agent in accordance with the requirements of this Agreement
or any other Loan Document. Whenever either Agent shall deem it necessary or
desirable that a matter be proved or established with respect to any Borrower or
Bank, such matter may be established by a certificate of such Borrower or Bank,
as the case may be, and each Agent may conclusively rely upon such certificate
(unless other evidence with respect to such matter is specifically prescribed in
this Agreement or another Loan Document).
(d) Each 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 such Agent by reason of taking or continuing to
take any such action.
(e) Each Agent may perform any of its duties under this Agreement or any
other Loan Document by or through agents or attorneys-in-fact. Neither Agent
shall be responsible for the negligence or misconduct of any agents or
attorneys-in fact selected by it with reasonable care.
(f) Neither Agent shall be deemed to have any knowledge or notice of the
occurrence of any Event of Default or Potential Default unless such Agent has
received notice from a Bank or any Borrower referring to this Agreement,
describing such Event of Default or Potential Default, and stating that such
notice is a "notice of default". If an Agent receives such a notice, such Agent
shall give prompt notice thereof to the other Agent and each Bank.
8.06. Bank Not Relying on Agent or Other Banks. Each Bank acknowledges as
follows: (a) Neither either Agent nor any other Bank has made any
representations or warranties to it, and no act taken hereafter by either Agent
or any other Bank shall be deemed to constitute any representation or warranty
by such Agent or such other Bank to it. (b) It has, independently and without
reliance upon either 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 Loan Documents. (c) It
will, independently and without reliance upon either 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 Loan Documents.
8.07. Indemnification. Each Bank agrees to reimburse and indemnify each
Agent and its directors, officers, employees and agents (to the extent not
reimbursed by a Borrower and without limitation of the obligations of the
Borrowers 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 fees and disbursements of counsel for such Agent or such
other Person in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Agent or such other
Person shall be designated a party thereto) that may at any time be imposed on,
incurred by or asserted against such 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 Loan 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 Loan, 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 to the
extent resulting from the gross negligence or willful misconduct of such 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 Federal Funds Effective Rate.
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8.08. Each Agent in its Individual Capacity. With respect to its
Commitments and the Obligations owing to it, each Agent shall have the same
rights and powers under this Agreement and each other Loan Document as any other
Bank and may exercise the same as though it were not an Agent, and the terms
"Banks," "holders of Notes" and like terms shall include each Agent in its
individual capacity as such. Each 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, and engage in any other
business with, any Borrower and any stockholder, subsidiary or affiliate of any
Borrower, as though such Agent were not an Agent hereunder.
8.09. Holders of Notes. The Administrative Agent may deem and treat the
Bank which is payee of a Note as the owner and holder of such Note for all
purposes hereof unless and until a Transfer Supplement with respect to the
assignment or transfer thereof shall have been filed with the Administrative
Agent in accordance with Section 9.13 hereof. Any authority, direction or
consent of any Person who at the time of giving such authority, direction or
consent is shown in the Register as being a Bank shall be conclusive and binding
on each present and subsequent holder, transferee or assignee of any Note or
Notes payable to such Bank or of any Note or Notes issued in exchange therefor.
8.10. Successor Agent. Either Agent may resign at any time by giving 10
days' prior written notice thereof to the Banks and the Borrowers. Either Agent
may be removed by the Required Banks at any time by giving 10 days' prior
written notice thereof to the Agents, the other Banks and the Borrowers. Upon
any such resignation or removal of the Administrative Agent, the Required Banks
shall have the right to appoint a successor Administrative Agent. If no
successor Administrative 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 Administrative Agent may, on behalf of
the Banks, appoint a successor Administrative Agent. Each successor
Administrative Agent shall be a commercial bank or trust company organized under
the laws of the United States of America or any State thereof and having a
combined capital and surplus of at least $1,000,000,000. Upon the acceptance by
a successor Administrative Agent of its appointment as Administrative Agent
hereunder, such successor Administrative Agent shall thereupon succeed to and
become vested with all the properties, rights, powers, privileges and duties of
the former Administrative 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 Loan
Documents, but the provisions of this Agreement shall inure to its benefit as to
any actions taken or omitted by it while it was an Agent under this Agreement.
If and so long as no successor Administrative Agent shall have been appointed,
then any notice or other communication required or permitted to be given by the
Administrative Agent shall be sufficiently given if given by the Required Banks,
all notices or other communications required or permitted to be given to the
Administrative Agent shall be given to each Bank, and all payments to be made to
the Administrative Agent shall be made directly to the Borrower or Bank for
whose account such payment is made.
8.11. Additional Administrative Agents. If the Administrative 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
Administrative Agent and the Borrowers shall execute and deliver a supplemental
agreement and all other instruments and agreements necessary or advisable, in
the opinion of the Administrative Agent, to constitute another commercial bank
or trust company, or one or more other Persons approved by the Administrative
Agent, to act as co-Administrative Agent or agent with such powers of the
Administrative Agent as may be provided in such supplemental agreement and to
vest in such bank, trust company or Person as such co-Administrative Agent or
separate agent, as the case may be, any properties, rights, powers, privileges
and duties of the Administrative Agent under this Agreement or any other Loan
Document.
8.12. Calculations. Neither Agent shall be liable for any calculation,
apportionment or distribution of payments made by either Agent 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
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they are determined to be entitled or, if the amount due was not paid by the
appropriate Borrower, to recover such amount from the appropriate Borrower.
8.13. Agent's Fee. The Borrower agrees to pay to each Agent, for its
individual account, a nonrefundable Agent's fee in an amount and at such time or
times as such Agent and the Borrower have heretofore agreed.
8.14. Funding by Administrative Agent. Unless the Administrative Agent
shall have been notified in writing by any Bank not later than the close of
business on the day before the day on which Loans are requested by the Borrower
to be made that such Bank will not make its ratable share of such Loans, the
Administrative Agent may assume that such Bank will make its ratable share of
the Loans, and in reliance upon such assumption the Administrative Agent may
(but in no circumstances shall be required to) make available to the applicable
Borrower a corresponding amount. If and to the extent that any Bank fails to
make such payment to the Administrative Agent on such date, such Bank shall pay
such amount on demand (or, if such Bank fails to pay such amount on demand, such
Borrower shall pay such amount on demand), together with interest, for the
Administrative Agent's own account, for each day from and including the date of
the Administrative Agent's payment to and including the date of repayment to the
Administrative Agent (before and after judgment) at the rate or rates per annum
applicable to such Loans. All payments to the Administrative Agent under this
Section shall be made to the Administrative Agent at its Office in Dollars in
funds immediately available at such Office, without set-off, withholding,
counterclaim or other deduction of any nature.
ARTICLE IX
MISCELLANEOUS
9.01. No Implied Waiver etc. No delay or failure of either Agent or any
Bank, or the holder of any Note 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 Agents, the Banks and any holder of the Notes 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 an 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, the holder of any 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 held by it any debt owing by such holder to the
applicable Borrower, including without limitation any funds in any deposit
account maintained by such 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 such Borrower with such holder. Any sums obtained
by the holder of any Note issued hereunder by way of counterclaim, set-off,
banker's lien or other lien for application upon any Note held by it shall be
shared pro rata with the holders of the other Notes. 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 Borrowers and the Guarantors contained herein or
made in writing in connection
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herewith shall survive the execution and delivery of this Agreement, the making
of Loans hereunder and the issuance of the Notes.
9.04. Expenses and Fees; Indemnity.
(a) Each Borrower agrees to pay or cause to be paid and to save the Agents
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 Agents 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 Loan Documents,
(ii) any requested amendments, modifications, supplements, waivers or consents
(whether or not ultimately entered into or granted) to this Agreement or any
Loan Document, and (iii) the enforcement or preservation of rights under this
Agreement or any Loan Document (including but not limited to any such costs or
expenses arising from or relating to (A) collection or enforcement of an
outstanding Loan or any other amount owing hereunder or thereunder by either
Agent or any Bank and (B) any litigation, proceeding, dispute, work-out,
restructuring or rescheduling related in any way to this Agreement or the Loan
Documents). Notwithstanding the foregoing, the Borrowers 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 Borrower 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 either Agent or any Bank to
be payable in connection with this Agreement or any other Loan Documents or any
other documents, instruments or transactions pursuant to or in connection
herewith or therewith, and the Borrower agrees to save each 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 Borrower hereby agrees to reimburse and indemnify each 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 Loan 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 Loan (and without in any way limiting the
generality of the foregoing, including any violation or breach of any Law by any
Borrower or any exercise by either Agent or any Bank of any of its rights or
remedies under this Agreement or any other Loan Document; any breach of any
representation or warranty, covenant or agreement of any Borrower); 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 Borrowers under this Section 9.04,
or any other indemnification obligation of the Borrowers hereunder or under any
other Loan Document, are unenforceable for any reason, the Borrowers hereby
agree to make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable Law. Notwithstanding the
foregoing, the Borrowers 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 Loan Document should be held
invalid, illegal or unenforceable in any respect, the
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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 or under the Notes 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 Administrative
Agent at One Mellon Bank Center, Pittsburgh, Pennsylvania 15258, Attention:
Susan Whitewood, Facsimile No. 412-234-8087, with a copy to Mellon Bank Loan
Administration, Three Mellon Bank Center, Pittsburgh, Pennsylvania 15259,
Facsimile No. 412-209-6134; if to the Syndication Agent at 270 Park Avenue, 20th
Floor, New York, New York 10017, Attention: Donald Rands and if to X.L. Capital,
at Cumberland House, One Victoria Street, Hamilton HM11 Bermuda, Attention:
William Robbie, fax no. (441) 292-8618, with a copy to Paul Giordano, Esq. at
the same address and fax number, 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 either Agent or any Bank or providing
information to either Agent or any Bank, XL Capital shall act as the agent for
XL Insurance and XL Mid Ocean.
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 BORROWER HEREBY EXPRESSLY AND IRREVOCABLY
SUBMITS TO THE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA
AND THE UNITED STATES DISTRICT COURT FOR THE WESTERN 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 BORROWER 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 RELATED
HERETO TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT
FOR EACH 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.
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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 Borrowers 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 and the Notes.
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 Borrowers, the Banks, the Agents,
all future holders of the Notes and their respective successors and assigns,
except that no Borrower may assign or otherwise transfer any of its rights or
duties under this Agreement without the prior written consent of the Agents 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 Loan Documents (including, without limitation, all or a portion of
its Commitments and the Loans owing to it and any Notes held by it); 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 each Borrower and the Administrative Agent, unless an Event of Default
has occurred and is continuing, in which case the consent of the Borrowers
shall not be required,
(ii) any such Bank's obligations under this Agreement and the other
Loan 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 Loan Documents,
(v) such Participant shall be bound by the provisions of Section
9.18 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 Loan
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), (d) or (e) 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 principal, interest rates, fees and
maturity.
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The Borrowers agree 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 Loans 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
Loan Documents (including, without limitation, all or any portion of its
Commitments and Loans owing to it and any Note held by it) 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 XL
Capital and the Administrative Agent, unless an Event of Default has
occurred and is continuing or exists, in which case the consent of XL
Capital 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 Loan
Documents, such assignment shall be in a minimum aggregate principal
amount of $10,000,000 of the Commitments and Loans then outstanding,
(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 Loan 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 Administrative Agent a
duly completed Transfer Supplement (including the consents required by
clause (i) of the preceding sentence) with respect to such assignment,
together with any Notes subject to such assignment (the "Transferor Bank
Notes") and a processing and recording fee of $2,500; and, upon receipt
thereof, the Administrative 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 Administrative Agent shall record such acceptance
in the Register. Upon such execution, delivery, acceptance and recording,
from and after the close of business at the Administrative 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.
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On or prior to the Transfer Effective Date specified in an Transfer Supplement,
the Borrowers, at their expense, shall execute and deliver to the Administrative
Agent (for delivery to the Purchasing Bank) new Notes evidencing such Purchasing
Bank's assigned Commitments or Loans and (for delivery to the transferor Bank)
replacement Notes in the principal amount of the Loans or Commitments retained
by the transferor Bank (such Notes to be in exchange for, but not in payment of,
those Notes then held by such transferor Bank). Each such Note shall be dated
the date and be substantially in the form of the predecessor Note. The
Administrative Agent shall mark the predecessor Notes "exchanged" and deliver
them to the Borrower. Accrued interest and accrued fees shall be paid to the
Purchasing Bank at the same time or times provided in the predecessor Notes and
this Agreement.
(d) Register. The Administrative 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 Commitment of,
and principal amount of the Loans owing to, each Bank from time to time. The
entries in the Register shall be conclusive absent manifest error and the
Borrowers, the Administrative 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 any Borrower or any
Bank at any reasonable time and from time to time upon reasonable prior notice.
(e) Financial and Other Information. Each Borrower authorizes each 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 Borrowers and their
affiliates which has been or may be delivered to such Person by or on behalf of
the Borrowers in connection with this Agreement or any other Loan Document or
such Person's credit evaluation of the Borrowers and their affiliates. At the
request of any Bank, each Borrower, at such Borrower's expense, shall provide to
each prospective transferee the conformed copies of documents referred to in
Section 4 of the form of Transfer Supplement.
(f) Designated Lenders. Notwithstanding anything to the contrary contained
herein, any Bank (a "Designating Lender") may grant to an Eligible Designee
identified as such (and as a Designated Lender) in writing from time to time by
such Designating Lender to the Administrative Agent and the Borrowers, the
option to provide to the Borrowers all or any part of any Loan that such
Designating Lender would otherwise be obligated to make to any Borrower pursuant
to this Agreement; provided that nothing herein shall constitute a commitment by
such Designated Lender to make any Loan and (ii) if a Designated Lender elects
not to exercise such option or otherwise fails to provide all or any part of
such Loan, the Designating Lender shall be obligated to make such Loan pursuant
to the terms hereof. The making of a Loan by a Designated Lender hereunder shall
utilize the Committed Amount of the Designating Lender to the same extent, and
as if, such Loan were made by such Designating Lender. Each party hereto hereby
agrees that no Designated Lender shall be liable for any indemnity or similar
payment obligation under this Agreement (all liability for which shall remain
with the Designating Lender). In furtherance of the foregoing, each party hereto
hereby agrees (which agreement shall survive the termination of this Agreement)
that, prior to the date that is one year and one day after the payment in full
of all outstanding commercial paper or other senior indebtedness of any
Designated Lender, it will not institute against, or join any other person in
instituting against, such Designated Lender any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under the laws of the United
States or any State thereof. As to any Loans or portion thereof made by it, each
Designated Lender shall have all the rights that a Bank making such Loans or
portion thereof would have had under this Agreement and otherwise; provided that
(i) its voting rights under this Agreement shall be exercised solely by its
Designating Lender, (ii) its Designating Lender shall be deemed to hold its
relevant Note as agent for its Designated Lender to the extent of the Loans or
portion thereof funded by such Designated Lender and (iii) the designation of a
Designated Lender and the funding of Loans by a Designated Lender shall in no
event (x) subject any of the Borrowers to any delay in the making of a Loan, (y)
cause or give rise to any obligation of any of the Borrowers to indemnify or
hold harmless such Designated Lender or any other person (including without
limitation pursuant to Sections 2.11 and 9.04 of this Agreement) except to the
extent such obligation would have arisen in favor of the
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Designating Lender or another person if the Designating Lender (rather than such
Designated Lender) had made all of such Designated Lender's Loans and such
Designated Lender had not been designated as such hereunder, or (z) render the
performance of any provision of the Agreement illegal, void or unenforceable
under any provision of law. Each Designating Lender shall act as administrative
agent for its Designated Lender and give and receive notices and other
communications on behalf of its Designated Lender. Any payments for the account
of any Designated Lender shall be paid to its Designating Lender as
administrative agent for such Designated Lender and neither the Borrowers nor
either Agent shall be responsible for any Designating Lender's application of
such payments. In addition, any Designated Lender may (i) with notice to, but
without the prior written consent of, XL Capital and the Administrative Agent
and without paying any processing fee therefor, assign all or a portion of its
interests in any Loans to the Designating Lender or to any financial
institutions (consented to by XL Capital and the Administrative Agent) providing
liquidity and/or credit support to or for the account of such Designated Lender
to support the funding or maintenance of Loans and (ii) disclose on a
confidential basis any non-public information relating to its Loans or portions
thereof to any rating agency, commercial paper dealer or provider of any surety,
guarantee or credit or liquidity enhancement to such Designated Lender. This
section may not be amended without the written consent of each Designating
Lender which has designated a Designated Lender.
9.14. Amendments and Waivers. Neither this Agreement nor any Loan Document
may be amended, modified or supplemented except in accordance with the
provisions of this Section. The Administrative Agent and the Borrowers may from
time to time amend, modify or supplement the provisions of this Agreement or any
other Loan Document for the purpose of amending, adding to, or waiving any
provisions or changing in any manner the rights and duties of any Borrower,
either Agent or any Bank. Any such amendment, modification or supplement made by
the Borrowers and the Administrative Agent in accordance with the provisions of
this Section shall be binding upon the Borrowers, each Bank and each Agent. The
Administrative Agent shall enter into such amendments, modifications or
supplements from time to 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 Committed Amount of any Bank over the amount thereof then
in effect, or extend the Expiration Date, without the written consent of each
Bank affected thereby;
(b) Reduce the principal amount of or extend the payment of principal of
any Loan, or reduce the rate of interest or extend the time for payment of
interest borne by any Loan or extend the time for payment of or reduce the
amount of any Facility Fee or reduce or postpone the date for payment of any
other fees, expenses, indemnities or amounts payable under any Loan 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 VIII hereof with
respect to either Agent, or impose additional duties upon either Agent or
otherwise adversely affect the rights, interests or obligations of either Agent,
without the written consent of such Agent; or
(e) Amend or waive any of the provisions of Article X or release any
Guarantor from its obligations hereunder;
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.
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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 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
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 Borrowers hereunder and shall apply irrespective of any
indulgence granted by the Banks.
9.16. Records. The unpaid principal amount of the Loans owing to each
Bank, the unpaid interest accrued thereon, the interest rate or rates applicable
to such unpaid principal amount, the duration of such applicability, each Bank's
Committed Amount and the accrued and unpaid Facility Fees shall at all times be
ascertained from the records of the Administrative Agent, which shall be
conclusive absent manifest error.
9.17 Confidentiality. Each of the Agents and the Banks agree to keep
confidential any information relating to the Borrowers received by it pursuant
to or in connection with this Agreement which is (a) information which the
Agents and the Banks reasonably expect that the applicable Borrower 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
either Agent or any Bank from disclosing such information (i) to any affiliate
that shall agree in writing for the benefit of the Borrowers 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 such 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 either 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 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 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 Borrowers 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.
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 Administrative 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
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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. Each 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.
ARTICLE X
GUARANTEE
10.01. The Guarantee. Each of XL Insurance, XL Capital and XL Mid Ocean
(the "Guarantors") guarantees to the Agents and the Banks as hereinafter
provided the prompt payment of the Obligations of each of the Borrowers (other
than itself) (the "Guaranteed Obligations") in full when due (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), such 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 any 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 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 any Borrower for amounts paid under this Guarantee until
such time as the Banks have been paid in full, the Committed Amounts under the
Credit Agreement have been reduced to zero 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 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 any 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
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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, either Agent or any Bank
as security for any of the Guaranteed Obligations shall be void or
voidable, 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 any Guarantor) or shall be subordinated to the claims of any
Person (including, without limitation, any creditor of any 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 Agents, the Banks or any of them 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.
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 Agents 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 either 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
Agents 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 Loan Documents,
no 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 Borrower,
or (y) make loans or advances to any Borrower or (z) transfer any of its
properties or assets to any Borrower.
-43-
<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.
XL INSURANCE LTD
By: /s/ Brian M. O'Hara
--------------------------------------
(Signature)
Name: Brian M. O'Hara
------------------------------------
Title: Chairman
------------------------------------
XL MID OCEAN REINSURANCE LTD
By: /s/ Brian M. O'Hara
--------------------------------------
(Signature)
Name: Brian M. O'Hara
------------------------------------
Title: Chairman
------------------------------------
XL CAPITAL LTD
By: /s/ Brian M. O'Hara
--------------------------------------
(Signature)
Name: Brian M. O'Hara
------------------------------------
Title: President & Chief Executive Officer
------------------------------------
-44-
<PAGE>
MELLON BANK, N.A., as a Bank and as Administrative Agent
By: /s/ Karla K. Maloof
--------------------------------------
(Signature)
Name: Karla K. Maloof
------------------------------------
Title: Vice President
------------------------------------
Notice Address:
Institutional Banking Department
One Mellon Bank Center, Room 4401
Pittsburgh, PA 15258
Attn: Susan Whitewood
Facsimile No. 412-234-8087
with a copy to:
Mellon Bank Loan Administration
Three Mellon Bank Center
Pittsburgh, PA 15259
Facsimile No. 412-209-6134
Initial Committed Amount: $65,000,000
-45-
<PAGE>
THE CHASE MANHATTAN BANK, as a Bank and as Syndication Agent
By: /s/ Donald L. Rands
--------------------------------------
(Signature)
Name: Donald L. Rands
------------------------------------
Title: Vice President
------------------------------------
Notice Address:
270 Park Avenue, 20th Floor
New York, New York 10017
Attn: Donald Rands
Initial Committed Amount: $65,000,000
-46-
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ J.R. Trimble
--------------------------------------
(Signature)
Name: J.R. Trimble
------------------------------------
Title: Senior Relationship Manager
------------------------------------
Notice Address:
New York Branch
One Liberty Plaza
New York, New York 10006
Attn: Jim Trimble
Initial Committed Amount: $55,000,000
-47-
<PAGE>
CITIBANK, N.A.
By: /s/ Michael Taylor
--------------------------------------
(Signature)
Name: Michael Taylor
------------------------------------
Title: Vice President
------------------------------------
Notice Address:
Cottons Centre, Hays Lane
London SE1 2QT
Attn: Michael A. L. Taylor
Initial Committed Amount: $55,000,000
-48-
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Sebastian Rocco
--------------------------------------
(Signature)
Name: Sebastian Rocco
------------------------------------
Title: Senior Vice President
------------------------------------
Notice Address:
1301 Avenue of the Americas
New York, New York 10019
Attn: Jimmy Tse
Initial Committed Amount: $55,000,000
-49-
<PAGE>
DEUTSCHE BANK AG, NEW YORK OR CAYMAN ISLANDS BRANCHES
By: /s/ John S. McGill /s/ Clinton M. Johnson
--------------------------------------------
(Signature)
Name: John S. McGill Clinton M. Johnson
------------------------------------------
Title: Director Director
------------------------------------------
Notice Address:
31 West 52nd Street
New York, New York 10019
Attn: Clinton M. Johnson
Initial Committed Amount: $55,000,000
-50-
<PAGE>
BANK OF AMERICA NT&SA
By: /s/ Nita Savage
--------------------------------------
(Signature)
Name: Nita Savage
------------------------------------
Title: Vice President
------------------------------------
Notice Address:
231 S.LaSalle Street-10th Floor
Chicago, IL 60697
Attn: Nita Savage
Initial Committed Amount: $25,000,000
-51-
<PAGE>
THE BANK OF BERMUDA LIMITED
By: /s/ Michael W. Collins
--------------------------------------
(Signature)
Name: Michael W. Collins
------------------------------------
Title: Senior Vice President
------------------------------------
Notice Address:
6 Front Street
Hamilton HM 11, Bermuda
Attn: Hanne Frost
Initial Committed Amount: $25,000,000
-52-
<PAGE>
BANQUE NATIONALE DE PARIS
By: /s/ Phil Truesdale /s/ Veronique Marcus
-------------------------------------------------
(Signature)
Name: Phil Truesdale Veronique Marcus
-----------------------------------------------
Title: Chairman
-----------------------------------------------
Notice Address:
499 Park Avenue
New York, NY 10022
Attn: Phil Truesdale
Initial Committed Amount: $25,000,000
-53-
<PAGE>
FLEET NATIONAL BANK
By: /s/ Anson Harris
---------------------------------------
(Signature)
Name: Anson Harris
-------------------------------------
Title: Vice President
-------------------------------------
Notice Address:
Mail Stop CTMO 0250
777 Main Street
Hartford, CT 06115-2001
Attn: Anson T. Harris
Initial Committed Amount: $25,000,000
-54-
<PAGE>
STATE STREET BANK AND TRUST COMPANY
By: /s/ Edward M. Anderson
-----------------------------------
(Signature)
Name: Edward M. Anderson
---------------------------------
Title:
---------------------------------
Notice Address:
2 Avenue De Lafayette
2nd Floor-LCC2N
Boston, MA 02111
Attn: Edward M. Anderson
Initial Committed Amount: $25,000,000
-55-
<PAGE>
ROYAL BANK OF CANADA
By: /s/ V. Abdelmessih
-----------------------------------
(Signature)
Name: V. Abdelmessih
---------------------------------
Title: Senior Account Manager
--------------------------------
Notice Address:
New York Branch
One Liberty Plaza, 4th Floor
New York, New York 10006-1404
Attn: Manager, Loans Administration
Facsimile No.: (212)428-2372
with a copy to
One Liberty Plaza, 4th Floor
New York, NY 10006-1404
Attn: Vivian Abdelmessih
Facsimile No: (212) 428-6201
Initial Committed Amount: $25,000,000
-56-
<PAGE>
Exhibit 10.14.23
02.24.00
FIRST AMENDMENT TO SHORT TERM REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SHORT TERM REVOLVING CREDIT AGREEMENT, dated
as of February 25, 2000 (this "Amendment"), by and among XL Capital Ltd, XL
Insurance Ltd, XL Mid Ocean Reinsurance Ltd, as Borrowers and Guarantors (the
"Borrowers"), X.L. America, Inc., a Delaware corporation ("XL America" and,
collectively with the Borrowers, the "XL Parties"), Mellon Bank, N.A., as
Administrative Agent (the "Administrative Agent"), The Chase Manhattan Bank, as
Syndication Agent (the "Syndication 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 Banks, the Administrative Agent and the
Syndication Agent are parties to a Short Term Revolving Credit Agreement, dated
as of June 30, 1999 (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, XL America is a subsidiary of XL Capital and of XL
Insurance and the XL Parties desire that XL America become a Borrower under the
Credit Agreement;
WHEREAS, the XL Parties have requested the Banks to make certain
additional changes to the Credit Agreement;
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:
<PAGE>
(a) Section 1.01 of the Credit Agreement is hereby amended by adding
thereto, in appropriate alphabetical sequence, the following definitions:
"Asset Accumulation Lien" means a Lien on amounts
received, and on actual and imputed investment income on such
amounts received, relating and identified to specific
insurance payment liabilities or to liabilities arising in the
ordinary course of any Borrower's or Subsidiary's business as
an insurance or reinsurance company or corporate member of
Lloyd's or as a provider of financial services or contracts,
or the proceeds thereof, in each case held in a segregated
trust or other account and securing such liabilities;
provided, that in no case shall an Asset Accumulation Lien
secure Indebtedness and any Lien which secures Indebtedness
shall not be an Asset Accumulation Lien.
"Borrowers" shall mean XL Capital, XL Insurance,
XL Mid Ocean and XL America and "Borrower" shall mean any one
of them.
"Total Adjusted Funded Debt" shall have the
meaning given that term in Section 6.06 hereof.
"XL America" shall mean X.L. America, Inc., a
Delaware corporation and an indirect wholly-owned subsidiary
of XL Capital.
(b) The definition of the term "Total Exposure" appearing in Section
1.01 of the Credit Agreement is hereby amended by adding thereto,
immediately following the phrase "to XL Insurance," appearing therein, the
phrase "to XL America,".
(c) Section 2.03(a) of the Credit Agreement is hereby amended by
adding thereto, immediately following the phrase "to XL Insurance,"
appearing therein, the phrase "to XL America,".
