<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) 0F THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period from ___________ to
- --------------------------------------------------------------------------------
Commission file number 1-10967
ENHANCE FINANCIAL SERVICES GROUP INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-3333448
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
335 Madison Avenue, New York, New York 10017
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 983-3100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report)
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 proceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 38,035,954 shares of
common stock, par value $.10 per share, as of August 10, 1999.
<PAGE>
ENHANCE FINANCIAL SERVICES GROUP INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1999 and December 31, 1998.................... 3
Consolidated Statements of Income - Six months ended June 30, 1999 and 1998 ......... 4
Consolidated Statement of Shareholders' Equity - Six months ended June 30, 1999 ..... 5
Consolidated Statements of Cash Flows - Six months ended June 30, 1999 and 1998.. 6
Notes to Consolidated Financial Statements .......................................... 7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................... 9-14
PART II OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Security Holders........................... 15
Item 6. Exhibits .................................................................... 15
Signature ........................................................................... 16
Exhibit 3.1. Restated certificate of incorporation
Exhibit 4.2.4. Third Amendment to the Credit Agreement (Amending and Restating Credit
Agreement)
Exhibit 10.2.2. 1997 Long-Term Incentive Plan for Key Employees, as amended and
restated as of June 3, 1999
Exhibit 27. Financial data schedules
</TABLE>
2
<PAGE>
ENHANCE FINANCIAL SERVICES GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
(unaudited)
<S> <C> <C>
Assets
Investments:
Fixed maturities, held to maturity, at amortized cost
(market value $186,824 and $205,792) $ 181,230 $ 196,768
Fixed maturities, available for sale, at market
(amortized cost $722,015 and $657,644) 727,918 694,374
Common stock, at market (cost $498) 839 839
Investment in affiliates 110,170 96,867
Short-term investments 38,138 50,794
Cash and cash equivalents 5,929 5,542
----------- -----------
Total Investments 1,064,224 1,045,184
Premiums and other receivables 29,426 35,950
Accrued interest and dividends receivable 17,791 15,241
Deferred policy acquisition costs 113,021 103,794
Federal income taxes recoverable 5,933 9,717
Prepaid reinsurance premiums 5,293 7,000
Reinsurance recoverable on unpaid losses 2,256 2,500
Receivable from affiliates 20,798 16,710
Receivable for securities -- 9,590
Other assets 135,313 90,731
----------- -----------
TOTAL ASSETS $ 1,394,055 $ 1,336,417
=========== ===========
Liabilities and Shareholders' Equity
LIABILITIES
Losses and loss adjustment expenses $ 36,750 $ 36,239
Reinsurance payable on paid losses
and loss adjustment expenses 7,085 5,994
Deferred premium revenue 327,541 315,215
Accrued profit commissions 2,253 2,511
Deferred income taxes 71,692 79,569
Long-term debt 75,000 75,000
Short-term debt 99,646 54,290
Payable for securities -- 11,557
Accrued expenses and other liabilities 69,990 49,843
Payable to affiliates 22,654 43,553
----------- -----------
TOTAL LIABILITIES 712,611 673,771
----------- -----------
SHAREHOLDERS' EQUITY
Common stock-$.10 par value, Authorized-100,000,000
shares, issued-39,957,748 and 39,812,937 shares 3,996 3,981
Additional paid-in capital 251,873 249,851
Retained earnings 455,304 418,214
Accumulated other comprehensive income 2,857 23,186
Treasury stock (32,586) (32,586)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 681,444 662,646
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,394,055 $ 1,336,417
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
ENHANCE FINANCIAL SERVICES GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Net premiums written $ 34,944 $ 27,299 $ 64,430 $ 60,963
Increase in deferred premium revenue (8,838) (2,912) (14,033) (12,921)
-------- -------- -------- --------
Premiums earned 26,106 24,387 50,397 48,042
Net investment income 13,934 13,311 27,488 26,239
Net realized gains/(losses) on sale of
investments (450) 301 (4,340) (23)
Assignment sales 8,004 12,047 16,306 22,471
Other income 4,025 1,377 6,211 3,001
-------- -------- -------- --------
Total revenues 51,619 51,423 96,062 99,730
EXPENSES
Losses and loss adjustment expenses 2,629 1,612 5,386 3,867
Policy acquisition costs 9,232 8,553 18,107 16,668
Profit commissions 442 365 556 804
Other operating expenses - insurance 4,294 3,251 8,202 6,677
- non-insurance 15,002 10,961 26,418 18,689
-------- -------- -------- --------
Total expenses 31,599 24,742 58,669 46,705
-------- -------- -------- --------
Income from operations 20,020 26,681 37,393 53,025
Equity in net income of affiliates 7,883 3,797 12,566 6,398
Foreign currency losses (19) (9) (6) (9)
Interest expense (2,484) (2,211) (4,928) (4,062)
-------- -------- -------- --------
Income before income taxes 25,400 28,258 45,025 55,352
Income tax expense 1,905 7,724 3,377 15,600
-------- -------- -------- --------
Net income $ 23,495 $ 20,534 $ 41,648 $ 39,752
======== ======== ======== ========
Basic earnings per share $ 0.62 $ 0.55 $ 1.10 $ 1.06
======== ======== ======== ========
Diluted earnings per share $ 0.60 $ 0.52 $ 1.07 $ 1.01
======== ======== ======== ========
Basic weighted average shares outstanding 37,992 37,555 37,955 37,516
======== ======== ======== ========
Diluted weighted average shares outstanding 38,990 39,396 39,096 39,330
======== ======== ======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
ENHANCE FINANCIAL SERVICES GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Outstanding Common
Stock Treasury Stock
----------------------- -----------------------
Additional
Paid-in
Shares Amount Shares Amount Capital
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 39,812,937 $ 3,981 1,950,794 ($ 32,586) $ 249,851
Comprehensive income:
Net income for the period -- -- -- -- --
Unrealized foreign currency translation
adjustment (net of tax of $613) -- -- -- -- --
Unrealized losses during the period
(net of tax of $11,852) -- -- -- -- --
Reclassification adjustment for realized losses
included in net income (net of tax of $1,519) -- -- -- -- --
Total comprehensive income -- -- -- -- --
Dividends paid ($0.12 per share) -- -- -- -- --
Exercise of stock options 144,811 15 -- -- 2,022
---------- ---------- ---------- ---------- ----------
Balance, June 30, 1999 39,957,748 $ 3,996 1,950,794 $ (32,586) $ 251,873
========== ========== ========== ========== ==========
<CAPTION>
Accumulated
Other Comprehensive Income
--------------------------------------
Foreign
Currency Unrealized
Unearned Translation Gains Retained
Compensation Adjustment (Losses) Earnings Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 ($ 493) $ 714 $ 22,965 $ 418,214 $ 662,646
Comprehensive income:
Net income for the period -- -- -- 41,648 --
Unrealized foreign currency translation
adjustment (net of tax of $613) -- (1,139) -- -- --
Unrealized losses during the period
(net of tax of $11,852) -- -- (22,011) -- --
Reclassification adjustment for realized losses
included in net income (net of tax of $1,519) -- -- 2,821 -- --
Total comprehensive income -- -- -- -- 21,319
Dividends paid ($0.12 per share) -- -- -- (4,558) (4,558)
Exercise of stock options -- -- -- -- 2,037
---------- ---------- ---------- ---------- ----------
Balance, June 30, 1999 $ (493) $ (425) $ 3,775 $ 455,304 $ 681,444
========== ========== ========== ========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE>
ENHANCE FINANCIAL SERVICES GROUP INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 41,648 $ 39,752
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization, net (4,109) (5,235)
Loss on sale of investments, net 4,340 23
Equity in net income of affiliates (12,566) (6,398)
Change in assets and liabilities:
Premiums and other receivables 6,524 (1,656)
Accrued interest and dividends receivable (2,550) (1,731)
Accrued expenses and other liabilities 20,147 (21,716)
Deferred policy acquisition costs (9,227) (2,160)
Deferred premium revenue, net 14,033 12,920
Accrued profit commissions (258) (1,205)
Losses and loss adjustment expenses, net 1,846 6,149
Payable to (receivable from) affiliates (24,987) (16,518)
Payable (receivable) for securities (1,967) (3,778)
Other assets (30,862) 34,295
Income taxes, net 6,377 9,906
--------- ---------
Net cash provided by operating activities 8,389 42,648
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,977) (472)
Proceeds from sales and maturities of investments 235,739 155,318
Purchase of investments (280,038) (205,837)
Purchase of partnership interests (13,720) --
Sales of short-term investments, net 12,656 19,867
(Purchase) of other invested assets, net -- (1,128)
Investment in affiliates (2,497) (15,092)
--------- ---------
Net cash used in investing activities (50,837) (47,344)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital stock 2,037 7,283
Short-term debt 45,356 20,000
Dividends paid (4,558) (4,130)
Purchase of treasury stock -- (11,472)
--------- ---------
Net cash provided by financing activities 42,835 11,681
--------- ---------
Net change in cash and cash equivalents 387 (6,985)
Cash and cash equivalents, beginning of period 5,542 21,405
--------- ---------
Cash and cash equivalents, end of period $ 5,929 $ 28,390
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE>
ENHANCE FINANCIAL SERVICES GROUP INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED JUNE 30, 1999 AND 1998
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q under Rules and
Regulations of the Securities and Exchange Commission and do not include all of
the information and disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Annual Report on Form
10-K for the year ended December 31, 1998 of Enhance Financial Services Group
Inc. ("Enhance Financial").
The accompanying unaudited consolidated financial statements have not
been audited by independent auditors in accordance with generally accepted
auditing standards. However, in the opinion of management, such financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position and results of
operations of Enhance Financial and Subsidiaries (collectively the "Company").
The results of operations for the six months ended June 30, 1999 may not be
indicative of the results that may be expected for the year ending December 31,
1999.
2. DIVIDENDS DECLARED
In the first six months of 1999, Enhance Financial declared and paid
cash dividends of $.12 per share totaling approximately $4,558,000.
3. COMMON STOCK
On June 26, 1998, Enhance Financial effected a two-for-one split of its
common stock. An amount equal to the par value of common shares issued to effect
the split was transferred from additional paid-in capital to the common stock
account. This transfer has been reflected in the consolidated statement of
shareholders' equity at January 1, 1998. On June 3, 1998, the Company's
shareholders approved an increase in the number of shares of common stock
authorized for issuance to 100 million. All references to number of common
shares and to per-share information in the consolidated financial statements and
related notes have been adjusted to reflect the stock split on a retroactive
basis.
During the first six months of 1999, no common stock repurchases were
made by Enhance Financial.
4. COMPREHENSIVE INCOME
Effective in 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This pronouncement established new rules for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The adoption of this statement had no
impact on the Company's financial position or results of operations. SFAS No.
130 requires the Company's unrealized gains and losses and changes in foreign
currency translation adjustment to be included in other comprehensive income.
Total comprehensive income for the six months ended June 30, 1999 and
1998 was $21.3 million and $41.1 million, respectively. Presently, other
comprehensive income represents net income plus changes in unrealized gains and
losses on available for sale securities and foreign currency translation
adjustments.
7
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED MARCH 31, 1999AND 1998
5. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which becomes effective for the Company January 1, 2001. This pronouncement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The Company will be required to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The accounting for a change in fair value of a
derivative in earnings or other comprehensive income will depend on the intended
use of the derivative and the resulting designation. Derivatives can be
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or a firm commitment, (b) a hedge of the exposure
to variable cash flow of a forecast transaction, or (c) a hedge of foreign
currency exposure of a net investment in foreign operations, an unrecognized
firm commitment, an available-for-sale security, or a foreign currency
denominated forecasted transaction.
In March 1998, the National Association of Insurance Commissioners
adopted the Codification of Statutory Accounting Principles (the
"Codification"). The Codification is intended to standardize regulatory
accounting and reporting for the insurance industry and is proposed to become
effective January 1, 2001. However, statutory accounting principles will
continue to be established by individual state laws and permitted practices, and
it is uncertain when or if, the State of New York will require adoption of the
Codification for the preparation of statutory financial statements. The Company
has not finalized the quantification of the effects of Codification on its
statutory statements.
6. INCOME TAXES
The Company files a consolidated federal income tax return with its
includable subsidiaries. Subject to the provisions of a tax sharing agreement,
income tax allocation is based upon separate return calculations.
In April 8, 1999, the Company completed a $13,720,000 purchase of a
portfolio of approximately 500 residential mortgage-backed securities. The
transaction was structured by Credit-Based Asset Servicing and Securitization
LLC ("C-BASS"), a New York City-based joint venture, which will also manage and
service the portfolio for the Company. The purchase price was financed by a
short-term credit arrangement of $10,290,000. As of June 30, 1999, the balance
of outstanding debt related to such arrangement was $8,646,000. The transaction
is expected to produce significant pre-tax economic profits over the life of the
acquired portfolio. Additionally, the transaction will provide ancillary
benefits that will result in a lowering of the Company's effective tax rate in
1999 and beyond. The Company's effective tax rate for the first six months of
1999 was 7.5% compared to 28.2% for the comparable period of 1998.
The investment in the portfolio is carried at amortized cost and is
classified on the balance sheet with other assets.
7. RECLASSIFICATIONS
Certain of the 1998 amounts have been reclassified to conform to the current
year presentation.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company divides its business operations into two reportable
operating segments: insurance businesses and asset-based businesses.
The insurance businesses of the Company, which are engaged through its
indirectly held subsidiaries, Enhance Reinsurance Company and Asset Guaranty
Insurance Company (collectively the "Insurance Subsidiaries"), include
principally the reinsurance of financial guaranties of municipal and
asset-backed debt obligations issued by monoline financial guaranty insurers. In
addition, the Company is engaged in other insurance, reinsurance and
non-insurance businesses that utilize the Company's expertise in performing
sophisticated analyses of complex, credit-based risks. The Company's other
insurance businesses involve the issuance of direct financial guaranties of
smaller municipal debt obligations, trade credit reinsurance, financial
institutions credit insurance (which includes excess-SIPC/excess-ICS and related
type bonds) and financial responsibility bonds. Some of these other insurance
businesses are conducted by Van-American Insurance Company ("Van-Am"), a
Kentucky domiciled insurer which writes reclamation bonds for the coal mining
industry, and surety bonds covering the closure and post-closure obligations of
landfill operators. The Company has decided to exit this line of business. The
Company also provides surety and other credit-based insurance products through
its 25% ownership of Seguradora Brasileira de Fiancas S.A.
The Company operates its asset-based businesses primarily through its
consolidated subsidiary, Singer Asset Finance Company, L.L.C. ("Singer") and a
partially owned affiliate, Credit-Based Asset Servicing and Securitization LLC
("C-BASS"). The Company's asset-based businesses include the origination,
purchase, servicing and/or securitization of special assets, including lottery
awards, structured settlement payments and sub-performing/non- performing and
seller-financed residential mortgages, real estate and subordinated residential
mortgage-backed securities.
The Company's revenues consist primarily of (a) premiums earned on
insurance and reinsurance contracts, (b) investment income and (c) the sale of
securitized lottery prizes and structured settlement payment streams.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30 , 1999 VS. THREE MONTHS ENDED JUNE 30 , 1998
Gross premiums written in the second quarter of 1999 were $35.1 million
compared with $27.7 million in the same period in 1998, representing an increase
of 26.9%.
Net premiums written increased 28.0% to $34.9 million in the second
quarter of 1999 from $27.3 million in the same period in 1998. Of the Company's
net premiums written in the second quarter of 1999, 33.9%, 20.7% and 45.4% were
derived from the reinsurance of municipal bonds, the reinsurance of
non-municipal obligations and the Company's other insurance lines, respectively,
compared to 46.9%, 19.1% and 34.0% during the same period in 1998.
In the second quarter of 1999, municipal new-issue volume was $52.5
billion, a decline of 33.2% from the same period in 1998. The insured portion of
such new issues was 42.7% and 49.5% during the second quarters of 1999 and 1998,
respectively. Total municipal bond refundings in the second quarter of 1999
represented approximately 16.3% of new-issue volume, down from 25.8% for the
first quarter of 1998.
Earned premiums grew 7.0% to $26.1 million in the second quarter of
1999 from $24.4 million in the second quarter of 1998. Earned premiums from
refundings contributed 3.0 million (or 11.5%) of earned premiums in the second
quarter of 1999 compared to $3.5 million (or 14.4%) in the same period in 1998.
Deferred premium revenue, net of prepaid reinsurance premiums, grew to $322.2
million at June 30, 1999 from $308.2 million at December 31, 1998.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net investment income increased 4.7% to $13.9 million in the second
quarter of 1999 from $13.3 million in the same period in 1998. This increase
resulted primarily from the growth in the Company's fixed maturities portfolio
from $870.9 million at June 30, 1998 to $909.1 million at June 30, 1999. The
average yields on the Company's investment portfolio were 5.95% and 6.14% for
the second quarters of 1999 and 1998, respectively. In addition, the Company
realized $0.5 million of capital losses in the second quarter of 1999 compared
with $0.3 million of capital gains in the second quarter of 1998.
The Company recognized revenues from disposition of assignments,
through securitization and other sales, of $8.0 million in the second quarter of
1999 compared to $12.0 million in the second quarter of 1998.
Incurred losses and LAE were $2.6 million in the second quarter of 1999
compared to $1.6 million for the same period of 1998.
The Company's insurance expense ratio was 53.5% in the second quarter
of 1999 compared to 49.9% in the second quarter of 1998. Non-insurance expenses
increased to $15.0 million in the second quarter of 1999 from $11.0 million
during the same period in 1998 reflecting the cost of reorganizing Singer's
operations including significant start-up expenses in its new viatical
settlements product. Policy acquisition costs ("PAC") were $9.2 million and $8.6
million for the second quarters of 1999 and 1998, respectively, representing
35.4% and 35.1% of earned premiums in those respective periods.
The Company realized income of $7.9 million from its investments in
affiliates in the second quarter of 1999 compared to $3.8 million in the second
quarter of 1998.
Interest expense totaled $2.5 million and $2.2 million in the second
quarters of 1999 and 1998, respectively, reflecting the increase in the
Company's short-term debt outstanding.
The Company's effective tax rate for the second quarter of 1999 was
7.5% compared to 27.3% for the 1998 second quarter as a result of the April 1999
purchase of a portfolio of residential mortgage-backed securities. As described
in the notes to the unaudited financial statements, the transaction will provide
ancillary benefits that will result in a lowering of the Company's effective tax
rate in 1999 and beyond.
The Company's 1999 second quarter net income increased 14.4% to $23.5
million from $20.5 million in the second quarter of 1998. Second quarter 1999
basic and diluted earnings per share increased 12.7% and 15.4%, respectively, to
$.62 and $.60 from $.55 and $.52 in the same period of 1998.
The diluted weighted average shares outstanding during the second
quarter of 1999 was 39.0 million compared to 39.4 million during the second
quarter of 1998.
All references to number of common shares and per-share information
reflect the two-for-one stock split, which was effective on June 26, 1998.
SIX MONTHS ENDED JUNE 30 , 1999 VS. SIX MONTHS ENDED JUNE 30 , 1998
Gross premiums written in the first six months of 1999 were $64.7
million compared with $61.1 million in the same period in 1998, representing an
increase of 5.9%.
Net premiums written increased 5.7% to $64.4 million in the first six
months of 1999 from $61.0 million in the same period in 1998. Of the Company's
net premiums written in the first six months of 1999, 35.4%, 21.6% and 43.0%
were derived from the reinsurance of municipal bonds, the reinsurance of
non-municipal obligations and the Company's other insurance lines, respectively,
compared to 47.6%, 17.7% and 34.7% during the same period in 1998.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In the first six months of 1999, municipal new-issue volume was $115.7
billion, a decline of 23.0% from the same period in 1998. The insured portion of
such new issues was 47.0% and 49.2% during the first six months of 1999 and
1998, respectively. Total municipal bond refundings in the first six months of
1999 represented approximately 20.4% of new-issue volume, down from 29.5% for
the first six months of 1998.
Earned premiums grew 4.9% to $50.4 million in the first six months of
1999 from $48.0 million in the first six months of 1998. Earned premiums from
refundings contributed $5.0 million (or 9.9%) of earned premiums in the first
six months of 1999 compared to $7.9 million (or 16.5%) in the same period in
1998.
Net investment income increased 4.8% to $27.5 million in the first six
months of 1999 from $26.2 million in the same period in 1998. This increase
resulted primarily from the growth in the Company's fixed maturities portfolio
from $870.9 million at June 30, 1998 to $909.1 million at June 30, 1999. The
average yields on the Company's investment portfolio were 5.87% and 6.15% for
the first six months of 1999 and 1998, respectively. In addition, the Company
realized $4.3 million of capital losses in the first six months of 1999
compared with $.02 million of capital losses in the first six months of 1998.
The 1999 capital loss includes the recognition of a $4.7 million pre-tax write
down of two asset-backed securities serviced by Commercial Financial Services,
Inc. ("CFS"), which were purchased by the Company in December 1997 for $6.1
million. CFS is currently protected under Chapter 11 of the bankruptcy code
as an outgrowth of allegations of improper activities. Though CFS continues
to service the debt on a current basis, the Company does not expect to
recover its entire investment. The ultimate realizable amount depends on the
outcome of the bankruptcy of CFS, and is therefore subject to further
adjustments.
The Company recognized revenues from disposition of assignments,
through securitization and other sales, of $16.3 million in the first six months
of 1999 compared to $22.5 million in the first six months of 1998.
Incurred losses and LAE were $5.4 million in the first six months of
1999 compared to $3.9 million for the same period of 1998.
The Company's insurance expense ratio was 53.3% in the first six months
of 1999 compared to 50.3% in the first six months of 1998. Non-insurance
expenses increased to $26.4 million in the first six months of 1999 from $18.7
million during the same period in 1998 reflecting the cost of reorganizing
Singer's operations including large start-up expenses in its new viatical
settlements product. Policy acquisition costs ("PAC") were $18.1 million and
$16.7 million for the first six months of 1999 and 1998, respectively,
representing 35.9% and 34.7% of earned premiums in those respective periods.
The Company realized income of $12.6 million from its investments in
affiliates in the first six months of 1999 compared to $6.4 million in the first
six months of 1998.
Interest expense totaled $4.9 million and $4.1 million in the first six
months of 1999 and 1998, respectively, reflecting the increase in the Company's
short-term debt outstanding.
The Company's effective tax rate for the first six months of 1999 was
7.5% compared to 28.2% for the same period of 1998 as a result of the April 1999
purchase of a portfolio of residential mortgage-backed securities. As described
in the notes to the unaudited financial statements, the transaction will provide
ancillary benefits that will result in a lowering of the Company's effective tax
rate in 1999 and beyond.
The Company's 1999 first six-months net income increased 4.8% to $41.7
million from $39.8 million in the first six months of 1998. Basic and diluted
earnings per share increased 3.8% and 5.9%, respectively, to $1.10 and $1.07 in
the first six months of 1999 from $1.06 and $1.01 for the same period of 1998.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The diluted weighted average shares outstanding during the first six
months of 1999 was 39.1 million compared to 39.3 million during the same period
of 1998.
All references to number of common shares and per-share information
reflect the two-for-one stock split, which was effective on June 26, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As a holding company, Enhance Financial funds the payment of its
operating expenses, principal and interest on its debt obligations, dividends to
its shareholders and the repurchase of common stock primarily from dividends
from its wholly-owned subsidiary, Enhance Investment Corporation ("Enhance
Investment"), whose ability to provide such dividends to Enhance Financial
depends upon dividends and other payments from the Insurance Subsidiaries;
manages cash flows associated with the Company's diversification activities and
draws on its line of credit provided under the credit agreement described below.
Payments of dividends to Enhance Investment by the Insurance Subsidiaries are
subject to restrictions relating to statutory capital and surplus and net
investment income. During the first six months of 1999, the Insurance
Subsidiaries paid $13 million of dividends to Enhance Investment, which paid a
dividend of $6.5 million to Enhance Financial in March 1999 and a dividend of
$6.45 million to Enhance Financial in June 1999. As of June 30, 1999, the
maximum amount of dividends remaining available from the Insurance Subsidiaries
without prior approval of the insurance regulatory authorities was $13.3
million.
The Company's cash flow provided from operations for the first six
months of 1999 was $8.4 million compared to cash flow provided from operations
of $42.6 million for the same period in 1998. The carrying value of the
Company's investment portfolio (total investments less investment in affiliates)
increased to $954 million at June 30, 1999 from $948 million at December 31,
1998 principally as a result of cash flows from insurance operations.
The Company maintains a credit facility providing for borrowings to be
used for general corporate purposes. During the second quarter of 1998, the
Company entered into a new unsecured credit agreement with four major commercial
banks for up to $100 million of borrowings, an increase of $25 million over the
previous agreement (which was terminated). As of June 30, 1999, the Company had
$91 million outstanding under the credit agreement.
In July 1996, the Company formed C-BASS, a joint venture in which each
of Enhance Financial and Mortgage Guaranty Insurance Company ("MGIC") owns
approximately a 48% interest. Enhance Financial has contributed $55.5 million to
C-BASS through June 30, 1999 (including its 100% interest in Litton Loan
Servicing Inc.) and expects that it will provide additional funding. In January
1998 Enhance Financial guarantied repayment of up to $25 million of the amount
outstanding under a $50 million LIBOR-based unsecured revolving credit facility
that C-BASS obtained from a major commercial bank. As of June 30, 1999, the
outstanding principal balance under the facility was $20 million, with Enhance
Financial guaranteeing $10 million of such amount. The outstanding principal and
interest under the facility was repaid in full in July 1999, prior to its due
date of July 31, 1999, thereby effectively terminating the facility and Enhance
Financial's repayment guarantee.
In December 1998, the Company formed Sherman Financial Group, LLC
("Sherman"), a joint venture in which each of the Company and MGIC own a 45.5%
interest. Enhance Financial has contributed approximately $2.0 million to
Sherman through June 30, 1999 and is obligated to contribute an additional $6.5
million in cash to Sherman as and when needed by Sherman. In addition, Enhance
is obligated to contribute the equity in the subsidiaries of Alegis Group Inc.
to Sherman after certain regulatory requirements have been satisfied. The
Company expects that it will provide additional funding. In May, 1999, Enhance
Financial guarantied repayment of up to 50% of the amount outstanding under a
$50 million revolving credit facility that Sherman obtained from a major
commercial bank. As of June 30, 1999, the outstanding principal balance under
the facility was $23 million, with Enhance Financial guaranteeing $11.5 million
of such amount.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In the first six months of 1999, Enhance Financial declared and paid
cash dividends of $.12 per share, aggregating $4.6 million.
YEAR 2000
As the Year 2000 approaches, Enhance Financial, including its insurance
subsidiaries, Enhance Reinsurance Company and Asset Guaranty Insurance Company,
is assessing the Company's potential exposure to the so called "millenium bug"
and the effects the century date change may have on its electronic systems and
those of its significant business partners. Since certain computer programs were
written using two digits rather than four to define the applicable year,
computing devices and systems may recognize a date using the two digits "00" as
1900 rather than the year 2000. Those that do not recognize a date correctly
could generate erroneous data and/or cause systems to fail.
As part of its firm-wide Year 2000 Project, the Company has established
a Year 2000 Task Force consisting of senior management of the Company, led by
the Chief Information Officer and the General Counsel. It has also retained an
independent information technology consulting firm and outside legal counsel to
provide assistance with Year 2000 readiness and has adequate staff to administer
the Project. The progress of the Company's Year 2000 Project is being monitored
by the Audit Committee of the board of directors.
The Year 2000 Project covers both computer systems and infrastructure
("IT systems") as well as other systems and equipment which utilize embedded
microchips ("non-IT systems"). It also considers the readiness of significant
third parties on which the Company depends, such as clients, vendors and service
providers. The Year 2000 Project has several interrelated phases. The status of
each phase is as follows.. PROJECT DEVELOPMENT AND RESOURCE MOBILIZATION is
substantially complete. ASSESSMENT of internal IT systems and non-IT systems and
exposure to third party risks is substantially complete. As part of its
third-party due diligence, the Company has assessed the Year 2000 readiness of
all major products and services purchased from vendors and service providers of
IT and non-IT components and systems. REMEDIATION AND TESTING of IT systems and
non-IT systems are in progress, and a separate IT test environment has been
established for selected applications deemed critical by management. Based on
the assessment of its major IT systems and non-IT systems, Enhance Financial
expects that all necessary remediation and testing will be completed to insure
Year 2000 readiness in all material respects. CONTINGENCY PLANNING, including
disaster recovery planning is in progress and will continue throughout 1999.
IMPLEMENTATION of contingency plans will be made as and when needed.
Since 1997, Enhance Financial has invested in a major initiative to
replace and upgrade its technology. This ongoing project addresses, among other
matters, many of the Year 2000 issues of the Company's internal IT systems. The
Company has expended approximately $2 million on this project, which,
accordingly, includes a portion of the cost of Year 2000 readiness. Additional
expenditures for Year 2000 readiness, which will be funded through operating
cash flow, are expected to total approximately $1.5 million. These cost
estimates are based upon currently available information and may change as the
Year 2000 Project proceeds. However, the cost of Year 2000 readiness is not
expected to affect materially the financial condition of the Company.
The failure of IT systems and non-IT systems associated with cash
management, servicing, communications and building facilities would in varying
degrees have a material adverse effect on the Company. Such failures could
disrupt the Company's ability to conduct normal business operations, including
financial transactions such as payment of claims or debts, collecting or funding
of receivables and selling of commercial paper. The consequences of such
failures could include business interruption, lost revenue and illiquidity. The
magnitude of the financial impact of such potential failures is not known. The
Company is continuing to consider its reasonably likely worst case Year 2000
scenarios and their potential financial impact. The Year 2000 Project includes a
provision for contingency planning for systems and facilities that will
generally involve processing that does not rely upon computer systems and will
utilize additional staff as needed.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company has communicated with third parties with which it has
material dealings to determine the status of their Year 2000 readiness and it is
in the process of assessing its exposure to potential third party Year 2000
failures. Management has determined that the following consequences to the
Company could result from the failure of such third parties to successfully
address their Year 2000 issues: OBLIGORS OF INSURED ISSUES (see also next
paragraph) - increased credit risk, claims, loss of premiums and renewals;
PRIMARIES AND REINSURERS - increased credit risk, uncollected claims, premium
loss, impaired liquidity; COUNTERPARTIES AND ISSUERS OF OBLIGATIONS - investment
portfolio downgrade, loss of income and/or principal; FINANCIAL INSTITUTIONS AND
LENDERS - impaired liquidity, loss of income and/or principal; VENDORS AND
SERVICE PROVIDERS - interrupted power, building access, telecommunications, flow
of goods, security and professional and technical services.
The policies of insurance and reinsurance issued by the insurance
subsidiaries of Enhance Financial, their primary insurers and their reinsurers
do not contain specific exclusions for Year 2000-related defaults. Accordingly,
these policies would generally cover a default by an obligor of this type.
Although the insurers would expect eventually to recover the amounts paid in
claims for Year 2000-related defaults by obligors, the coincidence of several
such unanticipated claims could result in short-term liquidity risk for the
insurers. Failure of a trustee or paying agent for a given insured obligation to
make payment on that obligation as a result of a Year 2000-related event (or
otherwise) would generally not be covered by the insurance or reinsurance
policy, and no such claims are expected.
In addition to other risks in connection with the Year 2000, general
uncertainty among market participants could cause a decline in business activity
and revenue in 1999 and 2000, as companies address their Year 2000 issues.
Enhance Financial cannot predict the magnitude of this possible decline or the
impact that it may have on its financial results for those years. However,
Enhance Financial has undertaken a thorough review of third-party risks inherent
in Year 2000 issues, and it is working with the industry group allied with its
core business to identify and address credit and other business issues related
to Year 2000. Enhance Financial is also assessing potential effects of
unexpected failures in local, national or international systems, including
power, communication and transportation systems, on which the normal conduct of
business depends, and it will establish contingency plans to deal with such
failures, although there can be no assurance that such plans can be effective in
such circumstances, especially in the case of widespread economic disruption.
Management believes, based upon its investigation to date, that Enhance
Financial will be substantially Year 2000 ready on or before December 31, 1999.
However, there can be no assurance, due to the uncertain nature of potential
Year 2000 problems and Enhance Financial's lack of control over some of them,
especially the readiness of third parties, that all Year 2000 issues will be
foreseen and corrected in a timely fashion. Failure of the efforts by Enhance
Financial or certain third parties to be Year 2000 ready could result in the
disruption of Enhance Financial's normal business activities or in unanticipated
claims upon Enhance Financial, either of which could have a material adverse
effect. Management is assessing the need to increase its liquidity, from various
sources, in order to meet unanticipated demand for the claim payments.
14
<PAGE>
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 3, 1999, the registrant held an annual meeting of shareholders,
at which the shareholders voted as indicated on the following proposals:
(a) The election of the following persons as directors:
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Daniel Gross 32,940,463 458,018
Brenton W. Harries 32,977,559 420,922
David R. Markin 32,941,363 457,118
Jay A. Novik 32,979,899 418,582
Robert P. Saltzman 32,978,549 419,932
Wallace O. Sellers 32,977,449 421,032
Richard J. Shima 32,979,899 418,582
Spencer R. Stuart 32,977,559 420,922
Allan R. Tessler 32,976,799 421,682
Frieda K. Wallison 32,977,999 420,482
Jerry Wind 32,977,799 420,682
</TABLE>
(b) The proposed amendment to the restated certificate of
incorporation, as amended, of the registrant to delete
therefrom certain restrictions on the permitted scope of its
activities was approved by the shareholders by a vote of
30,564,471 in favor, 60,206 against and 39,700 abstaining;
(c) The proposed amendment to the 1997 Long-Term Incentive Plan
for Key Employees to increase the number of shares of common
stock, par value $.10 per share, reserved for grants
thereunder to an aggregate of 5,000,000 shares was approved by
the shareholders by a vote of 16,624,055 in favor, 13,964,316
against and 76,006 abstaining;
(d) The appointment of Deloitte & Touche LLP as the registrant's
outside auditor for fiscal year 1999 was ratified by a vote of
33,112, 237 in favor, 260,140 against and 26,104 abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.1. Restated certificate of incorporation of the
registrant filed with the State of New York on July
7, 1999.
Exhibit 4.2.4. Third Amendment to the Credit Agreement
(Amending and Restating Credit Agreement) among the
registrant, Fleet National Bank as lender, swingline
bank and as agent for the Banks, and The Bank of New
York, The First National Bank of Chicago, and
Deutsche Bank AG, New York and/or Cayman Island
Branches, as lenders
Exhibit 10.2.2. 1997 Long-Term Incentive Plan for Key Employees, as
amended and restated as of June 3, 1999.
Exhibit 27. Financial data schedules.
(b) Reports on Form 8-K. None.
15
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
Date: August 13, 1999 ENHANCE FINANCIAL SERVICES GROUP INC.
By: /s/ ARTHUR DUBROFF
------------------------------------
Arthur Dubroff
Executive Vice President (duly
authorized officer) and Principal
Financial Officer
16
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
ENHANCE FINANCIAL SERVICES GROUP INC.
UNDER
SECTION 807 OF THE BUSINESS CORPORATION LAW
WE, THE UNDERSIGNED, Daniel Gross and Samuel Bergman, being respectively
the President and Secretary of ENHANCE FINANCIAL SERVICES GROUP INC., a New York
corporation (the "Corporation"), HEREBY CERTIFY as follows:
(1) The name of the Corporation is Enhance Financial Services Group
Inc. The Corporation was formed under the name Enhance Financial
Services, Inc.
(2) The Certificate of Incorporation of the Corporation was
originally filed by the Department of State of the State of New
York on December 4, 1985.
(3) The text of the Certificate of Incorporation of the Corporation
is hereby changed to effect the following change:
The certificate of incorporation of the Corporation is
hereby amended by replacing the post office address in
Article FIFTH to which the Secretary of State shall mail
a copy of any process against the Corporation which may
be served upon him with 335 Madison Avenue, New York,
New York 10017, Attn: President.
(4) The text of the certificate is hereby further changed to read as
herein set forth in full:
<PAGE>
-----------------------
RESTATED CERTIFICATE OF INCORPORATION
OF
ENHANCE FINANCIAL SERVICES GROUP INC.
UNDER
SECTION 807 OF THE BUSINESS CORPORATION LAW
-----------------------
FIRST. The name of the Corporation is ENHANCE FINANCIAL SERVICES GROUP
INC.
SECOND. The purposes for which the Corporation is formed are:
(1) To purchase, own, and hold the stock of other corporations, and to do
every act and thing covered generally by the denomination "holding
corporation," including but not limited to directing the operations of
other corporations through the ownership of stock therein. To purchase,
subscribe, for, acquire, own, hold, sell, exchange, assign, create
security interests in, pledge, or otherwise dispose of shares or voting
trust certificates for shares of the capital stock, or any bonds, notes,
securities, or evidences of indebtedness created by any other
corporation or corporations organized under the laws of this state or
any political subdivision thereof or any other state or district or
county, nation, or government and also bonds or evidences of
indebtedness of the United States or of any state, district, territory,
dependency or county or subdivision or municipality thereof. To issue in
exchange therefor shares of the capital stock, bonds, notes, or other
obligations of the Corporation and while the owner thereof to exercise
all the rights, powers, and privileges of ownership including the right
to vote on any shares of stock or voting trust certificates so owned. To
promote, lend money to, and guarantee the dividends, stocks, bonds,
notes, evidences of indebtedness, contracts, or other obligations of,
and otherwise aid in any manner which shall be lawful, any corporation
or association of which any bonds, stocks, voting trust certificates, or
other securities or evidences of indebtedness shall be held by or for
this Corporation, or in which, or in the welfare of which, this
Corporation shall have any interest, and to do any acts and things
permitted by law and designed to protect, preserve, improve, or enhance
the value of any such bonds, stocks, or other securities or evidences of
indebtedness or the property of this Corporation; and
(2) To engage in any lawful act or activity for which corporations may be
organized under the Business Corporation Law of the State of New York;
PROVIDED, HOWEVER, that the Corporation is not formed to engage in any
act or activity requiring the consent or approval of any state official,
department, board, agency, or other body without such consent or
approval first being obtained.
THIRD. The office of the Corporation is to be located in the City of New
York, County of New York, State of New York.
FOURTH. The aggregate number of shares which the Corporation shall have
the authority to issue is 105,000,000 of which 5,000,000 shares of the par value
of $.01 per share shall be designated "Preferred Stock" and 100,000,000 shares
of the par value $.10 per shall be designated "Common Stock." Authority is
hereby expressly granted to the board of directors, at any time and from time to
time, to issue the preferred stock as Preferred Stock of any series, to fix by
the resolution or resolutions providing for the issue of shares thereof, the
number of shares of such series and the designation and the voting, dividend,
liquidation and other rights, preferences and limitations of such series, to the
fullest extent now or hereafter permitted by the laws of the State of New York.
FIFTH. The Secretary of State of the State of New York is hereby
designated as the agent of the Corporation upon whom process against it may be
served, and the post office address to which the Secretary of State shall mail a
copy of any process against the Corporation which may be served upon him is 335
Madison Avenue, New York, New York 10017, Attn: President.
2
<PAGE>
SIXTH. Directors may be removed with or without cause as provided in the
By-Laws.
SEVENTH. (a) A director of the Corporation shall not be personally
liable to the Corporation or its shareholders for damages (including, without
limitation, any judgment, amount paid in settlement, fine, penalty, punitive
damages, excise tax assessed with respect to an employee benefit plan, or
expense of any nature (including, without limitation, attorneys' fees and
disbursements)) for any breach of duty in such capacity, except to the extent a
judgment or other final adjudication adverse to the director establishes that
the director is liable for:
(i) acts or omissions in bad faith or involving intentional
misconduct or a knowing violation of law;
(ii) financial profit or other advantage personally gained by
such director to which such director was not legally
entitled; or
(iii) acts in violation of Section 719 of the New York
Business Corporation Law.
(b) Each person who serves as a director of this Corporation while this
Article is in effect shall be deemed to be doing so in reliance on the
provisions of this Article and neither the amendment or repeal of this Article,
nor the adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this Article, shall apply to or have any effect on the
liability or alleged liability of any director of this Corporation for or with
respect to any acts or omissions of such director occurring prior to such
amendment, repeal or adoption or an inconsistent provision. The provisions of
this Article are cumulative and shall be in addition to and independent of any
and all other limitations on or eliminations of the liabilities of directors of
this Corporation, as such, whether such limitations or eliminations arise under
or are created by any stature, rule or law, by-law, agreement, vote of
shareholders or disinterested directors or otherwise.
EIGHTH. No holder of shares of the Corporation of any class shall be
entitled as such, as a matter of right, to subscribe for, purchase, or receive
any shares of the Corporation of any class, or any securities convertible into,
exchangeable for, or carrying a right or option to purchase its shares of any
class, whether now or hereafter authorized and whether issued, sold, or offered
for sale by the Corporation for cash or other consideration or by way of
dividend, split of shares, or otherwise.
(5) The change to the certificate of incorporation of the
Corporation was authorized by the Board of Directors of the
Corporation in accordance with Section 803(b)(2) of the Business
Corporation Law, and this restatement of the certificate of
incorporation was authorized by the Board of Directors of the
Corporation in accordance with Section 807(a) of the Business
Corporation Law, each on June 3, 1999.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed on the 30th day of June 1999, and the statements herein are affirmed as
true under penalties of perjury.
/s/ Daniel Gross
Daniel Gross
President
/s/ Samuel Bergman
Samuel Bergman
Secretary
3
<PAGE>
Exhibit 4.2.4
THIRD AMENDMENT TO THE CREDIT AGREEMENT
(AMENDING AND RESTATING THE CREDIT AGREEMENT)
This THIRD AMENDMENT dated as of June 29, 1999, is among ENHANCE
FINANCIAL SERVICES GROUP INC., a corporation duly organized and validly existing
under the laws of the State of New York (together with its successors and
assigns, the "COMPANY"); each of the lenders that is a signatory hereto
(together with its successors and assigns, individually, a "BANK", and,
collectively, the "BANKS"); and FLEET NATIONAL BANK, as Swingline Bank (in such
capacity, together with its successors and permitted assigns in such capacity,
the "SWINGLINE BANK") and as agent for the Banks (in such capacity, together
with its successors in such capacity, the "AGENT").