-2-
<PAGE>
(d) Section 2.06(a) of the Credit Agreement is hereby amended by
adding thereto, immediately following the phrase "to XL Insurance,"
appearing therein, the phrase "XL America,".
(e) Section 5.01 of the Credit Agreement is hereby amended by adding
at the end thereof a new paragraph (j) thereof to read as follows:
(j) Information Regarding Asset Accumulation
Liens. At the time of furnishing each certificate furnished
pursuant to paragraph (c) of this Section 5.01, a statement,
certified as true and correct by a principal financial officer
of XL Capital, setting forth on a consolidated basis for XL
Capital and its consolidated Subsidiaries as of the end of the
fiscal year or quarter to which such certificate relates (A)
the aggregate book value of assets which are subject to Asset
Accumulation Liens and the aggregate book value of liabilities
which are secured by Asset Accumulation Liens (it being
understood that the reports required by paragraphs (a) and (b)
of this Section 5.01 shall satisfy the requirement of this
clause (A) of this paragraph (j) if such reports set forth
separately, in accordance with GAAP, line items corresponding
to such aggregate book values) and (B) a calculation showing
the portion of each of such aggregate amounts which portion is
attributable to transactions among wholly-owned Subsidiaries
of XL Capital.
(f) 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 the phrase "; or" and by adding at the end of such Section a new
paragraph (g) to read as follows:
(g) Asset Accumulation Liens.
(g) Section 6.06 of the Credit Agreement is hereby amended to read
as follows:
-3-
<PAGE>
6.06. Ratio of Total Adjusted Funded Debt to
Consolidated Capital. XL Capital will not permit its ratio of
(i) Total Adjusted Funded Debt to (ii) the sum of Total
Adjusted Funded Debt plus Consolidated Net Worth to be greater
than 0.35 at any time. As used herein, the term "Total
Adjusted Funded Debt" shall mean, at any time, the sum of (x)
Total Funded Debt at such time plus (y) the aggregate undrawn
face amount of all letters of credit (as to which
reimbursement obligations are not secured by marketable
securities with a value at least equal to the face amount of
such letters of credit) issued for the account of, or
guaranteed by, XL Capital or any of its consolidated
Subsidiaries at such time (irrespective of whether the
beneficiary thereof is an Affiliate).
(h) Section 7.01(h) of the Credit Agreement is amended by adding
thereto, immediately after the phrase "voting shares of capital stock", the
phrase "of XL America,".
(i) Section 9.07 of the Credit Agreement is hereby amended by adding
thereto, immediately after the phrase "as the agent for" appearing in the last
sentence thereof, the phrase "XL America,".
SECTION 2. Addition of XL America as Borrower. XL America hereby
agrees to become and be a Borrower under, and as defined in, the Credit
Agreement (as amended hereby) and agrees to be bound by the terms of the Credit
Agreement (as so amended) as a Borrower.
SECTION 3. Conditions to Effectiveness. This First Amendment shall
become effective upon the execution and delivery hereof by the XL Parties, the
Required Banks and the Administrative Agent, provided, however, that no Loans
under the Credit Agreement as amended hereby shall be made to XL America until
(i) all the Banks have executed this Amendment or have otherwise consented in
writing to XL America becoming a Borrower under the Credit Agreement as amended
hereby and (ii) the following additional conditions shall have been fulfilled on
or prior to a date (prior to March 31, 2000) designated in writing to the
Administrative Agent by XL Capital (the "XL America Amendment Date"):
-4-
<PAGE>
(a) Proceedings and Incumbency. There shall have been delivered to
the Administrative Agent with sufficient copies for each Bank a
certificate with respect to XL America in form and substance satisfactory
to the Administrative Agent dated on or about the XL America Amendment
Date and signed on behalf of XL America by its Secretary or an Assistant
Secretary, certifying as to: (a) true copies of all corporate action taken
by XL America relative to this Amendment and the other Loan Documents
applicable to it and (b) the names, true signatures and incumbency of the
officer or officers of XL America authorized to execute and deliver this
Amendment and the other Loan 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
Administrative Agent with sufficient copies for each Bank (i) certified
copies of the certificate of incorporation and by-laws for XL America and
(ii) a certificate of good standing for XL America certified by the
Secretary of State of Delaware.
(c) Opinions of Counsel. There shall have been delivered to the
Administrative Agent with sufficient copies for each Bank a written
opinion addressed to the Banks, dated on or about the XL America Amendment
Date, of Cahill Gordon & Reindel, the Borrowers' U.S. counsel, in form
satisfactory to the Administrative Agent, which is substantially to the
effects (insofar as XL America is concerned), but with reference to this
Amendment and the Credit Agreement as amended hereby, set forth in the
opinions delivered by counsel to the Borrowers on the Closing Date.
(d) Details, Proceedings, Notes and other Documents. All legal
details and proceedings in connection with the transactions contemplated
by this Amendment shall be satisfactory to the Administrative Agent and
each Bank shall have received all such counterpart originals or certified
or other copies of the Loan Documents (including a Note issued by XL
America for each Bank in substantially the form of Exhibit A-1 to the
Credit Agreement, with appropriate changes) and such other documents and
proceedings in connection with such transactions, in form and substance
-5-
<PAGE>
satisfactory to it, as the Administrative Agent or any Bank have
reasonably requested.
(e) Expenses. The Borrowers shall have paid all expenses and other
compensation to be paid by them hereunder on or prior to the XL America
Amendment Date.
(f) Representation and Warranties. The representations and
warranties contained in Article III of the Credit Agreement shall be true
on and as of the XL America Amendment Date with the same effect as though
made on and as of the XL America Amendment Date, after giving effect to
this First Amendment (it being understood that references in such Article
III to the Credit Agreement shall be deemed for this purpose to be
references to this First Amendment and to the Credit Agreement as amended
hereby) and the Administrative Agent shall have received a certificate of
XL Capital and, insofar as is applicable to it, XL America, to such
effect.
SECTION 4. 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 5. 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 6. 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.
XL INSURANCE LTD
as Borrower and as Guarantor
By: /s/ Christopher Coelho
----------------------------------------
Title: Chief Financial Officer
-------------------------------------
-6-
<PAGE>
XL MID OCEAN REINSURANCE LTD,
as Borrower and as Guarantor
By: /s/ Henry C.V.Keeling
----------------------------------------
Title: President & CEO
-------------------------------------
XL CAPITAL LTD,
as Borrower and as Guarantor
By: /s/ Brian M. O'Hara
----------------------------------------
Title: President & CEO
-------------------------------------
X.L. AMERICA, INC.
as Borrower
By: /s/ Richard H. Miller
----------------------------------------
Title: Chief Financial Officer
-------------------------------------
-7-
<PAGE>
MELLON BANK, N.A., as a Bank
and as Administrative Agent
By: /s/ Karla Maloof
----------------------------------------
Title: Vice President
-------------------------------------
THE CHASE MANHATTAN BANK, as a
Bank and as Syndication Agent
By: /s/ Donald Rands
----------------------------------------
Title: Vice President
-------------------------------------
THE BANK OF NOVA SCOTIA, as a Bank
By: /s/ John Hopmans
----------------------------------------
Title: Managing Director
-------------------------------------
CITIBANK, N.A., as a Bank
By: /s/ Michael Taylor
----------------------------------------
Title: Vice President
-------------------------------------
-8-
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH,
as a Bank
By: /s/ Sebastian Rocco
----------------------------------------
Title: Senior Vice President
-------------------------------------
By: ________________________________________
Title: _____________________________________
DEUTSCHE BANK AG, NEW YORK OR CAYMAN
ISLANDS BRANCHES,
as a Bank
By: /s/ John S. McGill
----------------------------------------
Title: Director
-------------------------------------
By: ________________________________________
Title: _____________________________________
BANK OF AMERICA, N.A.,
as a Bank
By: /s/ Debra Basler
----------------------------------------
Title: Vice President
-------------------------------------
THE BANK OF BERMUDA LIMITED,
as a Bank
By: /s/
----------------------------------------
Title: Vice President
-------------------------------------
-9-
<PAGE>
BANQUE NATIONALE DE PARIS,
as a Bank
By: /s/ Phil Truesdale
----------------------------------------
Title: Vice President
-------------------------------------
By: /s/
----------------------------------------
Title: Vice President
-------------------------------------
FLEET NATIONAL BANK, as a Bank
By: /s/ Anson Harris
----------------------------------------
Title: Vice President
-------------------------------------
STATE STREET BANK AND TRUST
COMPANY, as a Bank
By: /s/ Edward M. Anderson
----------------------------------------
Title: Vice President
-------------------------------------
ROYAL BANK OF CANADA,
as a Bank
By: /s/
----------------------------------------
Title: Senior Manager
-------------------------------------
-10-
<PAGE>
Exhibit 10.14.24
070299
$300,000,000
LETTER OF CREDIT FACILITY
AND REIMBURSEMENT AGREEMENT
BETWEEN
XL INSURANCE LTD, XL CAPITAL LTD,
XL EUROPE, XL MID OCEAN REINSURANCE LTD,
and
THE BROCKBANK GROUP Plc,
as Account Parties,
AND
XL INSURANCE LTD, XL CAPITAL LTD, XL MID OCEAN REINSURANCE LTD and
XL INVESTMENTS LTD,
as Guarantors,
AND
THE BANKS PARTIES HERETO FROM TIME TO TIME
AND
MELLON BANK, N.A.,
as Issuing Bank and as Agent
AND
MELLON BANK, N.A. and DEUTSCHE BANK SECURITIES INC., as Arrangers
DATED AS OF
June 30, 1999
<PAGE>
Table of Contents
Section Title Page
- ------- ----- ----
ARTICLE I DEFINITIONS; CONSTRUCTION........................ 1
1
1.01 Certain Definitions.............................. 10
1.02 Construction..................................... 10
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......... 14
2.05 Letter of Credit Drawings and Reimbursements..... 15
2.06 Equalization..................................... 16
2.07 Obligations Absolute............................. 16
2.08 Further Assurances............................... 16
2.09 Letter of Credit Applications.................... 16
2.10 Certain Provisions Relating to the issuing Bank.. 17
2.11 Payments Generally; Interest and Interest on
Overdue Amounts.................................. 18
2.12 Additional Compensation in Certain Circumstances. 18
2.13 Taxes............................................ 19
2.14 Extensions of Expiration Date.................... 21
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............................ 25
3.04 Litigation....................................... 25
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.................................. 26
3.10 Permits, Licenses and Rights..................... 26
3.11 Accurate and Complete Disclosure................. 26
3.12 Absence of Violations............................ 26
3.13 Environmental Matters............................ 26
3.14 Not an Investment Company........................ 26
3.15 Year 2000 Compliance 26
ARTICLE IV CONDITIONS....................................... 27
4.01 Effectiveness.................................... 27
4.02 Issuance of Letters of Credit.................... 28
i
<PAGE>
ARTICLE V AFFIRMATIVE COVENANTS............................ 28
5.01 Reporting and Information Requirements........... 29
5.02 Preservation of Existence and Franchises......... 30
5.03 Insurance........................................ 30
5.04 Maintenance of Properties........................ 30
5.05 Payment of Taxes and Other Potential Charges and
Priority Claims Payment of Other Current
Liabilities...................................... 30
5.06 Financial Accounting Practices................... 31
5.07 Compliance with Applicable Laws.................. 31
5.08 Use of Proceeds.................................. 31
5.09 Continuation Of and Change In Business........... 31
5.10 Visitation....................................... 31
ARTICLE VI NEGATIVE COVENANTS............................... 31
6.01 Mergers and Acquisitions......................... 31
6.02 Dispositions of Assets........................... 32
6.03 Liens............................................ 32
6.04 Transactions With Affiliates..................... 33
6.05 Business......................................... 33
6.06 Ratio of Total Funded Debt to Consolidated
Tangible Net Worth............................... 33
6.07 Consolidated Tangible Net Worth.................. 34
6.08 Indebtedness..................................... 34
6.09 Claims-Paying Ratings............................ 34
6.10 Private Act...................................... 34
ARTICLE VII EVENTS OF DEFAULT................................ 34
7.01 Events of Default................................ 34
ARTICLE VIII THE AGENT........................................ 36
8.01 Appointment...................................... 36
8.02 General Nature of Agent's Duties................. 36
8.03 Exercise of Powers............................... 37
8.04 General Exculpatory Provisions................... 37
8.05 Administration by the Agent...................... 38
8.06 Bank Not Relying on Agent or Other Banks......... 39
8.07 Indemnification.................................. 39
8.08 Agent in its Individual; Capacity................ 39
8.09 Successor Agent.................................. 39
8.10 Additional Agents................................ 40
8.11 Calculations..................................... 40
8.12 Agent's Fee...................................... 40
ARTICLE IX MISCELLANEOUS.................................... 40
9.01 No Implied Waiver etc............................ 40
9.02 Set-Off.......................................... 40
9.03 Survival of Provisions........................... 41
9.04 Expenses and Fees; Indemnity..................... 41
9.05 Severability..................................... 42
ii
<PAGE>
9.06 Holidays......................................... 42
9.07 Notices, etc..................................... 42
9.08 Forum Selection and Consent to Jurisdiction...... 42
9.09 Waiver of Jury Trial............................. 42
9.10 Governing Law.................................... 43
9.11 Validity and Enforceability...................... 43
9.12 Counterparts..................................... 43
9.13 Successors and Assigns; Participations;
Assignments...................................... 43
9.14 Amendments and Waivers........................... 45
9.15 Judgment Currency................................ 45
9.16 Records.......................................... 47
9.17 Confidentiality.................................. 47
9.18 Sharing of Collections 47
ARTICLE X GUARANTEE........................................ 47
10.01 The Guarantee.................................... 47
10.02 Obligations Unconditional........................ 48
10.03 Reinstatement.................................... 49
10.04 Remedies......................................... 49
10.05 Continuing Guarantee............................. 49
10.06 No Restrictions.................................. 49
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 [Intentionally Omitted]
Exhibit F Letter of Credit Application
Schedule 2.01(b) Form of Evergreen Provision
Schedule 3.01 Subsidiaries
Schedule 6.03(a) Liens
iii
<PAGE>
LETTER OF CREDIT FACILITY AND REIMBURSEMENT AGREEMENT, dated as of June
30, 1999, by and between XL INSURANCE LTD, a Bermuda limited liability
corporation ("XL Insurance"), XL CAPITAL LTD, a corporation organized under the
laws of the Cayman Islands, British West Indies ("XL Capital"), XL EUROPE, a
company incorporated under the laws of Ireland ("XL Europe"), XL MID OCEAN
REINSURANCE LTD, a Bermuda limited liability corporation ("XL Mid Ocean"), THE
BROCKBANK GROUP Plc, an English limited company ("Brockbank Group") (XL
Insurance, XL Capital, XL Europe, XL Mid Ocean and Brockbank Group are referred
to hereinafter individually as an "Account Party" and collectively as the
"Account Parties"), XL INVESTMENTS LTD, a Bermuda limited liability corporation
("XL Investments") (XL Insurance, XL Mid Ocean, XL Investments and XL Capital
are referred to herein individually as a "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"), 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") and MELLON BANK, N.A. and DEUTSCHE
BANK SECURITIES, INC., as Arrangers (collectively in such capacity, the
"Arrangers").
PRELIMINARY STATEMENT
WHEREAS, XL Insurance, XL Mid Ocean, XL Investments, XL Europe, Venton
Underwriting Group Limited (a former affiliate of XL Insurance), certain banks
and Mellon Bank, N.A., as Issuing Bank and Agent, entered into the Letter of
Credit Facility and Reimbursement Agreement, dated as of February 27, 1998, as
amended by the First and Second Amendments thereto (as so amended, the "Prior
Agreement"); and
WHEREAS, the parties hereto desire that the Prior Agreement be terminated
and replaced the same with this Agreement; and
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 Arrangers 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:
<PAGE>
"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.
"Agreement" shall mean this Letter of Credit Facility and Reimbursement
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, the Arrangers and
the Agent.
"Banks" shall mean the parties (other than the Credit Parties but
including the Issuing Bank) 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 XL Capital; (b)
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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 XL Capital;
or (c) a majority of the members of XL Capital'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.
"Closing Date" shall mean July 2, 1999 or such later date prior to August
1, 1999, as may be specified by XL Capital 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.
"Consolidated Net Worth" shall mean at any date the consolidated
stockholders' equity of XL Capital 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 XL Capital 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, 1998, in the book value
of any asset owned by XL Capital 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 XL Investments and XL Mid Ocean pursuant to the Master
Custody Agreement, dated as of June 30, 1998, 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.
"Designated Accounts" shall have the meaning given that term in the Pledge
Agreement.
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"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.
"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.
"Existing Letters of Credit" shall mean the letters of credit issued and,
immediately prior to the Closing Date, outstanding as "Letters of Credit" under
the Prior Agreement.
"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" shall mean XL Insurance, XL Capital, XL Mid Ocean and XL
Investments and "Guarantor" shall mean any one of them.
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"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 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 or
reinsurance company or corporate member of Lloyds or as a provider of financial
services or contracts (in each case other than in connection with the provision
of financing to 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 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.
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"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.
"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 (including, without limitation, the amount of drafts presented but not
yet paid).
"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
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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 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% or more 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.
"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 and the Banks.
"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.
"Pledge Agreement" shall mean the Pledge Agreement, dated as of June 30,
1999, between the Agent, XL Investments and XL Mid Ocean, as amended or modified
from time to time.
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"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 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 "(pound)" 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).
"Prior Agreement" has the meaning ascribed to that term in the preambles
to this Agreement.
"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) 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 (ii) 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) and, (ii) 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.
"Register" shall have the meaning given that term in Section 9.13(d)
hereof.
"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.
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"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 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 Brockbank 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, among XL Insurance, XL Mid Ocean, EXEL
Acquisition Ltd., XL Capital, the banks parties thereto and Mellon Bank, N. A.,
as Agent, as amended or extended from time to time, and the Short Term Revolving
Credit Agreement, dated as of June 30, 1999, among XL Insurance, XL Mid Ocean,
XL Capital, the banks parties thereto and Mellon Bank, N. A. and The Chase
Manhattan Bank, as Agents, as amended or extended from time to time, and such
one or more other agreements as are replacements for one or both of such
Agreements.
"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 Percentage", "Tranche 2 Bank", "Tranche 2 Letter
of Credit", "Tranche 2 Letter of Credit Participating Interest Commitment
Percentage", "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.
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"Transfer Supplement" shall have the meaning given that term in Section
9.13(c)(iv) hereof.
"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.
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 Brockbank Group, the United
Kingdom, and with respect to XL 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 financial covenants 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
THE LETTER OF CREDIT FACILITY
2.01. Letters of Credit.
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(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
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 or from 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 an amount equal to 60% of the aggregate of the Banks'
Letter of Credit Participating Interest Committed Amounts 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 requested to be issued
by, and which are issued for the account of, XL Capital, XL Insurance or XL Mid
Ocean, respectively, may be stated to be issued for the account of NAC Re
Corporation, ECS, Inc., or Latin American Reinsurance Company, Ltd., in which XL
Capital, XL Insurance or XL Mid Ocean, as the case may be, has a direct or
indirect ownership interest, provided that, notwithstanding the fact that the
name of XL Capital, XL Insurance or XL Mid Ocean, as the case may be, may not
appear on the face of any such Letter of Credit, XL Capital, XL Insurance or XL
Mid Ocean, as the case may be, 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
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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 XL Capital 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 Acknowledgments (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
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 XL 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. XL 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 0.07% 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. XL Capital 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, which will promptly advise
the Banks of such notice. 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
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Bank in accordance with its customary practice with respect to its
customers generally (a "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 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 a 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.
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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 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
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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 XL Capital), without, protest or demand, all of which are hereby
waived, and an action therefor 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., Pittsburgh time) or 10:00 o'clock A.M., Pittsburgh time the
following day (if notice is given after 2:00 o'clock P.M., Pittsburgh time) ,
each 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 and subject to
Section 2.04(b). 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.
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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:
(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.
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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 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
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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
commitment hereunder 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 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),
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(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
(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
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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 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
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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 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. XL 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 XL
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 XL Insurance and XL 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
Current 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 Request. 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 XL
Capital, at a time when XL Capital has made an Extension Request
pursuant to Section 2.14
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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.
"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
Participating Interest Commitments, from and to the Tranche 2 Banks
in accordance with their respective Tranche 2 Letter of Credit
Participating Interest Commitment 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) XL
Capital 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) XL Capital has elected to
implement a Conversion to Tranche System or a Supplement to Tranche
System.
"Supplement to Tranche System" means the election by XL
Capital, at a time when the Conversion to Tranche System has been
previously made and when XL Capital 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.
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"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
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 XL Capital elects 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
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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 XL Capital elects a Supplement 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, but
such Nonextending Banks shall remain parties to this 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 XL 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.
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3.03. Financial Information. Such Credit Party (other than Brockbank
Group) has furnished to Agent, with sufficient copies for each Bank, copies of
the audited consolidated 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, 1998. 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 SAP, 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 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, 1998, 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 XL
Investments and XL Mid Ocean, 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.
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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 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 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.
3.15. Year 2000 Compliance. XL Capital has (i) initiated a review and
assessment of all areas within its and each of its Subsidiaries' business and
operations (including those affected by material suppliers, vendors and
customers) that could be adversely affected by the risk that computer
applications used by XL Capital or any of its Subsidiaries (or material
suppliers, vendors and customers other than those affecting customers that may
give rise to claims under insurance policies issued by XL Capital or any
Subsidiary of XL Capital) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999 (the "Year 2000 Problem") and (ii) developed a plan and
timetable for addressing the Year 2000 Problem on a timely basis. Based on the
foregoing, XL Capital believes that all computer applications of XL Capital and
its Subsidiaries that are material to its or any of its Subsidiaries' business
and operations are reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and after January 1, 2000
("Year 2000 Compliant"), except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect.
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ARTICLE IV
CONDITIONS
4.01. Effectiveness. The obligation of the Issuing Bank to issue Letters
of Credit and to permit the commencement of the maintenance of Existing Letters
of Credit as Letters of Credit hereunder 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 XL Europe) certified by the
appropriate Official Body of its place of organization.
(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, Hunter & Hunter 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 XL Investments
and XL Mid Ocean. The Custodian's Acknowledgments, as defined in the Pledge
Agreement, shall have been delivered to
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the Agent duly executed by the Custodian and by XL Investments and XL Mid Ocean,
respectively.
(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.
(i) Prior Agreement. The "Letter of Credit Committed Amounts" of the
"Banks" under and as defined in the Prior Agreement shall have been reduced to
zero and, on the Closing Date, there shall be no unreimbursed drawings under
letters of credit issued under the Prior Agreement or other amounts remaining
payable by the Account Parties thereunder and the Issuing Bank and the Agent
shall provide documentation to the other parties to the Prior Agreement to the
effect that no letters of credit are outstanding under the Prior Agreement (as
the Existing Letters of Credit shall have become Letters of Credit hereunder),
that the security interests relating to the Prior Agreement are released and
that all fees payable under the Prior Agreement have ceased to accrue.
4.02. Issuance of Letters of Credit. The obligation of the Issuing Bank to
issue any Letters of Credit hereunder (and to permit the commencement of the
maintenance of Existing Letters of Credit as 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 (or, in the case of Existing Letters of Credit, the Closing Date) 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 Letter of Credit Undrawn Availability (determined as
Dollar Equivalents) and the aggregate of the Letter of Credit Unreimbursed Draws
(determined as Dollar Equivalents) will not exceed the lesser of (x) the
aggregate amount of the Letter of Credit Participating Interest Committed
Amounts and (y) the Pledged Securities Available Amount.
ARTICLE V
AFFIRMATIVE COVENANTS
Each Credit Party, as applicable, hereby covenants to the Agent, the
Issuing Bank and each other Bank as follows:
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5.01. Reporting and Information Requirements. Each Credit Party shall
deliver to the Agent with sufficient copies for each Bank:
(a) Annual Reports. As soon as practicable and in any event within 100
days (or in the case of Brockbank Group eight months) after the close of each
fiscal year, audited consolidated statements of income, retained earnings and
cash flows of such Credit Party and its consolidated Subsidiaries, for such
fiscal year and a consolidated audited 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 Credit Parties which are
Insurance Subsidiaries, 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 (it being understood that delivery of XL Capital's Report
on Form 10-K filed with the Securities and Exchange Commission shall satisfy the
requirement of this Section 5.01(a) to deliver the annual financial statements
of XL Capital so long as the financial information required to be in such report
is substantially the same as the financial information required by this Section
5.01(a)).
(b) Quarterly Statements. Within sixty days after the end of the first,
second and third quarterly accounting periods in each fiscal year of XL Capital,
copies of the unaudited consolidated balance sheets of XL Capital and its
consolidated Subsidiaries as of the end of such accounting period and of the
consolidated income statements of XL Capital 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 XL Capital to
have been prepared in accordance with generally accepted accounting principles
consistently applied by XL Capital except as explained in such certificate (it
being understood that delivery of XL Capital's Report on Form 10-Q filed with
the Securities and Exchange Commission shall satisfy the requirement of this
Section 5.01(b) to deliver the quarterly financial statements of XL Capital so
long as the financial information required to be in such report is substantially
the same as the financial information required by this Section 5.01(b)).
(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 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.
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(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.
(i) Year 2000 Compliance. Promptly after any Credit Party's discovery or
determination thereof, notice (in reasonable detail) that any computer
application that is material to its or any of its Subsidiaries' business and
operations will not be Year 2000 Compliant (as defined in Section 3.15), except
to the extent that such failure could not reasonably be expected to have a
Material Adverse Effect.
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 Designated Accounts (and the Pledged Securities)
provided by the Custodian under the Custody Agreement referred to in the Pledge
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:
(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
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(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.
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
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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;
(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
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(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 or reinsurance 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). XL Investments shall not
conduct or be engaged in any business other than the business of holding
investments provided to it by XL Insurance, XL Mid Ocean and the affiliates of
XL Capital and the proceeds thereof.
6.06. Ratio of Total Funded Debt to Consolidated Tangible Net Worth. XL
Capital will not permit its ratio of (i) the sum of (x) Total Funded Debt plus
(y) the aggregate undrawn face amount of all letters of credit (as to which
reimbursement obligations are unsecured) issued for the account of, or as to
which reimbursement obligations are guaranteed by, XL Capital or any of its
Consolidated Subsidiaries to (ii) Consolidated Tangible Net Worth to be greater
than 0.35 at any time.
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6.07. Consolidated Tangible Net Worth. XL Capital will not permit its
Consolidated Tangible Net Worth to be less than $2,566,000,000.00 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 Document;
(b) Other Indebtedness, so long as upon the incurrence thereof no Event of
Default or Potential Default would occur or exist;
(c) 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
(d) Indebtedness incurred in transactions described in Section 6.03(f).
6.09. Claims-Paying Ratings. Each of XL Insurance and XL Mid Ocean shall
maintain at all times a claims-paying rating of at least "A" from Standard &
Poor's Ratings Services and from A.M. Best Company.
6.10. Private Act. Such Credit Party shall not become subject to a Private
Act except, in the case of XL 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;
(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 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
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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 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) XL Insurance shall cease to own, beneficially and of record, directly
or indirectly, 100% of the outstanding voting shares of common stock of XL
Investments;
(i) XL Capital shall cease to own, beneficially and of record, directly or
indirectly all of the outstanding voting shares of common stock of each other
Credit Party, except for a nominal number of shares owned by nominee
shareholders required by the applicable laws of the jurisdiction where such
Credit Party is incorporated;
(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 XL
Insurance , XL Investments, XL Capital or XL Mid Ocean 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 XL Investments or XL Mid Ocean, 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 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;
(m) Any Credit Party 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 the companies laws of the Cayman Islands,
British West Indies 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 XL 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 in furtherance of any of the aforesaid
purposes; or
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(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 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) a Credit Party shall
have arranged one or more separate financing transactions with credit providers
(which may, but need not, include any of the Banks) for which securities
entitlements in the Designated Accounts serve as collateral at a time when
securities entitlements in the Designated Accounts 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 Designated Accounts are allocated as collateral for the Obligations under
this Agreement and other specific securities entitlements within the Designated
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. The granting by a Credit Party to a person other than
Mellon Bank, N. A. of a security interest in securities entitlements which are
maintained in a Designated Account but which do not constitute Collateral (as
defined in the Pledge Agreement) shall not be a "Future Collateral Allocation
Transaction" and, accordingly, shall not require approval of the Required Banks
but shall be subject to the applicable provisions of the Custodian's
Acknowledgments, as defined in the Pledge Agreement.