The Company, Fleet National Bank, The Bank of Tokyo-Mitsubishi, Ltd,
New York Branch ("Bank of Tokyo"), The First National Bank of Chicago, Deutsche
Bank AG, New York and/or Cayman Island Branches, the Swingline Bank and the
Agent are parties to a Credit Agreement dated as of June 30, 1998, which Credit
Agreement was amended by Amendment No. 1 and Waiver Agreement dated as of
December 31, 1998 and Amendment No. 2 dated as of February 15, 1999 (as so
amended and in effect on the date hereof, the "EXISTING CREDIT AGREEMENT").
Pursuant to Section 2.08 of the Existing Credit Agreement, ON OR ABOUT May 14,
1999, the Company requested the Banks to extend the Commitment Termination Date.
All of the Banks, except Bank of Tokyo, are in agreement with such request upon
certain terms and conditions, and Bank of New York wishes to replace Bank of
Tokyo as a lender under the Existing Credit Agreement as amended hereby. The
parties hereto wish to amend and restate the Existing Credit Agreement to
reflect their understandings and accordingly hereby agree as follows:
Section 1. AMENDMENT AND RESTATEMENT OF THE EXISTING CREDIT AGREEMENT.
The Existing Credit Agreement, including, without limitation, the schedules and
exhibits thereto, is hereby amended and restated in its entirety to provide as
set forth in EXHIBIT A TO THIRD AMENDMENT attached hereto (as so amended and
restated hereby, the "Amended and Restated Credit Agreement"). Such amendment
and restatement shall be effective as of June 29, 1999 (the "Amendment and
Restatement Effective Date"), subject to the satisfaction of the conditions
precedent set forth in Section 2 of this Third Amendment. Notwithstanding
anything contained in the Existing Credit Agreement or the Amended and Restated
Credit Agreement to the contrary, the Consent Date (as defined in the Amended
and Restated Credit Agreement) is May 28, 1999.
Section 2. CONDITIONS PRECEDENT. This Third Amendment shall take effect
from the first day that the Agent shall have received counterparts hereof signed
by the Company, each of the Banks identified on the signature pages of this
Third Amendment, the Swingline Bank and the Agent, and each of the conditions
set forth in this Section 2 has been waived by each Bank and the Agent or met:
<PAGE>
S-2
(a) The Agent shall have received from the Company a certificate of a
senior officer to the Company, dated the Amendment and Restatement Effective
Date, stating that:
(i) the representations and warranties contained in Article 7
of the Credit Agreement are correct on and as of the date of
such certificate as though made on and as of such date (or, if
such representation or warranty is expressly stated to have
been made as of a specific date, as of such specific date);
and
(ii) no Event of Default or Default existed on (A) the date
the Company requested an extension of the Existing Commitment
Termination Date or (B) on the Consent Date and, in each case,
is continuing, and no Event of Default or Default has occurred
and is continuing or would result from the signing of the
Third Amendment or the transactions contemplated thereby.
(b) The Agent shall have received a certificate of the Secretary or an
Assistant Secretary of the Company, dated the Amendment and Restatement
Effective Date and certifying that, except for amendments, copies of which are
attached to such Certificate, the charters or similar organizational documents
of the Company and the Material Subsidiaries have not been amended since June
30, 1998.
(c) The Agent shall have received for the account of Bank of New York a
duly completed Revolving Credit Note and a Competitive Note, each duly executed
and delivered by the Company and made payable to Bank of New York in the amount
of its Commitment.
(d) The Agent shall have received an opinion, dated the Amendment and
Restatement Effective Date, of Samuel Bergman, Executive Vice President and
General Counsel of the Company, covering such matters as the Administrative
Agent or any Bank may reasonably request (and the Company hereby instructs such
counsel to deliver such opinion to the Banks and the Agent).
(e) The Agent shall have received all information, documents,
certificates and opinions of counsel relating to the Company and its
Subsidiaries, as any Bank or the Agent may reasonably request, all in form and
substance satisfactory to the Banks, the Agent and its special counsel.
(f) Day, Berry & Howard LLP, special counsel to the Agent, shall have
received payment of its legal fees and disbursements in connection with the
preparation, negotiation, execution and delivery of this Third Amendment.
<PAGE>
S-3
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants as follows:
(a) The execution, delivery and performance by the Company of this
Third Amendment have been duly authorized by all necessary corporate action and
do not and will not (i) require any consent or approval of its shareholders;
(ii) violate any provisions of its articles of incorporation or by-laws; (iii)
violate any provision of any law, rule, regulation (including without
limitation, Regulation U and X), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to and binding
upon the Company or any Subsidiary, it being understood that the Company may be
required to file a copy of this Third Amendment with the Securities and Exchange
Commission in connection with the Company's periodic filing requirements; (iv)
result in a breach of or constitute a default or require any consent under any
indenture or loan or credit agreement or any other material agreement, lease or
instrument to which the Company or any Subsidiary is a party or by which it or
its Properties may be bound; or (v) result in, or require, the creation or
imposition of any Lien upon or with respect to any of the Properties now owned
or hereafter acquired by the Company.
(b) No authorizations, approvals or consents of, and no filings or
registrations with, any governmental or regulatory authority or agency, or any
securities exchange, are necessary for the execution or delivery by the Company
of this Third Amendment or performance by the Company thereof or for the
legality, validity or enforceability of this Third Amendment.
(c) This Third Amendment constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency and other similar laws affecting creditors' rights
generally and by general principles of equity.
(d) The information, reports, financial statements, exhibits and
schedules furnished in writing by or on behalf of the Company or any of its
Subsidiaries to the Agent or any Bank in connection with the negotiation,
preparation or delivery of this Third Amendment or delivered pursuant hereto,
when taken as a whole, do not, as of the Amendment and Restatement Date, contain
any untrue statement of material fact or omit to state any material fact
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading. To the Company's
knowledge, there is no fact peculiar to the Company or any of its Subsidiaries
(in contrast to information of a general economic or industry nature) that could
have a Material Adverse Effect that has not been disclosed herein or in a
report, financial statement, exhibit, schedule, disclosure letter or other
writing furnished to the Banks for use in connection with the transactions
contemplated hereby.
(e) Substantially all programming required to handle all material dates
and date processing, in and following the year 2000, of (i) the Company's and
each of its Material
<PAGE>
S-4
Subsidiaries' computer systems and (ii) equipment containing embedded microchips
(including systems and equipment supplied by others or with which the Company's
or such Material Subsidiaries' systems interface) and the testing of all such
systems and equipment, as so reprogrammed, has been substantially completed. The
expected cost to the Company and its Material Subsidiaries of such reprogramming
and testing and of the reasonably foreseeable consequences of year 2000 to the
Company and its Material Subsidiaries (including, without limitation,
reprogramming errors and the failure of others' systems or equipment within the
control of the Company or its Material Subsidiaries) is not anticipated to
result in a Default or have Material Adverse Effect.
Section 4. EFFECT ON THE EXISTING CREDIT AGREEMENT. The execution,
delivery and effectiveness of this Third Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
any of the Banks under the Existing Credit Agreement, nor constitute a waiver of
any provision of the Existing Credit Agreement. On and after the Amendment and
Restatement Effective Date, the rights and obligations of the parties hereto
shall be governed by the Amended and Restated Credit Agreement, PROVIDED that
the rights and obligations of the parties to the Existing Credit Agreement with
respect to the period prior to the Amendment and Restatement Effective Date
shall continue to be governed by the provisions of the Existing Credit
Agreement. On the effective date of this Third Amendment, the Commitment of each
Bank shall immediately become the Commitment amount set forth opposite the name
of such Bank on the signature pages to EXHIBIT A TO THIRD AMENDMENT hereto under
the caption "Commitment" (as the same may be reduced at any time or from time to
time pursuant to Section 2.03 of EXHIBIT A TO THIRD AMENDMENT). With effect from
and including the Amendment and Restatement Effective Date, Bank of New York
shall be a party to the Amended and Restated Credit Agreement and on that date
shall undertake the Commitment set forth opposite its name on the signature page
to EXHIBIT A TO THIRD AMENDMENT and make a Revolving Credit Loan to the Company
in an amount sufficient to enable the Company to pay Bank of Tokyo the
outstanding principal balance owing it by the Company as of the Existing
Commitment Termination Date.
Section 5. COSTS, EXPENSES AND TAXES. The Company agrees to pay on
demand all reasonable costs and expenses of the Agent in connection with the
preparation, execution, delivery and administration of this Third Amendment and
any other instruments and documents to be delivered hereunder (including,
without limitation, the reasonable fees and expenses of counsel to the Agent) in
accordance with the terms of Section 11.03 of the Credit Agreement.
Section 6. EXECUTION IN COUNTERPARTS. This Third Amendment may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same instrument.
Section 7. GOVERNING LAW. This Third Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
<PAGE>
S-5
Section 8. DEFINED TERMS. Until the Amendment and Restatement Effective
Date, capitalized terms used herein which are not expressly defined herein shall
have the meanings ascribed to them in the Existing Credit Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK --
SIGNATURE PAGES FOLLOW]
<PAGE>
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed and delivered as of the day and year first above
written.
ENHANCE FINANCIAL SERVICES GROUP INC.
By /s/ Arthur Dubroff
----------------------------------------
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
S-2
BANKS
-----
FLEET NATIONAL BANK
By /s/ E.B. Shelley
---------------------------------------
Title: Vice President
BANK OF NEW YORK
By /s/ Evan Glass
---------------------------------------
Title: Assistant Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Timothy J. Stambaugh
---------------------------------------
Title: TIMOTHY J. STAMBAUGH
SENIOR VICE PRESIDENT
DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLAND BRANCHES
By /s/ John S. McGill
---------------------------------------
Title: John S. McGill
Director
and
By /s/ Gayma Z. Shivnarain
---------------------------------------
Title: Gayma Z. Shivnarain
Director
<PAGE>
S-3
SWINGLINE BANK
--------------
FLEET NATIONAL BANK,
as Swingline Bank
By /s/ E.B. Shelley
---------------------------------------
Title: Vice President
AGENT
FLEET NATIONAL BANK,
as Agent
By /s/ E.B. Shelley
---------------------------------------
Title: Vice President
<PAGE>
EXHIBIT A TO THIRD AMENDMENT
<PAGE>
ENHANCE FINANCIAL SERVICES GROUP INC.
CREDIT AGREEMENT
DATED AS OF JUNE 30, 1998
AMENDED AND RESTATED AS OF JUNE 29, 1999
--------------------------------------
$100,000,000
--------------------------------------
FLEET NATIONAL BANK,
AS ADMINISTRATIVE AGENT
AND
ARRANGER
<PAGE>
TABLE OF CONTENTS
<PAGE>
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience of reference only.
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Definitions and Accounting Matters. 1
1.01 Certain Defined Terms 1
1.02 Accounting Terms and Determinations. 17
1.03 Classes; Series; Type 18
Section 2. Commitments, Loans, Notes and Prepayments 18
2.01 Loans 18
2.02 Borrowings 19
2.03 Changes in Aggregate Amount of Commitments 24
2.04 Fees 24
2.05 Several Obligations; Remedies Independent 25
2.06 Notes 25
2.07 Optional Prepayments and Conversions or Continuations of Loans 26
2.08 Extension of Commitment Termination Date 27
Section 3. Payments of Principal and Interest 29
3.01 Repayment of Loans 29
3.02 Interest 29
Section 4. Payments; Pro Rata Treatment; Computations; Etc. 31
4.01 Payments 31
4.02 Pro Rata Treatment 32
4.03 Computations 32
4.04 Minimum Amounts 33
4.05 Certain Notices 33
4.06 Non-Receipt of Funds by the Administrative Agent 34
4.07 Sharing of Payments, Etc. 35
Section 5. Yield Protection, Etc. 37
5.01 Additional Costs 37
5.02 Limitation on Types of Loans 39
5.03 Illegality 40
5.04 Treatment of Affected Loans 40
5.05 Compensation 41
5.06 U.S. Taxes 41
5.07 Fair Allocation; Substitution of Banks 42
<PAGE>
-ii-
Section 6. Conditions Precedent 43
6.01 Effective Date 43
6.02 Term Loans 45
6.03 Initial and Subsequent Loans 46
Section 7. Representations and Warranties 46
7.01 Corporate Existence 46
7.02 Financial Condition 46
7.03 Litigation 47
7.04 No Breach 47
7.05 Action 48
7.06 Approvals 48
7.07 Margin Stock 48
7.08 ERISA 48
7.09 Taxes 48
7.10 Investment Company Act 49
7.11 Public Utility Holding Company Act 49
7.12 Material Agreements and Liens 49
7.13 Environmental Matters 49
7.14 Capitalization 50
7.15 Subsidiaries, Etc. 50
7.16 True and Complete Disclosure 50
7.17 Year 2000 51
Section 8. Covenants of the Company 51
8.01 Financial Statements; Information; Etc. 51
8.02 Litigation 55
8.03 Existence, Etc. 55
8.04 Insurance 56
8.05 Prohibition of Fundamental Changes 56
8.06 Limitation on Liens 57
8.07 Indebtedness 58
8.08 Investments 59
8.09 Restricted Payments 60
8.10 Financial Covenant - Tangible Net Worth 61
8.11 Lines of Business 61
8.12 Transactions with Affiliates 61
8.13 Use of Proceeds 62
8.14 Certain Obligations Respecting Subsidiaries 62
<PAGE>
-iii-
8.15 Modifications of Certain Documents 62
8.16 Claims-Paying Rating 63
8.17 Dividends to or Investments in the Company by Subsidiaries 63
Section 9. Events of Default 63
Section 10. The Administrative Agent 66
10.01 Appointment, Powers and Immunities 66
10.02 Reliance by Administrative Agent 66
10.03 Defaults 67
10.04 Rights as a Bank 67
10.05 Indemnification 68
10.06 Non-Reliance on Administrative Agent and Other Banks 68
10.07 Failure to Act 68
10.08 Resignation or Removal of Administrative Agent 69
10.09 Consents under Basic Documents 69
Section 11. Miscellaneous 69
11.01 Waiver 69
11.02 Notices 69
11.03 Expenses, Etc 70
11.04 Amendments, Etc. 70
11.05 Successors and Assigns 71
11.06 Assignments and Participations 71
11.07 Survival 73
11.08 Captions 74
11.09 Counterparts 74
11.10 Governing Law; Submission to Jurisdiction 74
11.11 Waiver of Jury Trial 74
11.12 Treatment of Certain Information; Confidentiality 74
</TABLE>
<PAGE>
-1-
CREDIT AGREEMENT dated as of June 30, 1998 and amended and restated as
of June 29, 1999 among: ENHANCE FINANCIAL SERVICES GROUP INC., a corporation
duly organized and validly existing under the laws of the State of New York
(together with its successors and assigns, the "COMPANY"); each of the lenders
named under the caption "BANKS" on the signature pages hereof (together with its
successors and assigns, individually, a "BANK", together, the "BANKS"); and
FLEET NATIONAL BANK, as Swingline Bank hereunder (in such capacity, together
with its successors and permitted assigns in such capacity, the "SWINGLINE
BANK") and as agent for the Banks (in such capacity, together with its
successors in such capacity, the "ADMINISTRATIVE AGENT").
The Company, the Banks, the Swingline Bank and the Administrative Agent
agree as follows:
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.01 CERTAIN DEFINED TERMS. As used herein, the following terms shall
have the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and VICE VERSA):
"AFFILIATE" shall mean, as to any specified Person, any other Person
that directly or indirectly controls, or is under common control with, or is
controlled by, such specified Person. As used in this definition, "CONTROL"
(including, with its correlative meanings, "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") shall mean possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise), PROVIDED that, in any event, any Person that owns directly or
indirectly securities having 10% or more of the voting power for the election of
directors or other governing body of a corporation or 10% or more of the
partnership or other ownership interests of any other Person will be deemed to
control such corporation or other Person. Notwithstanding the foregoing, (a) no
individual shall be an Affiliate of any Person or any of its Subsidiaries solely
by reason of such individual being a director, officer or employee of such
Person or any of its Subsidiaries, (b) a Person and its Subsidiaries shall not
be Affiliates of each other and (c) neither the Administrative Agent nor any
Bank shall be an Affiliate of the Company or any of its Subsidiaries.
"APPLICABLE INSURANCE REGULATORY AUTHORITY" shall mean, with respect to
any Insurance Subsidiary, the insurance department or similar insurance
regulatory or administrative authority or agency of the state or other
jurisdiction in which such Insurance Subsidiary is domiciled.
<PAGE>
-2-
"APPLICABLE LENDING OFFICE" shall mean, for each Bank and each Type of
Loan, the "Lending Office" of such Bank (or of an affiliate of such Bank)
designated for such Type of Loan on the signature pages hereof or such other
office of such Bank (or of an affiliate of such Bank) as such Bank may from time
to time specify to the Administrative Agent and the Company as the office by
which its Loans of a Type are to be made and maintained. The Swingline Loans
shall be made and maintained at the "Lending Office" of the Swingline Bank.
"APPLICABLE MARGIN" shall mean: (a) with respect to Revolving Credit
Loans and Term Loans that are Base Rate Loans, 0% per annum; and (b) with
respect to (i) Revolving Credit Loans and Term Loans that are Eurodollar Loans
or (ii) with respect to facility fees payable hereunder, the applicable
percentage per annum set forth below under the caption "Eurodollar Spread" or
"Facility Fee Rate", as the case may be, based upon the ratings by S&P and
Moody's applicable on such date to the Index Debt:
<TABLE>
<CAPTION>
- -------------------------------- -------------------------------------------- -------------------------------
Eurodollar Spread
Index Debt Facility Fee
Rating: Rate
---------------------- ---------------------
Revolving Credit Term Loan
Loan1
- -------------------------------- ---------------------- --------------------- -------------------------------
<S> <C> <C> <C>
Level 1 0.210% 0.310% 0.070%
- -------------------------------- ---------------------- --------------------- -------------------------------
Level 2 0.250% 0.350% 0.080%
- -------------------------------- ---------------------- --------------------- -------------------------------
Level 3 0.290% 0.390% 0.090%
- -------------------------------- ---------------------- --------------------- -------------------------------
Level 4 0.325% 0.425% 0.105%
- -------------------------------- ---------------------- --------------------- -------------------------------
Level 5 0.355% 0.455% 0.125%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
1 During any period that the aggregate outstanding principal amount of
Revolving Credit Loans, Competitive Loans and Swingline Loans equals or exceeds
33 1/3 % of the aggregate Commitments of the Banks, the Eurodollar Spread for
Revolving Credit Loans shall be increased by .100% above the percentages set
forth in the above grid for each of the Index Debt Rating Levels.
- --------------------------------------------------------------------------------
For purposes of determining the applicable Index Debt Rating (except for split
ratings of more than one equivalent level as provided for below): (a) Level 1
shall be deemed to be applicable if (i) no Event of Default shall have occurred
and be continuing and (ii) the Index Debt is rated AA or higher by S&P OR Aa2 or
higher by Moody's; (b) Level 2 shall be deemed to be applicable if (i) no Event
of Default shall have occurred and be continuing, (ii) Level 1 is not applicable
and (iii) the Index Debt is rated A or higher by S&P OR A2 or higher by Moody's;
(c) Level 3 shall be deemed to be applicable if (i) no Event of Default shall
have occurred and be continuing, (ii)
<PAGE>
-3-
neither Level 1 nor Level 2 is applicable and (iii) the Index Debt is rated A-
or higher by S&P OR A3 or higher by Moody's; (d) Level 4 shall be deemed to be
applicable if (i) no Event of Default shall have occurred and be continuing,
(ii) neither Level 1, Level 2 nor Level 3 is applicable and (iii) the Index Debt
is rated BBB+ or higher by S&P OR Baa1 or higher by Moody's; and (e) Level 5
shall be deemed to be applicable if no other Level is applicable. If S&P or
Moody's shall not have in effect a rating for the Index Debt (other than by
reason of the circumstances referred to in the last sentence of this
definition), then S&P shall be deemed to have established a rating in Level 5.
If the rating for the Index Debt of S&P and Moody's is split by more than one
equivalent rating level, the Index Debt Rating shall be deemed to be at that
Level corresponding to the rating that is one level higher than the lower of the
two ratings. If the rating established or deemed to have been established by S&P
or Moody's for the Index Debt shall be changed (other than as a result of a
change in the rating system of S&P or Moody's), such change shall be effective
as of the date on which it is first announced by S&P or Moody's, as the case may
be. Each change in the Applicable Margin shall apply during the period
commencing on the effective date of such change and ending on the date
immediately preceding the effective date of the next such change. If the rating
system of S&P or Moody's shall change, or if S&P or Moody's shall cease to be in
the business of rating corporate debt obligations, the Company and the Banks
shall negotiate in good faith to amend this definition to reflect such changed
rating system or the unavailability of ratings from such rating agency and,
pending the effectiveness of any such amendment, the Applicable Margin shall be
determined by reference to the rating most recently in effect prior to such
change or cessation.
"ARRANGER" shall mean Fleet National Bank.
"ASSET GUARANTY" shall mean Asset Guaranty Insurance Company, a New
York financial guaranty insurance company and a Wholly Owned Subsidiary of the
Company.
"BANKRUPTCY CODE" shall mean the Federal Bankruptcy Code of 1978, as
amended from time to time.