(c). The Arrangers shall have no duties or obligations in such capacity
under this Agreement.
8.02. General Nature of Agent's Duties. Notwithstanding anything to the
contrary elsewhere in this Agreement or in any other Transaction Document:
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(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 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
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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 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.
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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
Credit 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 to the
extent resulting 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 after a proper 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
hereunder 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 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
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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. XL 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 XL 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 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
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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
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
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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, Room 4401, Pittsburgh, Pennsylvania 15258, Attention: Susan
Whitewood, fax no. (412) 234-8087, with a copy to Loan Administration, Three
Mellon Bank Center, Pittsburgh, PA 15259 fax no. (412) 209-6134; 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 4401, One Mellon Bank Center, Pittsburgh, Pennsylvania 15258, Attention:
Susan Whitewood; and if to any Credit Party, to XL Capital Ltd, Cumberland
House, One Victoria Street, Hamilton HM11 Bermuda, Attn:William Robbie, fax no.
(441) 292-5226, with a copy to XL Investments Ltd, XL Investments, Ltd, Richmond
House, 12 Par-la-Ville Road, Hamilton HM08 Bermuda, Attn: Chief Investment
Officer, fax no. (441) 296-4268, and, in the case of notices to The Brockbank
Group Plc, with a copy to Susan Newman, fax no (441) 296-3570, 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, XL 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 TRANSACTION 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 COMMONWEALTH OF
PENNSYLVANIA AND THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF
PENNSYLVANIA FOR THE PURPOSE OF ANY SUCH
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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 RELATED
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 Commitment and Letter of
Credit Participating Interests); 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 XL Insurance and the Agent, unless an Event of Default has occurred and
is continuing, in which case the consent of the Account Parties shall not
be required,
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(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
9.18 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), (d) or (e)
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 XL
Capital and the Issuing Bank, unless an Event of Default has occurred and
is continuing or exists, in which case the consent of XL Capital 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 any 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 such 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 VII 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 XL Investments or XL Mid Ocean from all of their respective obligations
as the Grantors 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, the Agent 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 and the Agent harmless against any
deficiency in terms of Dollars in the amounts received by the Banks or the
Agent, as the case may be, 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 or the Agent, as the case may be, is able to purchase Dollars with the
amount of the Judgment Currency actually received by such Bank or the Agent, as
the case may be, 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.
46
<PAGE>
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 any 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 any 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 voidable,
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 voidable (including, without limitation, for the benefit of any
creditor of any Guarantor) or shall be subordinated to the claims of any
Person (including, without limitation, any creditor of any 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 Agents, the Banks or any of them 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, no 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 any Account Party, or (z) transfer any of
its properties or assets to any 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.
XL INSURANCE LTD, as an Account Party and a Guarantor
By: /s/ Brian M. O'Hara
------------------------------
(Signature)
Name: Brian M. O'Hara
----------------------------
Title: Chairman
----------------------------
XL MID OCEAN REINSURANCE LTD, as an Account Party and a Guarantor
By: /s/ Brian M. O'Hara
------------------------------
(Signature)
Name: Brian M. O'Hara
----------------------------
Title: Chairman
----------------------------
XL EUROPE, as an Account Party
By /s/ Brian M. O'Hara
-------------------------------
(Signature)
Name:
----------------------------
Title:
----------------------------
THE BROCKBANK GROUP Plc, as an Account Party
By: /s/ K. I. Allen
------------------------------
(Signature)
Name: K. I. Allen
----------------------------
Title: Finance Director
----------------------------
XL INVESTMENTS LTD, as a Guarantor
By: /s/ Brian M. O'Hara
------------------------------
(Signature)
Name: Brian M. O'Hara
----------------------------
Title: Chairman
----------------------------
XL CAPITAL LTD, as an Account Party and a Guarantor
By: /s/ Brian M. O'Hara
------------------------------
(Signature)
Name: Brian M. O'Hara
----------------------------
Title: President & Chief Executive Officer
------------------------------------
50
<PAGE>
MELLON BANK, N.A., as a Bank, as Issuing Bank, as Arranger and as Agent
By: /s/ Karla K. Maloof
------------------------------
(Signature)
Name: Karla K. Maloof
----------------------------
Title: Vice President
----------------------------
Notice Address:
Institutional Banking Department
One Mellon Bank Center, Room 4401
Pittsburgh, PA 15258
Attn: Susan Whitewood
Telephone: (412) 234-7112
Facsimile: (412) 234-8087
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: $47,500,000
51
<PAGE>
DEUTSCHE BANK SECURITIES INC., as Arranger
By: /s/ John S. McGill /s/ Clinton M. Johnston
------------------------------------------------
(Signature)
Name: John S. McGill Clinton M. Johnson
-----------------------------------------------
Title: Director Director
----------------------------------------------
Notice Address:
31 West 52nd Street
New York, NY 10019
Attn: Clinton M. Johnson
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES
By: /s/ John S. McGill /s/ Clinton M. Johnston
------------------------------------------------
(Signature)
Name: John S. McGill Clinton M. Johnson
----------------------------------------------
Title: Director Director
----------------------------------------------
Notice Address:
31 West 52nd Street
New York, NY 10019
Attn: Clinton M. Johnson
Initial Letter of Credit Participating Interest Committed Amount: $47,500,000
52
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ J.R. Trimble
------------------------------
(Signature)
Name: J.R. Trimble
----------------------------
Title: Senior Relationship Manager
----------------------------
Notice Address:
One Liberty Place
New York, NY 10006
Attn: James R. Trimble
Initial Letter of Credit Participating Interest Committed Amount: $40,000,000
53
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Sebastian Rocco
------------------------------
(Signature)
Name: Sebastian Rocco
----------------------------
Title: Senior Vice President
----------------------------
Notice Address:
1301 Avenue of the Americas
12th Floor
New York, NY 10019
Attn: Jimmy Tse
Initial Letter of Credit Participating Interest Committed Amount: $40,000,000
54
<PAGE>
BANK OF AMERICA NT&SA
By: /s/ Nita Savage
------------------------------
(Signature)
Name: Nita Savage
----------------------------
Title: Vice President
----------------------------
Notice Address:
Insurance Division, 10th Floor
231 South LaSalle Street
Chicago, IL 60697
Attn: Nita Savage
Initial Letter of Credit Participating Interest Committed Amount: $25,000,000
55
<PAGE>
THE BANK OF BERMUDA LIMITED
By: /s/ Michael W. Collins
------------------------------
(Signature)
Name: Michael W. Collins
----------------------------
Title: Senior Vice President
----------------------------
Notice Address:
6 Front Street
Hamilton HM 11, Bermuda
Attn: Hanne Frost
Initial Letter of Credit Participating Interest Committed Amount: $25,000,000
56
<PAGE>
BANQUE NATIONALE DE PARIS
By: /s/ Phil Truesdale /s/ Veronique Marcus
------------------------------------------------------
(Signature)
Name: Phil Truesdale Veronique Marcus
----------------------------------------------------
Title: Vice President Vice President
---------------------------------------------------
Notice Address:
499 Park Avenue
New York, NY 10022
Attn: Phil Truesdale
Initial Letter of Credit Participating Interest Committed Amount: $25,000,000
57
<PAGE>
FLEET NATIONAL BANK
By: /s/ Anson Harris
--------------------------------------
(Signature)
Name: Anson Harris
------------------------------------
Title: Vice President
-----------------------------------
Notice Address:
Mail Stop CTMO 0250
777 Main Street
Hartford, CT 06115-2001
Attn: Anson T. Harris
Initial Letter of Credit Participating Interest Committed Amount: $25,000,000
58
<PAGE>
ROYAL BANK OF CANADA
By: /s/ /V. Abdelmessih
--------------------------------------
(Signature)
Name: V. Abdelmessih
------------------------------------
Title: Senior Account Manager
-----------------------------------
Notice Address:
New York Branch
One Liberty Plaza, 4th Floor
New York, NY 10006-1404
Attn: Manager, Letters of Credit Department
Facsimile No.: (212) 428-3015
with a copy to:
One Liberty Plaza, 4th Floor
New York, New York 10006-1404
Attn: Vivian Abdelmessih
Facsimile No.: (212) 428-6201
Initial Letter of Credit Participating Interest Committed Amount: $25,000,000
59
<PAGE>
Exhibit 10.14.25
02.24.00
FIRST AMENDMENT TO LETTER OF CREDIT FACILITY
AND REIMBURSEMENT AGREEMENT
THIS FIRST AMENDMENT TO LETTER OF CREDIT FACILITY AND REIMBURSEMENT
AGREEMENT, dated as of February 25, 2000 (this "Amendment"), by and among XL
Insurance Ltd, XL Capital Ltd, XL EUROPE LTD (formerly know as XL Europe), XL
Mid Ocean Reinsurance Ltd, THE BROCKBANK GROUP Plc and XL INVESTMENTS LTD
(collectively, the "XL Parties"), MELLON BANK, N.A., as Issuing Bank (in such
capacity, the "Issuing Bank") and as Agent ( in such capacity, 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 XL Parties, the Banks, the Issuing Bank and the Agent
are parties to a Letter of Credit Facility and Reimbursement Agreement, dated as
of June 30, 1999 (the "Reimbursement Agreement"), pursuant to which the Banks
have agreed, on the terms and subject to the conditions described therein, to
extend credit to certain of the XL Parties by participating in letters of credit
issued for the account of such XL Parties by the Issuing Bank; and
WHEREAS, the XL Parties have requested the Banks to make certain
additional changes to the Reimbursement Agreement, including changes to permit
XL Europe to become a Grantor under the Pledge Agreement; and
WHEREAS, the Banks are willing to amend the Reimbursement Agreement
as set forth below; and
WHEREAS, capitalized terms used herein and not otherwise defined
shall have the meanings assigned to them in the Reimbursement 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:
<PAGE>
SECTION 1. Amendments to Reimbursement Agreement.
(a) The definition of the term "Custodian" appearing in Section 1.01
of the Reimbursement Agreement is hereby amended by inserting therein,
immediately after the phrase "as Custodian for" appearing therein, the phrase
"XL Europe,".
(b) The definition of the term "Pledge Agreement" appearing in
Section 1.01 of the Reimbursement Agreement is hereby amended by inserting
therein, immediately before the period at the end thereof, the phrase "including
by the First Amendment thereto adding XL Europe as a Grantor thereunder".
(c) Section 1.01 of the Reimbursement Agreement is hereby amended by
adding thereto, in appropriate alphabetical sequence, the following definitions:
"Asset Accumulation Lien" means a Lien on amounts
received, and on actual and imputed investment income on such
amounts received, relating and identified to specific
insurance payment liabilities or to liabilities arising in the
ordinary course of any Credit Party's or Subsidiary's business
as an insurance or reinsurance company or corporate member of
Lloyd's or as a provider of financial services or contracts,
or the proceeds thereof, in each case held in a segregated
trust or other account and securing such liabilities;
provided, that in no case shall an Asset Accumulation Lien
secure Indebtedness and any Lien which secures Indebtedness
shall not be an Asset Accumulation Lien.
"Total Adjusted Funded Debt" shall have the meaning
given that term in Section 6.06 hereof.
"XL Europe" shall mean XL Europe Ltd, a company
incorporated under the laws of Ireland and formerly known as
XL Europe.
(d) Section 3.07 of the Reimbursement Agreement is hereby amended by
inserting therein, immediately after the phrase "in the case of" appearing in
the first sentence thereof of, the phrase "XL Europe (from and after the date of
the First Amendment to the Pledge Agreement),".
Secured LC Facility-First Amendment
-2-
<PAGE>
(e) Section 5.01 of the Reimbursement Agreement is hereby amended by
adding at the end thereof a new paragraph (j) thereof to read as follows:
(j) Information Regarding Asset Accumulation
Liens. At the time of furnishing each certificate furnished
pursuant to paragraph (c) of this Section 5.01, a statement,
certified as true and correct by a principal financial officer
of XL Capital, setting forth on a consolidated basis for XL
Capital and its consolidated Subsidiaries as of the end of the
fiscal year or quarter to which such certificate relates (A)
the aggregate book value of assets which are subject to Asset
Accumulation Liens and the aggregate book value of liabilities
which are secured by Asset Accumulation Liens (it being
understood that the reports required by paragraphs (a) and (b)
of this Section 5.01 shall satisfy the requirement of this
clause (A) of this paragraph (j) if such reports set forth
separately, in accordance with GAAP, line items corresponding
to such aggregate book values) and (B) a calculation showing
the portion of each of such aggregate amounts which portion is
attributable to transactions among wholly-owned Subsidiaries
of XL Capital.
(f) Section 6.03 of the Reimbursement Agreement is hereby amended by
deleting the period at the end of paragraph (g) thereof and replacing it
with the phrase "; or" and by adding at the end of such Section a new
paragraph (h) to read as follows:
(h) Asset Accumulation Liens.
(g) Section 7.01(k) of the Reimbursement Agreement is hereby amended
by inserting therein, immediately after the phrase "binding obligation of" the
second time it appears therein, the phrase "XL Europe,".
(h) Section 9.14(f) of the Reimbursement Agreement is hereby amended
by inserting therein, immediately after the phrase "release XL Investments or XL
Mid Ocean" appearing therein, the phrase "or XL Europe".
Secured LC Facility-First Amendment
-3-
<PAGE>
(i) Section 6.06 of the Reimbursement Agreement is hereby amended as
follows:
6.06. Ratio of Total Adjusted Funded Debt to
Consolidated Capital. XL Capital will not permit its ratio of
(i) Total Adjusted Funded Debt to (ii) the sum of Total
Adjusted Funded Debt plus Consolidated Net Worth to be greater
than 0.35 at any time. As used herein, the term "Total
Adjusted Funded Debt" shall mean, at any time, the sum of (x)
Total Funded Debt at such time plus (y) the aggregate undrawn
face amount of all letters of credit (as to which
reimbursement obligations are not secured by marketable
securities with a value at least equal to the face amount of
such letters of credit) issued for the account of, or
guaranteed by, XL Capital or any of its Consolidated
Subsidiaries at such time (irrespective of whether the
beneficiary thereof is an Affiliate).
SECTION 2. Direction to enter into Amendments. The Required Banks
and the Issuing Bank hereby authorize and direct the Agent to enter into the
following amendments to Transaction Documents which are entered into by the
relevant Credit Parties: (i) an amendment to the Pledge Agreement whereby XL
Europe becomes a Grantor thereunder, whereby securities entitlements pledged by
XL Europe under the Pledge Agreement and otherwise meeting the requirements of
the Pledge Agreement shall be "Pledged Securities" under the Pledge Agreement
and whereby wording changes necessary to reflect three, rather than two,
Grantors under the Pledge Agreement are made, the effectiveness of such
amendment to be conditioned upon the satisfaction of conditions, to be stated in
such amendment, which are substantially similar to those applicable to XL
Investments and XL Mid Ocean as Grantors under the Pledge Agreement under
Section 4.01(a), 4.01(b)(i), 4.01(c), 4.01(d), 4.01(f) and 4.01(g) of the
Reimbursement Agreement and (ii) an amendment to one of the Custodian's
Acknowledgments referred to in the Pledge Agreement, or an additional
Custodian's Acknowledgement substantially in the form of the Custodian's
Acknowledgments referred to in the Pledge Agreement and previously delivered to
the Agent, covering custodial securities accounts maintained by XL Europe under
the Master Custody Agreement referred to in the Pledge Agreement.
Secured LC Facility-First Amendment
-4-
<PAGE>
SECTION 3. Conditions to Effectiveness. This First Amendment shall
become effective upon the execution and delivery hereof by the XL Parties, the
Required Banks, the Issuing Bank and the Agent.
SECTION 4. Effect of Amendment. The Reimbursement 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 5. 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 6. 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.
XL INSURANCE LTD, as an Account Party and a Guarantor
By: /s/ Clive R. Tobin
---------------------------------
(Signature)
Name: Clive R. Tobin
-------------------------------
Title: President
------------------------------
Secured LC Facility-First Amendment
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<PAGE>
XL MID OCEAN REINSURANCE LTD, as an Account Party and a Guarantor
By: /s/ Henry Keeling
---------------------------------
(Signature)
Name: H.C.V. Keeling
-------------------------------
Title: President
------------------------------
XL EUROPE LTD, as an Account Party
By: /s/ J. Walker Rainey
---------------------------------
(Signature)
Name: J. Walker Rainey
-------------------------------
Title: Chief Financial Officer
------------------------------
THE BROCKBANK GROUP Plc, as an Account Party
By: /s/ James T. Gerry
---------------------------------
(Signature)
Name: James T. Gerry
-------------------------------
Title: Director
------------------------------
XL INVESTMENTS LTD, as a Guarantor
By: /s/ C.V. Greetham
---------------------------------
(Signature)
Name: C.V. Greetham
-------------------------------
Title: Senior V.P. & CEO
------------------------------
XL CAPITAL LTD, as an Account Party and a Guarantor
By: /s/ Brian M. O'Hara
---------------------------------
(Signature)
Name: Brian M. O'Hara
-------------------------------
Title: President & CEO
------------------------------
Secured LC Facility-First Amendment
-6-
<PAGE>
MELLON BANK, N.A., as a Bank, as Issuing Bank and as Agent
By: /s/ Karla Maloof
---------------------------------
(Signature)
Name: Karla Maloof
-------------------------------
Title: Vice President
------------------------------
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES
By: /s/ John S. McGill
---------------------------------
(Signature)
Name: John S. McGill
-------------------------------
Title: Director
------------------------------
By: /s/ Alan Krouk
---------------------------------
(Signature)
Name: Alan Krouk
-------------------------------
Title: Assistant Vice President
------------------------------
THE BANK OF NOVA SCOTIA
By: /s/ John Hopmans
---------------------------------
(Signature)
Name: John Hopmans
-------------------------------
Title: Managing Director
------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Sebastian Rocco
---------------------------------
(Signature)
Name: Sebastian Rocco
-------------------------------
Title: Senior Vice President
------------------------------
Secured LC Facility-First Amendment
-7-
<PAGE>
BANK OF AMERICA, N.A.
By: /s/ Debra Basler
---------------------------------
(Signature)
Name: Debra Basler
-------------------------------
Title: Vice President
------------------------------
THE BANK OF BERMUDA LIMITED
By: /s/H. Frost
---------------------------------
(Signature)
Name: H. Frost
-------------------------------
Title: Vice President
------------------------------
BANQUE NATIONALE DE PARIS
By: /s/ Phil Truesdale
---------------------------------
(Signature)
Name: Phil Truesdale
-------------------------------
Title: Vice President
------------------------------
By: /s/ Veronique Marcus
---------------------------------
(Signature)
Name: Veronique Marcus
-------------------------------
Title: Vice President
------------------------------
FLEET NATIONAL BANK
By: /s/ Anson Harris
---------------------------------
(Signature)
Name: Anson Harris
-------------------------------
Title: Vice President
------------------------------
ROYAL BANK OF CANADA
By: /s/ V. Abdelmessih
---------------------------------
(Signature)
Name: V. Abdelmessih
-------------------------------
Title: Senior Manager
------------------------------
Secured LC Facility-First Amendment
-8-
<PAGE>
Exhibit 10.14.26
$150,000,000
LETTER OF CREDIT FACILITY
AND REIMBURSEMENT AGREEMENT
AMONG
XL INSURANCE LTD and XL MID OCEAN REINSURANCE LTD,
as Account Parties,
AND
XL CAPITAL LTD, XL INSURANCE LTD and XL MID OCEAN REINSURANCE LTD,
as Guarantors,
AND
MELLON BANK, N.A., DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN
ISLANDS BRANCHES, FIRST UNION NATIONAL BANK, FLEET NATIONAL BANK
and BANK ONE, NA (MAIN OFFICE CHICAGO)
as Issuing Banks
AND
MELLON BANK, N.A.,
as Agent and as Arranger
AND
FLEET NATIONAL BANK,
as Documentation Agent
DATED AS OF
December 30, 1999
<PAGE>
Table of Contents
Section Title Page
- ------- ----- ----
ARTICLE I DEFINITIONS; CONSTRUCTION........................ 1
1.01 Certain Definitions.............................. 1
1.02 Construction..................................... 7
1.03 Accounting Principles............................ 7
ARTICLE II THE LETTER OF CREDIT FACILITY.................... 8
2.01 Letters of Credit................................ 8
2.02 Commitment Fee; Reduction of the Committed
Amounts.......................................... 9
2.03 Procedure for Issuance and Amendment of Letters
of Credit........................................ 9
2.04 Certain Provisions in Letters of Credit.......... 10
2.05 Account Party's Reimbursement Obligations........ 11
2.06 Extensions of Expiration Date.................... 11
2.07 Obligations Absolute............................. 11
2.08 Further Assurances............................... 12
2.09 Letter of Credit Applications.................... 12
2.10 Certain Provisions Relating to the Issuing Banks. 12
2.11 Payments Generally; Interest and Interest on
Overdue Amounts.................................. 13
2.12 Additional Compensation in Certain Circumstances. 14
2.13 Taxes............................................ 15
ARTICLE III REPRESENTATIONS AND WARRANTIES................... 16
3.01 Organization and Qualification................... 16
3.02 Corporate Power and Authorization................ 17
3.03 Financial Information............................ 17
3.04 Litigation....................................... 17
3.05 No Adverse Changes............................... 17
3.06 No Conflicting Laws or Agreements; Consents and
Approvals........................................ 17
3.07 Execution and Binding Effect..................... 17
3.08 Taxes............................................ 18
3.09 Use of Proceeds.................................. 18
3.10 Permits, Licenses and Rights..................... 18
3.11 Accurate and Complete Disclosure................. 18
3.12 Absence of Violations............................ 18
3.13 Environmental Matters............................ 18
3.14 Not an Investment Company........................ 18
3.15 Year 2000 Compliance............................. 18
ARTICLE IV CONDITIONS....................................... 19
4.01 Effectiveness.................................... 19
4.02 Issuance of Letters of Credit.................... 20
ARTICLE V AFFIRMATIVE COVENANTS............................ 20
5.01 Reporting and Information Requirements........... 20
i
<PAGE>
5.02 Preservation of Existence and Franchises......... 22
5.03 Insurance........................................ 22
5.04 Maintenance of Properties........................ 22
5.05 Payment of Taxes and Other Potential Charges and
Priority Claims Payment of Other Current
Liabilities...................................... 22
5.06 Financial Accounting Practices................... 23
5.07 Compliance with Applicable Laws.................. 23
5.08 Use of Proceeds.................................. 23
5.09 Continuation Of and Change In Business........... 23
5.10 Visitation....................................... 23
ARTICLE VI NEGATIVE COVENANTS............................... 23
6.01 Mergers and Acquisitions......................... 23
6.02 Dispositions of Assets........................... 24
6.03 Liens............................................ 24
6.04 Transactions With Affiliates..................... 25
6.05 Business......................................... 25
6.06 Ratio of Total Funded Debt to Consolidated
Tangible Net Worth............................... 25
6.07 Consolidated Tangible Net Worth.................. 25
6.08 Indebtedness..................................... 25
6.09 Claims-Paying Ratings............................ 26
6.10 Private Act...................................... 26
ARTICLE VII EVENTS OF DEFAULT................................ 26
7.01 Events of Default................................ 26
ARTICLE VIII THE AGENT........................................ 28
8.01 Appointment...................................... 28
8.02 General Nature of Agent's Duties................. 28
8.03 Exercise of Powers............................... 28
8.04 General Exculpatory Provisions................... 29
8.05 Administration by the Agent...................... 29
8.06 Issuing Bank Not Relying on Agent or Other
Issuing Banks.................................... 30
8.07 Indemnification.................................. 30
8.08 Agent in its Individual Capacity................. 31
8.09 Successor Agent.................................. 31
8.10 Additional Agents................................ 31
8.11 Calculations..................................... 31
8.12 Documentation Agent.............................. 32
ARTICLE IX MISCELLANEOUS.................................... 32
9.01 No Implied Waiver etc............................ 32
9.02 Set-Off.......................................... 32
9.03 Survival of Provisions........................... 32
9.04 Expenses and Fees; Indemnity..................... 32
9.05 Severability; Inconsistent Provisions............ 33
9.06 Holidays......................................... 33
9.07 Notices, etc..................................... 33
9.08 Forum Selection and Consent to Jurisdiction...... 34
9.09 Waiver of Jury Trial............................. 34
9.10 Governing Law.................................... 34
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<PAGE>
9.11 Validity and Enforceability...................... 34
9.12 Counterparts..................................... 34
9.13 Successors and Assigns; Participations;
Assignments...................................... 34
9.14 Amendments and Waivers........................... 37
9.15 Judgment Currency................................ 37
9.16 Records.......................................... 38
9.17 Confidentiality.................................. 38
9.18 Sharing of Collections 38
ARTICLE X GUARANTEE........................................ 39
10.01 The Guarantee.................................... 39
10.02 Obligations Unconditional........................ 39
10.03 Reinstatement.................................... 40
10.04 Remedies......................................... 40
10.05 Continuing Guarantee............................. 40
10.06 No Restrictions.................................. 40
Exhibit A Forms 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 Forms of Letter of Credit Application
Exhibit F Form of First Set of Related Letters of Credit
Schedule 2.01(b) Form of Evergreen Provision
Schedule 3.01 Subsidiaries
Schedule 6.03(a) Liens
iii
<PAGE>
LETTER OF CREDIT FACILITY AND REIMBURSEMENT AGREEMENT, dated as of
December 30, 1999, by and between XL INSURANCE LTD, a Bermuda limited liability
corporation ("XL Insurance") and XL MID OCEAN REINSURANCE LTD, a Bermuda limited
liability corporation ("XL Mid Ocean"), as Account Parties; XL CAPITAL LTD, a
corporation organized under the laws of the Cayman Islands, British West Indies
("XL Capital"), XL Insurance and XL Mid Ocean, as Guarantors; Mellon Bank, N.A.,
a national banking association ("Mellon"), Deutsche Bank, AG, New York and/or
Cayman Islands Branches, First Union National Bank, Fleet National Bank and Bank
One, NA (Main Office Chicago), as Issuing Banks; Mellon, as Agent for the
Issuing Banks hereunder and as Arranger; and Fleet National Bank, as
Documentation Agent.
PRELIMINARY STATEMENT
WHEREAS, the Issuing 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 Arranger and each Issuing 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" shall mean XL Insurance and XL Mid Ocean and "Account
Party" shall mean one of them.
"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.
"Agent" means Mellon, in its capacity as Agent hereunder.
"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.
"Agreement" shall mean this Letter of Credit Facility and Reimbursement
Agreement as amended, modified or supplemented from time to time.
"Applicable Interest Rate" as used herein shall mean the Prime Rate.
-9-
<PAGE>
"Arranger" means Mellon, in its capacity as Arranger hereunder.
"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 Issuing Banks, the Arranger and the Agent.
"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 XL Capital; (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 XL Capital; or (c)
a majority of the members of XL Capital'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.
"Closing Date" shall mean December 30, 1999.
"Commitment Fee" shall have the meaning assigned to that term in Section
2.02(a) hereof.