"BASE RATE" shall mean, for any day, a rate per annum equal to the
higher of (a) the Federal Funds Rate for such day PLUS 1/2 of 1% and (b) the
Prime Rate for such day. Each change in any interest rate provided for herein
based upon the Base Rate resulting from a change in the Base Rate shall take
effect at the time of such change in the Base Rate.
"BASE RATE LOANS" shall mean Loans that bear interest at rates based
upon the Base Rate.
"BASIC DOCUMENTS" shall mean, collectively, this Agreement and the
Notes.
<PAGE>
-4-
"BORROWING" means (a) Revolving Credit Loans of the same Type,
made, Converted or Continued on the same date and, in the case of Eurodollar
Loans, as to which a single Interest Period is in effect, or (b) a Competitive
Loan or group of Competitive Loans of the same Type made on the same date and as
to which a single Interest Period is in effect.
"BUSINESS DAY" shall mean any day (a) on which commercial
banks are not authorized or required to close in Hartford, Connecticut or New
York City and (b) if such day relates to a Borrowing of, a payment or prepayment
of principal of or interest on, a Conversion of or into, or an Interest Period
for, a Eurodollar Loan or a notice by the Company with respect to any such
Borrowing, payment, prepayment, Conversion or Interest Period, also on which
dealings in Dollar deposits are carried out in the London interbank market.
"CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board), and,
for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP (including such
Statement No. 13).
"CHANGE IN CONTROL" shall mean, with respect to the Company,
the occurrence of a state of facts where (a) any one Person, together with its
Subsidiaries and Affiliates, or any group of Persons acting together as a group
(whether pursuant to a shareholders agreement, partnership or joint venture
agreement or otherwise), shall own (beneficially or otherwise) 50% or more of
the Voting Stock of the Company or (b) the Company is or would be required to
register itself as a "controlled insurer" under Section 1503 of the New York
Insurance Law, or (c) the Company is or would be required under Section 1506 (e)
of the New York Insurance Law to notify the New York State Superintendent of
Insurance of a Person which controls or has acquired control of the Company, or
(d) a Person has filed under Section 1506 (a) of the New York Insurance Law to
obtain the prior approval of the New York State Superintendent of Insurance to
acquire control of the Company and such approval has been obtained.
"CLASS" shall have the meaning assigned to such term in
Section 1.03 hereof.
"CLOSING DATE" shall mean the date upon which the initial
Loans hereunder are made.
<PAGE>
-5-
"CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"COMBINED STATUTORY SURPLUS" means, at any date, the combined
"statutory surplus as regards policyholders" of each Insurance Subsidiary of
Enhance Investment that appears on the Statutory Statement of such Insurance
Subsidiary and is computed pursuant to the instructions of the National
Association of Insurance Commissioners or any successor thereto. In the
Statutory Statement prescribed for each Insurance Subsidiary for the year ended
December 31, 1997, such amount for the year ended December 31, 1997 appears on
line 32, column 1 on page 4.
"COMMITMENT" shall mean, as to each Bank, the obligation of
such Bank to make Loans in an aggregate amount not exceeding the amount set
opposite such Bank's name on the signature pages hereof under the caption
"Commitment" (as the same may be reduced at any time or from time to time
pursuant to Section 2.03 hereof).
"COMMITMENT TERMINATION DATE" shall mean June 27, 2000
(provided that, if such date is not a Business Day, the next preceding Business
Day), as the same may be extended pursuant to Section 2.08 hereof.
"COMPETITIVE BID" means an offer by a Bank to make a
Competitive Loan in accordance with Section 2.02.
"COMPETITIVE BID RATE" means, with respect to any Competitive
Bid, the Competitive Margin or the Fixed Rate, as applicable, offered by the
Bank making such Competitive Bid.
"COMPETITIVE BID REQUEST" means a request by the Borrower for
Competitive Bids in accordance with Section 2.02.
"COMPETITIVE LOAN" means a Loan made pursuant to Section
2.01(e).
"COMPETITIVE MARGIN" shall mean with respect to any
Competitive Loan bearing interest at a rate based on the Eurodollar Base Rate,
the marginal rate of interest, if any, to be added to or subtracted from the
Eurodollar Base Rate to determine the rate of interest applicable to such Loan,
as specified by the Bank making such Loan in its related Competitive Bid.
"COMPETITIVE NOTES" shall mean the promissory notes provided
for by Section 2.06(e) and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"COMPUTATION DATE" shall have the meaning in Section 8.09
hereof.
<PAGE>
-6-
"COMPUTATION PERIOD" shall have the meaning assigned to such
term in Section 8.09 hereof.
"CONSENT DATE" shall have the meaning assigned to such term in
Section 2.08 hereof.
"CONTINUE", "CONTINUATION" and "CONTINUED" shall refer to the
continuation pursuant to Section 2.07 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.
"CONVERT", "CONVERSION" and "CONVERTED" shall refer to a
conversion pursuant to Section 2.07 hereof of one Type of Loans into another
Type of Loans, which may be accompanied by the transfer by a Bank (at its sole
discretion) of a Loan from one Applicable Lending Office to another.
"DATE HEREOF" and "DATE OF THIS AGREEMENT" shall mean June 30,
1998.
"DEBENTURES" shall mean the debentures issued by the Company
under the Indenture before the Effective Date in an aggregate principal amount
not in excess of $75,000,000.
"DEFAULT" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
"DOLLARS" and "$" shall mean lawful money of the United States
of America.
"EFFECTIVE DATE" shall mean June 30, 1998.
"ENHANCE INVESTMENT" shall mean Enhance Investment
Corporation, a Delaware corporation and a Wholly Owned Subsidiary of the
Company.
"EQUITY RIGHTS" shall mean, with respect to any Person, any
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including, without limitation, any stockholders' or
voting trust agreements) for the issuance, sale, registration or voting of, or
outstanding securities convertible into, any additional shares of capital stock
of any class, or partnership or other ownership interests of any type in, such
Person.
"ERC" shall mean Enhance Reinsurance Company, a New York
financial guaranty insurance corporation and a Wholly Owned Subsidiary of the
Company.
<PAGE>
-7-
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or business that
is a member of any group of organizations (a) described in Section 414(b) or (c)
of the Code of which the Company is a member and (b) solely for purposes of
potential liability under Section 302(c) (11) of ERISA and Section 412(c) (11)
of the Code and the lien created under Section 302(f) of ERISA and Section
412(n) of the Code, described in Section 414(m) or (o) of the Code of which the
Company is a member.
"EURODOLLAR" when used in reference to any Loan or Borrowing, shall
refer to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Eurodollar Rate (or, in the
case of a Competitive Loan, the Eurodollar Base Rate).
"EURODOLLAR BASE RATE" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, the rate per annum appearing on the Screen at
approximately 11:00 a.m., London time (or as soon thereafter as practicable),
two Business Days prior to the commencement of such Interest Period, as LIBOR
with a maturity comparable to such Interest Period. In the event that the Screen
shall cease to report such LIBOR or, in the reasonable judgment of the Majority
Banks, shall cease to accurately reflect such LIBOR (as reported by any publicly
available source of similar market data selected by such Majority Banks), then
the "EURODOLLAR BASE RATE" with respect to such Eurodollar Borrowing for such
Interest Period shall be the rate per annum at which dollar deposits of
$5,000,000 and for a maturity comparable to such Interest Period are offered by
the principal London office of the Reference Bank[s] in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period.
"EURODOLLAR LOANS" shall mean Loans that bear interest at rates based
on rates referred to in the definition of "Eurodollar Base Rate" in this Section
1.01.
"EURODOLLAR RATE" shall mean, for any Eurodollar Loan for any Interest
Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Administrative Agent to be equal to the quotient
of (a) the Eurodollar Base Rate for such Loan for such Interest Period DIVIDED
BY (b) the sum of (i) 1 MINUS (ii) the Reserve Requirement for such Loan for
such Interest Period.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in
Section 9 hereof.
<PAGE>
-8-
"EXISTING COMMITMENT TERMINATION DATE" shall have the meaning assigned
to such term in Section 2.08 hereof.
"EXISTING CREDIT AGREEMENT" shall mean the Amended and Restated Credit
Agreement dated as of November 24, 1992, amended and restated as of October 1,
1996, among the Company, each of the banks party thereto, The Chase Manhattan
Bank, as both Swingline Bank and Administrative Agent thereunder, as said
agreement has been further amended by a letter agreement dated August 4, 1997,
Amendment No. 1 dated as of December 31, 1997 and Amendment No.2 dated as of
March 27, 1998.
"EXISTING LOANS" shall mean the loans outstanding under the Existing
Credit Agreement on the Effective Date.
"FEDERAL FUNDS RATE" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, PROVIDED that (a) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to Fleet on such Business Day on such
transactions as reasonably determined by the Administrative Agent.
"FIXED RATE" shall mean, with respect to any Competitive Loan (other
than a Competitive Loan based on the rates referred to in the definition of
Eurodollar Base Rate), the fixed rate of interest per annum specified by the
Bank making such Competitive Loan in its related Competitive Bid.
"FIXED RATE LOAN" shall mean a Competitive Loan bearing interest at a
Fixed Rate.
"FLEET" shall mean Fleet National Bank.
"FUNDED DEBT" shall mean Indebtedness of the Company and its
Subsidiaries which by its terms becomes payable more than one year from the date
of origination thereof or which is renewable at the option of the Company or any
of its Subsidiaries beyond one year from the date of such origination.
<PAGE>
-9-
"GAAP" shall mean the generally accepted accounting principles
which, in accordance with Section 1.02(a) hereof, are to be used in preparing
financial statements on the basis of which are to be made the calculations for
purposes of determining compliance with the financial covenants in this
Agreement.
"GUARANTEE" shall mean a guarantee, an endorsement, a
contingent agreement to purchase or to furnish funds for the payment or
maintenance of, or otherwise to be or become contingently liable under or with
respect to, the Indebtedness, other obligations, net worth, working capital or
earnings of any Person, or a guarantee of the payment of dividends or other
distributions upon the stock or equity interests of any Person, or an agreement
to purchase, sell or lease (as lessee or lessor) Property, products, materials,
supplies or services primarily for the purpose of enabling a debtor to make
payment of such debtor's obligations or an agreement to assure a creditor
against loss, and including, without limitation, causing a bank or other
financial institution to issue a letter of credit or other similar instrument
for the benefit of another Person, but excluding endorsements for collection or
deposit in the ordinary course of business; provided that the term Guarantee
shall not include any financial guaranty insurance, credit insurance or residual
value insurance (or any reinsurance of the same), surety bond, or similar or
related products, issued by any Insurance Subsidiary in the ordinary course of
its business. The terms "GUARANTEE" and "GUARANTEED" used as a verb shall have a
correlative meaning.
"INDEBTEDNESS" shall mean, for any Person: (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) all Redeemable Preferred Stock
issued by such Person; (c) 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 so long as such trade accounts payable are
payable within 90 days of the date the respective goods are delivered or the
respective services are rendered; (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 (contingent or
otherwise) of such Person in respect of letters of credit, bankers' acceptances
or similar instruments issued or accepted by banks and other financial
institutions for the account of such Person; (f) Capital Lease Obligations of
such Person; and (g) Indebtedness of others Guaranteed by such Person; PROVIDED
that accrued profit commissions shall not be treated as Indebtedness.
"INDENTURE" shall mean the Indenture dated as of March 5, 1993
between the Company and The Chase Manhattan Bank, as Trustee, as the same shall
be modified and supplemented and in effect from time to time.
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"INDEX DEBT" shall mean senior, unsecured, long-term
indebtedness for borrowed money of the Company that is not guaranteed by any
other Person or subject to any other credit enhancement.
"INSURANCE SUBSIDIARIES" shall mean ERC, Asset Guaranty and
any other Subsidiary of the Company that is licensed to do an insurance business
by an Applicable Insurance Regulatory Authority.
"INTEREST PERIOD" shall mean (a) with respect to any Revolving
Credit Loan that is a Eurodollar Loan, each period commencing on the date such
Eurodollar Loan is made or Converted from a Base Rate Loan or (in the event of a
Continuation) the last day of the next preceding Interest Period and ending on
the numerically corresponding day in the first, second or third calendar month
thereafter, as the Company may select as provided in Section 4.05 hereof, (b)
with respect to any Competitive Loan that is a Eurodollar Loan, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two or three months
thereafter, as specified in the applicable Competitive Bid Request, (c) with
respect to any Fixed Rate Borrowing, the period (which shall not be fewer than 3
days or more than 180 days) commencing on the date of such Borrowing and ending
on the date specified in the applicable Competitive Bid Request, (d) with
respect to any Term Loan that is a Eurodollar Loan, each period commencing on
the date such Term Loan is made or Converted from a Base Rate Loan or (in the
event of a Continuation) the last day of the next preceding Interest Period and
ending on the numerically corresponding day in the first, second, third or sixth
calendar month thereafter, as the Company may select as provided in Section 4.05
hereof, except that each Interest Period that commences on the last Business Day
of a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on the
last Business Day of the appropriate subsequent calendar month and (e) with
respect to any Swingline Loan, the period commencing on the date such Swingline
Loan is made and ending on the date three Business Days thereafter.
Notwithstanding the foregoing: (i) the Company may not select any Interest
Period for any Revolving Credit Loan or Competitive Loan that ends after the
Commitment Termination Date or for any Swingline Loan that ends after the date
which is three Business Days prior to the Commitment Termination Date; (ii) no
Interest Period for any Term Loans may commence before and end after any
Principal Payment Date for such Term Loans unless, after giving effect thereto,
the aggregate principal amount of such Term Loans having Interest Periods that
end after such Principal Payment Date shall be equal to or less than the
aggregate principal amount of such Term Loans scheduled to be outstanding after
giving effect to the payments of principal required to be made on such Principal
Payment Date; and (iii) each Interest Period that would otherwise end on a day
which is not a Business Day shall end on the next succeeding Business Day (or,
with respect to Eurodollar Loans, if such next succeeding Business Day falls in
the next succeeding calendar month, on the next preceding Business Day).
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"INTEREST RATE PROTECTION AGREEMENT" shall mean, for any
Person, an interest rate swap, cap or collar agreement or similar arrangement
between such Person and one or more financial institutions providing for the
transfer or mitigation of interest risks either generally or under specific
contingencies.
"INVESTMENT" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such short sale); (b) the making of any deposit with, or advance, loan or
other extension of credit to, any other Person (including the purchase of
Property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such Property to such Person, but excluding
any such advance, loan or extension of credit having a term not exceeding 90
days representing the purchase price of inventory or supplies sold by such
Person in the ordinary course of business) and (without duplication) the
entering into of any commitment to deposit funds with, advance or lend funds to
or otherwise extend credit to such Person; (c) the entering into of any
Guarantee of Indebtedness of any other Person; or (d) the entering into of any
Interest Rate Protection Agreement; provided that the term "Investment" shall
not include (i) the ownership interest of the Company and its Subsidiaries on
the date hereof in the capital stock of any Subsidiary of the Company, (ii) any
capital contribution or loan by the Company or by any Wholly Owned Subsidiary of
the Company to the Company or to any Wholly Owned Subsidiary of the Company or
(iii) or any acquisition by the Company or by any Wholly Owned Subsidiary of the
Company of the capital stock of any Wholly Owned Subsidiary of the Company.
"LIBOR" means the rate at which deposits in dollars are
offered to leading banks in the London interbank market.
"LIEN" shall mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such Property. For purposes of this Agreement and the other Basic Documents, a
Person shall be deemed to own subject to a Lien any Property that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
(other than an operating lease) relating to such Property.
"LOANS" shall mean the Revolving Credit Loans, Term Loans,
Competitive Loans and Swingline Loans.
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"MAJORITY BANKS" shall mean Banks having at least 51% of the aggregate
amount of the Commitments or, if the Commitments shall have terminated, Banks
holding at least 51% of the aggregate unpaid principal amount of the Loans.
"MARGIN STOCK" shall mean "margin stock" within the meaning of
Regulations U and X.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a)
the Property, business, operations, financial condition, prospects, liabilities
or capitalization of the Company and its Subsidiaries taken as a whole, (b) the
ability of the Company to perform its obligations under any of the Basic
Documents, (c) the validity or enforceability of any of the Basic Documents, (d)
the rights and remedies of the Banks and the Administrative Agent under any of
the Basic Documents or (e) the timely payment of the principal of or interest on
the Loans or other amounts payable in connection therewith.
"MATERIAL SUBSIDIARY" shall mean any Subsidiary of the Company that as
of such time meets the definition of "significant subsidiary" contained as of
the date hereof in Regulation S-X of the Securities and Exchange Commission or
any governmental authority succeeding to its principal functions.
"MOODY'S" shall mean Moody's Investors Service, Inc., and any successor
thereto.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by the Company or
any ERISA Affiliate and which is covered by Title IV of ERISA.
"NET WORTH" shall mean, as at any date, the sum, for the Company and
its Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP), of the following:
(a) the amount of capital stock (other than any Redeemable
Preferred Stock and cumulative preferred stock), PLUS
(b) the amount of additional paid-in capital and retained
earnings (or, in the case of a retained earnings deficit, MINUS the
amount of such deficit).
"NOTES" shall mean the Revolving Credit Notes, the Competitive Notes,
the Term Loan Notes and the Swingline Note.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
"PERSON" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust, unincorporated
organization or government (or any agency, instrumentality or political
subdivision thereof).
"PLAN" shall mean an employee benefit or other plan
established or maintained by the Company or any ERISA Affiliate and that is
covered by Title IV of ERISA, other than a Multiemployer Plan.
"POST-DEFAULT RATE" shall mean, in respect of any principal of
any Loan or any other amount under this Agreement, any Note or any other Basic
Document that is not paid when due (whether at stated maturity, by acceleration,
by optional or mandatory prepayment or otherwise), a rate per annum during the
period from and including the due date to but excluding the date on which such
amount is paid in full equal to 2% PLUS the Base Rate as in effect from time to
time (PROVIDED that, if the amount so in default is principal of a Eurodollar
Loan and the due date thereof is a day other than the last day of the Interest
Period therefor, the "Post-Default Rate" for such principal shall be, for the
period from and including such due date to but excluding the last day of such
Interest Period, the greater of (i) 2% PLUS the interest rate for such
Eurodollar Loan as provided in Section 3.02(b) hereof or (ii) 2% PLUS the Base
Rate as in effect from time to time and, thereafter, the rate provided for above
in this definition).
"PRIME RATE" shall mean the rate of interest from time to time
announced by Fleet at its principal office as its prime commercial lending rate.
The Prime Rate is a reference rate and does not necessarily represent the lowest
or best rate being charged by Fleet.
"PRINCIPAL PAYMENT DATE" shall have the meaning assigned to
such term in Section 3.01(b) hereof.
"PROPERTY" shall mean any right or interest in or to property
of any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"QUARTERLY DATES" shall mean the last Business Day of each
March, June, September and December in each year, the first of which shall be
the first such day after the Effective Date.
"REDEEMABLE PREFERRED STOCK" shall mean, for any Person, all
obligations of such Person, contingent or otherwise, to purchase, redeem, retire
or otherwise acquire for value any capital stock (other than common stock) of
such Person.
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"REFERENCE BANKS" shall mean Fleet and such other Bank(s) as
shall be mutually acceptable to Fleet and the Borrower (or their respective
Applicable Lending Offices, as the case may be).
"REGULATION A", "REGULATION D", "REGULATION U" and "REGULATION
X" shall mean, respectively, Regulation A, Regulation D, Regulation U and
Regulation X of the Board of Governors of the Federal Reserve System (or any
successor), as the same may be modified and supplemented and in effect from time
to time.
"REGULATORY CHANGE" shall mean, with respect to any Bank, any
change after the date of this Agreement in Federal, state or foreign law or
regulations (including, without limitation, Regulation D) or the adoption or
making after such date of any interpretation, directive or request applying to a
class of banks including such Bank of or under any Federal, state or foreign law
or regulations (whether or not having the force of law and whether or not
failure to comply therewith would be unlawful) by any court or governmental or
monetary authority charged with the interpretation or administration thereof.
"RESERVE REQUIREMENT" shall mean, for any Interest Period for
any Eurodollar Loan, the average maximum rate at which reserves (including,
without limitation, any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under Regulation D by
member banks of the Federal Reserve System with deposits exceeding one billion
Dollars against "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
include any other reserves required to be maintained by such member banks by
reason of any Regulatory Change with respect to (i) any liabilities that include
deposits by reference to which the Eurodollar Base Rate is to be determined as
provided in the definition of "Eurodollar Base Rate" in this Section 1.01 or
(ii) any extensions of credit or other assets that include the Eurodollar Loans.
"RESTRICTED PAYMENT" shall mean dividends (in cash, Property
or obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any
class of stock of the Company or of any warrants, options or other rights to
acquire the same (or to make any payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to the fair
market or equity value of the Company or any of its Subsidiaries), but excluding
dividends payable solely in shares of common stock of the Company.
"REVOLVING CREDIT LOANS" shall mean the loans provided for by
Section 2.01(a) hereof, which may be Base Rate Loans and/or Eurodollar Loans.
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"REVOLVING CREDIT NOTES" shall mean the promissory notes
provided for by Section 2.06(a) hereof and all promissory notes delivered in
substitution or exchange therefor, in each case as the same shall be modified
and supplemented and in effect from time to time.
"S&P" shall mean Standard & Poor's Ratings Group, a division
of The McGraw- Hill Companies, Inc., and any successor thereto.