"Consolidated Net Worth" shall mean at any date the consolidated
stockholders' equity of XL Capital 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 XL Capital 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, 1998, in the book value
of any asset owned by XL Capital 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
2
<PAGE>
future benefit of tax loss carry-forwards, copyrights, organization or
developmental expenses and other intangible assets.
"Continuing Letter of Credit Agreements" shall mean the letter of credit
agreement executed and delivered by the Account Parties, one for each Issuing
Bank which requires such an agreement, substantially in the form set forth on
Exhibit A hereto and "Continuing Letter of Credit Agreement" shall mean one of
them.
"Credit Parties" means the Account Parties and the Guarantors and "Credit
Party" means any of them.
"Current Expiration Date" shall have the meaning assigned to that term in
Section 2.06 hereof.
"Dollar," "Dollars" and the symbol $ shall mean lawful money of the United
States of America.
"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.
"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 2.06 hereof.
"Extension Request" shall have the meaning set forth in Section 2.06
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" shall mean XL Capital , XL Insurance and XL Mid Ocean and
"Guarantor" shall mean any one of them.
"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
3
<PAGE>
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 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 or
reinsurance company or corporate member of Lloyds or as a provider of financial
services or contracts (in each case other than in connection with the provision
of financing to 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 any Account Party that offers insurance products, including but
not limited to certain of the Account Parties.
"Issuing Banks" shall mean Mellon, Deutsche Bank, AG, New York and/or
Cayman Islands Branches, First Union National Bank, Fleet National Bank and Bank
One, NA (Main Office Chicago), subject to the provisions of Section 9.13 hereof
pertaining to Persons becoming or ceasing to be Issuing Banks, and "Issuing
Bank" shall mean any of them.
"Law" shall mean any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any Official Body.
"LC Request" shall have the meaning assigned to such term in Section
2.03(a)(i) hereof.
"LC Request Amount" shall have the meaning assigned to such term in
Section 2.03(a)(i) hereof.
4
<PAGE>
"Letter of Credit" shall mean each letter of credit issued by an Issuing
Bank for the account of one or more of the Account Parties pursuant to this
Agreement, 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 Committed Amount" shall have the meaning given that term
in Section 2.01(a) hereof.
"Letter of Credit Commitment" shall mean, with respect to an Issuing Bank,
the obligation of such Issuing Bank to issue Letters of Credit hereunder.
"Letter of Credit Commitment Percentage" for each Issuing Bank shall mean
a fraction, expressed as percentage, the numerator of which is such Issuing
Bank's Letter of Credit Committed Amount and the denominator of which is the
aggregate Letter of Credit Committed Amounts of all of the Issuing Banks.
"Letter of Credit Exposure" at any time shall mean the sum at such time of
(a) the Aggregate Letter of Credit Unreimbursed Draws, (b) the Aggregate Letter
of Credit Undrawn Availability and (c) the aggregate Stated Amount 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.
"Letter of Credit Reimbursement Obligation" with respect to a Letter of
Credit means the obligation of the applicable Account Party to reimburse the
applicable Issuing Bank for drawings on such 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 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 (including, without
limitation, the amount of drafts presented but not yet paid).
"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 applicable
Issuing Bank under such Letter of Credit, to the extent not repaid by the
applicable Account Party.
"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.
"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
5
<PAGE>
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 and the Issuing Banks.
"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.
"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.
"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" means from and to the Issuing Banks in accordance with their
respective Letter of Credit Commitment Percentages.
"Purchasing Bank" shall have the meaning assigned to that term in Section
9.13(c) hereof.
"Register" shall have the meaning given that term in Section 9.13(d)
hereof.
"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.
"Related Letters of Credit" shall mean the Letters of Credit which
together make up a Set of Related Letters of Credit and "Related Letter of
Credit" means one of them.
"Required Issuing Banks" shall mean at any time Issuing Banks which have
at least 51% of the aggregate Letter of Credit Commitments outstanding 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 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.
6
<PAGE>
"Set of Related Letters of Credit" shall mean collectively the Letters of
Credit issued by the Issuing Banks at substantially the same time in response to
an LC Request, each having a face value equal to the applicable Issuing Bank's
Pro Rata share of the applicable LC Request Amount.
"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.
"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.
"Transaction Document" or "Transaction Documents" shall mean this
Agreement, each Letter of Credit and any other documents or instruments executed
and delivered in connection herewith or therewith.
"Transfer Supplement" shall have the meaning given that term in Section
9.13(c)(iv) hereof.
"Valuation Date" shall mean the last Business Day of each month.
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, 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.
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<PAGE>
(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 financial covenants of this Agreement shall have
occurred (or in the opinion of the Required Issuing 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
THE LETTER OF CREDIT FACILITY
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, each Issuing
Bank agrees to issue Letters of Credit (each of which shall be requested by the
applicable Account Party to be one of a Set of Related 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); provided, however, that the failure of an Issuing
Bank to issue a Letter of Credit which is requested by the applicable Account
Party to be one of a Set of Related Letters of Credit shall not relieve any
other Issuing Bank of its obligation to issue a Letter of Credit which is
requested by the applicable Account Party to be one of such Set of Related
Letters of Credit. No Issuing Bank shall be obligated to issue any Letter of
Credit if, after such Letter of Credit is issued, such Issuing Bank's Letter of
Credit Exposure upon such issuance would exceed the Issuing Bank's Letter of
Credit Committed Amount. Each Issuing Bank's "Letter of Credit Committed Amount"
at any time shall be equal to the amount set forth as its "Initial Letter of
Credit 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 or from another Issuing Bank as provided in Section 9.13
hereof.
(b) Terms of Letters of Credit. The Account Parties shall not request to
be issued, and no Issuing Bank shall be obligated 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 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, (iii) each Letter of Credit
shall be payable only against sight drafts (and not time drafts); and (iv) each
Letter of Credit shall contain the words required by, and shall otherwise comply
with, Section 2.04 hereof.
(c) Form of Letters of Credit. No Issuing Bank shall be obligated to issue
any letter of credit which is unsatisfactory in form, substance or beneficiary
to any of the Issuing Banks in the exercise of its reasonable judgment
consistent with its customary practice.
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(d) Letter of Credit Fee. Each Account Party shall pay or cause to be paid
to the Agent for the account of each Issuing Bank 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
by such Issuing Bank 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
0.35%. 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.
(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 support the Account Parties' reinsurance program
with NAC Re Corporation in the ordinary course of business of such Account
Party.
(f) Administration Fees. Each Account Party shall pay to the Agent, for
the account of each Issuing Bank, such other administration, maintenance,
amendment, drawing and negotiation fees as are customarily charged by such
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 Banks to XL Insurance) or are otherwise agreed between such Issuing Bank
and the Account Parties.
(g) Arrangement Fee. XL Capital agrees to pay to Mellon an arrangement fee
in the amount and at the time previously agreed between XL Capital and Mellon.
2.02. Commitment Fee; Reduction of the Committed Amounts.
(a) Commitment Fee. XL Insurance agrees to pay to the Agent for the
account of each Issuing 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 0.07% payable on the unused portion of such Issuing Bank's Letter
of Credit 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. XL Capital may at any time or from
time to time reduce Pro Rata the Letter of Credit Committed Amounts of the
Issuing Banks to an aggregate amount (which may be zero) not less than the
Letter of Credit Exposure. Any reduction of the Letter of Credit Committed
Amounts shall be in an aggregate minimum amount of $5,000,000 and in an amount
which is an integral multiple of $1,000,000. Reduction of the Letter of Credit
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, which
will promptly advise the Issuing Banks of such notice. After the date specified
in such notice, the Commitment Fee shall be calculated upon the Letter of Credit
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 Banks to issue a Set of
Related Letters of Credit by:
(i) delivering to the Agent a written request to such effect (an "LC
Request"), specifying the date on which such Set of Related Letters of
Credit is to be issued, the expiration date thereof, the aggregate amount
requested (the "LC Request Amount") and the Stated Amount of each Related
Letter of Credit (which Stated Amount shall be equal to the applicable
Issuing Bank's Pro Rata share of the LC Request Amount), and
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(ii) delivering to each Issuing Bank a completed application, in the
form annexed hereto as Exhibit E, or in such other form as is from time to
time be required by each such Issuing Bank in accordance with its
customary practice with respect to its customers generally (a "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 Agent shall promptly notify each Issuing
Bank and furnish to each Issuing Bank the proposed form of Letter of Credit to
be issued and the Stated Amount and term of such proposed Letter of Credit to be
issued by such Issuing Bank. The Agent shall determine, as of the close of
business on the Business Day before such proposed issuance, whether such
proposed Set of Related Letters 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 Issuing Banks have given notice to the Agent to
cease issuing Letters of Credit pursuant to Section 2.03(c) hereof or the the
Agent shall have received written notice from an Account Party that the
conditions set forth in Section 4.02(a) are not satisfied, the Agent shall
notify each Issuing Bank (in writing or by telephone promptly confirmed in
writing) that such Issuing Bank is not obligated to issue such Letter of Credit.
If an 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, by a request sent to the Agent, request the Issuing Banks to extend (or
request the Issuing Banks to permit the extension, by failing to provide a
nonrenewal notice to the beneficiary, of) the expiration date of a Set of
Related Letters of Credit or increase (or, with the consent of the beneficiary,
decrease) the Stated Amounts of or the amounts available to be drawn on such
Related Letters of Credit; provided however, that any such increase (or
decrease, as the case may be) shall be made Pro Rata. Such extension or increase
shall for all purposes hereunder be treated as though such Account Party had
requested issuance of replacement Related Letters of Credit (except only that
the Issuing Banks may, if they all so elect, issue a notice of extension or
increase with respect to an outstanding Set of Related Letters of Credit in lieu
of issuing a new Set of Related Letters of Credit in substitution for an
outstanding Set of Related Letters of Credit).
(c) Limitations on Issuance. As between the Agent, on the one hand, and
the Issuing 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 Issuing 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 Banks 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 Issuing Banks, in authorizing
an Issuing Bank to issue such a 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. Certain Provisions in Letters of Credit. (a) The first Set of
Related Letters of Credit issued hereunder shall be in substantially the form
set forth on Exhibit F hereto.
(b) Each Letter of Credit requested to be issued hereunder shall be
requested to contain the following language, with the blanks appropriately
filled:
This letter of credit is being issued at substantially the same time
as each of ________________________ [name other Issuing Banks] is
issuing its letter of credit to the Beneficiary for the account of
the Account Party (this letter of credit and all such other letters
of credit being referred to collectively as the "Related Letters of
Credit") and the aggregate stated amount of the Related Letters of
Credit is $_____________.
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In addition, each Letter or Credit shall provide that drawings on such Letter of
Credit must be accompanied by a certificate of the beneficiary thereof which
states as follows:
Concurrently with this drawing, Beneficiary is drawing on each other
Related Letter of Credit referred to in the letter of credit to
which this drawing relates. The respective amounts of all such
concurrent drawings on the Related Letters of Credit (including the
letter of credit to which this drawing relates) are ratable in
accordance with the respective stated amounts of the respective
Related Letters of Credit.
2.05. Account Party's Reimbursement Obligations. Each Account Party hereby
agrees to reimburse each Issuing Bank, by making payment to the Agent for the
account of such Issuing Bank in accordance with Section 2.11(a) hereof on the
date of each payment made by such 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 XL Capital), without, protest or demand, all of which are hereby
waived, and an action therefor shall immediately accrue. Each Account Party
agrees that it will make such payment to the Agent for the account of the
applicable Issuing Bank in the same currency as the currency of the payment by
such 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 applicable Issuing Bank, on demand, interest on any Letter of
Credit Unreimbursed Draws for each day from and including the date of such
payment by such 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. If the Agent receives payment on account of Letter of
Credit Reimbursement Obligations in an amount less than the full amount of
Letter of Credit Reimbursement Obligations then outstanding and owing to the
Issuing Banks, the amount so received will be applied by the Agent ratably in
accordance with the respective amounts of Letters of Credit Reimbursement
Obligations owing to the respective Issuing Banks.
2.06 Extensions of Expiration Date. XL Capital may, at its option, give
the Agent and the Issuing Banks written notice (an "Extension Request") at any
time not more than ninety days, nor less than thirty days, prior to the
Expiration Date in effect at such time (the "Current Expiration Date") of XL
Capital's desire to extend the Expiration Date to a date which is not later than
364 days after the Current Expiration Date. Each Issuing Bank which agrees to
such Extension Request shall deliver to the Agent its express written consent
thereto no later than fifteen days prior to the Current Expiration Date. No
extension shall become effective unless the express written consent thereto by
all of the Issuing Banks is received by the Agent on or before the fifteenth day
prior to the Current Expiration Date. If all of the Issuing 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 Request.
2.07. Obligations Absolute. The payment obligations of the Account Parties
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:
(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), any Issuing 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;
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(d) payment by an 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 an 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 such 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 an Issuing Bank.
Each Account Party bears the risk of, and neither the Issuing Banks, nor any of
their directors, officers, employees or agents, 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 any 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
respective Issuing Banks under, any 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 Banks under, this Agreement, the Transaction Documents, and applicable
Law. 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 Banks.
(a) General. No Issuing Bank shall have any 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 any Issuing
Bank shall be read into this Agreement or any Transaction Document or shall
otherwise exist. The duties and responsibilities of the Issuing Banks to the
other Bank Parties under this Agreement and the other Transaction Documents
shall be mechanical and administrative in nature, and no Issuing Bank shall have
a fiduciary relationship in respect of any Bank Party or any other Person. No
Issuing Bank shall 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. No Issuing Bank
shall 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. No Issuing Bank shall be under any obligation,
either initially or on a continuing basis, to provide the Agent or any other
Bank Party 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. No
Issuing Bank shall be responsible for the execution, delivery, effectiveness,
enforceability, genuineness, validity or adequacy of this Agreement or any other
Transaction Document.
(b) Administration. Each 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
no Issuing
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Bank shall have any duty to verify the identity or authority of any Person
giving such notice or other communication. Each Issuing Bank may consult with
legal counsel (including, without limitation, in-house counsel for such 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 no
Issuing Bank shall 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 any 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 such Issuing Bank may conclusively rely upon such
certificate. No Issuing Bank shall be deemed to have any knowledge or notice of
the occurrence of any Event of Default or Potential Default unless such Issuing
Bank has received notice from a Bank Party 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 any Issuing Bank receives such a
notice, such Issuing Bank shall give prompt notice thereof to the Agent.
(c) Issuing Bank in its Individual Capacity. Each Issuing Bank 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 such Issuing Bank were not an 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
Issuing 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 Issuing 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 Issuing 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
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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 Issuing 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 Issuing
Bank imposed by the jurisdictions (federal, state and local) in which such
Issuing 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, any Issuing 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 Issuing Bank or
(B) otherwise applicable to the obligations of any Issuing Bank under this
Agreement, or
(iv) imposes upon any Issuing 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
Issuing Bank or, in the case of clause (iii) hereof, any Person controlling an
Issuing 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 Issuing Bank's or controlling
Person's capital, taking into consideration such Issuing 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 Issuing Bank deems to be material, such Issuing 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 Issuing Bank (which determination
shall be conclusive) to be necessary to compensate such Issuing Bank for such
increase, reduction or imposition. Such amount shall be due and payable by any
applicable Account Party to such Issuing 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 Issuing 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 Issuing 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 Issuing 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 Issuing Bank, income or
franchise taxes imposed on the Agent or such Issuing Bank by the
jurisdiction under the laws of which the Agent or such Issuing Bank is
organized or any political subdivision or taxing authority thereof or
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therein or as a result of a connection between such Issuing 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 Issuing Bank, income or franchise taxes
imposed by any jurisdiction in which such Issuing 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 Issuing 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 Issuing Bank shall be increased to the extent necessary to yield to the
Agent or such Issuing 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
Issuing 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
an Issuing 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
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 Issuing 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 such 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 Issuing 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 Issuing Bank (including additional
Taxes attributable to such refund, as determined by the Agent or such Issuing
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 an Issuing Bank shall, upon demand, pay to the Agent
or such Issuing Bank any amount paid over to such Account Party by the Agent or
such Issuing Bank (plus penalties, interest or other charges) in the event the
Agent or such Issuing 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 Issuing Bank, including,
without limitation, tax returns.
(b) Indemnity. Each Account Party hereby indemnifies the Agent and each of
the Issuing 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 Issuing 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 Issuing Bank as a result of any failure to pay such Taxes, except
by reason of unreasonable delay by the Agent or such Issuing 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 Issuing Bank or
the Agent, as the case may be, makes written demand therefor.
(c) Withholding and Backup Withholding. Each Issuing 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
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(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 Issuing 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 Issuing 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 Issuing 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 Issuing Bank from duly completing and
delivering any such letter or form with respect to it and such Issuing Bank
advises 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.
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 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 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 XL 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
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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 Issuing Bank, copies of the audited consolidated
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 December 31, 1998.
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 SAP, 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 Issuing Banks in writing
prior to the Closing Date (including by disclosure in the financial statements
delivered to the Issuing 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 December 31, 1998, 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) 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 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 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. Such Credit Party will use any Letter of Credit
issued hereunder for its account solely to support the Account Parties'
reinsurance program with NAC Re Corporation in the ordinary course of business.
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 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 any Credit Party to the Agent or any Issuing 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 Issuing 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 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.
3.15. Year 2000 Compliance. XL Capital has (i) initiated a review and
assessment of all areas within its and each of its Subsidiaries' business and
operations (including those affected by material suppliers, vendors and
customers) that could be adversely affected by the risk that computer
applications used by XL Capital or any of its Subsidiaries (or material
suppliers, vendors and customers other than those affecting customers that may
give rise to claims under insurance policies issued by XL Capital or any
Subsidiary of XL Capital) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999 (the "Year 2000 Problem") and (ii) developed a plan and
timetable for addressing the Year 2000 Problem on a timely basis. Based on the
foregoing, XL Capital believes that all computer applications of XL Capital and
its Subsidiaries that are material to its or any of its Subsidiaries' business
and operations are reasonably expected on a timely basis to be able to perform
properly date-sensitive functions for all dates before and after January 1, 2000
("Year 2000 Compliant"), except to the extent that a failure to do so could not
reasonably be expected to have a Material Adverse Effect.
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ARTICLE IV
CONDITIONS
4.01. Effectiveness. The respective obligations of the Issuing Banks to
issue Letters of Credit shall be subject to the following conditions:
(a) Proceedings and Incumbency. There shall have been delivered to the
Agent with sufficient copies for each Issuing 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: (i) 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 (with respect to the Guarantors, such
corporate action shall include board findings satisfactory to the Arranger's
Bermuda counsel) and (ii) 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 Issuing
Bank may conclusively rely on such certificates unless and until a later
certificate revising the prior certificate has been furnished to such Issuing
Bank.
(b) Organizational Documents. There shall have been delivered to the Agent
with sufficient copies for each Issuing 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 certified by the appropriate Official
Body of its place of organization.
(c) Opinions of Counsel. There shall have been delivered to the Agent with
sufficient copies for each Issuing Bank written opinions addressed to the
Issuing Banks, dated the Closing Date, of Messrs. Cahill Gordon & Reindel,
Messrs. Conyers, Dill & Pearman, Hunter & Hunter 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 Issuing Bank, and each Issuing 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 Issuing 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) 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) Letter of Credit Agreement. Each Continuing Letter of Credit Agreement
shall have been delivered to the Agent, with sufficient copies for each Issuing
Bank, duly executed by each Account Party.
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4.02. Issuance of Letters of Credit. The obligation of the Issuing Banks
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 Letter of Credit Undrawn Availability and the aggregate of
the Letter of Credit Unreimbursed Draws will not exceed the aggregate amount of
the Letter of Credit Committed Amounts.
ARTICLE V
AFFIRMATIVE COVENANTS
Each Credit Party, as applicable, hereby covenants to the Agent and each
Issuing Bank as follows:
5.01. Reporting and Information Requirements. Each Credit Party shall
deliver to the Agent with sufficient copies for each Issuing Bank:
(a) Annual Reports. As soon as practicable and in any event within 100
days after the close of each fiscal year, audited consolidated statements of
income, retained earnings and cash flows of such Credit Party and its
consolidated Subsidiaries, for such fiscal year and a consolidated audited
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 Credit Parties which are Insurance Subsidiaries, 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
Issuing Banks, and the certificate or report of such accountants to be free of
exceptions or qualifications not reasonably acceptable to the Required Issuing
Banks (it being understood that delivery of XL Capital's Report on Form 10-K
filed with the Securities and Exchange Commission shall satisfy the requirement
of this Section 5.01(a) to deliver the annual financial statements of XL Capital
so long as the financial information required to be in such report is
substantially the same as the financial information required by this Section
5.01(a)).
(b) Quarterly Statements. Within sixty days after the end of the first,
second and third quarterly accounting periods in each fiscal year of XL Capital,
copies of the unaudited consolidated balance sheets of XL Capital and its
consolidated Subsidiaries as of the end of such accounting period and of the
consolidated income statements of XL Capital and its consolidated Subsidiaries
for the
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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 XL Capital to have been prepared
in accordance with generally accepted accounting principles consistently applied
by XL Capital except as explained in such certificate (it being understood that
delivery of XL Capital's Report on Form 10-Q filed with the Securities and
Exchange Commission shall satisfy the requirement of this Section 5.01(b) to
deliver the quarterly financial statements of XL Capital so long as the
financial information required to be in such report is substantially the same as
the financial information required by this Section 5.01(b)).
(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 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 Issuing 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.
(i) Year 2000 Compliance. Promptly after any Credit Party's discovery or
determination thereof, notice (in reasonable detail) that any computer
application that is material to its or any of its Subsidiaries' business and
operations will not be Year 2000 Compliant (as defined in Section 3.15), except
to the extent that such failure could not reasonably be expected to have a
Material Adverse Effect.
5.02. Preservation of Existence and Franchises. Each 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, 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 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.
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5.03. Insurance. Each 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. Each 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. Each 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 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 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.
5.07. Compliance with Applicable Laws. Each 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.
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5.08. Use of Proceeds. Each Account Party shall use the Letters of Credit
issued hereunder solely to support the Account Parties' reinsurance program with
NAC Re Corporation in the ordinary course of business of such Account Party.
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
Issuing 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 Issuing Bank may reasonably request.
Each Credit Party hereby authorizes its financial management to discuss with any
Issuing Bank the affairs of such Credit Party.
ARTICLE VI
NEGATIVE COVENANTS
Each Credit Party covenants to the Agent and to each Issuing 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 Issuing 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 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
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(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, and shall not 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 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; or
(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
Parties' investment policy as in effect on the date of this Agreement.
6.04. Transactions With Affiliates. Such Credit Party shall not, and shall
not 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 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, and will not permit any
Subsidiary to, engage (directly or indirectly) in any businesses other than the
businesses substantially the same as those
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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 or reinsurance 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).
6.06. Ratio of Total Funded Debt to Consolidated Tangible Net Worth. XL
Capital will not permit its ratio of (i) the sum of (x) Total Funded Debt plus
(y) the aggregate undrawn face amount of all letters of credit (as to which
reimbursement obligations are unsecured) issued for the account of, or as to
which reimbursement obligations are guaranteed by, XL Capital or any of its
Consolidated Subsidiaries to (ii) Consolidated Tangible Net Worth to be greater
than 0.35 at any time.
6.07. Consolidated Tangible Net Worth. XL Capital will not permit its
Consolidated Tangible Net Worth to be less than $2,566,000,000.00 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 Issuing Banks pursuant to this Agreement and the
other Transaction Document;
(b) Other Indebtedness, so long as upon the incurrence thereof no Event of
Default or Potential Default would occur or exist;
(c) 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
(d) Indebtedness incurred in transactions described in Section 6.03(f).
6.09. Claims-Paying Ratings. Each of XL Insurance and XL Mid Ocean shall
maintain at all times a claims-paying rating of at least "A" from Standard &
Poor's Ratings Services and from A.M. Best Company.
6.10. Private Act. Such Credit Party shall not become subject to a Private
Act except, in the case of XL 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;
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(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;
(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 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 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) XL Insurance shall cease to own, beneficially and of record, directly
or indirectly, 100% of the outstanding voting shares of common stock of XL
Investments;
(i) XL Capital shall cease to own, beneficially and of record, directly or
indirectly all of the outstanding voting shares of common stock of each other
Credit Party, except for a nominal number of shares owned by nominee
shareholders required by the applicable laws of the jurisdiction where such
Credit Party is incorporated;
(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 XL
Insurance, XL Capital or XL Mid Ocean 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;
(l) A decree or order by a court having jurisdiction in the premises shall
have been entered adjudging any 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) Any Credit Party 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 the companies laws of the Cayman Islands,
British West Indies 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 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.
If an Event of Default shall occur then the Issuing Banks shall be under no
further obligation to issue Letters of Credit hereunder and the Agent may, and
upon written request of the Required Issuing Banks shall, exercise any or all
remedies available to it. Without limiting the generality of the foregoing, if
an Event of Default shall have occurred and be continuing, the Agent may, and
upon the request of the Required Issuing Banks shall, make demand upon the
applicable Account Party to, and forthwith upon such demand the applicable
Account Party will, pay to the Agent as cash collateral for the ratable benefit
of the Issuing Banks, in same day funds at the Agent's office designated in such
demand, an amount equal to the aggregate Letter of Credit Undrawn Availability
of all Letters of Credit issued for the account of such Account Party. If at any
time during the continuance of an Event of Default the Agent determines that
such funds are subject to any right or claim of any Person other than the Agent
and the Issuing Banks or that the total amount of such funds is less than the
aggregate Letter of Credit Undrawn Availability of all Letters of Credit issued
for the account of an Account Party, such Account Party will, forthwith upon
demand by the Agent, pay to the Agent as additional cash collateral for the
ratable benefit of the Issuing Banks an amount equal to the excess of (a) such
aggregate Letter of Credit Undrawn Availability over (b) the total amount of
funds, if any, that the Agent determines to be free and clear of any such right
or claim. Upon the drawing of any Letters of Credit, such funds shall be applied
to reimburse the Issuing Banks, ratably, to the extent permitted by applicable
law.
ARTICLE VIII
THE AGENT
8.01. Appointment. (a) Each Issuing Bank hereby appoints Mellon Bank, N.A.
to act as Agent for such Issuing Bank under this Agreement and the other
Transaction Documents. Each Issuing Bank hereby irrevocably authorizes the Agent
to take such action on behalf of such Issuing 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 Issuing 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 Issuing 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 Issuing 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 Issuing Bank shall have any right individually to exercise
any such right or remedy, except to the extent expressly provided herein or
therein.
(b) The Arranger shall have no duties or obligations in such capacity
under this Agreement.
8.02. General Nature of Agent's Duties. Notwithstanding anything to the
contrary elsewhere in this Agreement or in any other Transaction Document:
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(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 Issuing Bank.
(c) The Agent is and shall be solely the agent of the Issuing 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 Issuing
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 Issuing 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
Issuing 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 Issuing 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 Issuing 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 Issuing 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 Issuing Bank to perform any
of their respective obligations 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.
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(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 Issuing 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 Issuing 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 Issuing Bank, such matter may be established by a certificate of such
Credit Party or Issuing 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 an Issuing 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 Agent receives such a notice,
the Agent shall give prompt notice thereof to each Issuing Bank.