"SCREEN" shall mean the display page 3750 for LIBOR on the Dow
Jones Markets (Telerate) Service (or on any successor or substitute page of such
Service, as determined by the Administrative Agent); PROVIDED that if the
Administrative Agent determines that there is no such relevant display page for
LIBOR, "Screen" shall mean the relevant display page for LIBOR (as determined by
the Administrative Agent) on the Reuter Monitor Money Rates Service.
"SERIES" shall have the meaning assigned to such term in
Section 1.03 hereof.
"SHAREHOLDERS' AGREEMENT" shall mean the Shareholders'
Agreement dated May 10, 1988 among US West Financial Services, Inc.,
Manufacturers Life Insurance Company, the Shareholders party thereto and the
Company, as amended by Amendment No. 1 to Shareholders' Agreement dated as of
April 7, 1989, Amendment No. 2 to Shareholders' Agreement dated as of April 5,
1993 and Amendment to Shareholders' Agreement dated as of February 23, 1996.
"STATUTORY STATEMENT" shall mean, as to any Insurance
Subsidiary, a statement of the condition and affairs of such Insurance
Subsidiary, prepared in accordance with statutory accounting practices required
or permitted by the Applicable Insurance Regulatory Authority, and filed with
the Applicable Insurance Regulatory Authority.
"SUBSIDIARY" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the particular time in question directly or indirectly
owned or controlled by such Person or one or more Subsidiaries of such Person or
by such Person and one or more Subsidiaries of such Person.
<PAGE>
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"SWINGLINE COMMITMENT" shall mean the obligation of the
Swingline Bank to make Swingline Loans in an aggregate amount not to exceed the
lesser of (i) $10,000,000 and (ii) the aggregate amount of the Commitments.
"SWINGLINE LOANS" shall mean the loans provided for by
Section 2.01(d) hereof.
"SWINGLINE MATURITY DATE" shall mean, for any Swingline Loan,
the last day of the Interest Period for such Swingline Loan.
"SWINGLINE NOTE" shall mean the promissory note provided for
by Section 2.06(d) hereof and any promissory note delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"SWINGLINE RATE" shall mean, for any day, a rate per annum
equal to the Federal Funds Rate for such day PLUS 1/2 of 1%. Each change in any
interest rate provided for herein based upon the Swingline Rate resulting from a
change to the Swingline Rate shall take effect at the time of such change in the
Swingline Rate.
"TANGIBLE NET WORTH" shall mean, as at any date, the sum for
the Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following:
(a) Net Worth, MINUS
(b) the sum of the following (without duplication of
deductions in respect of items already deducted in arriving at Net
Worth): cost of treasury shares and the book value of all assets which
should be classified as intangibles but in any event including
goodwill, minority interests, trademarks, trade names, copyrights,
patents and franchises, unamortized debt discount and expense, all
reserves and any write-up in the book value of assets resulting from a
revaluation thereof subsequent to December 31, 1997.
"TERM LOAN NOTES" shall mean the promissory notes provided for
by Section 2.06(b) hereof and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"TERM LOANS" shall mean the loans provided for by Section
2.01(b) hereof, which may be Base Rate Loans and/or Eurodollar Loans.
"TOTAL CAPITALIZATION" shall mean the sum of (a) Funded Debt
and (b) Net Worth.
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"TYPE" shall have the meaning assigned to such term in Section
1.03 hereof.
"VOTING STOCK" shall mean, at any date, the capital stock of
any class or classes of a corporation having general voting power under ordinary
circumstances to elect a majority of the board of directors of such corporation,
or persons performing similar functions (irrespective of whether or not at the
time stock or other securities of any other class or classes shall have or might
have special voting power or rights by reason of the happening of any
contingency).
"WHOLLY OWNED SUBSIDIARY" shall mean, with respect to any
Person, any Subsidiary of such Person all of the equity securities or other
ownership interests (other than, in the case of a corporation, directors'
qualifying shares) of which are owned or controlled by such Person or one or
more Wholly Owned Subsidiaries of such Person.
1.02 ACCOUNTING TERMS AND DETERMINATIONS.
(a) Except as otherwise expressly provided herein, (i) all
accounting terms used herein shall be interpreted, (ii) all financial statements
and all certificates and reports as to financial matters required to be
delivered to the Banks hereunder shall (unless otherwise disclosed to the Banks
in writing at the time of delivery thereof in the manner described in subsection
(b) below) be prepared and (iii) all calculations made for the purposes of
determining compliance with this Agreement shall (except as otherwise expressly
provided herein) be made in accordance with or by application of United States
generally accepted accounting principles or statutory accounting practices, as
the case may be, applied on a basis consistent with those used in the
preparation of the most recent financial statements furnished to the Banks
hereunder (or, prior to the delivery of the first financial statements under
Section 8.01 hereof, the financial statements as at December 31, 1997 referred
to in Section 7.02 hereof) unless (x) the Company shall notify the Banks of its
objection thereto at the time of delivery of any financial statements pursuant
to Section 8.01 hereof or (y) the Majority Banks shall notify the Company
(through the Administrative Agent) of their objection within 30 days after the
delivery of any such financial statements, in either of which events such
interpretations, statements, certificates, reports and calculations shall be
made in accordance with, or by application of, generally accepted accounting
principles or statutory accounting practices, as the case may be, on a basis
consistent with those used in the preparation of the most recent financial
statements as to which no such objection shall have been made (or, prior to the
delivery of the first financial statements under Section 8.01 hereof, the
financial statements as at December 31, 1997 referred to in Section 7.02
hereof).
(b) The Company shall deliver to the Banks at the same time as
the delivery of any annual or quarterly financial statement under Section 8.01
hereof (i) a description in reasonable detail of any material variation between
the application of accounting principles employed in the preparation of such
statement and the application
<PAGE>
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of accounting principles employed in the preparation of the next preceding
annual or quarterly financial statements as to which no objection has been made
in accordance with the last sentence of paragraph (a) above and (ii) reasonable
estimates of the difference between such statements arising as a consequence
thereof.
(c) The Company will not, and will not permit any of its
Subsidiaries to, change the last day of its fiscal year from December 31 of each
year, or the last days of the first three fiscal quarters in each of its fiscal
years from March 31, June 30 and September 30 of each year, respectively.
1.03 CLASSES; SERIES; TYPE. Loans hereunder are distinguished
by "Class". The "Class" of a Loan refers to whether such Loan is a Revolving
Credit Loan, a Competitive Loan, a Swingline Loan or a Term Loan, each of which
constitutes, respectively, a "Class" of Loan. Loans are also distinguished by
"Series". The Loans of any one Class made on the occasion of any Borrowing
constitute a "Series" of Loans. Loans hereunder are also distinguished by
"Type". The "Type" of a Loan refers to whether such Loan is a Base Rate Loan,
Eurodollar Loan or a Fixed Rate Loan, each of which constitutes a Type. The
Loans may be identified by both Class and Type.
Section 2. COMMITMENTS, LOANS, NOTES AND PREPAYMENTS.
2.01 LOANS.
(a) REVOLVING CREDIT LOANS. Each Bank severally agrees, on the
terms and conditions of this Agreement, at the request of the Company, to make
revolving credit loans to the Company in Dollars during the period from and
including the Effective Date to but not including the Commitment Termination
Date in an aggregate principal amount at any one time outstanding up to but not
exceeding the amount of the Commitment of such Bank as in effect from time to
time (each such revolving credit loan being herein called a "REVOLVING CREDIT
LOAN" and collectively the "REVOLVING CREDIT LOANS"); provided that, on or
before the Commitment Termination Date, in no event shall the aggregate unpaid
principal amount of all Loans (including all Competitive Loans and Swingline
Loans) exceed the aggregate amount of the Commitments as in effect from time to
time. Subject to the terms and conditions of this Agreement, during such period
the Company may borrow, repay and reborrow the amount of the Commitments by
means of Base Rate Loans and Eurodollar Loans, and the Company may Convert Loans
of one Type into Loans of another Type (as provided in Section 2.07 hereof) or
Continue Loans of one Type as Loans of the same Type (as provided in Section
2.07 hereof).
(b) TERM LOANS. Each Bank severally agrees, on the terms and
conditions of this Agreement, at the request of the Company, to make, on the
Commitment Termination Date, a term loan (such term loan being herein called a
"TERM LOAN" and collectively the "TERM LOANS") to the Company in Dollars in a
principal amount up to but not exceeding the unpaid
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principal balance of the Revolving Credit Loans outstanding on such date, the
proceeds of which Term Loans shall be applied (and the Company hereby authorizes
and instructs such Bank to apply such proceeds) to refinance, in whole or in
part, the unpaid principal balance of such Revolving Credit Loans; provided that
the Banks shall not be obligated to make Term Loans unless the aggregate amount
of such Term Loans is equal to $3,000,000 or an integral multiple of $200,000 in
excess thereof. Subject to the terms and conditions of this Agreement, the
Company may borrow such Term Loans by means of Base Rate Loans and Eurodollar
Loans and, prior to payment in full of the principal of such Term Loans, the
Company may Convert Loans of one Type into Loans of another Type (as provided in
Section 2.07 hereof) or Continue Loans of one Type as Loans of the same Type (as
provided in Section 2.07 hereof).
(c) LIMIT ON REVOLVING CREDIT LOANS. No more than five
separate Revolving Credit Loans from each Bank may be outstanding at any one
time.
(d) SWINGLINE LOANS. In addition to the Loans provided for in
Subsections (a) and (b) above of this Section 2.01, the Swingline Bank hereby
agrees, on the terms an conditions of this Agreement, to make loans ("SWINGLINE
LOANS") to the Company during the period from the date hereof to but excluding
the date five Business Days prior to the Commitment Termination Date in an
aggregate amount at any one time outstanding up to but not exceeding its
Swingline Commitment; PROVIDED that the aggregate principal amount of all Loans
(including Swingline Loans) shall not at any time outstanding exceed the
aggregate amount of the Commitments. Subject to the terms of this Agreement, the
Company may borrow, repay and reborrow the amount of the Swingline Commitment by
means of Loans that bear interest at the Swingline Rate; PROVIDED that only one
Swingline Loan may be outstanding at any one time and no Swingline Loan may be
borrowed to repay an outstanding Swingline Loan.
(e) COMPETITIVE LOANS. In addition to the Loans provided for
in Subsections (a), (b) and (d) above of this Section 2.01, the Company may
request Competitive Bids to borrow Competitive Loans during the period from the
date hereof to but excluding the date five Business Days prior to the Commitment
Termination Date; PROVIDED that the aggregate principal amount of all Loans
(including Competitive Loans) shall not at any time outstanding exceed the
aggregate amount of the Commitments. The procedures for requesting and making
Competitive Loans are set forth in Section 2.02(d).
2.02 BORROWINGS.
(a) REVOLVING CREDIT LOANS. The Company shall give the
Administrative Agent (which shall promptly notify the Banks) notice of each
borrowing hereunder as provided in Section 4.05 hereof. Not later than 1:00 p.m.
Hartford, Connecticut time on the date specified for each borrowing of Revolving
Credit Loans hereunder, which shall be a Business Day, each
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Bank shall make available the amount of the Revolving Credit Loan to be made by
it on such date to the Administrative Agent, at an account in Hartford
designated by the Administrative Agent, in Dollars and immediately available
funds, for account of the Company. The amount so received by the Administrative
Agent shall, subject to the terms and conditions of this Agreement, be made
available by the Administrative Agent to the Company by depositing the same, in
immediately available funds, in an account of the Company designated by the
Company or by repaying any then outstanding Swingline Loan.
(b) SWINGLINE LOANS. The Company shall give the Administrative
Agent (which shall promptly notify the Swingline Bank) notice of each borrowing
of Swingline Loans hereunder as provided in Section 4.05 hereof. Not later than
1:00 p.m. Hartford time on the date specified for each borrowing of Swingline
Loans hereunder, which shall be a Business Day, the Swingline Bank shall make
available the amount of the Swingline Loan to be made by it on such date to the
Administrative Agent, at an account in Hartford designated by the Administrative
Agent, in Dollars and immediately available funds, for account of the Company.
The amount so received by the Administrative Agent shall, subject to the terms
and conditions of this Agreement, be made available by the Administrative Agent
to the Company by depositing the same, in immediately available funds, in an
account of the Company designated by the Company.
(c) BORROWINGS TO REPAY SWINGLINE LOANS. Unless the Company
has already given a notice of borrowing of Revolving Credit Loans to repay a
Swingline Loan, at any time from and including the Swingline Maturity Date for
any Swingline Loan until the unpaid principal amount of such Swingline Loan
shall have been paid in full, the Swingline Bank may, and the Company hereby
irrevocably authorizes and empowers (which power is coupled with an interest)
the Swingline Bank to, deliver, on behalf of the Company, to the Administrative
Agent under Section 2.02(a) hereof a notice of borrowing of Revolving Credit
Loans that are Base Rate Loans in an amount equal to the then unpaid principal
amount of such Swingline Loan. In the event that the power of the Swingline Bank
to give such notice of borrowing on behalf of the Company is terminated for any
reason whatsoever (including, without limitation, a termination resulting from
the occurrence of an event specified in clause (f) or (g) of Section 9 hereof
with respect to the Company), or the Swingline Bank is otherwise precluded for
any reason whatsoever from giving a notice of borrowing on behalf of the Company
as provided in the preceding sentence, each Bank shall, upon notice from the
Swingline Bank on or after the Swingline Maturity Date for such Swingline Loan,
promptly purchase from the Swingline Bank a participation in (or, if and to the
extent specified by the Swingline Bank, an assignment of) such Swingline Loan in
the amount of the Base Rate Loan it would have been obligated to make pursuant
to such notice of borrowing. Each Bank shall, not later than 4:00 p.m. Hartford
time on the Business Day on which such notice is given (if such notice is given
by 3:00 p.m. Hartford time) or 9:00 a.m. Hartford time on the next succeeding
Business Day (if such notice is given
<PAGE>
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after 3:00 p.m., but before 5:00 p.m., Hartford time), make available the amount
of the Base Rate Loan to be made by it (or the amount of the participation or
assignment to be purchased by it, as the case may be) to the Administrative
Agent at the account specified in Section 2.02(a) hereof and the amount so
received by the Administrative Agent shall promptly be made available to the
Swingline Bank by remitting the same, in immediately available funds, to the
Swingline Bank. Promptly following its receipt of any payment in respect of such
Swingline Loan, the Swingline Bank shall pay to each Bank that has acquired a
participation in such Swingline Loan such Bank's proportionate share of such
payment. Anything in this Agreement to the contrary notwithstanding (including,
without limitation, in Section 6.03 hereof), the obligation of each Bank to make
its Base Rate Loan (or purchase its participation in or assignment of such
Swingline Loan, as the case may be) pursuant to this Section 2.02(c) is
unconditional under any and all circumstances whatsoever and shall not be
subject to set-off, counterclaim or defense to payment that such Bank may have
or have had against the Company, the Administrative Agent, the Swingline Bank or
any other Bank and, without limiting any of the foregoing, shall be
unconditional irrespective of (i) the occurrence of any Default, (ii) the
financial condition of the Company, any Subsidiary, the Administrative Agent,
the Swingline Bank or any other Bank or (iii) the termination or cancellation of
the Commitments; PROVIDED that no Bank shall be obligated to make any such Base
Rate Loan (or to purchase any such participation or direct interest in the
Swingline Loan) if (i) before the making of such Swingline Loan, such Bank had
notified the Swingline Bank that a Default had occurred and was continuing and
that such Bank would not refinance such Swingline Loan or (ii) to the extent
(and only to the extent) that such Swingline Loan, together with all Revolving
Credit Loans and Competitive Loans then outstanding at the time of the making of
such Swingline Loan, exceeded the then aggregate amount of the Commitments at
the time of the making of such Swingline Loan. The Company agrees that any Bank
so purchasing a participation (or assignment) in such Swingline Loan may
exercise all rights of set-off, bankers' lien, counterclaim or similar rights
with respect to such participation as fully as if such Bank were a direct holder
of a Swingline Loan in the amount of such participation.
(d) COMPETITIVE LOANS.
(i) Subject to the terms and conditions set
forth herein, from time to time during the period from and including the
Effective Date to but excluding the date which is five Business Days prior to
the Commitment Termination Date, the Company may request Competitive Bids and
may (but shall not have any obligation to) accept Competitive Bids and borrow
Competitive Loans; provided that the sum of the total Revolving Credit Loans and
Swingline Loans plus the aggregate principal amount of outstanding Competitive
Loans at any time shall not exceed the total Commitments. To request Competitive
Bids, the Company shall notify the Administrative Agent of such request by
telephone, in the case of a Eurodollar Borrowing, not later than 11:00 a.m.,
Hartford time, four Business Days before the date of the
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proposed Borrowing and, in the case of a Fixed Rate Borrowing, not later than
10:00 a.m., Hartford time, one Business Day before the date of the proposed
Borrowing; provided that the Company may submit up to (but not more than) three
Competitive Bid Requests on the same day, but a Competitive Bid Request shall
not be made within five Business Days after the date of any previous Competitive
Bid Request, unless any and all such previous Competitive Bid Requests shall
have been withdrawn or all Competitive Bids received in response thereto
rejected. Each such telephonic Competitive Bid Request shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Competitive Bid Request in a form approved by the Administrative Agent and
signed by the Company. Each such telephonic and written Competitive Bid Request
shall specify the following information:
(A) aggregate amount of the requested Borrowing;
(B) the date of such Borrowing, which shall be a Business Day;
(C) whether such Borrowing is to be a Eurodollar Borrowing or
a Fixed Rate Borrowing;
(D) the Interest Period to be applicable to such Borrowing,
which shall be a period contemplated by the definition of the term
"Interest Period"; and
(E) the location and number of the account to which funds are
to be disbursed.
Promptly following receipt of a Competitive Bid Request in accordance with this
Section, the Administrative Agent shall notify the Banks of the details thereof
by telecopy, inviting the Banks to submit Competitive Bids. Upon each
Competitive Bid Request, the Company shall pay the Administrative Agent an
administrative fee of $1,000.
(ii) Each Bank may (but shall not have any obligation
to) make one or more Competitive Bids to the Company in response to a
Competitive Bid Request. Each Competitive Bid by a Bank must be in a form
approved by the Administrative Agent and must be received by the Administrative
Agent by telecopy, in the case of a Eurodollar Competitive Borrowing, not later
than 10:00 a.m., Hartford time, three Business Days before the proposed date of
such Competitive Borrowing, and in the case of a Fixed Rate Borrowing, not later
than 10:00 a.m., Hartford time, on the proposed date of such Competitive
Borrowing. Competitive Bids that do not conform substantially to the form
approved by the Administrative Agent may be rejected by the Administrative
Agent, and the Administrative Agent shall notify the applicable Bank as promptly
as practicable. Each Competitive Bid shall specify (i) the principal amount
(which shall be a minimum of $5,000,000 and an integral multiple of $1,000,000
and which may equal the entire principal amount of the Competitive Loan
requested by the Company) of the
<PAGE>
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Competitive Loan or Loans that the Bank is willing to make, (ii) the Competitive
Bid Rate or Rates at which the Bank is prepared to make such Loan or Loans
(expressed as a percentage rate per annum in the form of a decimal to no more
than four decimal places), and (iii) the Interest Period applicable to each such
Loan and the last day thereof.
(iii) The Administrative Agent shall promptly notify
the Company by telecopy of the Competitive Bid Rate and the principal amount
specified in each Competitive Bid and the identity of the Bank that shall have
made such Competitive Bid.
(iv) Subject only to the provisions of this
paragraph, the Company may accept or reject any Competitive Bid. The Company
shall notify the Administrative Agent by telephone, confirmed by telecopy in a
form approved by the Administrative Agent, whether and to what extent it has
decided to accept or reject each Competitive Bid, in the case of a Eurodollar
Competitive Borrowing, not later than 11:00 am., Hartford time, three Business
Days before the date of the proposed Competitive Borrowing, and in the case of a
Fixed Rate Borrowing, not later than 11:00 a.m., Hartford time, on the proposed
date of the Competitive Borrowing; provided that (A) the failure of the Company
to give such notice shall be deemed to be a rejection of each Competitive Bid,
(B) the Company shall not accept a Competitive Bid made at a particular
Competitive Bid Rate if the Company rejects a Competitive Bid made at a lower
Competitive Bid Rate, (C) the aggregate amount of the Competitive Bids accepted
by the Company shall not exceed the aggregate amount of the requested
Competitive Borrowing specified in the related Competitive Bid Request, (D) to
the extent necessary to comply with clause (C) above, the Company may accept
Competitive Bids at the same Competitive Bid Rate in part, which acceptance, in
the case of multiple Competitive Bids at such Competitive Bid Rate, shall be
made by the Company in consultation with the Administrative Agent pro rata in
accordance with the amount of each such Competitive Bid, and (E) except pursuant
to clause (D) above, no Competitive Bid shall be accepted for a Competitive Loan
unless such Competitive Loan is in a minimum principal amount of $5,000,000 and
an integral multiple of $1,000,000; and provided further that if a Competitive
Loan must be in an amount less than $5,000,000 because of the provisions of
clause (D) above, such Competitive Loan may be for a minimum of $1,000,000 or
any integral multiple thereof, and in calculating the pro rata allocation of
acceptances of portions of multiple Competitive Bids at a particular Competitive
Bid Rate pursuant to clause (D) the amounts shall be rounded to integral
multiples of $200,000 in a manner determined by the Company in consultation with
the Administrative Agent. A notice given by the Company pursuant to this
paragraph shall be irrevocable.
(v) The Administrative Agent shall promptly notify
each bidding Bank by telecopy whether or not its Competitive Bid has been
accepted (and, if so, the amount and Competitive Bid Rate so accepted), and each
successful bidder will thereupon become
<PAGE>
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bound, subject to the terms and conditions hereof, to make the Competitive Loan
in respect of which its Competitive Bid has been accepted.
(vi) If the Administrative Agent shall elect to
submit a Competitive Bid in its capacity as a Bank, it shall submit such
Competitive Bid directly to the Company at least one quarter of an hour earlier
than the time by which the other Banks are required to submit their Competitive
Bids to the Administrative Agent pursuant to Subsection (d) (ii) of this Section
2.02.
2.03 CHANGES IN AGGREGATE AMOUNT OF COMMITMENTS.
(a) The aggregate amount of the Commitments shall be
automatically reduced to zero on the Commitment Termination Date.
(b) The Company shall have the right at any time or from time
to time to terminate in whole, or to reduce in part, the aggregate unused amount
of the Commitments; PROVIDED that (x) the Company shall give notice of each such
termination or reduction as provided in Section 4.05 hereof, (y) each partial
reduction shall be in an integral multiple of $1,000,000 and (z) on or before
the Commitment Termination Date, the aggregate amount of the Commitments shall
at no time be less than the aggregate outstanding principal amount of all Loans
(including the Competitive Loans and the Swingline Loans).
(c) The Company shall have the right to terminate or reduce
the unused amount of the Swingline Commitment at any time or from time to time
on not less than three Business Days' prior notice to the Administrative Agent
(which shall promptly notify the Swingline Bank and each Bank) of each such
termination or reduction, which notice shall specify the effective date thereof
and the amount of any such reduction (which shall be in integral multiples of
$1,000,000) and shall be irrevocable and effective only upon receipt by the
Administrative Agent.
(d) The Commitments and Swingline Commitment, once terminated
or reduced, may not be reinstated.
2.04 FEES.
(a) The Company shall pay to the Administrative Agent on or
before the Closing Date for the account of each Bank an upfront fee equal to
.02% of the Commitment of such Bank in effect on the Effective Date. Such fee
shall not be refundable.
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(b) The Company shall pay to the Administrative Agent for
account of each Bank a facility fee on the amount of such Bank's Commitment, for
the period from and including the Effective Date to but not including the
earlier of the Commitment Termination Date and the date such Commitment is
otherwise terminated, at a rate per annum as set forth in the definition of
"Applicable Margin" in Section 1.01. Accrued facility fee shall be payable in
arrears on each Quarterly Date and on the earlier of the Commitment Termination
Date and the date the Commitment is otherwise terminated, as the case may be.
2.05 SEVERAL OBLIGATIONS; REMEDIES INDEPENDENT. The failure of
any Bank to make any Loan to be made by it on the date specified therefor shall
not relieve any other Bank of its obligation to make its Loan on such date, but
neither any Bank nor the Administrative Agent shall be responsible for the
failure of any other Bank to make a Loan to be made by such other Bank, and no
Bank shall have any obligation to the Administrative Agent or any other Bank for
the failure by such Bank to make any Loan required to be made by such Bank. The
amounts payable by the Company at any time hereunder and under the Notes to each
Bank shall be a separate and independent debt and each Bank shall, subject to
the express provisions of Section 9 with respect to the termination of the
Commitments and the declaration of the Loans to be due and payable, be entitled
to protect and enforce its rights arising out of this Agreement and the Notes,
and it shall not be necessary for any other Bank or the Administrative Agent to
consent to, or be joined as an additional party in, any proceedings for such
purposes.
2.06 NOTES.
(a) The Revolving Credit Loans made by each Bank shall be
evidenced by a single promissory note of the Company substantially in the form
of Exhibit A-l hereto, dated the Effective Date, payable to such Bank in a
principal amount equal to the amount of its Commitment as originally in effect
and otherwise duly completed.
(b) The Term Loan made by each Bank shall be evidenced by a
separate promissory note of the Company substantially in the form of Exhibit A-2
hereto, dated the date of such Term Loan, payable to such Bank in a principal
amount equal to the amount of such Term Loan and otherwise duly completed.
(c) The date, amount, Type, interest rate and duration of
Interest Period (if applicable) of each Revolving Credit Loan made by each Bank
to the Company, and each payment made on account of the principal thereof, shall
be recorded by such Bank on its books and, prior to any transfer of the
Revolving Credit Note evidencing the Revolving Credit Loans held by it, endorsed
by such Bank on the schedule attached to such Revolving Credit Note or any
continuation thereof; PROVIDED that the failure of such Bank to make any such
recordation or endorsement shall not affect the obligations of the Company to
make a payment when due of any
<PAGE>
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amount owing hereunder or under such Revolving Credit Note in respect of the
Revolving Credit Loans evidenced by such Revolving Credit Note.
(d) The Swingline Loans made by the Swingline Bank shall be
evidenced by a single promissory note of the Company substantially in the form
of Exhibit A-3 hereto, dated the Effective Date, payable to the Swingline Bank
in a principal amount equal to $10,000,000 and otherwise duly completed. The
date and amount of each Swingline Loan and each payment made on account of the
principal thereof, shall be recorded by the Swingline Bank on its books and,
prior to any transfer of its Swingline Note, endorsed by the Swingline Bank on
the schedule attached to the Swingline Note or any continuation thereof;
PROVIDED that the failure by the Swingline Bank to make any such recordation or
endorsement shall not affect the obligations of the Company to make a payment
when due of any amount owing hereunder or under such Swingline Note in respect
of the Swingline Loans evidenced by such Swingline Note.
(e) The Competitive Loans made by each Bank shall be evidenced
by a single promissory note of the Company substantially in the form of Exhibit
A-4 hereto, dated the Effective Date, payable to such Bank in a principal amount
equal to the amount of its Commitment as originally in effect and otherwise duly
completed.
(f) No Bank shall be entitled to have its Notes subdivided, by
exchange for promissory notes of lesser denominations or otherwise, except in
connection with a permitted assignment of all or any portion of such Bank's
relevant Commitment, Loans and Notes pursuant to Section 11.06(b) hereof. The
Swingline Bank shall not be entitled to have its Note subdivided, by exchange
for promissory notes of lesser denominations or otherwise, except in connection
with a permitted assignment of all or any portion of the Swingline Bank's
Swingline Commitment, the Swingline Loans and the Swingline Note pursuant to
Section 11.06(g) hereof.
2.07 OPTIONAL PREPAYMENTS AND CONVERSIONS OR CONTINUATIONS OF
LOANS. Subject to Section 4.04 hereof, the Company shall have the right to
prepay Swingline Loans or any Series of Revolving Credit Loans or the Term
Loans, in whole at any time or in part from time to time or to Convert Loans of
one Type into Loans of another Type or Continue Loans of one Type as Loans of
the same Type, PROVIDED that:
(a) the Company shall give the Administrative Agent notice of
each such prepayment, Conversion or Continuation as provided in Section
4.05 hereof (and, upon the prepayment date specified in any such notice
of prepayment, the amount to be prepaid shall become due and payable
hereunder);
(b) the Company shall simultaneously pay interest on any
principal so prepaid accrued to the date of such prepayment;
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(c) if any Revolving Credit Loan that is a Eurodollar Loan is
prepaid or Converted on any day other than the last day of the Interest
Period therefor, the Company shall simultaneously pay any amounts
required by Section 5.05 hereof in respect of such prepayment;
(d) prepayments or Conversions of Term Loans that are
Eurodollar Loans may only be made on the last day of any Interest
Period therefor and shall be applied ratably to the outstanding
installments of such Term Loans;
(e) if any Swingline Loan is outstanding, the Revolving Credit
Loans may not be prepaid or Converted;
(f) Swingline Loans may not be Continued.
The Company shall not have the right to prepay any Competitive Loan without the
consent of the Bank making such Competitive Loan.
Notwithstanding the foregoing, and without limiting the rights and remedies of
the Banks under Section 9 hereof, in the event that any Event of Default shall
have occurred and be continuing, the Administrative Agent may (and at the
request of the Majority Banks shall) suspend (for so long as such Event of
Default shall be continuing) the right of the Company to Convert any Loan into a
Eurodollar Loan, or to Continue any Loan as a Eurodollar Loan, in which event
all Loans shall be Converted (on the last day(s) of the respective Interest
Periods therefor) or Continued, as the case may be, as Base Rate Loans.
2.08 EXTENSION OF COMMITMENT TERMINATION DATE.
(a) The Company may, by notice to the Administrative Agent (which shall
promptly deliver a copy thereof to each of the Banks) not more than 45 days
prior to the Commitment Termination Date then in effect hereunder (the "EXISTING
COMMITMENT TERMINATION DATE"), request that the Banks extend the Commitment
Termination Date for an additional 364 day period. Each Bank, acting in its sole
discretion, shall, by notice to the Company and Administrative Agent given on
the date no earlier than 30 days nor later than 20 days prior to the Existing
Commitment Termination Date (provided, if such date is not a Business Day, then
such notice date shall by the next succeeding Business Day) (the "CONSENT
DATE"), advise the Company and the Administrative Agent whether or not such Bank
agrees to such request, provided that each Bank that determines not to extend
the Existing Commitment Termination Date (a "NON-EXTENDING BANK") shall notify
the Administrative Agent (which shall notify the Banks) of such fact promptly
after such determination (but in any event no later than the Consent Date) and
any Bank that does not advise the Company on the Consent Date shall be
<PAGE>
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deemed to be a Non-extending Bank. The election of any Bank to agree to such
extension shall not obligate any other Bank to so agree.
(b) Subject to paragraph (c) of this Section, the Company shall have
the right on or before the Existing Commitment Termination Date to replace each
Non-extending Bank with, and otherwise add to this Agreement, one or more other
lenders (which may include any Bank, each prior to the Existing Commitment
Termination Date an "ADDITIONAL COMMITMENT BANK") with the approval of the
Administrative Agent (which approval shall not be unreasonably withheld), each
of which Additional Commitment Banks shall have entered into an agreement in
form and substance satisfactory to the Company and the Administrative Agent
pursuant to which such Additional Commitment Bank shall, effective as of the
Existing Commitment Termination Date, undertake a Commitment (and, if any such
Additional Commitment Bank is already a Bank, its Commitment shall be in
addition to such Bank's Commitment hereunder on such date).
(c) If (and only if) the total amount of the Commitments of the Banks
and (without duplication) the Additional Commitment Banks that have agreed so to
extend the Existing Commitment Termination Date shall be more than 50% of the
aggregate amount of the Commitments in effect immediately prior to the Existing
Commitment Termination Date, then, effective as of the Existing Commitment
Termination Date, the Existing Commitment Termination Date shall be extended to
the date falling 364 days after the Existing Commitment Termination Date (except
that, if such date is not a Business Day, such Existing Commitment Termination
Date as so extended shall be the next preceding Business Day) and each
Additional Commitment Bank shall thereupon become a "Bank" for all purposes of
this Agreement.
Notwithstanding the foregoing, the extension of the Existing Commitment
Termination Date shall not be effective with respect to any Bank unless:
(i) no Default shall have occurred and be continuing on each
of the date of the notice requesting such extension, on the Consent
Date and on the Existing Commitment Termination Date;
(ii) each of the representations and warranties made by the
Company in Section 7 hereof shall be true and complete on and as of
each of the date of the notice requesting such extension, the Consent
Date and the Existing Commitment Termination Date with the same force
and effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of
a specific date, as of such specific date); and
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(iii) each Non-extending Bank shall have been paid in full by
the Company all amounts owing to such Bank hereunder on or before the
Existing Commitment Termination Date.
Even if the Existing Commitment Termination Date is extended as aforesaid, the
Commitment of each Non-extending Bank shall terminate on the Existing Commitment
Termination Date.
Section 3. PAYMENTS OF PRINCIPAL AND INTEREST.
3.01 REPAYMENT OF LOANS.
(a) The Company hereby promises to pay to the Administrative
Agent for account of each Bank (i) the outstanding principal amount of each of
such Bank's Revolving Credit Loans, and each Revolving Credit Loan shall mature,
on the Commitment Termination Date and (ii) the outstanding principal amount of
each Competitive Loan, and each Competitive Loan shall mature, on the last day
of the Interest Period applicable to such Loan.
(b) The Company hereby promises to pay to the Administrative
Agent for account of the Banks the aggregate principal amount of Term Loans in
sixteen equal consecutive quarterly installments commencing on the date three
months after the date of the making of such Term Loans and thereafter on the
quarterly anniversary dates of the date of the making of such Term Loans (each a
"PRINCIPAL PAYMENT DATE"); provided that, if the date of the making of such Term
Loans is the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding date in the appropriate subsequent
calendar month) the payment date shall be the last Business Day of the
appropriate subsequent calendar month; and provided that, if any Principal
Payment Date would fall on a day other than a Business Day, such Principal
Payment Date shall be the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on the next
preceding Business Day).
(c) The Company hereby promises to pay to the Administrative
Agent for account of the Swingline Bank the principal of each Swingline Loan at
or prior to, and such Swingline Loan shall mature at, 1:00 p.m. Hartford time on
the Swingline Maturity Date for such Swingline Loan.
3.02 INTEREST. The Company hereby promises to pay to the
Administrative Agent for account of each Bank interest on the unpaid principal
amount of each Loan made by such Bank for the period from and including the date
of such Loan to but excluding the date such Loan shall be paid in full, at the
following rates per annum:
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(a) if such Loan is a Revolving Credit Loan, (i) during such
periods as such Loan is a Base Rate Loan, the Base Rate (as in effect
from time to time) PLUS the Applicable Margin and (ii) during such
periods as such Loan is a Eurodollar Loan, for each Interest Period
relating thereto, the Eurodollar Rate for such Loan for such Interest
Period PLUS the Applicable Margin;
(b) if such Loan is a Term Loan, (i) during such periods as
such Loan is a Base Rate Loan, the Base Rate (as in effect from time to
time) PLUS the Applicable Margin and (ii) during such periods as such
Loan is a Eurodollar Loan, for each Interest Period relating thereto,
the Eurodollar Rate for such Loan for such Interest Period PLUS the
Applicable Margin;
(c) if such Loan is a Swingline Loan, the Swingline Rate for
each day during the period from and including the first day of the
Interest Period related thereto to but excluding the Swingline Maturity
Date for such Swingline Loan; and
(d) if such Loan is a Competitive Loan, (i) during such
periods as such Loan is a Eurodollar Loan, the Eurodollar Base Rate
PLUS or MINUS as the case may be, the Competitive Margin and (ii)
during such periods as such Loan is a Fixed Rate Loan, the Fixed Rate.
Notwithstanding the foregoing, the Company hereby promises to pay to the
Administrative Agent for account of each Bank interest at the applicable
Post-Default Rate on any principal of any Loan made by such Bank and on any
other amount payable by the Company hereunder or under the Notes held by such
Bank to or for account of such Bank, which shall not be paid in full when due
(whether at stated maturity, by acceleration, by mandatory prepayment or
otherwise), for the period from and including the due date thereof to but
excluding the date the same is paid in full. Accrued interest on each Loan shall
be payable (i) in the case of a Base Rate Loan, quarterly on the Quarterly
Dates, (ii) in the case of Eurodollar Loans, Swingline Loans, or Fixed Rate
Loans on the last day of each Interest Period therefor and, if such Interest
Period is longer than three months, at three-month intervals following the first
day of such Interest Period, and (iii) upon the payment or prepayment thereof or
the Conversion of such Loan to a Loan of another Type (but only on the principal
amount so paid, or prepaid or Converted), except that interest payable at the
Post-Default Rate shall be payable from time to time on demand of the Banks for
whose account such interest is payable. Promptly after the determination of any
interest rate provided for herein or any change therein, the Administrative
Agent shall give notice thereof to the Banks to which such interest is payable
and to the Company.
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Section 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC.
4.01 PAYMENTS.
(a) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Company
under this Agreement and the Notes, and, except to the extent otherwise provided
therein, all payments to be made by the Company under any other Basic Document,
shall be made in Dollars, in immediately available funds, without deduction,
set-off or counterclaim, to the Administrative Agent at an account at its
offices in Hartford, Connecticut designated by the Administrative Agent, not
later than 1:00 p.m. Hartford time on the date on which such payment shall
become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day).
(b) Any Bank or Swingline Bank for whose account any such
payment is to be made may (but shall not be obligated to) debit the amount of
any such payment that is not made by such time to any ordinary deposit account
of the Company with such Bank (with notice to the Company and the Administrative
Agent).
(c) The Company shall, at the time of making each payment
under this Agreement or any Note for account of any Bank, specify to the
Administrative Agent (which shall notify the intended recipient(s) thereof) the
Loans or other amounts payable by the Company hereunder to which such payment is
to be applied, in which case such payment shall be, subject to Section 4.02
hereof, so applied (and in the event that the Company fails to so specify, or if
an Event of Default has occurred and is continuing, such payment shall be,
subject to said Section 4.02, applied FIRST to the Swingline Bank (to the extent
any amounts are then due and payable to the Swingline Bank on account of any
Swingline Loan) and then in payment of amounts due under this Agreement or any
Note in such manner as is determined to be appropriate by the Majority Banks or,
if the Majority Banks fail to advise the Administrative Agent of their
determination promptly following a request from the Administrative Agent for
such a determination, by the Administrative Agent).
(d) Each payment received by the Administrative Agent under
this Agreement or any Note for account of any Bank shall be paid by the
Administrative Agent promptly to such Bank, in immediately available funds, for
account of such Bank's Applicable Lending Office for the Loan or other
obligation in respect of which such payment is made.
(e) If the due date of any payment under this Agreement or any
Note would otherwise fall on a day that is not a Business Day, such date shall
be extended to the next succeeding Business Day, and interest shall be payable
on any principal so extended for the period of such extension.
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4.02 PRO RATA TREATMENT. Except to the extent otherwise
provided herein:
(a) the making of Loans of a particular Class (other than
Competitive Loans and Swingline Loans) shall be made pro rata among the
Banks according to the amounts of their respective Commitments (without
taking into account any Competitive Loans or Swingline Loans) and the
then current Interest Period of Loans of a particular Class and Series
shall be coterminous;
(b) except as otherwise provided in Section 5.04 hereof,
Eurodollar Loans having the same Interest Period shall be allocated pro
rata among the Banks according to the amounts of their respective
Commitments (in the case of the making of Loans) or their respective
Loans (in the case of Conversions and Continuations of Loans);
(c) each payment or prepayment of principal of Loans of a
particular Class and Series shall be made for account of the Banks pro
rata in accordance with the respective unpaid principal amounts of the
Loans of such Class and Series held by the Banks;
(d) each payment of interest on Loans of a particular Class
and Series shall be made for account of the Banks pro rata in
accordance with the amounts of interest on Loans of such Class and
Series then due and payable to the respective Banks;
(e) each termination or reduction of the amount of the
Commitments shall be applied to the Commitments of the Banks, pro rata
according to the respective amounts of the Commitments of the Banks;
and
(f) notwithstanding the foregoing, Borrowings, payments and
prepayments of Competitive Loans and Swingline Loans shall be made
without regard to the foregoing provisions of this Section 4.02.
4.03 COMPUTATIONS. Interest on Eurodollar Loans and Fixed Rate
Loans and the facility fee shall be computed on the basis of a year of 360 days
and actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable and interest on Base Rate Loans shall
be computed on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable. Notwithstanding the foregoing, for
each day that the Base Rate is calculated by reference to the Federal Funds
Rate, interest on Base Rate Loans shall be computed on the basis of a year of
360 days and actual days elapsed.
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4.04 MINIMUM AMOUNTS. Except for Conversions, or prepayments
made pursuant to Section 5.05 hereof, each Borrowing, Conversion and partial
prepayment of principal of Revolving Credit Loans shall be in an aggregate
amount equal to (i) if it is a Eurodollar Loan, $10,000,000 or any integral
multiple of $1,000,000 in excess thereof or (ii) if it is a Base Rate Loan,
$5,000,000 or integral multiple of $500,000 in excess thereof (Borrowings,
Conversions or prepayments of or into Loans of different Types or, in the case
of Eurodollar Loans, having different Interest Periods at the same time
hereunder to be deemed separate Borrowings, Conversions and prepayments for
purposes of the foregoing, one for each Type or Interest Period). Each
Conversion of Term Loans shall be in an aggregate amount equal to $3,000,000 or
any integral multiple of $200,000 in excess thereof, and each partial prepayment
or Conversion of the principal of Term Loans shall be in an aggregate amount at
least equal to $500,000 (Conversions or prepayments of or into Loans of
different Types or, in the case of Eurodollar Loans, having different Interest
Periods at the same time hereunder to be deemed separate Conversions and
prepayments for purposes of the foregoing, one for each Type or Interest
Period). Each Borrowing or partial prepayment of Swingline Loans shall be in an
aggregate amount at least equal to $1,000,000 or in multiples of $200,000 in
excess thereof. Each Borrowing or partial prepayment of Competitive Loans shall
be in an aggregate amount at least equal to $5,000,000 or in multiples of
$1,000,000 in excess thereof.