8.06. Issuing Bank Not Relying on Agent or Issuing Banks. Each Issuing
Bank acknowledges as follows: (a) neither the Agent nor any other Issuing Bank
has made any representations or
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warranties to it, and no act taken hereafter by the Agent or any other Issuing
Bank shall be deemed to constitute any representation or warranty by the Agent
or such other Issuing Bank to it; (b) it has, independently and without reliance
upon the Agent or any other Issuing 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
Issuing 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 Issuing Bank agrees to reimburse and indemnify
the Agent, in its capacity as 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 Credit Parties to do so), ratably in accordance with
their respective Letter of Credit Committed Amounts, 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 Issuing Bank shall be
liable for any portion of such amounts, 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 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 Issuing Bank fails to pay any such amount
after a proper 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
hereunder 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
Issuing Bank and may exercise the same as though it were not the Agent, and the
terms "Issuing 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 Issuing Banks and the Account Parties. The
Agent may be removed by the Required Issuing Banks at any time by giving 10
days' prior written notice thereof to the Agent, the other Issuing Banks and the
Account Parties. Upon any such resignation or removal, the Required Issuing
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 Issuing 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 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
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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 Issuing
Banks, all notices or other communications required or permitted to be given to
the Agent shall be given to each Issuing Bank, and all payments to be made to
the Agent shall be made directly to the Account Parties or Issuing 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 Issuing 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 Issuing Bank to whom payment was
due but not made shall be to recover from the other Issuing 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. Documentation Agent. Fleet National Bank shall not, in the capacity
of Documentation Agent (as opposed to the capacity of Issuing Bank) have any
duties or rights hereunder.
ARTICLE IX
MISCELLANEOUS
9.01. No Implied Waiver etc. No delay or failure of the Agent or any
Issuing 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 Issuing 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 an Issuing 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 Issuing Bank shall have the right, in
addition to all other rights and remedies 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 Issuing Bank to the applicable Credit Party,
including without limitation any funds in any deposit account maintained by such
Credit Party with such
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Issuing Bank, and such Issuing Bank shall have and there is hereby created in
favor of such Issuing Bank a security interest in all deposit accounts
maintained by such Credit Party with such Issuing Bank, subject to Liens
permitted under 6.03(f). 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 Issuing 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 Issuing 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 Issuing 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 an Issuing
Bank (in its capacity as such) which were incurred by such Issuing Bank in
connection with any litigation, proceeding or other dispute relating solely to a
claim made against such Issuing Bank by one or more of the other Issuing 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 Issuing 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 Issuing 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 Issuing 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 Issuing Bank of any of its rights or remedies
under 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
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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 an Issuing Bank (in its
capacity as such) which were incurred by such Issuing Bank in connection with
any litigation, proceeding or other dispute relating solely to a claim made
against such Issuing Bank by one or more of the other Issuing Banks.
9.05. Severability; Inconsistent Provisions. 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. In the event of any inconsistency between the terms of
this Agreement and the terms of any Letter of Credit Application or Continuing
Letter of Credit Agreement, the terms of this Agreement shall control.
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 an Issuing
Bank, at such Issuing Bank's address on the signature pages hereof, if to the
Agent at One Mellon Bank Center, Room 4401, Pittsburgh, Pennsylvania 15258,
Attention: Karla Maloof, fax no. (412) 234-8087, with a copy to Loan
Administration, Three Mellon Bank Center, Pittsburgh, PA 15259 fax no. (412)
209-6134; and if to any Credit Party, to XL Capital Ltd, Cumberland House, One
Victoria Street, Hamilton HM11 Bermuda, Attn:William Robbie, fax no. (441)
292-5226, 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 Issuing Bank or providing information to the
Agent or any Issuing Bank, XL 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 TRANSACTION 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 COMMONWEALTH OF
PENNSYLVANIA AND THE UNITED STATES DISTRICT COURT FOR THE WESTERN 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
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<PAGE>
HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH
OTHER PROVISIONS OF EACH OTHER DOCUMENT RELATED HERETO TO WHICH IT IS A PARTY)
AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND EACH ISSUING
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 Issuing 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 Issuing
Banks, and any purported assignment without such consent shall be void.
(b) Participations. Any Issuing 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; provided, that
(i) any such participation sold to a Participant which is not an
Issuing Bank, an affiliate of an Issuing Bank or a Federal Reserve Bank
shall be made only with the consent (which in each case shall not be
unreasonably withheld) of XL Capital and the Agent, unless an Event of
Default has occurred and is continuing, in which case the consent of XL
Capital shall not be required,
(ii) any such Issuing Bank's obligations under this Agreement and
the other Transaction Documents shall remain unchanged,
(iii) such Issuing 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 Issuing Bank in connection with such Issuing 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
9.18 hereof, and the Issuing Bank selling such participation shall obtain
from such Participant a written confirmation of its agreement to be so
bound,
34
<PAGE>
(vi) no Participant (unless such Participant is an affiliate of such
Issuing Bank, or is itself a Issuing Bank) shall be entitled to require
such Issuing Bank to take or refrain from taking action under this
Agreement or under any other Transaction Document, except that such
Issuing Bank may agree with such Participant that such Issuing Bank will
not, without such Participant's consent, take action of the type described
in subsections (a), (b), (c), (d) or (e) 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 Commitments, Letter of
Credit Committed Amounts, 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 Issuing 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 Issuing 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 Commitments to any Issuing Bank, any affiliate
of an Issuing 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 an Issuing
Bank, an affiliate of an Issuing Bank or a Federal Reserve Bank shall be
made only with the consent (which in each case shall not be unreasonably
withheld) of XL Capital and the Agent, unless an Event of Default has
occurred and is continuing or exists, in which case the consent of XL
Capital shall not be required,
(ii) if an Issuing 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 such Issuing Bank's Letter of
Credit Commitments and Letter of Credit Exposure then outstanding,
(iii) each such assignment shall be of a constant, and not a
varying, percentage of each Commitment of the transferor Issuing Bank and
of all of the transferor Issuing 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 Issuing 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 an Issuing 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
35
<PAGE>
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 an Issuing Bank hereunder, and
(y) the transferor Issuing 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 Issuing Bank's rights and obligations under this
Agreement, such transferor Issuing 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 Issuing Banks and the Letter of
Credit Commitment of, and the amount of the Letter of Credit Committed Amount
of, each Issuing Bank from time to time. The entries in the Register shall be
conclusive absent manifest error and the Account Parties, the Agent and the
Issuing Banks may treat each person whose name is recorded in the Register as an
Issuing Bank hereunder for all purposes of the Agreement. The Register shall be
available for inspection by any Account Party or any Issuing 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 Issuing 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 Issuing Bank, a Credit Party, at
such 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 Issuing 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 Issuing Bank and the
Agent. The Agent shall enter into such amendments, modifications or supplements
from time to time as directed by the Required Issuing 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 Committed Amount of any Issuing Bank
over the amount thereof then in effect, or extend the Expiration Date, without
the written consent of each Issuing 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 Issuing Bank affected
thereby;
(c) Change the definition of "Required Issuing Banks" or amend this
Section 9.14, without the written consent of all the Issuing Banks;
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<PAGE>
(d) Amend or waive any of the provisions of Article VII 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;
or
(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
Issuing 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.
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
Issuing Banks, the Agent 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 Issuing Banks and the Agent harmless against
any deficiency in terms of Dollars in the amounts received by the Issuing Banks
or the Agent, as the case may be, 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 Issuing Bank or the Agent, as the case may be, is able to purchase
Dollars with the amount of the Judgment Currency actually received by such
Issuing Bank or the Agent, as the case may be, 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 Issuing Banks.
9.16. Records. The amount of outstanding Letters of Credit, each Issuing
Bank's Letter of Credit 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 Issuing 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 Issuing 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 Issuing 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 Issuing 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 Issuing 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 Issuing 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 Issuing 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
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<PAGE>
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 Issuing Banks hereby agree among
themselves that if any Issuing 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 Issuing
Banks in greater proportion than any such amount received by any other Issuing
Bank, then the Issuing Bank receiving such proportionately greater payment shall
notify each other Issuing 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 Issuing
Banks. The Issuing 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 Issuing Banks a participation in the applicable
Obligations owed to such other Issuing Banks in such amount as shall result in a
ratable sharing by all Issuing Banks of such excess amount (and to such extent
the receiving Issuing Bank shall be a Participant). If all or any portion of
such excess amount is thereafter recovered from the Issuing 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 Issuing 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 an
Issuing Bank hereunder.
ARTICLE X
GUARANTEE
10.01. The Guarantee. Each of the Guarantors hereby irrevocably,
unconditionally and absolutely guarantees to the Agent and the Issuing 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 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 any 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
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<PAGE>
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
Issuing Banks have been paid in full, no Letter of Credit is outstanding, the
Letter of Credit 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 Issuing 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 any 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 Issuing
Bank as security for any of the Guaranteed Obligations shall be void or
voidable, or shall fail to attach or be perfected or the Agent or any
Issuing Bank shall fail to realize on any collateral security; 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 any Guarantor) or shall be subordinated to the claims of any
Person (including, without limitation, any creditor of any 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 Agents, the Issuing Banks or any of them 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 Issuing 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 Issuing 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
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<PAGE>
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 Issuing 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, no 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 any Account Party, or (z) transfer any of
its properties or assets to any Account Party.
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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.
XL INSURANCE LTD, as an Account Party and a Guarantor
By: /s/ Christopher Coelho
------------------------------------
(Signature)
Name: Christopher Coelho
----------------------------------
Title: Chief Financial Officer
---------------------------------
XL MID OCEAN REINSURANCE LTD, as an Account Party and a Guarantor
By: /s/ Henry C.V. Keeling
------------------------------------
(Signature)
Name: Henry C.V. Keeling
----------------------------------
Title: President & CEO
---------------------------------
XL CAPITAL LTD, as a Guarantor
By: /s/ Brian M. O'Hara
------------------------------------
(Signature)
Name: Brian M. O'Hara
----------------------------------
Title: President & Chief Executive Officer
-----------------------------------
MELLON BANK, N.A., as an Issuing Bank, as Arranger and as Agent
By: /s/ Susan M. Whitewood
------------------------------------
(Signature)
Name: Susan M. Whitewood
----------------------------------
Title: Vice President
---------------------------------
Notice Address:
Institutional Banking Department
One Mellon Bank Center, Room 4401
Pittsburgh, PA 15258
Attn: Karla Maloof
Telephone: (412) 236-4147
Facsimile: (412) 234-8087
with a copy to:
Manager, Letter of Credit Operations
Three Mellon Bank Center, 23rd Floor
41
<PAGE>
Pittsburgh, PA 15259
Initial Letter of Credit Committed Amount: $30,000,000
42
<PAGE>
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES,
as an Issuing Bank
By: /s/ John S. McGill /s/ Clinton M. Johnson
-----------------------------------------------
(Signature)
Name: John S. McGill Clinton M. Johnson
---------------------------------------------
Title: Director Managing Director
--------------------------------------------
Notice Address:
31 West 52nd Street
New York, NY 10019
Attn: John McGill
Telephone: (212) 469-8101
Facsimile: (212) 469-8366
Initial Letter of Credit Committed Amount: $30,000,000
FIRST UNION NATIONAL BANK, as an Issuing Bank
By: /s/ Gail M. Golightly
------------------------------------
(Signature)
Name: Gail M. Golightly
----------------------------------
Title: Senior Vice President
---------------------------------
Notice Address: Additional notice to:
301 South College Street International Trade Operations
1 First Union Center 10th Floor Attn: Standby L/C Unit
Charlotte, NC 28288 8739 Research Drive - URP4
Attn: Butch Mayer Charlotte, NC 28262-0742
Telephone: (704) 374-6628 Telephone: (704) 593-7892
Facsimile: (704) 383-7611 Facsimile: (704) 593-7937
Initial Letter of Credit Committed Amount: $30,000,000
43
<PAGE>
FLEET NATIONAL BANK, as an Issuing Bank
By: /s/ Anson Harris
------------------------------------
(Signature)
Name: Anson Harris
----------------------------------
Title: Vice President
---------------------------------
Notice Address:
Mail Stop CTMO 0250
777 Main Street
Hartford, CT 06115-2001
Attn: Anson T. Harris
Telephone: (860) 986-7518
Facsimile: (860) 986-1264
Initial Letter of Credit Committed Amount: $30,000,000
BANK ONE, NA (MAIN OFFICE CHICAGO), as an Issuing Bank
By: /s/ Gretchen Roetzer
------------------------------------
(Signature)
Name: Gretchen Roetzer
----------------------------------
Title: Commercial Banking Officer
---------------------------------
Notice Address:
Insurance Division - Suite 0085
1 Bank One Plaza
Chicago, IL 60670-0085
Attn: Gretchen Roetzer
Telephone: (312) 732-8068
Facsimile: (312) 732-4033
with a copy to:
153 West 51st Street
New York, NY 10019
Attn: Sam Bridges
Telephone: (212) 373-1142
Facsimile: (212) 373-1439
Initial Letter of Credit Committed Amount: $30,000,000
44
<PAGE>
Exhibit 10.14.27
02.24.00 [Unsecured LC Agreement]
FIRST AMENDMENT TO LETTER OF CREDIT FACILITY
AND REIMBURSEMENT AGREEMENT
THIS FIRST AMENDMENT TO LETTER OF CREDIT FACILITY AND REIMBURSEMENT
AGREEMENT, dated as of February 25, 2000 (this "Amendment"), by and among XL
Insurance Ltd, XL Capital Ltd and XL Mid Ocean Reinsurance Ltd (collectively,
the "XL Parties"), MELLON BANK, N.A., DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN
ISLANDS BRANCHES, FIRST UNION NATIONAL BANK, FLEET NATIONAL BANK and BANK ONE,
NA (MAIN OFFICE CHICAGO) as Issuing Banks (the "Issuing Banks") and MELLON BANK,
N.A., as Agent (the "Agent").
W I T N E S S E T H:
WHEREAS, the XL Parties, the Issuing Banks and the Agent are parties
to a Letter of Credit Facility and Reimbursement Agreement, dated as of December
30, 1999 (the "Reimbursement Agreement"), pursuant to which the Issuing Banks
have agreed, on the terms and subject to the conditions described therein, to
extend credit to certain of the XL Parties by issuing letters of credit for the
account of such XL Parties; and
WHEREAS, the XL Parties have requested the Issuing Banks to make
certain additional changes to the Reimbursement Agreement;
WHEREAS, the Issuing Banks are willing to amend the Reimbursement
Agreement as set forth below; and
WHEREAS, capitalized terms used herein and not otherwise defined
shall have the meanings assigned to them in the Reimbursement 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 Reimbursement Agreement.
<PAGE>
(a) Section 1.01 of the Reimbursement Agreement is hereby amended by
adding thereto, in appropriate alphabetical sequence, the following
definitions:
"Asset Accumulation Lien" means a Lien on amounts
received, and on actual and imputed investment income on such
amounts received, relating and identified to specific
insurance payment liabilities or to liabilities arising in the
ordinary course of any Credit Party's or Subsidiary's business
as an insurance or reinsurance company or corporate member of
Lloyd's or as a provider of financial services or contracts,
or the proceeds thereof, in each case held in a segregated
trust or other account and securing such liabilities;
provided, that in no case shall an Asset Accumulation Lien
secure Indebtedness and any Lien which secures Indebtedness
shall not be an Asset Accumulation Lien.
"Total Adjusted Funded Debt" shall have the
meaning given that term in Section 6.06 hereof.
(b) Section 5.01 of the Reimbursement Agreement is hereby amended by
adding at the end thereof a new paragraph (j) thereof to read as follows:
(j) Information Regarding Asset Accumulation
Liens. At the time of furnishing each certificate furnished
pursuant to paragraph (c) of this Section 5.01, a statement,
certified as true and correct by a principal financial officer
of XL Capital, setting forth on a consolidated basis for XL
Capital and its consolidated Subsidiaries as of the end of the
fiscal year or quarter to which such certificate relates (A)
the aggregate book value of assets which are subject to Asset
Accumulation Liens and the aggregate book value of liabilities
which are secured by Asset Accumulation Liens (it being
understood that the reports required by paragraphs (a) and (b)
of this Section 5.01 shall satisfy the requirement of this
clause (A) of this paragraph
Unsecured LC Facility-First Amendment
-2-
<PAGE>
(j) if such reports set forth separately, in accordance with
GAAP, line items corresponding to such aggregate book values)
and (B) a calculation showing the portion of each of such
aggregate amounts which portion is attributable to
transactions among wholly-owned Subsidiaries of XL Capital.
(c) Section 6.03 of the Reimbursement Agreement is hereby amended by
deleting the period at the end of paragraph (f) thereof and replacing it
with the phrase "; or" and by adding at the end of such Section a new
paragraph (g) to read as follows:
(g) Asset Accumulation Liens.
(d) Section 6.06 of the Reimbursement Agreement is hereby amended as
follows:
6.06. Ratio of Total Adjusted Funded Debt to
Consolidated Capital. XL Capital will not permit its ratio of
(i) Total Adjusted Funded Debt to (ii) the sum of Total
Adjusted Funded Debt plus Consolidated Net Worth to be greater
than 0.35 at any time. As used herein, the term "Total
Adjusted Funded Debt" shall mean, at any time, the sum of (x)
Total Funded Debt at such time plus (y) the aggregate undrawn
face amount of all letters of credit (as to which
reimbursement obligations are not secured by marketable
securities with a value at least equal to the face amount of
such letters of credit) issued for the account of, or
guaranteed by, XL Capital or any of its Consolidated
Subsidiaries at such time (irrespective of whether the
beneficiary thereof is an Affiliate).
SECTION 2. Conditions to Effectiveness. This First Amendment shall
become effective upon the execution and delivery hereof by the XL Parties, the
Required Issuing Banks and the Agent.
Unsecured LC Facility-First Amendment
-3-
<PAGE>
SECTION 3. Effect of Amendment. The Reimbursement 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.
XL INSURANCE LTD, as an Account Party and a Guarantor
By: /s/ Clive R. Tobin
--------------------------
(Signature)
Name: Clive R. Tobin
------------------------
Title: President
-----------------------
XL MID OCEAN REINSURANCE LTD, as an Account Party and a Guarantor
By: /s/ Henry C.V. Keeling
--------------------------
(Signature)
Name: Henry C.V. Keeling
------------------------
Title: President
-----------------------
XL CAPITAL LTD, as a Guarantor
By: /s/ Brian M. O'Hara
--------------------------
(Signature)
Name: Brian M. O'Hara
------------------------
Title: President & CEO
-----------------------
Unsecured LC Facility-First Amendment
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<PAGE>
MELLON BANK, N.A., as an Issuing Bank and as Agent
By: /s/ Karla Maloof
--------------------------
(Signature)
Name: Karla Maloof
------------------------
Title: Vice President
-----------------------
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES,
as an Issuing Bank
By: /s/ John S. McGill
--------------------------
(Signature)
Name: John S. McGill
------------------------
Title: Director
-----------------------
By: /s/ Alan Krouk
--------------------------
(Signature)
Name: Alan Krouk
------------------------
Title: Assitant Vice President
-----------------------
FIRST UNION NATIONAL BANK, as an Issuing Bank
By: /s/ Robert C. Mayer, Jr.
-------------------------
(Signature)
Name: Robert C. Mayer, Jr.
--------------------
Title: Senior Vice President
--------------------
FLEET NATIONAL BANK, as an Issuing Bank
By: /s/ Anson Harris
--------------------------
(Signature)
Name: Anson Harris
------------------------
Title: Vice President
-----------------------
BANK ONE, NA (MAIN OFFICE CHICAGO), as an Issuing Bank
By: /s/ Gretchen Roetzer
--------------------------
(Signature)
Name: Gretchen Roetzer
------------------------
Title: Corporate Banking Officer
-----------------------
Unsecured LC Facility-First Amendment
-5-
<PAGE>
Exhibit 10.14.28
================================================================================
[LOGO]
U.S. $100,000,000
LETTER OF CREDIT AGREEMENT
dated as of
December 17, 1999
Between
XL INSURANCE LTD AND XL MID OCEAN REINSURANCE LTD,
as Applicants
and
THE CHASE MANHATTAN BANK,
Issuing Bank
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions
SECTION 1.01. Defined Terms............................................... 1
SECTION 1.03. Terms Generally ............................................ 1
SECTION 1.04. Accounting Terms; GAAP...................................... 4
ARTICLE II
The Letters of Credit
SECTION 2.01. Commitment.................................................. 5
SECTION 2.02. Notice of Issuance, Amendment, Renewal,
Extension; Certain Conditions.............................. 5
SECTION 2.03. Termination and Reduction of Commitments.................... 7
SECTION 2.04. Fees........................................................ 7
SECTION 2.05. Interest.................................................... 8
SECTION 2.06. Increased Costs............................................. 8
SECTION 2.07 Taxes....................................................... 9
SECTION 2.08. Payments Generally.......................................... 10
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties.............................. 10
ARTICLE IV
Conditions
SECTION 4.01. Effective Date.............................................. 11
SECTION 4.02. Each Credit Event........................................... 11
ARTICLE V
Covenants
SECTION 5.01. Covenants................................................... 12
<PAGE>
ARTICLE VI
Events of Default........................ 12
ARTICLE VII
Miscellaneous
SECTION 7.01. Notices..................................................... 14
SECTION 7.02. Waivers; Amendments......................................... 14
SECTION 7.03. Expenses; Indemnity; Damage Waiver.......................... 14
SECTION 7.04. Successors and Assigns...................................... 15
SECTION 7.05. Survival.................................................... 16
SECTION 7.06. Counterparts; Integration; Effectiveness.................... 16
SECTION 7.07. Severability................................................ 17
SECTION 7.08. Right of Setoff............................................. 17
SECTION 7.09. Governing Law; Jurisdiction; Consent to Service of Process.. 17
SECTION 7.10. WAIVER OF JURY TRIAL........................................ 18
SECTION 7.11. Headings.................................................... 18
SECTION 7.12. Confidentiality............................................. 18
-2-
<PAGE>
LETTER OF CREDIT AGREEMENT dated as of December 17, 1999, among XL
INSURANCE LTD ("XL Insurance"), a Bermuda limited liability corporation, and XL
MID OCEAN REINSURANCE LTD ("XL Mid Ocean"), a Bermuda limited liability
corporation (XL Mid Ocean, together with XL Insurance, the "Applicants"), and
THE CHASE MANHATTAN BANK, as Issuing Bank (as defined herein).
The parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms have the meanings specified below:
"Affiliate" means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the Base CD Rate or the Federal Funds Rate shall be effective
from and including the effective date of such change in the Prime Rate, the Base
CD Rate or the Federal Funds Rate, respectively.
"Application" has the meaning assigned to it in Section 2.02 hereof.
"Assessment Rate" means, for any day, the annual assessment rate in effect
on such day that is payable by a member of the Bank Insurance Fund classified as
"well-capitalized" and within supervisory subgroup "B" (or a comparable
successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any
successor provision) to the Federal Deposit Insurance Corporation for insurance
by the Federal Deposit Insurance Corporation of time deposits made in dollars at
the offices of such member in the United States.
"Availability Period" means the period from and including the Effective
Date to but excluding the earlier of the Commitment Termination Date and the
date of termination of the Commitment.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate
multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Basic Documents" means this Agreement and any Application.
"Business Day" means any day that is not a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by law to
remain closed.
<PAGE>
"Change in Law" means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Official Body after the
date of this Agreement or (c) compliance by the Issuing Bank or the Issuing Bank
(or, for purposes of Section 2.06(b), by any lending office of the Issuing Bank
or the Issuing Bank's holding company, if any) with any request, guideline or
directive (whether or not having the force of law) of any Official Body made or
issued after the date of this Agreement.
"Commitment" means the commitment of the Issuing Bank to issue Letters of
Credit, as such commitment may be (a) reduced from time to time pursuant to
Section 2.03 and (b) reduced or increased from time to time pursuant to
assignments by the Issuing Bank pursuant to Section 7.04. The initial amount of
the Issuing Bank's Commitment is $100,000,000.
"Commitment Termination Date" means December 16, 2000.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
"Default" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"dollars" or "$" refers to lawful money of the United States of America.
"Effective Date" means the date on which the conditions specified in
Section 4.01 are satisfied (or waived in accordance with Section 7.02).
"Events of Default" has the meaning assigned to such term in Article VI.
"Excluded Taxes" means, with respect to the Issuing Bank, (a) income or
franchise taxes imposed on (or measured by) its net income by the United States
of America, or by the jurisdiction under the laws of which the Issuing Bank is
organized or in which its principal office is located and (b) any branch profits
taxes imposed by the United States of America or any similar tax imposed by any
other jurisdiction in which the Applicants are located.
"Existing Revolver" means that certain $500,000,000 Short Term Revolving
Credit Agreement dated as of June 30, 1999 among the Applicants, XL Capital Ltd,
the Banks party thereto, Mellon Bank, N. A., as Administrative Agent, and the
Issuing Bank, as Syndication Agent, as in effect on the date hereof.
"Federal Funds Rate" means, with respect to any amount, the rate per annum
at which U. S. Dollar deposits with an overnight maturity and in a comparable
amount are offered by the Bank in the Federal funds market at approximately 2:00
p.m. New York City time.
"Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or controller of an Applicant.
"GAAP" means generally accepted accounting principles in the United States
of America.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
2
<PAGE>
"Indemnitee" has the meaning ascribed to such term in Section 7.03(b).
"Issuing Bank" means The Chase Manhattan Bank. The Issuing Bank may, in
its discretion, arrange for one or more Letters of Credit to be issued by
Affiliates of the Issuing Bank, in which case the term "Issuing Bank" shall
include any such Affiliate with respect to Letters of Credit issued by such
Affiliate.
"LC Disbursement" means a payment made by the Issuing Bank pursuant to a
Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the Applicants at such time.
"Letter of Credit" means any standby or commercial letter of credit issued
pursuant to this Agreement.
"Material Adverse Effect" means, with respect to an Applicant, a material
adverse effect on (a) the business, assets, operations, prospects or condition,
financial or otherwise, of such Applicant and its Subsidiaries taken as a whole,
(b) the ability of such Applicant to perform any of its obligations under this
Agreement or (c) the rights of or benefits available to the Issuing Banks under
the Basic Documents.
"Official Body" means 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.
"Other Taxes" means any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement.
"Participant " has the meaning ascribed to such term in Section 7.04(c).
"Person" means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Official Body or other
entity.
"Prime Rate" means the rate of interest per annum publicly announced from
time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"SAP" means, as to each Applicant, the statutory accounting practices
prescribed or permitted by the relevant Official Body for such Applicant's
domicile for the preparation of such Applicant's financial statements and other
default reports by insurance corporations of the same type as such Applicant in
effect on the date such statements or reports are to be prepared.
3
<PAGE>
"subsidiary" means, with respect to any Person (the "parent") at any date,
any corporation, limited liability company, partnership, association or other
entity the accounts of which would be consolidated with those of the parent in
the parent's consolidated financial statements if such financial statements were
prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or, in the case of a
partnership, more than 50% of the general partnership interests are, as of such
date, owned, controlled or held, or (b) that is, as of such date, otherwise
Controlled, by the parent or one or more subsidiaries of the parent or by the
parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of an Applicant.
"Taxes" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Official Body.
"Three-Month Secondary CD Rate" means, for any day, the secondary market
rate for three-month certificates of deposit reported as being in effect on such
day (or, if such day is not a Business Day, the next preceding Business Day) by
the Board of Governors of the Federal Reserve System of the United States of
America through the public information telephone line of the Federal Reserve
Bank of New York (which rate will, under the current practices of such Board, be
published in Federal Reserve Statistical Release H.15(519) during the week
following such day) or, if such rate is not so reported on such day or such next
preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day is not a Business Day, on the next preceding Business Day) by the
Issuing Bank from three negotiable certificate of deposit dealers of recognized
standing selected by it.
"Transactions" means the execution, delivery and performance by the
Applicants of this Agreement and the issuance of Letters of Credit hereunder.
SECTION 1.02. Terms Generally. The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, and (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement.