4.05 CERTAIN NOTICES. Notices by the Company to the
Administrative Agent of terminations or reductions of Commitments, of
Borrowings, Conversions, Continuations and optional prepayments of Loans, of
Types of Loans and of the duration of Interest Periods shall be irrevocable and
shall be effective only if received by the Administrative Agent not later than
10:00 a.m. Hartford time. The number of Business Days prior to the date of the
relevant termination, reduction, Borrowing, Conversion, Continuation or
prepayment or the first day of such Interest Period specified below:
Number of Business
Notice Days Prior
------ ----------
Termination or reduction
of Commitments 3
Borrowing or prepayment of,
or Conversions into,
Base Rate Loans 0
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Borrowing or prepayment of
Swingline Loans 0
Borrowing or prepayment of, Conversions
into, Continuations as, or duration of
Interest Period for, Eurodollar Loans
(other than Competitive Loans) 3
Borrowing of Competitive Loans that
are Eurodollar Loans 4
Borrowing of Competitive Loans
that are Fixed Rate Loans 1
Each such notice of termination or reduction shall specify the
amount of the Commitments to be terminated or reduced. Each such notice of
Borrowing, Conversion, Continuation or optional prepayment shall specify the
Class and Series of Loans to be borrowed, Converted, Continued or prepaid, the
amount (subject to Section 4.04 hereof) of each Loan to be borrowed, Converted,
Continued or prepaid, the date of Borrowing, Conversion, Continuation or
optional prepayment (which shall be a Business Day), and the duration of the
Interest Period for such Loan. The Administrative Agent shall promptly notify
the Banks of the contents of each such notice. In the event that the Company
fails to select the Type of Loan, or the duration of any Interest Period for any
Loan, within the time period and otherwise as provided in this Section 4.05,
such Loan (if outstanding as a Eurodollar Loan) will be automatically Converted
into a Base Rate Loan on the last day of the then current Interest Period for
such Loan or (if outstanding as a Base Rate Loan) will remain as, or (if not
then outstanding) will be made as, a Base Rate Loan.
4.06 NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE AGENT. Unless
the Administrative Agent shall have been notified by a Bank or the Company (the
"PAYOR") prior to the date on which the Payor is to make payment to the
Administrative Agent of (in the case of a Bank) the proceeds of a Loan to be
made by such Bank hereunder or (in the case of the Company) a payment to the
Administrative Agent for account of one or more of the Banks hereunder (such
payment being herein called the "REQUIRED PAYMENT"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Administrative Agent, the Administrative Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient(s) on such date; and, if the Payor has not in
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fact made the Required Payment to the Administrative Agent, the recipient(s) of
such payment shall, on demand, repay to the Administrative Agent the amount so
made available together with interest thereon in respect of each day during the
period commencing on the date (the "ADVANCE DATE") such amount was so made
available by the Administrative Agent until the date the Administrative Agent
recovers such amount at a rate per annum equal to the Federal Funds Rate for
such day and, if such recipient(s) shall fail promptly to make such payment, the
Administrative Agent shall be entitled to recover such amount, on demand, from
the Payor, together with interest as aforesaid, PROVIDED that if the
recipient(s) shall fail to return, and the Payor shall fail to make, the
Required Payment to the Administrative Agent within three Business Days of the
Advance Date, then the Payor and the recipient(s) shall each be obligated to pay
interest on the Required Payment (but without duplication) as follows:
(a) if the Required Payment shall represent a payment to be
made by the Company to the Banks, the Company and the recipient(s)
shall each be obligated retroactively to the Advance Date to pay
interest in respect of the Required Payment at the Post-Default Rate
(and, in case the recipient(s) shall return the Required Payment to the
Administrative Agent, without limiting the obligation of the Company
under Section 3.02 hereof to pay interest to such recipient(s) at the
Post-Default Rate in respect of the Required Payment); and
(b) if the Required Payment shall represent proceeds of a Loan
to be made by the Banks to the Company, the Payor and the Company shall
each be obligated retroactively to the Advance Date to pay interest in
respect of the Required Payment at the rate of interest provided for
such Required Payment pursuant to whichever of the rates specified in
Section 3.02 hereof is applicable to the Type of such Loan (and, in
case the Company shall return the Required Payment to the
Administrative Agent, without limiting any claim the Company may have
against the Payor in respect of the Required Payment).
4.07 SHARING OF PAYMENTS, ETC.
(a) The Company agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a Bank or the
Swingline Bank (as the case may be) may otherwise have, each Bank and the
Swingline Bank shall be entitled, at its option, to offset balances held by it
for account of the Company at any of its offices, in Dollars or in any other
currency, against any principal of or interest on any of such Bank's or the
Swingline Bank's Loans or any other amount payable to such Bank or Swingline
Bank (as the case may be) hereunder, that is not paid when due (regardless of
whether such balances are then due to the Company), in which case it shall
promptly thereafter notify the Company and the Administrative
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Agent thereof, PROVIDED that such Bank's or the Swingline Bank's failure to give
such notice shall not affect the validity thereof.
(b) If any Bank shall obtain payment of any principal of or
interest on any Loan of a particular Class and Series owing to it or payment of
any other amount under this Agreement or any other Basic Document through the
exercise of any right of set-off, banker's lien or counterclaim or similar right
or otherwise (other than through the Administrative Agent as provided herein),
and, as a result of such payment, such Bank shall have received a greater
percentage of the principal of or interest on the Loans of such Class and Series
or such other amounts then due hereunder or thereunder by the Company to such
Bank than the percentage received by any other Bank, it shall promptly purchase
from such other Banks participations in (or, if and to the extent specified by
such Bank, direct interests in) the Loans of such Class and Series or such other
amounts, respectively, owing to such other Banks (or in interest due thereon, as
the case may be) in such amounts, and make such other adjustments from time to
time as shall be equitable, to the end that all the Banks shall share the
benefit of such excess payment (net of any expenses that may be incurred by such
Bank in obtaining or preserving such excess payment) pro rata in accordance with
the unpaid principal of and/or interest on the Loans of such Class and Series or
such other amounts, respectively, owing to each of the Banks. To such end all
the Banks shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored.
(c) The Company agrees that any Bank so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans or other amounts (as the case may
be) owing to such Bank in the amount of such participation.
(d) Nothing contained herein shall require any Bank or the
Swingline Bank to exercise any such right or shall affect the right of any Bank
or the Swingline Bank to exercise, and retain the benefits of exercising, any
such right with respect to any other indebtedness or obligation of the Company.
If, under any applicable bankruptcy, insolvency or other similar law, any Bank
receives a secured claim in lieu of a set-off to which this Section 4.07
applies, such Bank shall, to the extent practicable, exercise its rights in
respect of such secured claim in a manner consistent with the rights of the
Banks entitled under this Section 4.07 to share in the benefits of any recovery
on such secured claim.
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Section 5. YIELD PROTECTION, ETC.
5.01 ADDITIONAL COSTS.
(a) The Company shall pay directly to each Bank from time to
time such amounts as such Bank may determine to be necessary to compensate such
Bank for any costs that such Bank determines are attributable to its making or
maintaining of any Eurodollar Loans or Fixed Rate Loans or its obligation to
make any Eurodollar Loans or Fixed Rate Loans hereunder, or any reduction in any
amount receivable by such Bank hereunder in respect of any Loans or such
obligation (such increases in costs and reductions in amounts receivable being
herein called "ADDITIONAL COSTS"), resulting from any Regulatory Change that:
(i) changes the basis of taxation of any amounts payable to
such Bank under this Agreement or its Notes (other than taxes imposed
on or measured by the overall net income of such Bank or of its
Applicable Lending Office by the jurisdiction in which such Bank has
its principal office or such Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit or
similar requirements (other than the Reserve Requirement utilized in
the determination of the Eurodollar Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Bank (including, without limitation, any of such
Loans or any deposits referred to in the definition of "Eurodollar Base
Rate" in Section 1.01 hereof), or any commitment of such Bank hereunder
(including, without limitation, the Commitment of such Bank); or
(iii) imposes any other condition affecting this Agreement or
its Notes or its Commitment.
If any Bank requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Bank (with a copy to the Agent), suspend the
obligation of such Bank thereafter to make or Continue Eurodollar Loans, or to
Convert Base Rate Loans into Eurodollar Loans, until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the provisions
of Section 5.04 hereof shall be applicable), provided that such suspension shall
not affect the right of such Bank to receive the compensation so requested.
(b) Without limiting the effect of the provisions of paragraph
(a) of this Section 5.01, in the event that, by reason of any Regulatory Change,
any Bank either (i) incurs Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of such Bank that includes deposits by reference to which the
interest rate on Eurodollar Loans or Fixed Rate Loans is determined as provided
in this Agreement or a category of extensions of credit or other assets of such
Bank that includes Eurodollar Loans or Fixed Rate Loans or (ii) becomes
<PAGE>
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subject to restrictions on the amount of such a category of liabilities or
assets that it may hold, then, if such Bank so elects by notice to the Company
(with a copy to the Administrative Agent), the obligation of such Bank to make
Eurodollar Loans or Fixed Rate Loans as the case may be, hereunder shall be
suspended until such Regulatory Change ceases to be in effect (in which case the
Loans theretofore made by such Bank shall bear interest at the Base Rate from
the last day of the then current Interest Period for such Loans in accordance
with the provisions of Section 5.04).
(c) Without limiting the effect of the foregoing provisions of
this Section 5.01 (but without duplication), the Company shall pay directly to
each Bank from time to time on request such amounts as such Bank may determine
to be necessary to compensate such Bank (or, without duplication, the bank
holding company of which such Bank is a subsidiary) for any costs that it
determines are attributable to the maintenance by such Bank (or any Applicable
Lending Office or such bank holding company), pursuant to any law or regulation
or any interpretation, directive or request (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful) of any
court or governmental or monetary authority (i) following any Regulatory Change
or (ii) implementing any risk-based capital guideline or other requirement
(whether or not having the force of law and whether or not the failure to comply
therewith would be unlawful) hereafter issued by any government or governmental
or supervisory authority implementing at the national level the Basel Accord
(including, without limitation, the Final Risk-Based Capital Guidelines of the
Board of Governors of the Federal Reserve System (12 C.F.R. Part 208, Appendix
A; 12 C.F.R. Part 225, Appendix A) and the Final Risk-Based Capital Guidelines
of the Office of the Comptroller of the Currency (12 C.F.R. Part 3, Appendix
A)), of capital in respect of its Commitment(s) or Loans (such compensation to
include, without limitation, an amount equal to any reduction of the rate of
return on assets or equity of such Bank (or any Applicable Lending Office or
such bank holding company) to a level below that which such Bank (or any
Applicable Lending Office or such bank holding company) could have achieved but
for such law, regulation, interpretation, directive or request). For purposes of
this Section 5.01(c), "BASEL ACCORD" shall mean the proposals for risk-based
capital framework described by the Basel Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended, modified
and supplemented and in effect from time to time or any replacement thereof.
(d) Each Bank shall notify the Company of any event occurring
after the date of this Agreement entitling such Bank to compensation under
paragraph (a) or (c) of this Section 5.01 as promptly as practicable; provided
that the Company shall not be required to pay any amounts under this Section
5.01 to the extent the amount requested to be paid is allocable to a period or
date prior to the date which is 90 days before the date of such notice by such
Bank to the Company. Each Bank will designate a different Applicable Lending
Office for the Loans of such Bank affected by such event if such designation
will avoid the need for, or reduce the amount of, such compensation and will
not, in the sole good faith opinion of such Bank, be disadvantageous to such
Bank, except
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that such Bank shall have no obligation to designate an Applicable Lending
Office located in the United States of America. Each Bank will furnish to the
Company a certificate setting forth in reasonable detail the basis and amount of
each request by such Bank for compensation under paragraph (a) or (c) of this
Section 5.01. Determinations and allocations by any Bank for purposes of this
Section 5.01 of the effect of any Regulatory Change pursuant to paragraph (a) or
(b) of this Section 5.01, or of the effect of capital maintained pursuant to
paragraph (c) of this Section 5.01, on its costs or rate of return of
maintaining Loans or its obligation to make Loans, or on amounts receivable by
it in respect of Loans, and of the amounts required to compensate such Bank
under this Section 5.01, shall be conclusive, PROVIDED that such determinations
and allocations are made on a reasonable basis and are not manifestly in error.
5.02 LIMITATION ON TYPES OF LOANS. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any Eurodollar
Base Rate for any Interest Period:
(a) the Administrative Agent determines, which determination
shall be conclusive, that quotations of interest rates for the relevant
deposits referred to in the definition of "Eurodollar Base Rate" in
Section 1.01 hereof are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining rates of
interest for Eurodollar Loans as provided herein; or
(b) if the Majority Banks in good faith determine, which
determination shall otherwise be conclusive, and notify the
Administrative Agent that the relevant rates of interest referred to in
the definition of "Eurodollar Base Rate" in Section 1.01 hereof upon
the basis of which the rate of interest for Eurodollar Loans for such
Interest Period is to be determined are not likely adequately to cover
the cost to such Banks of making or maintaining Eurodollar Loans for
such Interest Period;
then the Administrative Agent shall give the Company and each Bank prompt notice
thereof and, so long as such condition remains in effect, the Banks shall be
under no obligation to make additional Eurodollar Loans, to Continue Eurodollar
Loans or to Convert Base Rate Loans into Eurodollar Loans, and the Company
shall, on the last day(s) of the then current Interest Period(s) for the
outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans
into Base Rate Loans in accordance with Section 2.07 hereof.
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5.03 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to honor its obligation to make or maintain Eurodollar Loans
hereunder, then such Bank shall promptly notify the Company thereof (with a copy
to the Administrative Agent) and, in the case that it has become unlawful for
such Bank to make Loans, such Bank's obligation to make or Continue, or to
Convert Loans of any other Type into, Eurodollar Loans shall be suspended until
such time as such Bank may again make and maintain Eurodollar Loans and, in the
case that it has become unlawful for such Bank to maintain Loans, its
outstanding Loans shall bear interest at the Base Rate from the date such Bank
may specify to the Company with a copy to the Administrative Agent until it
shall no longer be unlawful for such Bank to maintain Eurodollar Loans (in which
case the provisions of Section 5.04 hereof shall be applicable).
5.04 TREATMENT OF AFFECTED LOANS. If the obligation of any
Bank to make Eurodollar Loans or to Continue, or to Convert Base Rate Loans
into, Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03
hereof, such Bank's Eurodollar Loans shall be automatically Converted into Base
Rate Loans on the last day(s) of the then current Interest Period(s) for such
Eurodollar Loans (or, in the case of a Conversion resulting from a circumstance
described in Section 5.03 hereof, on such earlier date as such Bank may specify
to the Company with a copy to the Agent) and, unless and until such Bank gives
notice as provided below that the circumstances specified in Section 5.01 or
5.03 hereof that gave rise to such Conversion no longer exist:
(a) to the extent that such Bank's Eurodollar Loans have been
so Converted, all payments and prepayments of principal that would
otherwise be applied to such Bank's Eurodollar Loans shall be applied
instead to its Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by
such Bank as Eurodollar Loans shall be made or Continued instead as
Base Rate Loans, and all Base Rate Loans of such Bank that would
otherwise be Converted into Eurodollar Loans shall remain as Base Rate
Loans.
If such Bank gives notice to the Company with a copy to the Agent that the
circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the
Conversion of such Bank's Eurodollar Loans pursuant to this Section 5.04 no
longer exist (which such Bank agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Banks are
outstanding, such Bank's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Base Rate and Eurodollar Loans are allocated among the Banks ratably (as to
principal amounts, Types and Interest Periods) in accordance with their
respective Commitments.
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5.05 COMPENSATION. The Company shall pay to the Administrative
Agent for account of each Bank, upon the request of such Bank through the
Administrative Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Bank) to compensate it for any loss, cost or expense
that such Bank determines is attributable to:
(a) any payment, mandatory or optional prepayment, or
Conversion of, a Eurodollar Loan or Fixed Rate Loan made by such Bank
for any reason (including, without limitation, the acceleration of the
Loans pursuant to Section 9 hereof) on a date other than the last day
of an Interest Period for such Loan; or
(b) any failure by the Company (whether by reason of the
Company's election not to proceed or the failure of any of the
conditions precedent specified in Section 6 hereof to be satisfied) to
borrow a Eurodollar Loan or Fixed Rate Loan from such Bank on the date
for such borrowing specified in the relevant notice of Borrowing given
under Section 2.02 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess (if any) of (i) the amount of interest
that otherwise would have accrued on the principal amount of any such Eurodollar
Loan so paid, prepaid, Converted or not borrowed, for the period from the date
of such payment, prepayment, Conversion or failure to borrow, to the last day of
the then current Interest Period for such Eurodollar Loan (or, in the case of a
failure to borrow, the Interest Period for such Eurodollar Loan that would have
commenced on the date specified for such Borrowing) at the applicable rate of
interest for such Eurodollar Loan provided for herein, less the Applicable
Margin for such Eurodollar Loan, OVER (ii) the amount of interest that otherwise
would have accrued on such principal amount at a rate per annum equal to the
interest component of the amount such Bank would have bid on the date of such
payment, prepayment or failure to borrow in the London interbank market for
Dollar deposits of leading banks in amounts comparable to such principal amount
and with maturities comparable to such period (as reasonably determined by such
Bank).
5.06 U.S. TAXES.
(a) The Company agrees to pay to each of the Banks and the
Swingline Bank that is not a U.S. Person such additional amounts as are
necessary in order that the net payment of any amount due to such non-U.S.
Person hereunder after deduction for or withholding in respect of any U.S. Taxes
imposed with respect to such payment (or in lieu thereof, payment of such U.S.
Taxes by such non-U.S. Person), net of any tax credit available to such non-U.S.
Person from its home country as determined by such Bank in its sole discretion,
will not be less than the amount stated herein to be then due and payable,
PROVIDED that the foregoing obligation to pay such additional amounts shall not
apply:
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(i) to any payment to a Bank hereunder unless such Bank is, on
the Effective Date (or on the date it becomes a Bank or the Swingline
Bank as provided in Section 11.06(b) hereof) and on the date of any
change in the Applicable Lending Office of such Bank or the Swingline
Bank, either entitled to submit a Form 1001 (relating to such Bank and
entitling it to a complete exemption from withholding on all interest
to be received by it hereunder in respect of the Loans) or Form 4224
(relating to all interest to be received by such Bank hereunder in
respect of the Loans), or
(ii) to any U.S. Taxes imposed solely by reason of the failure
by such non- U.S. Person to comply with applicable certification,
information, documentation or other reporting requirements if such
compliance is required by statute or regulation of the United States of
America as a precondition to relief or exemption from such U.S. Taxes.
For the purposes of this Section 5.06(a), (w) "FORM 1001" shall mean Form 1001
(Ownership, Exemption, or Reduced Rate Certificate) of the Department of the
Treasury of the United States of America, (x) "FORM 4224" shall mean Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) of the Department of the
Treasury of the United States of America (or in relation to either such Form
such successor and related forms as may from time to time be adopted by the
relevant taxing authorities of the United States of America to document a claim
to which such Form relates), (y) "U.S. PERSON" shall mean a citizen, national or
resident of the United States of America, a corporation, partnership or other
entity created or organized in or under any laws of the United States of
America, or any estate or trust that is subject to Federal income taxation
regardless of the source of its income and (z) "U.S. TAXES" shall mean any
present or future tax, assessment or other charge or levy imposed by or on
behalf of the United States of America or any taxing authority thereof or
therein.
(b) Within 30 days after paying any amount to the
Administrative Agent or any Bank or the Swingline Bank from which it is required
by law to make any deduction or withholding, and within 30 days after it is
required by law to remit such deduction or withholding to any relevant taxing or
other authority, the Company shall deliver to the Administrative Agent for
delivery to such non-U.S. Person evidence satisfactory to such Person of such
deduction, withholding or payment (as the case may be).
5.07 FAIR ALLOCATION; SUBSTITUTION OF BANKS.
(a) Anything herein to the contrary notwithstanding, any
determination by any Bank of any amounts payable by the Company under Section
5.01 shall be based upon a fair and equitable allocation by such Bank of the
particular overall cost or loss among all its similarly situated borrowers
relative to such Bank, and the
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Company shall not be obligated to compensate any Bank for any costs that would
not have been incurred by such Bank but for its gross negligence or willful
misconduct.
(b) Provided that no Default shall have occurred and be
continuing, the Company may, at any time, replace any Bank or the Swingline Bank
that has requested compensation from the Company pursuant to Section 5.01 hereof
or whose obligation to make additional Loans has been suspended pursuant to
Section 5.03 hereof or that is entitled to payment of additional amounts under
Section 5.06 hereof (any such Bank or the Swingline Bank being herein called an
"AFFECTED BANK"), by giving not less than ten Business Days' prior notice to the
Administrative Agent (which shall promptly notify such Affected Bank and each
other Bank), that it intends to replace such Affected Bank with one or more
banks (including, but not limited to, any other Bank under this Agreement)
selected by the Company and acceptable to the Administrative Agent (which shall
not unreasonably withhold its consent). The method (whether by assignment or
otherwise) of and documentation for such replacement shall be acceptable to the
Affected Bank, the other Banks and the Administrative Agent (which shall not
unreasonably withhold their consent and shall cooperate with the Company in
effecting such replacement). Upon the effective date of any replacement under
this Section 5.07 (and as a condition thereto), the Company shall, or shall
cause the replacement bank(s) to, pay to the Affected Bank being replaced any
amounts owing to such Affected Bank hereunder (including, without limitation,
interest, facility fees, compensation and additional amounts under this Section
5, in each case accrued to the effective date of such replacement), whereupon
each replacement bank shall become a "Bank" or the "Swingline Bank", as the case
may be, for all purposes of this Agreement having a Commitment in the amount of
such Affected Bank's Commitment assumed by it, and such Commitment of the
Affected Bank being replaced (including, if such Affected Bank is the Swingline
Bank, its Swingline Commitment) shall be terminated upon such effective date and
all of such Affected Bank's rights and obligations under this Agreement shall
terminate (provided that the obligations of the Company under Sections 5.01,
5.05, 5.06 and 11.03 hereof to such Affected Bank shall survive such replacement
as provided in Section 11.07 hereof).