SECTION 1.03. Accounting Terms; GAAP and SAP. Except as otherwise
expressly provided herein, all terms of an accounting or financial nature shall
be construed, as the context requires, in accordance with GAAP or SAP, as the
context may require, as in effect from time to time; provided that, if the
Applicants notify the Issuing Bank that the Applicants request an amendment to
any provision hereof to eliminate the effect of any change occurring after the
date hereof in GAAP or SAP or in the application thereof on the operation of
such provision (or if the Issuing Bank notifies the Applicants that the Issuing
Bank requests an amendment to any provision hereof for such purpose), regardless
of whether any such notice is given before or after such change in GAAP or SAP
or in the
4
<PAGE>
application thereof, then such provision shall be interpreted on the basis of
GAAP or SAP as in effect and applied immediately before such change shall have
become effective until such notice shall have been withdrawn or such provision
shall have been amended in accordance herewith.
ARTICLE II
The Letters of Credit
SECTION 2.01. Commitment. Subject to the terms and conditions set forth
herein, the Issuing Bank agrees to issue (or extend, modify or amend) Letters of
Credit for the accounts of the Applicants from time to time during the
Availability Period in an aggregate principal amount not to exceed the
Commitment. Within the foregoing limits and subject to the terms and conditions
set forth herein, the Applicants may reduce or cancel Letters of Credit or
request the renewal of Letters of Credit or the issuance of new Letters of
Credit. The Letters of Credit shall be used for general corporate purposes.
SECTION 2.02. Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. (a) To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), an Applicant shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the Issuing
Bank (reasonably in advance of the requested date of issuance, amendment,
renewal or extension) a notice requesting the issuance of a Letter of Credit, or
identifying the Letter of Credit to be amended, renewed or extended, the date of
issuance (which shall be a Business Day), amendment, renewal or extension, the
date on which such Letter of Credit is to expire (which shall comply with
paragraph (b) of this Section), the amount of such Letter of Credit, the name
and address of the beneficiary thereof and such other information as shall be
necessary to prepare, amend, renew or extend such Letter of Credit. An Applicant
also shall submit a letter of credit application (an "Application") on the
Issuing Bank's standard form in connection with any request for a Letter of
Credit; provided that in the event of any inconsistency between the terms and
conditions of this Agreement and the terms and conditions of any Application,
the terms and conditions of this Agreement shall control. A Letter of Credit
shall be issued, amended, renewed or extended only if (and upon issuance,
amendment, renewal or extension of each Letter of Credit the relevant Applicant
shall be deemed to represent and warrant that), after giving effect to such
issuance, amendment, renewal or extension the LC Exposure shall not exceed the
Commitment.
(b) Expiration Date. Each Letter of Credit shall expire at or prior to the
close of business on the earlier of (i) the date one year after the date of the
issuance of such Letter of Credit (or, in the case of any renewal or extension
thereof, one year after such renewal or extension) and (ii) the date that is
five Business Days prior to the Commitment Termination Date.
(c) Reimbursement. If the Issuing Bank shall make any LC Disbursement in
respect of a Letter of Credit, the Applicant thereof shall reimburse such LC
Disbursement by paying to the Issuing Bank an amount equal to such LC
Disbursement not later than 12:00 noon, New York City time, on the date that
such LC Disbursement is made, if such Applicant shall have received notice of
such LC Disbursement prior to 10:00 a.m., New York City time, on such date, or,
if such notice has not been received by such Applicant prior to such time on
such date, then not later than 12:00 noon, New York City time, on (i) the
Business Day that such Applicant receives such notice, if such notice is
received prior to 10:00 a.m., New York City time, on the day of receipt, or (ii)
the Business Day immediately following the day that
5
<PAGE>
such Applicant receives such notice, if such notice is not received prior to
such time on the day of receipt.
(d) Obligations Absolute. The Applicants' obligations to reimburse LC
Disbursements as provided in paragraph (c) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein, (ii) any draft or
other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank in good faith under
a Letter of Credit against presentation of a draft or other document that does
not comply with the terms of such Letter of Credit, or (iv) any other event or
circumstance whatsoever, whether or not similar to any of the foregoing, that
might, but for the provisions of this Section, constitute a legal or equitable
discharge of, or provide a right of setoff against, an Applicant's obligations
hereunder. Neither the Issuing Bank, nor any of its Related Parties, shall have
any liability or responsibility by reason of or in connection with the issuance
or transfer of any Letter of Credit or any payment or failure to make any
payment thereunder (irrespective of any of the circumstances referred to in the
preceding sentence), or any error, omission, interruption, loss or delay in
transmission or delivery of any draft, notice or other communication under or
relating to any Letter of Credit (including any document required to make a
drawing thereunder), any error in interpretation of technical terms or any
consequence arising from causes beyond the control of the Issuing Bank; provided
that the foregoing shall not be construed to excuse the Issuing Bank from
liability to the Applicants to the extent of any direct damages (as opposed to
consequential damages, claims in respect of which are hereby waived by the
Applicants to the extent permitted by applicable law) suffered by the Applicants
that are caused by the Issuing Bank's failure to exercise care when determining
whether drafts and other documents presented under a Letter of Credit comply
with the terms thereof. The parties hereto expressly agree that, in the absence
of gross negligence or wilful misconduct on the part of the Issuing Bank (as
finally determined by a court of competent jurisdiction), the Issuing Bank shall
be deemed to have exercised care in each such determination. In furtherance of
the foregoing and without limiting the generality thereof, the parties agree
that, with respect to documents presented which appear on their face to be in
substantial compliance with the terms of a Letter of Credit, the Issuing Bank
may, in its sole discretion, either accept and make payment upon such documents
without responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.
(e) Disbursement Procedures. The Issuing Bank shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall promptly notify the
relevant Applicant by telephone (confirmed by telecopy) of such demand for
payment and whether the Issuing Bank has made or will make an LC Disbursement
thereunder; provided that any failure to give or delay in giving such notice
shall not relieve such Applicant of its obligation to reimburse the Issuing Bank
with respect to any such LC Disbursement.
(g) Interim Interest. If the Issuing Bank shall make any LC Disbursement,
then, unless the relevant Applicant shall reimburse such LC Disbursement in full
on the date such LC Disbursement is made, the unpaid amount thereof shall bear
interest, for each day from and including the date such LC Disbursement is made
to but excluding the date that such Applicant reimburses such LC Disbursement,
at the Alternative Base Rate; provided that, if such Applicant fails to
reimburse such LC Disbursement when due pursuant to paragraph (c) of this
Section, then Section 2.05 shall apply.
6
<PAGE>
(h) Cash Collateralization. If any Event of Default shall occur and be
continuing, then on or prior to the Business Day following the Business Day on
which the Applicants receive notice from the Issuing Bank demanding the deposit
of cash collateral pursuant to this paragraph, the Applicants shall deposit in
an account with the Issuing Bank an amount in cash equal to the LC Exposure as
of such date plus any accrued and unpaid interest thereon; provided that the
obligation to deposit such cash collateral shall become effective immediately,
and such deposit shall become immediately due and payable, without demand or
other notice of any kind, upon the occurrence of any Event of Default with
respect to the Applicants described in clause (e) of Article VI. Such deposit
shall be held by the Issuing Bank as collateral for the payment and performance
of the obligations of the Applicants under this Agreement. The Issuing Bank
shall have exclusive dominion and control, including the exclusive right of
withdrawal, over such account. Other than any interest earned on the investment
of such deposits, which investments shall be made at the option and sole
discretion of the Issuing Bank and at the Applicants' risk and expense, such
deposits shall not bear interest. Interest or profits, if any, on such
investments shall accumulate in such account. Moneys in such account shall be
applied by the Issuing Bank to reimburse the Issuing Bank for LC Disbursements
for which it has not been reimbursed and, to the extent not so applied, shall be
held for the satisfaction of the reimbursement obligations of the Applicants for
the LC Exposure at such time. If the Applicants are required to provide an
amount of cash collateral hereunder as a result of the occurrence of an Event of
Default, such amount, including interest or any profits thereon, if any, (to the
extent not applied as aforesaid) shall be returned to the Applicants within
three Business Days after all Events of Default have been cured or waived.
SECTION 2.03. Termination and Reduction of Commitment. (a) Unless
previously terminated, the Commitment shall terminate on the Commitment
Termination Date.
(b) The Applicants may at any time terminate, or from time to time reduce,
the Commitment; provided that (i) each reduction of the Commitment shall be in
an amount that is an integral multiple of $1,000,000 and not less than
$10,000,000 and (ii) the Applicants shall not terminate or reduce the Commitment
if the sum of the LC Exposure would exceed the Commitment.
(c) The Applicants shall notify the Issuing Bank of any election to
terminate or reduce the Commitment under paragraph (b) of this Section at least
two Business Days prior to the effective date of such termination or reduction,
specifying such election and the effective date thereof.
SECTION 2.04. Fees. (a) The Applicants jointly and severally agree to pay
to the Issuing Bank a facility fee, which shall accrue at a rate per annum equal
to 0.07% on the daily amount of the Commitment (used or unused) of the Issuing
Bank during the period from and including the Effective Date to but excluding
the date on which the Commitment terminates. Accrued facility fees shall be
payable in arrears on the last day of March, June, September and December of
each year and on the date on which the Commitment terminates, commencing on the
first such date to occur after the date hereof. All commitment fees shall be
computed on the basis of a year of 360 days and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
(b) Each Applicant agrees to pay to the Issuing Bank a commission with
respect to each Letter of Credit issued for its account, which shall accrue at
the a rate per annum equal to 0.35% on the average daily amount of the Issuing
Bank's LC Exposure (excluding any portion thereof attributable to unreimbursed
LC Disbursements) during the period from and including the Effective Date to but
excluding the later of the date on which the Commitment terminates and the date
on which the Issuing Bank ceases to have any LC Exposure, as well as the Issuing
Bank's standard reasonable fees with respect to the issuance, amendment, renewal
or extension of any Letter of Credit or processing of
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drawings thereunder. Commissions accrued through and including the last day of
March, June, September and December of each year shall be payable on the third
Business Day following such last day, commencing on the first such date to occur
after the Effective Date; provided that all such fees shall be payable on the
date on which the Commitment terminates and any such fees accruing after the
date on which the Commitment terminates shall be payable on demand. Any other
fees payable to the Issuing Bank pursuant to this paragraph shall be payable
within 10 Business Days after demand. Commissions shall be computed on the basis
of a year of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
(c) All fees payable hereunder shall be paid on the dates due, in
immediately available funds. Fees paid shall not be refundable under any
circumstances.
SECTION 2.05. Interest. If any principal of or interest on any LC
Disbursement or any fee or other amount payable by the Applicants hereunder is
not paid when due, whether at stated maturity, upon acceleration or otherwise,
such overdue amount shall bear interest, after as well as before judgment, at a
rate per annum equal to 2% plus the Alternative Base Rate and be payable upon
demand. All interest hereunder shall be computed on the basis of a year of 360
days, except that interest computed by reference to the Alternate Base Rate at
times when the Alternate Base Rate is based on the Prime Rate shall be computed
on the basis of a year of 365 days (or 366 days in a leap year), and in each
case shall be payable for the actual number of days elapsed (including the first
day but excluding the last day).
SECTION 2.06. Increased Costs. (a) If any Change in Law shall impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended by
the Issuing Bank, and the result of any of the foregoing shall be to increase
the cost to the Issuing Bank of issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by the Issuing Bank
hereunder (whether of principal, interest or otherwise), then the Applicants
jointly and severally agree to pay to the Issuing Bank on demand such additional
amount or amounts as will compensate the Issuing Bank, as the case may be, for
such additional costs incurred or reduction suffered.
(b) If the Issuing Bank determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of return
on the Issuing Bank's capital or on the capital of the Issuing Bank's holding
company, if any, as a consequence of this Agreement, or the Letters of Credit
issued by the Issuing Bank, to a level below that which the Issuing Bank or the
Issuing Bank's holding company could have achieved but for such Change in Law
(taking into consideration the Issuing Bank's policies and the policies of the
Issuing Bank's holding company with respect to capital adequacy), then from time
to time the Applicants jointly and severally agree to pay to the Issuing Bank on
demand such additional amount or amounts as will compensate the Issuing Bank or
the Issuing Bank's holding company for any such reduction suffered.
(c) A certificate of the Issuing Bank setting forth the amount or amounts
determined in good faith as necessary to compensate the Issuing Bank or its
holding company, as specified in paragraph (a) or (b) of this Section, and
containing a reasonable description of the facts and circumstances regarding the
demand shall be delivered to the Applicants and shall be conclusive absent
manifest error. The Applicants shall pay the Issuing Bank the amount shown as
due on any such certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of the Issuing Bank to demand
compensation pursuant to this Section shall not constitute a waiver of the
Issuing Bank's right to demand such compensation; provided
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that the Applicants shall not be required to compensate the Issuing Bank
pursuant to this Section for any increased costs or reductions incurred more
than 270 days prior to the date that the Issuing Bank notifies the Applicants of
the Change in Law giving rise to such increased costs or reductions and of the
Issuing Bank's intention to claim compensation therefor; provided further that,
if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the 270-day period referred to above shall be extended to
include the period of retroactive effect thereof.
SECTION 2.07. Taxes. (a) Subject to the immediately succeeding sentence,
any and all payments by or on account of any obligation of any Applicant
hereunder shall be made free and clear of and without deduction for any
Indemnified Taxes or Other Taxes imposed by Bermuda or any other jurisdiction in
which such Applicant conducts its business; provided that if such Applicant
shall be required to deduct any Indemnified Taxes or Other Taxes from such
payments, then (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section) the Issuing Bank receives an amount equal to
the sum it would have received had no such deductions been made, (ii) such
Applicant shall make such deductions and (iii) such Applicant shall pay the full
amount deducted to the relevant Official Body in accordance with applicable law.
No additional sums will be payable pursuant to the immediately preceding
sentence by an Applicant hereunder to the Issuing Bank with respect to any
Indemnified Tax or Other Tax which would not have been imposed, payable or due:
(i) but for the existence of any present or former connection between the
Issuing Bank and Bermuda or any other jurisdiction in which such Applicant
conducts its business (including, without limitation, the Issuing Bank being or
having or maintaining or having maintained a permanent establishment or being or
having been engaged in business in, Bermuda or any other jurisdiction in which
such Applicant conducts its business); or (ii) but for the failure of the
Issuing Bank to promptly comply with a request by the Applicant to satisfy any
certification, identification or other reporting requirements, whether imposed
by statute, treaty, regulation or administrative practices, concerning
nationality, residence or connection with any applicable taxing jurisdiction.
The obligation to pay additional sums in respect of Indemnified Taxes or Other
Taxes shall not apply to any Tax which is payable otherwise than by deduction or
withholding.
(b) If the Issuing Bank determines in its sole discretion in good faith
that it has received a refund in respect of any Indemnified Taxes as to which it
has been idemnified by an Applicant, or with respect to which an Applicant has
paid additional amounts pursuant to this Section 2.07, the Issuing Bank shall
promptly after the date of such receipt pay over the amount of such refund to
such Applicant (but only to the extent of indemnity payments made, or additional
amounts paid, by such Applicant under this Section 2.07 with respect to
Indemnified Taxes giving rise to such refund and only to the extent that the
Issuing 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 Issuing Bank (including additional Indemnified Taxes
attributable to such refund, as determined by the Issuing Bank) and without
interest (other than interest, if any, paid by the relevant Official Body with
respect to such refund). An Applicant receiving any such payment from the
Issuing Bank shall, upon demand, pay to the Issuing Bank any amount paid over to
such Applicant by the Issuing Bank (plus penalties, interest or other charges)
in the event the Issuing Bank is required to repay any portion of such refund to
such Official Body. Nothing in the Section 2.07 shall entitle an Applicant to
have access to the records of the Issuing Bank including, without limitation,
tax returns.
(c) In addition, each Applicant shall pay any Other Taxes to the relevant
Official Body in accordance with applicable law.
(d) Each Applicant shall indemnify the Issuing Bank, promptly after
receipt of written demand
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therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by
the Issuing Bank on to the relevant Official Body in accordance with applicable
law or with respect to any payment by or on account of any obligation of such
Applicant hereunder (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section 2.07) and any
penalties and interest arising therefrom or with respect thereto, whether or not
such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Official Body. A certificate as to the amount of such
payment or liability delivered to an Applicant by the Issuing Bank shall be
conclusive absent manifest error.
(e) As soon as practicable after any payment of Indemnified Taxes or Other
Taxes by an Applicant or by the Issuing Bank, as the case may be, to an Official
Body, such Applicant or Issuing Bank shall deliver to the other party hereto the
original or a certified copy of a receipt issued by such Official Body
evidencing such payment, a copy of the return reporting such payment or other
reasonable evidence of such payment.
SECTION 2.08. Payments Generally. (a) The Applicants shall make each
payment required to be made by them hereunder prior to 12:00 noon, New York City
time, on the date when due, in immediately available funds, without set-off or
counterclaim. Any amounts received after such time on any date may, in the
discretion of the Issuing Bank, be deemed to have been received on the next
succeeding Business Day for purposes of calculating interest thereon. All such
payments shall be made to the Issuing Bank at its offices at 270 Park Avenue,
New York, New York 10017. If any payment hereunder shall be due on a day that is
not a Business Day, the date for payment shall be extended to the next
succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and available to the
Issuing Bank to pay fully all amounts of unreimbursed LC Disbursements, interest
and fees then due hereunder, such funds shall be applied (i) first, towards
payment of interest and fees then due hereunder and (ii) second, towards payment
of unreimbursed LC Disbursements then due hereunder.
ARTICLE III
Representations and Warranties
Section 3.01. Representations and Warranties. Each Applicant represents
and warrants that each of the representations and warranties contained in
Article III of the Existing Revolver, which provisions, together with the
related definitions, as in effect on the date hereof are hereby incorporated in
this Section 3.01 by reference (mutatis mutandis) for the benefit of the Issuing
Bank and shall continue for the purposes of this Agreement regardless of the
termination of the Existing Revolver or the Issuing Bank's participation
therein, or any amendment of, or consent to any deviation from or other
modification of, the Existing Revolver; provided that for the purposes of this
Section 3.01 references in Article III of the Existing Revolver to (a) the
"Borrower" shall be deemed to be references to each Applicant hereunder, (b)
"this Agreement", the "Loan Documents," the "Notes" and "hereunder" or other
words of similar import shall be deemed to be references to this Agreement and
any other Basic Document, (c) the "Administrative Agent," "any Agent" and the
"Banks" shall be deemed to be references to the Issuing Bank, (d) "borrowing"
shall be deemed to be references to the Letters of Credit and (e) "Closing Date"
shall be deemed to be a reference to the Effective Date; provided further that
for the purposes of this Section 3.01, references in Section 3.01 of the
Existing Revolver to Schedule 3.01 shall be disregarded.
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ARTICLE IV
Conditions
SECTION 4.01. Effective Date. The obligation of the Issuing Bank to issue
Letters of Credit hereunder shall not become effective until the date on which
each of the following conditions is satisfied (or waived in accordance with
Section 7.02):
(a) The Issuing Bank (or its counsel) shall have received from each party
hereto either (i) a counterpart of this Agreement signed on behalf of such party
or (ii) written evidence satisfactory to the Issuing Bank (which may include
telecopy transmission of a signed signature page of this Agreement) that such
party has signed a counterpart of this Agreement.
(b) The Issuing Bank shall have received a favorable written opinion(s)
(addressed to the Issuing Bank and dated the Effective Date) of counsel for the
Applicants, in form and substance satisfactory to the Issuing Bank and covering
such other matters relating to the Applicants, this Agreement or the
Transactions as the Issuing Bank may reasonably request. The Applicants hereby
request such counsel to deliver such opinion.
(c) The Issuing Bank shall have received such documents and certificates
as the Issuing Bank or its counsel may reasonably request relating to the
organization, existence and good standing of each Applicant, the authorization
of the Transactions and any other legal matters relating to such Applicant, this
Agreement or the Transactions, all in form and substance satisfactory to the
Issuing Bank and its counsel.
(d) The Issuing Bank shall have received a certificate, dated the
Effective Date and signed by the President, any Vice President or the Financial
Officer of each Applicant, confirming compliance as of the Effective Date with
the conditions set forth in paragraphs (a) and (b) of Section 4.02.
(e) The Issuing Bank shall have received all fees and other amounts due
and payable on or prior to the Effective Date, including, to the extent
invoiced, reimbursement or payment of all out-of-pocket expenses required to be
reimbursed or paid by the Applicants hereunder.
The Issuing Bank shall notify the Applicants promptly of the Effective Date, and
such notice shall be conclusive and binding. Notwithstanding the foregoing, the
obligation of the Issuing Bank to issue Letters of Credit hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 8.02) at or prior to 3:00 p.m., New York City time, on
December 31, 1999 (and, in the event such conditions are not so satisfied or
waived, the Commitment shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of the Issuing Bank to
issue, amend, renew or extend any Letter of Credit, is subject to the
satisfaction of the following conditions:
(a) The representations and warranties of the Applicants set forth in this
Agreement shall be true and correct on and as of the date of the date of
issuance, amendment, renewal or extension of such Letter of Credit.
(b) At the time of and immediately after giving effect to the issuance,
amendment, renewal or extension of such Letter of Credit, no Default shall have
occurred and be continuing.
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Unless the Issuing Bank receives notice from the applicable Applicant to the
contrary before any such issuance, amendment, renewal or extension is made, each
issuance, amendment, renewal or extension of a Letter of Credit shall be deemed
to constitute a representation and warranty by the Applicants on the date
thereof as to the matters specified in paragraphs (a) and (b) of this Section.
ARTICLE V
Covenants
Section 5.01. Covenants. So long as any amount owing under this Agreement
shall remain unpaid, the Issuing Bank shall have any Commitment thereunder, or
any Letter of Credit shall remain outstanding, the Applicants shall comply with
and be bound by each of the covenants applicable to them contained in Articles V
and VI of the Existing Revolver, which provisions, together with the related
definitions, as in effect on the date hereof are hereby incorporated in this
Section 5.01 by reference (mutatis mutandis) for the benefit of the Issuing Bank
and shall continue for the purposes of this Agreement regardless of the
termination of the Existing Revolver or the Issuing Bank's participation
therein, or any amendment of, or consent to any deviation from or other
modification of, the Existing Revolver; provided that for the purposes of this
Section 5.01 references in Articles V and VI of the Existing Revolver to (a) the
"Borrower" shall be deemed to be references to each Applicant hereunder, (b) the
"Required Banks," the, each or any "Bank," "Agent," or the "Administrative
Agent" shall be deemed to be references to the Issuing Bank hereunder, (c) "this
Agreement" or "hereunder" or other words of similar import shall be deemed to be
references to this Agreement and any other Basic Documents, (d) the "Loans" or
the "Notes" shall be deemed to be references to the Letters of Credit and (e)
"Event of Default" and "Potential Default" shall be deemed to be references to
an Event of Default and Default, respectively.
ARTICLE VI
Events of Default
If any of the following events ("Events of Default") shall occur:
(a) any Applicant shall fail to pay any principal of any reimbursement
obligation in respect of any LC Disbursement when and as the same shall become
due and payable;
(b) any Applicant shall fail to pay any interest, fee or any other amount
(other than an amount referred to in clause (a) of this Article) payable under
this Agreement, when and as the same shall become due and payable, and such
failure shall continue unremedied for a period of three days from the due date
thereof;
(c) any representation or warranty made or deemed made by or on behalf of
any Applicant in or in connection with this Agreement or any amendment or
modification hereof or waiver hereunder, or in any report, certificate,
financial statement or other document furnished pursuant to or in connection
with this Agreement or any amendment or modification hereof or waiver hereunder,
shall prove to have been false or misleading when made or deemed made in any
material respect;
(d) any Applicant shall fail to observe or perform (i) any covenant,
condition or agreement contained in Section 5.01 hereof, or (ii) any other term,
covenant or agreement contained in this Agreement or incorporated herein by
reference on its part to be performed or observed if the failure to
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perform or observe such other term, covenant or agreement shall remain
unremedied for thirty days after written notice thereof shall have been given to
the Applicants by the Issuing Bank;
(e) any Applicant or any of its Subsidiaries shall fail to pay any
principal of or premium or interest on or any other obligation for borrowed
money in a principal amount of at least $10,000,000 in the aggregate or any
obligation for borrowed money under the Existing Revolver or the Revolving
Credit Agreement dated as of June 6, 1997, as amended, to which each Applicant
is party, in each case when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise), and
such failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such borrowed money obligations or
the Existing Revolver or such Revolving Credit Agreement; or any other event
shall occur or condition shall exist under an agreement or instrument relating
to any obligation for borrowed money in the principal amount of $10,000,000 or
more or contained in the Existing Revolver or such Revolving Credit Agreement
and shall continue after the applicable grace period, if any, specified in such
agreement or instrument, the Existing Revolver or such Revolving Credit
Agreement if the effect of such event or condition is to accelerate, or to
permit the acceleration of, the scheduled maturity of any such obligations; or
any such obligations shall be declared due and payable, or required to be
prepaid (other than by scheduled required prepayment), prior to the stated
maturity thereof;
(f) any Applicant shall admit in writing its inability to pay its debts
generally as they become due, or shall make a general assignment for the benefit
of creditors; or any proceeding shall be instituted by or against any Applicant
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief or
composition of its or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property and, in the case of
any such proceeding instituted against any Applicant (but not instituted by any
Applicant), either such proceeding shall remain undismissed or unstayed for a
period of 60 days, or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against, or the appointment
of a receiver, trustee, custodian or other similar official for, any Applicant
or for any substantial part of its property) shall occur;
(g) XL Capital Ltd. shall cease to own, beneficially and of record,
directly or indirectly, all of the outstanding voting shares of capital stock
either Applicant, except for nominal number of shares owned by nominee
shareholders required by the Bermuda Companies Law;
(h) any judgment or order for the prepayment of money in excess of
$50,000,000 in the aggregate shall be rendered against any Applicant and such
judgment or order shall remain undischarged or uncontested or appealed in good
faith for a period of 30 consecutive days;
(i) a Change of Control (as defined in the Existing Revolver) shall occur;
then, and in every such event (other than an event with respect to any Applicant
described in clause (f) of this Article), and at any time thereafter during the
continuance of such event, the Issuing Bank may by notice to the Applicants,
take either or both of the following actions, at the same or different times:
(i) terminate the Commitment, and thereupon the Commitment shall terminate
immediately, and (ii) declare all fees and other obligations of the Applicants
accrued hereunder to be due and payable, and thereupon all such fees and other
obligations shall become due and payable immediately, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Applicants; and in case of any event with respect to the Applicants
described in clause (f) of this Article,
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the Commitment shall automatically terminate and all fees and other obligations
of the Applicants accrued hereunder, shall automatically become due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Applicants.
ARTICLE VII
Miscellaneous
SECTION 7.01. Notices. Except in the case of notices and other
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to XL Insurance, to it at Cumberland House, One Victoria Street,
P.O. Box HM 2245, Hamilton, HMJX Bermuda, Attention of William Robbie
(Telecopy No. (441) 292-8618, with a copy to Paul Giordano, Esq. at the
same address and telecopy number);
(b) if to XL Mid Ocean, to it at Cumberland House, One Victoria Street,
P.O. Box HM 2245, Hamilton, HMJX Bermuda, Attention of William Robbie (Telecopy
No. (441) 292-8618, with a copy to Paul Giordano, Esq. at the same address and
telecopy number);
(b) if to the Issuing Bank, to The Chase Manhattan Bank, 270 Park Avenue,
New York, New York 10017, Attention of Donald Rands (Telephone No. (212)
270-5528; Telecopy No. (212) 270-1001), with a copy to Daniel Serrao, Chase
Securities Inc. 270 Park Avenue, New York, New York 10017 (Telephone No. (212)
270-6565; Telecopy No. (212) 270-1001);
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 7.02. Waivers; Amendments. (a) No failure or delay by the Issuing
Bank in exercising any right or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Issuing Bank hereunder are
cumulative and are not exclusive of any rights or remedies that it would
otherwise have. No waiver of any provision of this Agreement or consent to any
departure by the Applicants therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) of this Section, and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given. Without limiting the generality of the foregoing, the issuance
of a Letter of Credit shall not be construed as a waiver of any Default,
regardless of whether the Issuing Bank may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Applicants and the Issuing Bank.
SECTION 7.03. Expenses; Indemnity; Damage Waiver. (a) The Applicants
jointly and severally agree to pay (i) all reasonable out-of-pocket expenses
incurred by the Issuing Bank and its
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Affiliates, including the reasonable fees (or internal cost allocations, in the
case of internal legal counsel for the Issuing Bank), charges and disbursements
of counsel for the Issuing Bank, in connection with the preparation and
administration of this Agreement or any amendments, modifications or waivers of
the provisions hereof (whether or not the transactions contemplated hereby or
thereby shall be consummated), (ii) all reasonable out-of-pocket expenses
incurred by the Issuing Bank in connection with the issuance, amendment, renewal
or extension of any Letter of Credit or any demand for payment thereunder and
(iii) all reasonable out-of-pocket expenses incurred by the Issuing Bank,
including the reasonable fees, charges and disbursements of any counsel for the
Issuing Bank in connection with the enforcement or protection of its rights in
connection with this Agreement, including its rights under this Section, or in
connection with the Letters of Credit issued hereunder, including all such
reasonable out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Letters of Credit.
(b) The Applicants jointly and severally agree to indemnify the Issuing
Bank and each Related Party of the Issuing Bank (each such Person being called
an "Indemnitee") against, and hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including the
reasonable fees, charges and disbursements of any counsel for any Indemnitee,
incurred by or asserted against any Indemnitee arising out of, in connection
with, or as a result of (i) the execution or delivery of this Agreement or any
agreement or instrument contemplated hereby, the performance by the parties
hereto of their respective obligations hereunder or the consummation of the
Transactions or any other transactions contemplated hereby, (ii) any Letter of
Credit or the use of the proceeds therefrom (including any refusal by the
Issuing Bank to honor a demand for payment under a Letter of Credit if the
documents presented in connection with such demand do not strictly comply with
the terms of such Letter of Credit), or (iii) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto; provided that such indemnity shall not, as to
any Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or wilful misconduct of such Indemnitee.
(c) To the extent permitted by applicable law, the Applicants shall not
assert, and hereby waive, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or any agreement or instrument contemplated hereby, the
Transactions, any Letter of Credit or the use of the proceeds thereof.
(d) All amounts due under this Section shall be payable promptly after
written demand therefor.
SECTION 7.04. Successors and Assigns. (a) The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby (including any Affiliate of
the Issuing Bank that issues any Letter of Credit), except that no Applicant may
assign or otherwise transfer any of its rights or obligations hereunder without
the prior written consent of the Issuing Bank (and any attempted assignment or
transfer by such Applicant without such consent shall be null and void). Nothing
in this Agreement, expressed or implied, shall be construed to confer upon any
Person (other than the parties hereto, their respective successors and assigns
permitted hereby (including any Affiliate of the Issuing Bank that issues any
Letter of Credit) and, to the extent expressly contemplated hereby, the Related
Parties of the Issuing Bank) any legal or equitable right, remedy or claim under
or by reason of this Agreement.
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(b) The Issuing Bank may, in the ordinary course of its commercial banking
business and in accordance with applicable law, 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 or LC Exposure); provided that, except in the
case of an assignment to an Affiliate of the Issuing Bank, the Applicants must
give their prior written consents to such assignment (which consents shall not
be unreasonably withheld).
(c) The Issuing Bank may, in the ordinary course of its commercial banking
business and in accordance with applicable law, without the consent of the
Applicants, sell participations to one or more banks or other entities (a
"Participant") in all or a portion of the Issuing Bank's rights and obligations
under this Agreement (including all or a portion of its Commitment and the LC
Exposure owing to it); provided that (i) the Issuing Bank's obligations under
this Agreement shall remain unchanged, (ii) the Issuing Bank shall remain solely
responsible to the Applicants for the performance of such obligations and (iii)
the Applicants shall continue to deal solely and directly with the Issuing Bank
in connection with the Issuing Bank's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which the Issuing Bank sells
such a participation shall provide that the Issuing 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 the Issuing Bank will not, without the consent of
the Participant, agree to any amendment, modification or waiver described in the
first proviso to Section 7.02(b) that affects such Participant. Subject to
paragraph (d) of this Section, the Applicants agree that each Participant shall
be entitled to the benefits of Sections 2.06 and 2.07 to the same extent as if
it were the Issuing 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 7.08 as though it were the
Issuing Bank.
(d) A Participant shall not be entitled to receive any greater payment
under Section 2.06 or 2.07 than the Issuing 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 Applicants' prior
written consents.
(e) The Issuing Bank may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of the Issuing Bank, including any pledge or assignment to secure obligations to
a Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment of
a security interest shall release the Issuing Bank from any of its obligations
hereunder or substitute any such pledgee or assignee for the Issuing Bank as a
party hereto.
SECTION 7.05. Survival. All covenants, agreements, representations and
warranties made by the Applicants herein and in the certificates or other
instruments delivered in connection with or pursuant to this Agreement shall be
considered to have been relied upon by the Issuing Bank and shall survive the
execution and delivery of this Agreement and the issuance of any Letters of
Credit, and shall continue in full force and effect as long as any amount
payable under this Agreement is outstanding and unpaid or any Letter of Credit
is outstanding and so long as the Commitment has not expired or terminated. The
provisions of Sections 2.06 and Article VII shall survive and remain in full
force and effect regardless of the consummation of the transactions contemplated
hereby, the expiration or termination of the Letters of Credit and the
Commitment or the termination of this Agreement or any provision hereof.
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SECTION 7.06. Counterparts; Integration; Effectiveness. This Agreement may
be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement constitutes
the entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof. Except as provided in Section 4.01, this
Agreement shall become effective when it shall have been executed by the Issuing
Bank and when the Issuing Bank shall have received counterparts hereof which,
when taken together, bear the signature of the Applicants, and thereafter shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Delivery of an executed counterpart of a
signature page of this Agreement by telecopy shall be effective as delivery of a
manually executed counterpart of this Agreement.
SECTION 7.07. Severability. Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 7.08. Right of Setoff. If an Event of Default shall have occurred
and be continuing, the Issuing Bank and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other obligations at any time
owing by the Issuing Bank or such Affiliate to or for the credit or the account
of any Applicant against any of and all the obligations of such Applicant now or
hereafter existing under this Agreement held by the Issuing Bank, irrespective
of whether or not the Issuing Bank shall have made any demand under this
Agreement and although such obligations may be unmatured. The rights of the
Issuing Bank under this Section are in addition to other rights and remedies
(including other rights of setoff) which the Issuing Bank may have.
SECTION 7.09. Governing Law; Jurisdiction; Consent to Service of Process.
(a) This Agreement shall be construed in accordance with and governed by the law
of the State of New York.
(b) Each Applicant hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such New
York State or, to the extent permitted by law, in such Federal court. Each of
the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Issuing Bank may otherwise have to bring any action or
proceeding relating to this Agreement against any Applicant or its properties in
the courts of any jurisdiction.
(c) Each Applicant hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in any court referred to in
paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
waives, to the fullest extent
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permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
(d) Each Applicant irrevocably consents to service of process in the
manner provided for notices in Section 7.01. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
SECTION 7.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 7.11. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 7.12. Confidentiality. The Issuing Bank agrees to maintain the
confidentiality of the Information (as defined below), except that Information
may be disclosed (a) to its and its Affiliates' directors, officers, employees
and agents, including accountants, legal counsel and other advisors (it being
understood that the Persons to whom such disclosure is made will be informed of
the confidential nature of such Information and instructed to keep such
Information confidential), (b) to the extent requested by any regulatory
authority, (c) to the extent required by applicable laws or regulations or by
any subpoena or similar legal process, (d) to any other party to this Agreement,
(e) in connection with the exercise of any remedies hereunder or any suit,
action or proceeding relating to this Agreement or the enforcement of rights
hereunder, (f) subject to an agreement containing provisions substantially the
same as those of this Section, to any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights or obligations
under this Agreement, (g) with the consent of the Applicant or (h) to the extent
such Information (i) becomes publicly available other than as a result of a
breach of this Section or (ii) becomes available to the Issuing Bank on a
nonconfidential basis from a source other than an Applicant. For the purposes of
this Section, "Information" means all information received from any Applicant
relating to such Applicant or its business, other than any such information that
is available to the Issuing Bank on a nonconfidential basis prior to disclosure
by such Applicant; provided that, in the case of information received from such
Applicant after the date hereof, such information is clearly identified at the
time of delivery as confidential. Any Person required to maintain the
confidentiality of
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Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
XL INSURANCE LTD
By: /s/ Christopher Coelho
-----------------------------------
Name: Christopher Coelho
Title: Chief Financial Officer
XL MID OCEAN REINSURANCE LTD
By: /s/ Henry C.V. Keeling
-----------------------------------
Name: Henry C.V. Keeling
Title: President & Chief Executive
Officer
THE CHASE MANHATTAN BANK
By: /s/ Donald Rands
-----------------------------------
Name: Donald Rands
Title: Vice President
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Exhibit 10.14.29
[Letterhaed of ING Barings]
XL Capital Ltd;
Cumberland House
One Victoria Street
P.O. Box HM 2245
Hamilton HMJX Bermuda
XL Insurance Ltd; and
Cumberland House
One Victoria Street
P.O. Box HM 2245
Hamilton HMJX Bermuda
XL Mid Ocean Reinsurance Ltd
Cumberland House
One Victoria Street
P.O. Box HM 2245
Hamilton HMJX Bermuda
17 December 1999
Dear Sirs,
We, ING Bank N.V., acting through our London Branch at 60 London Wall, London
EC2M 5TQ, (the "Bank") are pleased to confirm our agreement with you, XL Capital
Ltd, XL Insurance Ltd and XL Mid Ocean Reinsurance Ltd (each an "Account Party"
and collectively the "Account Parties") to make available an uncommitted Letter
of Credit facility together with its related schedules (the "Facility") under
the terms and conditions provided below.
1. Definitions
(a) "Anniversary Date" shall mean each anniversary after the Date of
Issuance.
(b) "Business Day" means a day on which the relevant London financial
markets are open for the transaction of business contemplated hereby
and, a day on which banks are open for business in the place of
payment.
(c) "Event of Default" means the events of default set out in Clause 12
hereof.
(d) "Expiry Date" means the expiry date of a Letter of Credit from time
to time which shall be an initial period of 5 years in respect of
Letters of Credit issued in favour of The Council of Lloyd's ,
subject to an annual extension of 365 days in each case.
(e) "Letter of Credit" means any Letter of Credit issued by the Bank
pursuant to the terms of this Facility.
(f) "Material Indebtedness" means any indebtedness of the Account Party
in an aggregate principal amount exceeding USD15,000,000 (fifteen
million United States Dollars).
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(g) "Subsidiary" has the meaning ascribed to it by Section 736 of the
Companies Act 1985 (as amended from time to time).
2. Type and Amount of Facility
Type: Issuance of Reinsurance Letters of Credit in favour of
The Council of Lloyd's substantially in the form of the
Fourth Schedule attached to this Facility
Amount: Up to a maximum aggregate of USD150,000,000, (in words:
one hundred and fifty million United States Dollars)
Account Parties: XL Capital Ltd;
XL Insurance Ltd; or
XL Mid Ocean Reinsurance Ltd
Beneficiaries: To be advised
Initial Term of each Letter of Credit: Five years for each Letter of
Credit issued in favour of the Council of Lloyd's
Date of Issuance: on or before 31st January 2000
Issuing Fee: 35 basis points per annum
Purpose: to cover Funds at Lloyd's Requirements
3. Availability of Facility
(a) When an Account Party wishes the Bank to issue Letters of Credit on
its behalf, the Account Party shall give to the Bank at least two
Business Days irrevocable written notice in the form attached at
Third Schedule hereto ("Drawdown Notice") of its request referring
to the Facility and specifying the currency and the amount of the
Letter of Credit and the date upon which such Letter of Credit is to
expire unless extended as provided in the terms of the Letter of
Credit.
(b) This Facility is of an uncommitted nature. Accordingly, there is no
obligation on the Bank to agree to any request made by the Account
Party pursuant to Clause 3(a). In the event that the Bank declines
to comply with any such request, it shall have no further effect.
(c) If there is any inconsistency between the terms of any Drawdown
Notice and the terms of this Facility, the terms of this Facility
shall prevail.
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(d) Each Account Party shall be jointly and severally liable for the
liabilities of each of the other Account Parties hereunder.
4. Fees
The Account Parties will pay the Bank, in respect of each Letter of
Credit, an opening fee payable quarterly in arrears in the currency of
each Letter of Credit, computed on the basis of actual days between the
Date of Issuance and the Anniversary Date and upon a 360 day year at 35
basis points per annum on the maximum amount of the Bank's liability under
the Letter of Credit.
5. The Account Parties liabilities in relation to Letters of Credit
5.1 Reimbursement
Each relevant Account Party shall:
(a) pay to the Bank on demand an amount equal to and in the same
currency as all sums paid by the Bank under or in connection with
any Letter of Credit issued pursuant to this Facility with any sums
payable by the Account Party hereunder); and
(b) indemnify the Bank on demand against all actions, charges, claims,
costs, damages, demands, expenses, taxes, duties, losses and
proceedings (other than actions, charges, claims, costs, damages,
demands, taxes, duties, losses and proceedings resulting from
negligence or wilful default on the part of the Bank) which may be
brought or preferred against the Bank or which the Bank may suffer
or incur arising out of or in connection with any Letter of Credit
issued hereunder or any amendment or variation in the terms of that
Letter of Credit in connection with the enforcement or the
preservation of the Bank's rights hereunder.
5.2 Authorisations
The Bank is irrevocably authorised to make any payments and comply with
any demands which may be claimed from or made upon the Bank under, in
connection with or by reason of any Letter of Credit issued pursuant to
the terms hereof on the first demand being made. The Bank may make these
demands or comply with these payments:
(a) without any reference to or further authority from the relevant
Account Party;
(b) without requiring proof that the amounts so demanded are or were
due; and
(c) notwithstanding that an Account Party may dispute the validity of
demand or payment or that any demand is made after the stated expiry
date (if any) of the relevant Letter of Credit.
5.3 Binding effect of payments
Any payment which the Bank shall make in accordance with (or which is
apparently or purporting to be in accordance with) any Letter of Credit
issued hereunder shall be binding upon, and shall be accepted by, the
Company as conclusive evidence that the Bank was liable to make such
payment.
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5.4 Defences
It shall not be a defence to a claim by the Bank against an Account Party
hereunder that the Bank could have resisted any claim by the beneficiary
of the relevant Letter of Credit.
5.5 Risk
Any Letter of Credit issued hereunder or any communication shall be sent
at the relevant Account Party's risk and cost and each Account Party shall
hold the Bank harmless from any liability (other than liability resulting
from negligence or wilful default on the part of the Bank) for any loss or
damage arising out of any delay, loss in transit, errors in translation,
coding or decoding or omissions, variations, mutilations or other errors
in transmission of those letters, facsimile, cables or telex messages.
6. Default Interest
(a) If an Account Party fails to pay any amount payable by it hereunder
on the due date thereof, the Account Party shall on demand from time
to time pay interest on such overdue amount from the due date up to
the date of receipt of actual payment (both before and after
judgement) at a rate determined by the Bank from time to time to be
2 % above the offered rate quoted by leading banks in the London
Interbank Market at or about 11.00 a.m. (London time) on the
appropriate quotation date for deposits of a similar amount to, and
in the currency of, the unpaid amount, and for such interest period
as the Bank may consider appropriate. Such interest shall be
compounded daily.
(b) Interest shall be calculated on the basis of a 360 day year and for
the actual number of days elapsed in the period of question.
7. Payments
All payments to be made by an Account Party hereunder shall be made to the
Bank in US Dollar funds for value on the due date to Chase Manhattan Bank
N.A. New York, for the account of ING Bank N.V. London Branch, Account
No.001-1-938123 or in other currencies to an account as instructed by the
Bank, without set-off or counter-claim and free of and without deduction
for any taxes, levies, withholdings or imposts imposed by any governmental
or taxing authority in Bermuda or the Cayman Islands whatsoever. If any
deductions whatsoever are required to be made, each Account Party hereby
agrees to indemnify the Bank against the same and will pay such additional
amounts as the Bank may certify as necessary to ensure receipt by the Bank
of the full amount it would have received hereunder but for such
deduction. In the event of such payment the Account Parties will deliver
promptly to the Bank such tax receipts or other documentation as it may
reasonably require. No such additional amounts will be payable with
respect to a payment made to the Bank with respect to any tax or other
amount which would not have been imposed, payable or due: (i) but for the
existence for any present or former connection between the Bank and
Bermuda or the Cayman Islands (including without limitation, the Bank
being or having or maintaining or having maintained a permanent
establishment or being or having been engaged in business in, Bermuda or
the Cayman Islands); or (ii) but for the failure to comply with a request
by an Account Party to
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satisfy any certification, identification or other reporting requirements,
whether imposed by statute, treaty, regulation or administrative
practices, concerning nationality, residence or connection with any
applicable taxing jurisdiction. The obligation to pay additional amounts
in respect of taxes shall not apply to any tax which is payable otherwise
than by deduction or withholding.
8. Increased Costs
If the result of any present or future law, regulation, treaty or official
directive (whether or not having the force of law) or any change therein
or in the interpretation or application thereof or compliance by the Bank
with any request of any relevant authority is directly or indirectly to
increase the cost to the Bank of the transactions contemplated hereby, or
is to reduce any amount receivable by the Bank or the effective return to
the Bank hereunder whether by way of change in the manner in which the
Bank allocates capital to the Account Parties' obligations hereunder or
otherwise, each Account Party will, forthwith on demand, which demand
shall include a description of the facts and circumstances regarding such
a demand, pay to the Bank such amounts as the Bank shall certify as
necessary to compensate it for such additional cost or reduction.
9. Collateralisation or cancellation of Letters of Credit issued to The Council
of Lloyd's
The Bank may, in its absolute discretion, serve notice on an Account Party
and an Account Party may serve notice on the Bank, at least thirty days
before each anniversary of the date of issuance of a Letter of Credit (an
"Anniversary Date") issued in favour of The Council of Lloyd's, that the
Bank or the Account Party, respectively, does not wish to extend such
Letter of Credit beyond its Expiry Date. On receipt of such notice by the
relevant Account Party or on service of such notice by the relevant
Account Party on the Bank, the Account Party undertakes to either (i)
provide the Bank on or before the Anniversary Date with collateral equal
to 110% of the face value of such Letters of Credit in the form of AA
rated Corporate Bonds or OECD bonds together with a charge or other
security over such collateral in a form satisfactory to the Bank or (ii)
to ensure that the Letter of Credit is cancelled on or before the
Anniversary Date. Failure by an Account Party to comply with this clause 9
shall constitute an Event of Default in accordance with clause 12 hereof.
10. Representations and Warranties
Each Account Party represents and warrants on the date of this Facility
and on each date that any amount under this Facility is or may be
outstanding as if warranted on each such date that:
(a) it is duly incorporated and validly existing under the laws of the
jurisdiction of its incorporation; and
(b) the obligations expressed to be assumed by it in this Facility are legal
and valid obligations binding on it and enforceable in accordance with its
terms, subject to any reservations or qualifications noted in any legal
opinion, is within its powers and does not conflict with any law or
document, except
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where such conflicts would not be reasonably expected to have a material
adverse effect on the ability of the Account Party to perform any of its
obligations under this Facility; and
(c) no authorisations or consents whatsoever in relation to this Facility are
required, except for such authorisations or consents the failure to have
or obtain would not be reasonably expected to have a material adverse
effect on the ability of the Account Party to perform any of its
obligations under this Facility; and
(d) neither this Facility nor use of the Facility will contravene any
agreement to which an Account Party or any of its Subsidiaries is a party
or entitle any person to exercise any rights against such Account Party's
or any of its Subsidiaries' assets pursuant to any such agreement in any
way which is reasonably likely to have a material adverse effect; and
(e) any Letter of Credit issued under this Facility and the obligations
evidenced hereby and thereby are and will at all times be direct and
unconditional general obligations of the relevant Account Party, and rank
and will at all times rank in right of payment and otherwise at least pari
passu with all other unsecured indebtedness of such Account Party, whether
now existing or hereafter outstanding; and
(f) no Event of Default is outstanding or would reasonably be expected to
result from the issuance of any Letter(s) of Credit under this Facility;
and
(g) no litigation, arbitration or administrative proceedings are current,
pending or threatened which may have a material adverse effect on the
ability of the Account Party to perform any of its obligations under this
Facility, except for claims which the relevant Account Party has proved to
the reasonable satisfaction of the Bank, are frivolous or vexatious or are
being contested in good faith by appropriate proceedings which are
reasonably likely to be successful; and
(h) all information supplied by or on behalf of each Account Party to the Bank
prior to the date of this Facility was true, complete and accurate in all
material respects of its date and did not omit any information known to
any Account Party which if disclosed might reasonably be expected to
adversely affect the Bank's decision to enter into this Facility.
11. Covenants
11.1 Change of Business
a) No Account Party will , nor will any Account Party permit any of its
Subsidiaries to, engage to any material extent in any business other than
businesses of the nature conducted by such Account Party and its
Subsidiaries on the date of this Facility and businesses reasonably
related thereto or in the financial services industry.
b) No Account Party will change in any material respect any of the
underwriting standards applied by such Account Party on the date hereof.
11.2 Notice of Default
Each Account Party shall notify the Bank of the occurrence of any Event of
Default promptly upon its occurrence.
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11.3 Pari Passu
Each Account Party shall procure that its obligations under this Facility
do and will rank at least pari passu with all its other present and future
unsecured obligations except for obligations which are mandatorily
preferred by law applying to companies generally.
11.4 Negative Pledge
No Account Party shall, and each Account Party shall procure that none of
its Subsidiaries shall, create or permit to subsist (save as created in
favour of the Bank) any mortgage, charge, lien, hypothecation or other
encumbrance over any of its assets (collectively "Liens") other than Liens
arising by operation of law in the ordinary course of business except for:
(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 of the Lien theretofore existing);
(b) Liens arising from taxes, assessments, charges, levies or claims that are
not yet due or that remain payable without penalty;
(c) Zoning restrictions, easements, minor restrictions on the use of real
property, minor irregularities in title thereto and other Liens that do
not in the aggregate materially detract from the value of the property or
asset to, or materially impair its use in the business of, such Account
Party or its Subsidiaries;
(d) Liens pursuant to the Pledge Agreement, dated as of 30 June 1999, between
XL Investments Ltd and XL Mid Ocean Reinsurance Ltd in favour of Mellon
Bank, N.A., as Agent;
(e) Liens pursuant to the Pledge Agreement, dated as of 22 December 1999, made
by XL Investments Ltd in favour of Three Rivers Funding Corporation; and
(f) any other encumbrances securing an aggregate indebtedness of up to
USD1,000,000,000.
11.5 Ownership
Each of XL Insurance Ltd and XL Mid Ocean Reinsurance Ltd is and will
continue to be wholly owned, either directly or indirectly by XL Capital
Ltd, except for a nominal number of shares owned by nominee shareholders
as required pursuant to Bermuda Company Law.
11.6 Financial Undertakings
XL Capital Ltd will ensure that its Consolidated Tangible Net Worth shall
not be less than USD2,700,000,000 to be increased annually at the end of
each year by the sum of (i) 25% of cumulative positive quarterly net
income plus (ii) 75% of the proceeds of any issue of the Account Party
capital stock at any time.
XL Capital Ltd shall ensure that its ratio of Total Funded Debt to
Consolidated Tangible Net Worth shall not exceed 0.35 at any time.
For the purposes of this clause 11.6 "Consolidated Tangible Net Worth"
means at any time the consolidated stockholders' equity of XL Capital Ltd
and its Consolidated Subsidiaries less their
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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, 1998, in the book value of any asset owned by XL Capital Ltd
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.
For the purpose of this clause 11.6 "Total Funded Debt" means at any time
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.
For the purpose of this clause 11.6 "Indebtedness" means (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 or reinsurance company or corporate
member of Lloyd's or as a provider of financial services or contracts (in
each case other than in connection with the provision of financing to 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 capitalised 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
capitalised 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.
Calculation of these items shall be in accordance with generally accepted
accounting principles in the United States of America consistently
applied.
11.7 Additional Indebtedness
No Account Party shall incur any additional indebtedness other than:
(a) the indebtedness pursuant to the Short Term Revolving Credit
Agreement dated as of 30 June 1999 between the Account Parties and
Mellon Bank, N.A. as Administrative Agent and the other financial
institutions as set forth therein;
(b) the indebtedness pursuant to the Letter of Credit Facility and
Reimbursement Agreement, dated as of 30 June 1999, between the
Account Parties, et al., Mellon Bank, N.A. as Issuing Bank and as
Agent, and the other financial institutions as set forth therein;
(c) the indebtedness pursuant to the Credit Agreement (5-Year), dated as
of 2 September 1997 and as amended thereafter, between the Account
Parties, et al., The Chase Manhattan Bank as Administrative Agent
and the other financial institutions as set forth therein;
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(d) the indebtedness pursuant to the Revolving Credit Agreement, dated
as of 6 June 1997 and as amended thereafter, between the Account
Parties, et al., Mellon Bank, N.A., as Agent, and the other
financial institutions as set forth therein;
(e) the indebtedness pursuant to the Loan Agreement between XL America,
Inc. as borrower, XL Insurance Ltd and XL Investments Ltd as
guarantors and Three Rivers Funding Corporation, as Lender, dated as
of December 22, 1998 (with related waivers);
(f) the indebtedness pursuant to the 5-year Credit Agreement, dated as
of 27 June 1996 between the Account Parties, et al., and The Bank of
Bermuda Limited;
(g) the indebtedness incurred pursuant to the public offering by NAC Re
Corp of its 7.15% Senior Notes (10 year) due 15 November 2005;
(h) other secured Indebtedness (including secured reimbursement
obligations with respect to letters of credit) of any Account Party
or any Subsidiary of an Account Party in an aggregate principal
amount (for all Account Parties and their Subsidiaries) not
exceeding $400,000,000 at any time outstanding;
(i) other secured reimbursement obligations of any Account Party or any
Subsidiary of an Account Party with respect to letters of credit not
exceeding $1,000,000,000 in the aggregate at any time outstanding
for all Account Parties and Subsidiaries;
(j) unsecured Indebtedness, so long as upon the incurrrence thereof no
Event of Default would occur or exist;
(k) accounts or claims payable and accrued and deferred compensation
(including options) incurred in the ordinary course of business by
any Account Party or any Subsidiary of any Account Party; and
(l) Indebtedness incurred in transactions where Liens on cash and
securities of an Account Party or its Subsidiaries are incurred as
part of the management of its investment portfolio in accordance
with customary portfolio management practice and not in violation of
such Account Party's investment policy as in effect on the date
hereof.
11.8 Disposal of Assets
No Account Party shall dispose of any of its assets in any calendar year
other than;
(a) transactions in the ordinary course of business involving current
assets or other assets classified on such Account 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; 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 Account
Party or its Subsidiaries.
11.9 Information
Each Account Party will promptly deliver to the Bank such financial or
other information as the Bank may from time to time reasonably request in
writing.
9
<PAGE>
12. Events of Default
If,
a) an Account Party fails to repay any amount when due under this
Facility, unless such failure to pay is resulting from difficulties
with the banking system or an administrative error on the part of
the relevant Account Party and payment is made within three Business
Days of the due date; or
b) any representation or warranty made or deemed made by or on behalf
of an Account Party in this Facility or in a certificate or
financial statement furnished pursuant to the terms hereof shall
prove to have been incorrect when made or deemed made; or
c) an Account Party shall fail to comply with or perform any covenant,
condition or agreement contained in this Facility and such failure
to comply shall not be remedied for a period of 20 days after
written notice thereof to such Account Party from the Bank; or
d) any amount (whether of principal or interest and regardless of
amount) in respect of any Material Indebtedness of an Account Party
fails to be paid when and as the same shall become due and payable
(giving effect to any applicable grace periods and extensions
thereof) unless such failure to pay is caused by technical
difficulties with the banking system or an administrative error on
the part of the relevant Account Party and payment is made within
three Business Days of the due date; or
e) any event or condition occurs that results in any Material
Indebtedness of an Account Party becoming due prior to its scheduled
maturity or that enables or permits the holder of any Material
Indebtedness to cause any Material Indebtedness to become due, or to
require the prepayment, repurchase, redemption or defeasance
thereof, prior to its scheduled maturity (giving effect to any
applicable grace periods and extensions thereof) and the relevant
Account Party has not satisfied the Bank that such event or
condition is the subject of a bona dispute which is being contested
in good faith and by appropriate proceedings; or
f) an Account Party goes into liquidation or is dissolved, or a meeting
of the members or creditors of such Account Party is convened for
the purpose of considering a resolution for (or to petition for) its
winding up or for its administration or any such resolution is
passed; or
g) any Account Party is unable or deemed unable to pay its debts as
they fall due, and it or another person on its behalf commences
negotiations with any one or more of its creditors with a view to
the general readjustment or rescheduling of its indebtedness or
makes a general assignment for the benefit of or a composition with
its creditors;
h) any Account Party takes any corporate action or other steps by any
Account Party or other person are taken or legal proceedings are
started for the winding-up, dissolution, administration or
re-organisation (whether by way of voluntary arrangement, scheme of
arrangement or otherwise) of such Account Party or for the
appointment of a liquidator, receiver, administrator, administrative
receiver, conservator, custodian, trustee or similar officer for it
or any or all of its revenues and assets;
i) any execution or distress is levied against, or an encumbrancer
takes possession of, the whole or any part of, the property,
undertaking or assets of any Account Party or any event occurs
10
<PAGE>
which (in the opinion of the Bank) under the laws of any
jurisdiction has a similar or analogous effect;
j) it is or becomes illegal for the Bank or an Account Party to make or
maintain any of its obligations under the facility, subject to any
qualifications or reservations in any legal opinion; or
k) a Change of Control occurs at XL Capital Ltd. For the purposes of
this Section 12 (l) "Change of 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, and the rules and regulations thereunder)
shall have become the beneficial owner (as defined in rules
promulgated by the Securities and Exchange Commission) or more than
40% of the voting securities of XL Capital Ltd; (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
XL Capital Ltd; or (c) a majority of the members of XL Capital Ltd'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; and
l) XL Insurance Ltd and/or XL Mid Ocean Reinsurance Ltd shall cease to
have a claims-paying rating of at least "A" from Standard & Poor's
Ratings Group Services and from A.M. Best Company
then, and at any time thereafter, the Bank may by written notice: (i)
terminate its obligations under this Facility and (ii) require the Account
Party to provide collateral acceptable to the Bank and equal to the face
value of each Letter of Ccredit (as determined by the Bank) issued
hereunder, together with payment of all amounts outstanding hereunder
(where upon the Account Party shall do so).
13. Conditions Precedent
The Bank's obligation to make the Facility available in accordance with
the terms of this Facility is subject to it having received the following
in form and substance satisfactory to it:
(i) a certified copy of each Account Party's constitutive documents;
(ii) a certified true copy of a resolution of the Board of Directors of
each of the Account Parties (substantially in the form of the First
Schedule hereto) (a) approving the Facility (b) authorising a
specified person(s), on its behalf, to sign this Facility and (c)
authorising a specified person(s) to give instructions to the Bank
in connection with the Facility;
(iii) a certified copy of specimen signatures for each of the Account
Parties;
(iv) an original copy of this Facility duly executed by the parties
hereto confirming acceptance of this Facility on the terms and
conditions set out herein;
(v) written opinions of counsel in such forms and covering such matters
as is reasonably satisfactory to the Bank.
11
<PAGE>
The Bank agrees that the documents mentioned above may be delivered
after the date of this Agreement but not later than 31st January,
2000.
14. Set Off
Following the occurrence of an Event of Default, the Bank may apply any
credit balance to which any Account Party is then entitled from the Bank
in or towards satisfaction of any sums then due and payable by an Account
Party to the Bank hereunder (whether by way of collateralisation or
otherwise), and may arrange foreign exchange transactions to effect this.
Nothing in this paragraph shall be construed so as to constitute a charge.
15. Miscellaneous Payments
Each Account Party will pay on demand of the Bank:
(a) all funding breakage costs of the Bank, determined in good faith by
the Bank, and any stamp duties in connection with this Facility;
(b) such amount as is necessary to indemnify the Bank against the
consequences of any non-compliance by the Account Party and any
action taken by the Bank with regard to this Facility pursuant to
any instructions given or purported to be given over the telephone
to any officer of the Account Party;
(c) all reasonable costs (including without limitation reasonable legal
fees) incurred by the Bank in connection with the preparation,
negotiation and enforcement of this Facility;
(d) losses flowing from any judgement or claim being payable in a
different currency from that agreed under this Facility.
16. Standard Conditions
The Uniform Customs and Practice for Documentary Credits (1993 Revision)
(International Chamber of Commerce Publication No. 500) and/or any
subsequent amendment shall in all respects apply to all Letters of Credit
and shall be deemed to be incorporated into this Facility, subject to
clause 17 below.
17. Waivers
No failure or delay by the Bank in exercising any right, power or
privilege under this Facility shall operate as a waiver or prejudice any
other or further exercise by the Bank of any of its rights or remedies
under this Facility . The rights and remedies under this Facility are
cumulative and not exclusive of any rights or remedies provided by law.
12
<PAGE>
18. Market Practice
Relevant market practices shall be in accordance with the Bank's usual
relevant practice as certified by the Bank.
19. Transfers
The provisions of this Facility shall be binding upon and inure to the
benefit of the Account Parties, the Bank and their respective successors
and assigns, except that no Account Party may assign or otherwise transfer
the benefit or burden of its rights or obligations under the Facility
without the prior written consent of the Bank (which consent shall not be
unreasonably withheld). The Bank may, in the ordinary course of its
banking business and in accordance with applicable law,assign, and/or
transfer and/or sell participations in all or in part of its rights and/or
obligations under the Facility, provided that any such assignment,
transfer and/or sale of a participation shall be made only with the
consent of XL Capital Ltd (which consent shall not be unreasonably
withheld), unless an Event of Default has occurred and is continuing or
exists, in which case the consent of XL Capital Ltd shall not be required
The Bank may disclose to a proposed assignee, transferee or
sub-participant any publicly available information in its possession.
20. Notices
(a) All notices or other communications to be made or delivered by one
person to another under or in connection with this Facility shall be
given in writing or by facsimile. A notice will be deemed to be
given:
(i) if in writing, when deemed to have been delivered when left at
that address or, as the case may be, ten days after being
deposited in the post postage prepaid in an envelope addressed
to it at that address; and
(ii) if by facsimile, when transmission has been completed.
However, a notice given in accordance with the above, but received on a
non-working day or after 4:00 p.m. in the place of receipt, will only be
deemed to be given on the next Business Day in that place
(b) The address and facsimile number of each party to this Facility for
all notices or demands under or in connection with this Facility are
those notified in writing by that party prior to the date of this
Facility to the other parties or any other notified by that party
for the purpose to the other parties by not less than 5 Business
Days' notice.
21. Counterparts
This Facility may be executed in any number of counterparts and this has
the same effect as if the signatures on the counterparts were on a single
copy of this Facility.
13
<PAGE>
22. Governing Law
22.1 This Facility is governed by English law.
22.2 The Account Parties agree for the benefit of the Bank, and without
prejudice to the right of the Bank to take proceedings before any other
court of competent jurisdiction, that (i) the courts of England shall have
jurisdiction to hear and determine any suit, action or proceeding that may
arise out of or in connection with this Facility and for such purposes
irrevocably submits to the jurisdiction of those courts and (ii)
irrevocably appoints XL Mid Ocean Reinsurance Ltd of 12 Fenchurch Avenue,
5th Floor, London EC3M 5BS as its agent for service of process in
connection with any proceedings in the English courts and agrees that any
such process will be sufficiently and effectively served on it if
delivered to that agent at that address, or in any other manner permitted
by law.
If you agree to the above, please sign and return to us the enclosed copy of
this Facility by 31 December 1999, after which date this offer shall lapse.
Yours faithfully
for and on behalf of
ING Bank N.V. London Branch
/s/ /s/
---------------------------------- ----------------------------------
Authorised Signatory Authorised
Signatory
We confirm our acceptance to the terms and conditions set out above. For and on
behalf of
XL Capital Ltd
Signed Brian M. O'Hara Dated December 21, 1999
We confirm our acceptance to the terms and conditions set out above.
For and on behalf of
XL Insurance Ltd
Signed Christopher Coelho Dated December 22, 1999
14
<PAGE>
We confirm our acceptance to the terms and conditions set out above. For and on
behalf of
XL Mid Ocean Reinsurance Ltd
Signed H.C.V. Keeling Dated December 23, 1999
15
<PAGE>
FIRST SCHEDULE
DRAFT BOARD RESOLUTION
I, ______________________ a Director/Secretary of ______________________ (the
"Company") hereby certify that the following is a true copy of an extract of the
minutes of a meeting of the Board of Directors of the Company which was duly
called and held on ______________________ 199[ ] and at which a duly qualified
quorum was present throughout and entitled to vote.
1. There was produced to the meeting an agreement (the "Facility Agreement")
dated [__________] between ING Bank N.V. London branch (the "Bank") and
the Company whereby the Bank would make available to the Company an
uncommitted facility (the "Facility") on the terms and conditions therein
contained.
2. The terms of the Facility Agreement were carefully considered and IT WAS
RESOLVED that the Facility Agreement, be and are hereby approved.
3. IT WAS RESOLVED that [____________________] be and he is hereby
authorised, for and on behalf of the Company, to sign and deliver the
Facility Agreement together with such changes and amendments thereto as
[he] [they] may in [his] [their] sole discretion think fit.
4. IT WAS RESOLVED that the following be and they are hereby authorised to
give instructions to the Bank in connection with the Facility Agreement
and the Bank be and it is hereby authorised to act in accordance with such
instructions:-
[List of authorised signatories for Facility]
16
<PAGE>
SECOND SCHEDULE
INTENTIONALLY OMITTED
17
<PAGE>
THIRD SCHEDULE
DRAWDOWN NOTICE
We refer to the facility agreement (the "Facility Agreement") dated
between ING Bank N.V. London Branch, ( the "Bank"), and XL Capital Ltd, XL
Insurance Ltd and XL Mid Ocean Reinsurance Ltd, together the "Account Parties".
We confirm that all of the terms and conditions of the Facility Agreement
continue to be met and hereby irrevocably request the following drawdown:
Beneficiary Name: ---------------------------
Letter of Credit Amount and Currency: ---------------------------
Issuance Date of Letter of Credit: ---------------------------
Maturity Date of Letter of Credit: ---------------------------
For and on behalf of
XL Capital Ltd
Signed Dated
------------------------- ----------------------
XL Insurance Ltd
Signed Dated
------------------------- ----------------------
XL MidOcean Reinsurance Ltd
18
<PAGE>
Signed Dated
------------------------- ----------------------
19
<PAGE>
FOURTH SCHEDULE
THE COUNCIL OF LLOYD'S LETTERS OF CREDIT
LETTER OF CREDIT
The Council of Lloyd's
Lloyds' of London
One Lime Street
London EC3M 7HA
Documentary Credit
Ref-
Gentlemen,
Irrevocable Standby Letter of Credit no.
Re: _______________________ ("the Applicant")
We are pleased to inform you that by order of the Applicant we, ING Bank NV,
London, have opened our Clean Irrevocable Credit no. ______ in your favour for a
sum not to exceed the aggregate of GBP _________________ (Pounds Sterling
_________________) effective from _________________. The initial expiry date of
this credit shall be _________________.
This credit will be extended automatically for a further year, without written
amendment, on the first day of January of every future year from the
commencement date, so that it is always valid for a minimum period of five years
unless at least thirty days prior to ---------------------------------- of the
first year of the then current validity period, notice is given in writing by
us, sent by registered mail to you for the attention of the Manager, Membership
Department, at the above address, that this Letter of Credit will not be
extended beyond the then current expiry date.
All charges are for the Applicant's account.
Funds under this credit are available to you in London upon presentation of your
sight draft(s) drawn on us at the above address mentioning our Credit no.
- -------------.
This Letter of Credit is subject to the Uniform Customs and Practice for
Documentary Credits (1993 revision) (International Chamber of Commerce
Publication No. 500) ("UCP").
This Letter of Credit shall be governed by and interpreted in accordance with
English law and we hereby irrevocably submit to the jurisdiction of the High
Court of Justice in England. In the event of a conflict between UCP and English
Law, English Law shall prevail.
We hereby engage with you that we will honour draft(s) drawn under and in
compliance with the terms and conditions of this Letter of Credit.
20
<PAGE>
Yours Faithfully,
For and on behalf of
ING BANK N.V. London branch
21
<PAGE>
Exhibit 10.14.30
[Letterhead of ING Barings]
AMENDMENT NO. 1
AMENDMENT NO. 1, dated as of February 25, 2000 (this "Agreement") is
made by and among XL Capital Ltd, XL Insurance Ltd and XL Mid Ocean Reinsurance
Ltd (the "Account Parties") and ING Bank N.V. London Branch, as issuing bank
(the "Bank") under the letter of credit facility referred to below.
W I T N E S S E T H:
WHEREAS, the Account Parties and the Bank are parties to a Letter of
Credit facility, dated as of December 17, 1999 (the "Facility"), pursuant to
which the Bank has agreed, on the terms and subject to the conditions described
therein, to make available an uncommitted letter of credit facility to the
Account Parties; and
WHEREAS, the Account Parties and the Bank desire to amend the
Facility as set forth below; and
WHEREAS, capitalized terms used herein and not otherwise defined
shall have the meanings assigned to them in the Facility;
NOW THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the parties hereto agree as follows:
SECTION 1. Amendments.
1.1 Section 11.4 of the Facility is hereby amended (i) by deleting
the word "and" at the end of paragraph (e) thereof; (ii) by relettering the
existing paragraph (f) thereof as paragraph (g); and (iii) by inserting between
paragraph (e) thereof and the new paragraph (g) thereof a new paragraph (f) to
read as follows:
"(f) Asset Accumulation Liens (for the purposes of this Facility,
an "Asset Accumulation Lien" means a Lien on amounts received,
and on actual and imputed investment income on such amounts
received, relating and identified to specific insurance
payment liabilities or to liabilities arising in the ordinary
course of any Account Party's or Subsidiary's business as an
insurance or reinsurance company or corporate member of
Lloyd's or as a provider of financial services or contracts,
or the proceeds thereof, in each case held in a segregated
trust or other account and securing such liabilities;
provided, that in no case shall an Asset Accumulation Lien
secure Indebtedness and any Lien which secures Indebtedness
shall not be an Asset Accumulation Lien); and"
1.2 Section 11.6 of the Facility is hereby amended as follows:
<PAGE>
(a) The second paragraph of Section 11.6 is hereby deleted and in
lieu thereof the following covenant is substituted:
"XL Capital Ltd shall not permit its ratio of (i) Total Adjusted
Funded Debt to (ii) the sum of Total Adjusted Funded Debt plus Consolidated Net
Worth to be greater than .35 at any time."
(b) The following paragraphs are hereby inserted immediately above
the last paragraph appearing in Section 11.6:
"For the purpose of this Facility "Consolidated Net Worth" means at
any time the consolidated stockholders' equity of XL Capital Ltd and its
Consolidated Subsidiaries."
"For the purpose of this Facility "Consolidated Subsidiaries" of a
person means at any time those Subsidiaries of such person the accounts of
which are consolidated with the accounts of such person in accordance with
generally accepted accounting principles in the United States of America."
"For the purpose of this Facility "Total Adjusted Funded Debt" means
at any time the sum of (x) Total Funded Debt at such time plus (y) the
aggregate undrawn face amount of all letters of credit (as to which
reimbursement obligations are not secured by marketable securities with a
value at least equal to the face amount of such letters of credit) issued
for the account of, or guaranteed by, XL Capital Ltd or any of its
Consolidated Subsidiaries at such time (irrespective of whether the
beneficiary thereof is an affiliate)."
(c) Paragraph five, which contains the definition of Indebtedness,
is hereby amended by deleting from the first sentence thereof the words "clause
11.6" and replacing them with the word "Facility".
1.3 Section 11.7 is hereby amended by deleting the word
"indebtedness" in each of paragraphs (a) through (g), inclusive, and replacing
it in each paragraph with the word "Indebtedness".
1.4 Section 11 is hereby amended by adding Section 11.10 to read as
follows:
11.10 Information Regarding Asset Accumulation Liens
Within 100 days after the end of each fiscal year of the Account
Parties and within sixty days after the end of each of the first three
quarters of each fiscal year, the Account Parties shall deliver to the
Bank a statement, certified as true and correct by a principal financial
officer of XL Capital Ltd, setting forth on a consolidated basis for XL
Capital Ltd and its Consolidated Subsidiaries as of the end of the fiscal
year or quarter to which such certificate relates (A) the aggregate book
value of assets which are subject to Asset Accumulation Liens and the
aggregate book value of liabilities which are secured by Asset
Accumulation
-2-
<PAGE>
Liens and (B) a calculation showing the portion of each of such aggregate
amounts which portion is attributable to transactions among wholly-owned
Subsidiaries of XL Capital."
SECTION 2. Effect. This Agreement shall become effective upon
execution and delivery hereof by the Bank and the Account Parties. This
Agreement shall not constitute a waiver or modification of any provision of the
Facility except the provisions specifically referred to in Section 1 hereof, and
then only to the extent specifically set forth in such Section 1 hereof.
SECTION 3. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with English Law.
SECTION 4. 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, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
ING BANK N.V. LONDON
BRANCH, as Bank
/s/ /s/
- ------------------------------------- -------------------------------------
Authorized Signatory Authorized Signatory
ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN:
XL CAPITAL LTD, as an Account Party
By: /s/ Brian M. O'Hara
---------------------------------
(Signature)
Name: Brian M. O'Hara
Title: President an Chief Executive Officer
XL INSURANCE LTD, as an Account Party
By: /s/ Christopher Coelho
---------------------------------
(Signature)
Name: Christopher Coelho
Title: Chief Financial Officer
XL MID OCEAN REINSURANCE LTD,
as an Account Party
By: /s/ H.C.V. Keeling
---------------------------------
(Signature)
Name: H.C.V. Keeling
Title: President
-4-
<PAGE>
EXHIBIT 11.1
XL CAPITAL LTD
COMPUTATION OF EARNINGS PER ORDINARY SHARE
AND ORDINARY SHARE EQUIVALENT
(U.S. dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
------------------------------
BASIC EARNINGS PER SHARE:
Net income................................................ $470,509 $656,330 $809,029
Weighted average ordinary shares outstanding.............. 127,601 112,034 101,708
Basic earnings per share.................................. $ 3.69 $ 5.86 $ 7.95
------------------------------
DILUTED EARNINGS PER SHARE:
Net income................................................ $470,509 $656,333 $809,029
Add back after-tax interest on convertible debentures..... 1,752 3,504 3,504
------------------------------
Adjusted net income....................................... $472,261 $659,834 $812,533
------------------------------
Weighted average ordinary shares outstanding.............. 127,601 112,034 101,708
Average stock options outstanding (1)..................... 1,872 2,152 1,277
Assumed conversion of convertible debentures (2).......... 831 2,020 2,020
------------------------------
Weighted average ordinary shares outstanding.............. 130,304 116,206 105,005
------------------------------
Diluted earnings per share................................ $ 3.62 $ 5.68 $ 7.74
------------------------------
</TABLE>
(1) Net of shares repurchased under the treasury stock method.
(2) 1998 and 1997 reflect the assumed conversion of the NAC Re 5.25% Convertible
Subordinated Debentures due 2000. The Debentures were called in June 1999
and the actual conversion is reflected in 1999.
89
<PAGE>
Exhibit 21.1
<TABLE>
<CAPTION>
NAIC # FEIN #
------ ------
<S> <C> <C>
XL CAPITAL LTD - CAYMAN 98-0191089
- -----------------------
EXEL HOLDINGS LIMITED - CAYMAN
XL INSURANCE LTD - BERMUDA
XL FINANCIAL ASSURANCE LTD. (85%) - BERMUDA
XL CAPITAL PRODUCTS LTD - BERMUDA
XL INVESTMENTS LTD - BERMUDA
X.L. Investment Private Trustee Ltd. - BERMUDA
XL Investments (Barbados) Inc. - BARBADOS
First Cumberland Bank, Inc. - BARBADOS
Garrison Investments Inc. - BARBADOS
Risk Capital Holdings Inc. (28%) - DE 06-1424716
Kensington Investments Inc. - BARBADOS
XLB Partners Inc. - BARBADOS IBC
Cumberland Holdings, Inc. - DE 98-0174616
Cumberland California, Inc. - DE 98-0174621
Pareto Hughes Research (30%) - DE 95-4590570
Pareto Partners (30%) - CA 13-3609837
Cumberland New York, Inc. - DE 98-0174619
Pareto (30%) - NY 95-4627346
InQuisLogic Ltd. - BARBADOS
InQuisLogic Inc. - DE 06-1542517
RiskConnect Ltd. - BARBADOS
RiskConnect Inc. - DE
FINANCIAL SECURITY ASSURANCE INTERNATIONAL LTD. (80%) - BERMUDA
XL GLOBAL SERVICES (BERMUDA) LTD. - BERMUDA
XL HOLDINGS BARBADOS LTD. - BARBADOS
X.L. America Inc. - DE 06-1516268
Brockbank Insurance Services Inc. - CA
Global Credit Analytics, Inc. - DE
XL Global Services, Inc. - DE 06-1527321
NAC RE CORPORATION - DE 20583 13-3297840
NAC Re International Holdings Ltd - UK
NAC Reinsurance International Limited - UK
Denham Syndicate Management Ltd - UK
Stonebridge Underwriting Ltd - UK
NAC Re International Services Co., Ltd - UK
NAC REINSURANCE CORPORATION (A - 76%) - NY
NAC Re Investment Holdings, Inc. - DE 06-1529606
Greenwich Insurance Company (A - 5%) - CA 22322 95-1479095
Indian Harbor Insurance Company (A - 5%) - ND 36940 06-1346380
XL Insurance Company of New York, Inc. (A - 5%) - NY 40193 13-3787296
XL Capital Assurance, Inc. (A - 7%) - NY 11007 06-1529345
Intercargo Corporation - DE 36-3414667
International Advisory Services Inc. - IL 36-3081634
XL Specialty Insurance Company - IL 37885 85-0277191
Intercargo Insurance Company HK Ltd. - HK
Intercargo International Limited - BVI AA-004102
ECS INC. - PA 23-2152934
ECS ALTERNATIVE MARKET SERVICES, INC. - PA 23-2741979
ECS HOLDINGS, INC. - DE 23-2683777
ECS International, Inc. - DE 23-2683775
ECS Asesores en Seguros Medioambientales, S.A.R.L. - SPAIN
The ECS Group, Ltd - UK 2711579
ECS Underwriting Ltd. - UK 2549841
Environmental Compliance Svcs Ltd. - UK 2551297
Consulting Services International Ltd. - UK 2551297
ECS Asesores en Aseguramiento de Riesgos Ambientales S.A. de C.V. - MEXICO
Risk & Insurance Services, Inc. - BARBADOS
ECS Reinsurance Company Inc. - BARBADOS 98-0086637
ECS UNDERWRITING, INC. - PA 23-2901851
ECS CLAIMS ADMINISTRATORS, INC. - PA 23-2614107
ECS RISK CONTROL, INC. - PA 23-2321718
ECS CHILD CARE CENTER, INC. - PA 23-2866192
SOVEREIGN RISK INSURANCE LTD. (50%) - BERMUDA
X.L. ONE LTD. - BERMUDA
XL Europe (50%) - REPUBLIC OF IRELAND
X.L. TWO LTD. - BERMUDA
XL Europe (50%) - REPUBLIC OF IRELAND
XL Australia Pty Ltd - AUSTRALIA
XL Prevent Ltd - UK
Le Mans Re (A - 49%) - FRANCE
IPT COMPLIANCE LIMITED - UK
EXEL CUMBERLAND LIMITED - UK
Pareto Partners (30%) - UK
Pareto Australia - AUSTRALIA
Vision Loyal Ltd. (30%) - UK
INQUISCAPITAL HOLDINGS (BERMUDA) LIMITED - BERMUDA
InQuisLogic (Bermuda) Limited - BERMUDA
RiskConnect Limited - BERMUDA
ANNUITY LIFE & RE (HOLDINGS) LTD (6%) - BERMUDA
EXEL ACQUISITION LTD. - CAYMAN
GCR HOLDINGS LIMITED - CAYMAN (IN LIQUIDATION)
REEVE COURT INSURANCE COMPANY (.04%) - BERMUDA
REEVE COURT HOLDINGS LTD. (50%) - BERMUDA
X.L. PROPERTY HOLDINGS LTD. - BERMUDA
MID OCEAN LIMITED (100%)- CAYMAN
MID OCEAN HOLDINGS LIMITED - BERMUDA
XL Mid Ocean Reinsurance Ltd - BERMUDA
Sunshine State Holdings Corporation (24%) - FL
The Shipowners Insurance and Guaranty Company Ltd. (4.6%) - BERMUDA
Global Capital Underwriting Ltd. - UK
LARC Holdings Ltd. - BERMUDA
Latin America Reinsurance Company Ltd. - BERMUDA
Ridgewood Holdings Company - BERMUDA
Admiral Group Limited (10%)
The Brockbank Group Plc - UK
Brockbank Holdings Limited - UK
Baltusrol Holdings Ltd - BERMUDA
County Down Limited - CORPORATE MEMBER SYNDICATE 2253
Dornoch Limited - CORPORATE MEMBER SYNDICATE 1209
Brockbank Underwriting Limited - UK
Brockbank Personal Lines Limited - SYNDICATES 253/2253
Cassidy Brockbank Limited (DORMANT)
Brockbank Syndicate Management Limited - SYNDICATES 588/861/1209
Brockbank Syndicate Services Limited
Sextant International Limited (20%)
A. Company is a member on NAC Reinsurance, Intercargo Pooling Agreement with
individual company pooling %'s noted.
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Form 10-K of our report dated
February 9, 2000, on our audits of the financial statements and financial
statement schedules of XL Capital Ltd as at December 31, 1999 which states that
we did not audit the financial statements and financial statement schedules of
NAC Re Corp. as at December 31, 1998 and that our opinion, in so far as it
relates to the amounts included for NAC Re Corp. for those dates, is based
solely on the report of other auditors, which report is included herein.
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), Form S-8 and S-3 (File No. 33-86824) and Form S-8 (File
No. 33-81451) of our report dated February 9, 2000 on our audits of the
financial statements and financial statement schedules of XL Capital Ltd.
PRICEWATERHOUSECOOPERS LLP
New York, New York
March 17, 2000
90
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our report, on the consolidated financial
statements of NAC Re Corporation for the year ended December 31, 1998, dated
February 3, 1999 except for Note 15, as to which the date is February 15, 1999
in this Annual Report on Form 10K of XL Capital Ltd.
ERNST & YOUNG LLP
New York, New York
March 17, 2000
91
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