Section 6. CONDITIONS PRECEDENT.
6.01 EFFECTIVE DATE. The effectiveness of this Agreement is
subject to the receipt by the Administrative Agent of the following documents,
each of which shall be satisfactory to the Administrative Agent (and to the
extent specified below, to each Bank) in form and substance:
(a) CORPORATE DOCUMENTS. The following documents, each
certified as indicated below:
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(i) a copy of the charters or similar organizational
documents, as amended and in effect, of the Company and of
each Material Subsidiary certified as of a recent date by the
Secretary of State of the jurisdiction of its incorporation or
formation and by the Applicable Insurance Regulatory
Authority, if any, as the case may be, and a certificate from
such respective authorities dated as of a recent date as to
the good standing of and charter documents or other
organizational documents filed by the Company and by such
Material Subsidiary;
(ii) a certificate of the Secretary or an Assistant
Secretary of the Company, dated the Effective Date and
certifying (A) that attached thereto is a true and complete
copy of the by-laws or operating agreement of the Company and
of each Material Subsidiary as amended and in effect at all
times from the date on which the resolutions referred to in
clause (B) were adopted to and including the date of such
certificate, (B) that attached thereto is a true and complete
copy of resolutions duly adopted by the board of directors of
the Company authorizing the execution, delivery and
performance of the Basic Documents and the extensions of
credit hereunder, and that such resolutions have not been
modified, rescinded or amended and are in full force and
effect, (C) that the charters or similar organizational
documents of the Company and the Material Subsidiaries have
not been amended since the date of the certification thereto
furnished pursuant to subparagraph (i) above, and (D) as to
the incumbency and specimen signature of each officer of the
Company executing the Basic Documents and each other document
to be delivered by the Company from time to time in connection
therewith (and the Administrative Agent and each Bank may
conclusively rely on such certificate until it receives notice
in writing from the Company); and
(iii) a certificate of another officer of the Company
as to the incumbency and specimen signature of the Secretary
or Assistant Secretary, as the case may be, of the Company.
(b) OFFICER'S CERTIFICATE. A certificate of a senior officer
of the Company, dated the Effective Date, to the effect set forth in
the first sentence of Section 6.03 hereof.
(c) OPINION OF COUNSEL TO THE COMPANY. An opinion, dated the
Effective Date, of Samuel Bergman, Executive Vice President and General
Counsel of the Company, substantially in the form of Exhibit C hereto
and covering such other matters as the Administrative Agent or any Bank
may reasonably request (and the Company hereby instructs such counsel
to deliver such opinion to the Banks and the Administrative Agent).
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(d) NOTES. The Revolving Credit Notes, Competitive Notes and
Swingline Note, duly completed and executed.
(e) TAX SHARING AGREEMENTS. True, correct and complete copies
of all tax sharing agreements (if any) to which the Company or any of
its Subsidiaries is a party, which agreements must be in form and
substance satisfactory to the Banks.
(f) TERMINATION OF EXISTING CREDIT AGREEMENT Evidence that the
Existing Credit Agreement and Pledge Agreement (as defined therein)
have been terminated and all principal of and interest on the Existing
Loans and all other amounts owing under the Existing Credit Agreement
accrued to the Effective Date, have been indefeasibly paid in full and
all Liens granted in connection therewith shall have been terminated
and released and the Administrative Agent shall have received all
instruments of release, including without limitation all Form UCC-3
termination statements, to evidence such termination and release.
(g) RELEASE OF SECURITY FOR DEBENTURES. Evidence that all
security interests granted to secure the Debentures shall have been
terminated and released.
(h) OTHER DOCUMENTS. Such other documents as the
Administrative Agent or any Bank or special counsel to Fleet may
reasonably request.
The effectiveness of this Agreement is also subject to the payment by the
Company of such fees as the Company shall have agreed to pay or deliver to any
Bank or the Administrative Agent in connection herewith, including, without
limitation, the reasonable fees and expenses of special counsel to Fleet in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the Notes and the making of the Loans hereunder (to the extent
that statements for such fees and expenses have been delivered to the Company
not less than five days prior to the Effective Date).
6.02 TERM LOANS.
The obligation of the Banks to make any Term Loans to the
Company hereunder on the occasion of the borrowing of Term Loans is subject to
the further condition precedent that the Company shall have delivered to the
Administrative Agent the Term Notes evidencing such Term Loans.
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6.03 INITIAL AND SUBSEQUENT LOANS.
The obligation of any Bank or the Swingline Bank to make any
Loan to the Company upon the occasion of any Borrowing hereunder (including the
initial Borrowing) is subject to the further conditions precedent that, both
immediately prior to the making of such Loan and also after giving effect
thereto and to the intended use thereof:
(a) no Default shall have occurred and be continuing; and
(b) the representations and warranties made by the Company in
Section 7 hereof, and in each of the other Basic Documents, shall be
true and complete on and as of the date of the making of such Loan with
the same force and effect as if made on and as of such date (or, if any
such representation or warranty is expressly stated to have been made
as of a specific date, as of such specific date).
Each notice of Borrowing by the Company hereunder shall constitute a
certification by the Company to the effect set forth in the preceding sentence
(both as of the date of such notice and, unless the Company otherwise notifies
the Administrative Agent prior to the date of such Borrowing, as of the date of
such Borrowing).
Section 7. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Administrative Agent, the Banks and the Swingline Bank that:
7.01 CORPORATE EXISTENCE. Each of the Company and its Material
Subsidiaries: (a) is a corporation, partnership or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization; (b) has all requisite corporate or other power, and has all
material governmental licenses, authorizations, consents and approvals,
necessary to own its assets and carry on its business as now being or as
proposed to be conducted; and (c) is qualified to do business and is in good
standing in all jurisdictions in which the nature of the business conducted by
it makes such qualification necessary and where failure so to qualify could,
either individually or in the aggregate, have a Material Adverse Effect.
7.02 FINANCIAL CONDITION.
(a) The Company has heretofore furnished to each of the Banks
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as at December 31, 1997 and the related consolidated and
consolidating statements of income, shareholders' equity and cash flows of the
Company and its Subsidiaries for the fiscal year ended on said date, with the
opinion thereon (in the case of said consolidated balance sheet and statements)
of Deloitte & Touche LLP, and the unaudited consolidated and consolidating
balance sheets of the Company and its Subsidiaries as at March 31, 1998 and the
related consolidated and consolidating statements of income, shareholders'
equity
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and cash flows of the Company and its Subsidiaries for the three-month period
ended on such date. All such financial statements present fairly, in all
material respects, the consolidated financial condition of the Company and its
Subsidiaries, and (in the case of said consolidating financial statements) the
respective unconsolidated financial condition of the Company and of each of its
Subsidiaries, as at said dates and the consolidated results of their operations,
and (in the case of said consolidating statements) the respective unconsolidated
results of operations of the Company and of each of its Subsidiaries, for the
fiscal year and three-month period ended on said dates (subject, in the case of
such financial statements as at March 31, 1998, to normal year-end audit
adjustments), all in accordance with generally accepted accounting principles
and practices applied on a consistent basis. None of the Company nor any of its
Subsidiaries has on the Effective Date any material contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments, except as referred to or
reflected or provided for in said financial statements (or in the notes thereto)
as at said dates. Since December 31, 1997, there has been no material adverse
change in the consolidated financial condition, operations, business or
prospects of the Company and its Subsidiaries taken as a whole from that set
forth in said financial statements as at said date.
(b) The Company has heretofore furnished to each of the Banks
the annual and quarterly Statutory Statements of the Company (consolidated) and
of each of its Insurance Subsidiaries for the fiscal year ended December 31,
1997 and for the quarterly fiscal period ended March 31, 1998 as filed with the
Applicable Insurance Regulatory Authority. All such Statutory Statements present
fairly, in all material respects, the financial condition of the Company
(consolidated) and of each Insurance Subsidiary, respectively, as at the
respective dates thereof and its results of operations through fiscal year ended
on December 31, 1997 and the quarterly fiscal period ended March 31, 1998, in
accordance with statutory accounting practices prescribed or permitted by the
Applicable Insurance Regulatory Authority.
7.03 LITIGATION. Except as disclosed in Schedule III hereto,
there are no legal or arbitration proceedings, or any proceedings by or before
any governmental or regulatory authority or agency, now pending or (to the
knowledge of the Company) threatened against the Company or any of its
Subsidiaries that, if adversely determined, could, either individually or in the
aggregate, have a Material Adverse Effect.
7.04 NO BREACH. None of the execution and delivery of this
Agreement and the Notes, the consummation of the transactions herein and therein
contemplated or compliance with the terms and provisions hereof and thereof will
conflict with or result in a breach of, or require any consent under, the
charter or by-laws of the Company, or any applicable law or regulation, or any
order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which any of them or any of their Property is
bound or to which any of them is subject, or constitute a default under any such
agreement or instrument, or result in the creation or imposition of any Lien
upon any
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Property of the Company or any of its Subsidiaries pursuant to the terms of any
such agreement or instrument.
7.05 ACTION. The Company has all necessary corporate power,
authority and legal right to execute and deliver this Agreement and the Notes
and perform its obligations under each of the Basic Documents; the execution and
delivery of this Agreement and the Notes and performance by the Company thereof
have been duly authorized by all necessary corporate action on its part
(including, without limitation, any required shareholder approvals); and this
Agreement has been duly and validly executed and delivered by the Company and
constitutes, and each of the Notes when executed and delivered for value will
constitute, the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
7.06 APPROVALS. No authorizations, approvals or consents of,
and no filings or registrations with, any governmental or regulatory authority
or agency, or any securities exchange, are necessary for the execution or
delivery by the Company of this Agreement and the Notes or performance by the
Company thereof or for the legality, validity or enforceability hereof or
thereof.
7.07 MARGIN STOCK. Not more than 25% of the value (as
determined by any reasonable method) of the Properties of the Company and its
Subsidiaries (including, without limitation, common stock of the Company held in
treasury) subject to the provisions of Section 8.05 or 8.06 hereof is
represented by Margin Stock.
7.08 ERISA. Each Plan, and, to the knowledge of the Company,
each Multiemployer Plan, is in compliance in all material respects with, and has
been administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law, and no event
or condition has occurred and is continuing as to which the Company would be
under an obligation to furnish a report to the Banks under Section 8.01(g)
hereof.
7.09 TAXES. The Company and its United States Subsidiaries are
members of an affiliated group of corporations filing consolidated returns for
Federal income tax purposes, of which the Company is the "common parent" (within
the meaning of Section 1504 of the Code) of such group. The Company and its
Subsidiaries have filed all Federal income tax returns and all other material
tax returns that are required to be filed by them and have paid all taxes due
pursuant to such returns or pursuant to any assessment received by the Company
or any of its Subsidiaries. The charges, accruals and reserves on the books of
the Company and its Subsidiaries in respect of taxes and other governmental
charges are, in the opinion of the Company, adequate. The Company has not given
or been requested to give a waiver of the statute of limitations relating to the
payment of Federal, state, local and foreign taxes or other impositions.
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7.10 INVESTMENT COMPANY ACT. Neither the Company nor any of
its Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
7.11 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company
nor any of its Subsidiaries is a "holding company", or an "affiliate" of a
"holding company" or a "subsidiary company" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
7.12 MATERIAL AGREEMENTS AND LIENS.
(a) Part A of Schedule I hereto is a complete and correct
list, as of the Effective Date, of each credit agreement, loan agreement,
indenture, securities purchase agreement, guarantee (other than any insurance
policy which is not a Guarantee), letter of credit or other arrangement
providing for or otherwise relating to any Indebtedness of the Company or any of
its Subsidiaries the aggregate principal or face amount of which equals or
exceeds (or may equal or exceed) $3,000,000, and the aggregate principal or face
amount outstanding or that may become outstanding under each such arrangement is
correctly described in Part A of said Schedule I.
(b) Part B of Schedule I hereto is a complete and correct
list, as of the Effective Date, of each Lien securing Indebtedness of any Person
the aggregate principal or face amount of which equals or exceeds (or may equal
or exceed) $3,000,000 and covering any Property of the Company or any of its
Subsidiaries, and the aggregate Indebtedness secured (or which may be secured)
by each such Lien and the Property covered by each such Lien is correctly
described in Part B of said Schedule I.
7.13 ENVIRONMENTAL MATTERS. There have been no environmental
investigations, studies, audits, tests, reviews or other analyses conducted by
or that are in the possession of the Company or any of its Subsidiaries in
relation to any site or facility now or previously owned, operated or leased by
the Company or any of its Subsidiaries which have not been made available to the
Banks.
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7.14 CAPITALIZATION. The authorized capital stock of the
Company consists, on the Effective Date, of an aggregate of 100,000,000 shares
of common stock, par value $0.10 per share, of which 39,441,058 shares are duly
and validly issued and outstanding (and of which 1,981,148 shares are held in
treasury), each of which shares is fully paid and nonassessable. As of the
Effective Date, except for the Company's 1987 and 1997 Long-Term Incentive Plans
for Key Employees, its Non-Employee-Director Stock Option Plan and its Directors
Stock Ownership Plan as in effect on the Effective Date and any stock bonus
awards, restricted stock awards, performance units, stock options or stock
appreciation rights heretofore issued thereunder and other than pursuant to the
Shareholders' Agreement, (x) there are no outstanding Equity Rights with respect
to the Company and (y) there are no outstanding obligations of the Company or
any of its Subsidiaries to repurchase, redeem, or otherwise acquire any shares
of capital stock of the Company nor are there any outstanding obligations of the
Company or any of its Subsidiaries to make payments to any Person, such as
"phantom stock" payments, where the amount thereof is calculated with reference
to the fair market value or equity value of the Company or any of its
Subsidiaries.
7.15 SUBSIDIARIES, ETC.
(a) Set forth in Schedule II hereto is a complete and correct
list, as of the Effective Date, of all of the Subsidiaries of the Company,
together with, for each such Subsidiary, (i) the jurisdiction of organization of
such Subsidiary, (ii) each Person holding ownership interests in such Subsidiary
and (iii) the nature of the ownership interests held by each such Person and the
percentage of ownership of such Subsidiary represented by such ownership
interests. Except as disclosed in Schedule II hereto, as of the Effective Date
(x) each of the Company and its Subsidiaries owns, free and clear of Liens, and
has the unencumbered right to vote, all outstanding ownership interests in each
Person shown to be held by it in Schedule II hereto, (y) all of the issued and
outstanding capital stock of each such Person organized as a corporation is
validly issued, fully paid and nonassessable and (z) there are no outstanding
Equity Rights with respect to such Person.
(b) None of the Subsidiaries of the Company is, on the
Effective Date, subject to any indenture, agreement, instrument or other
arrangement of the type described in Section 8.17 hereof.
7.16 TRUE AND COMPLETE DISCLOSURE. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Company or any of its Subsidiaries to the Administrative Agent or
any Bank in connection with the negotiation, preparation or delivery of this
Agreement and the other Basic Documents or included herein or therein or
delivered pursuant hereto or thereto, when taken as a whole, do not, as of the
Effective Date, contain any untrue statement of material fact or
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omit to state any material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. All written information furnished after the Effective Date by the
Company and its Subsidiaries to the Administrative Agent and the Banks in
connection with this Agreement and the other Basic Documents and the
transactions contemplated hereby and thereby will be true, complete and accurate
in every material respect, or (in the case of projections) based on reasonable
estimates, on the date as of which such information is stated or certified. To
the Company's knowledge, there is no fact peculiar to the Company or any of its
Subsidiaries (in contrast to information of a general economic or industry
nature) that could have a Material Adverse Effect that has not been disclosed
herein, in the other Basic Documents or in a report, financial statement,
exhibit, schedule, disclosure letter or other writing furnished to the Banks for
use in connection with the transactions contemplated hereby or thereby.
7.17 YEAR 2000. Substantially all programming required to
handle all material dates and date processing, in and following the year 2000,
of (i) the Company's and each of its Material Subsidiaries' computer systems and
(ii) equipment containing embedded microchips (including systems and equipment
supplied by others or with which the Company's or such Material Subsidiaries'
systems interface) and the testing of all such systems and equipment, as so
reprogrammed, has been substantially completed as of the Amendment and
Restatement Effective Date. The expected cost to the Company and its Material
Subsidiaries of such reprogramming and testing and of the reasonably foreseeable
consequences of year 2000 to the Company and its Material Subsidiaries
(including, without limitation, reprogramming errors and the failure of others'
systems or equipment within the control of the Company or its Material
Subsidiaries) is not anticipated to result in a Default or have Material Adverse
Effect.
Section 8. COVENANTS OF THE COMPANY. The Company covenants and
agrees with the Banks, the Swingline Bank and the Administrative Agent that, so
long as any Commitment or Loan is outstanding and until payment in full of all
amounts payable by the Company hereunder:
8.01 FINANCIAL STATEMENTS; INFORMATION; ETC. The Company shall
deliver to each of the Banks and the Swingline Bank:
(a) as soon as available and in any event within 55 days after
the end of each quarterly fiscal period of each fiscal year of the
Company, consolidated and consolidating statements of income,
shareholders' equity and cash flows of the Company and its Subsidiaries
for such period and for the period from the beginning of the respective
fiscal year to the end of such period, and the related consolidated and
consolidating balance sheets of the Company and its Subsidiaries as at
the end of such period, setting forth in each case in comparative
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form the corresponding consolidated and consolidating figures for the
corresponding period in the preceding fiscal year, accompanied by a
certificate of a senior financial officer of the Company, which
certificate shall state that said consolidated financial statements
present fairly, in all material respects, the consolidated financial
condition and results of operations of the Company and its
Subsidiaries, and said consolidating financial statements present
fairly in all material respects, the respective individual
unconsolidated financial condition and results of operations of the
Company and of each of its Subsidiaries, in each case in accordance
with generally accepted accounting principles, consistently applied, as
at the end of, and for, such period (subject to normal year-end audit
adjustments);
(b) as soon as available and in any event within 100 days
after the end of each fiscal year of the Company, consolidated and
consolidating statements of income, stockholders' equity and cash flows
of the Company and its Subsidiaries for such fiscal year and the
related consolidated and consolidating balance sheets of the Company
and its Subsidiaries as at the end of such fiscal year, setting forth
in each case in comparative form the corresponding consolidated and
consolidating figures for the preceding fiscal year, and accompanied
(i) in the case of said consolidated statements and balance sheet of
the Company, by an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall state
that said consolidated financial statements present fairly, in all
material respects, the consolidated financial condition and results of
operations of the Company and its Subsidiaries as at the end of, and
for, such fiscal year in accordance with generally accepted accounting
principles, and a certificate of such accountants addressed to the
Banks stating that, in making the examination necessary for their
opinion, nothing came to their attention that caused them to believe
that the Company had failed to comply with any of its obligations under
Sections 8.05 to 8.11 (inclusive) or that any Default specified in
paragraph (b) or (e) to (j), inclusive, of Section 9 hereof had
occurred, except as specifically stated, and (ii) in the case of said
consolidating statements and balance sheets, by a certificate of a
senior financial officer of the Company, which certificate shall state
that said consolidating financial statements present fairly, in all
material respects, the respective individual unconsolidated financial
condition and results of operations of the Company and of each of its
Subsidiaries, in each case in accordance with generally accepted
accounting principles, consistently applied, as at the end of, and for,
such fiscal year;
(c) within 5 days after filing with the Applicable Insurance
Regulatory Authority and in any event within 55 days after the end of
each of the first three quarterly fiscal periods of each fiscal year of
the Company the quarterly Statutory Statement of the Company
(consolidated) and of each Insurance Subsidiary for such fiscal period,
together with a certificate of a senior financial officer of the
Company stating that such Statutory Statement fairly presents, in all
material respects, the financial condition of the Company
(consolidated) and of each
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Insurance Subsidiary, respectively, for such quarterly fiscal period in
accordance with statutory accounting practices required or permitted by
the Applicable Insurance Regulatory Authority;
(d) within 5 days after filing with the Applicable Insurance
Regulatory Authority and in any event within 55 days after the end of
each fiscal year of the Company the annual Statutory Statement of the
Company (consolidated) and of each Insurance Subsidiary for such year,
together with a certificate of a senior financial officer of the
Company stating that such annual Statutory Statement fairly presents,
in all material respects, the financial condition of the Company
(consolidated) and of each Insurance Subsidiary, respectively, for such
fiscal year in accordance with statutory accounting practices required
or permitted by the Applicable Insurance Regulatory Authority;
(e) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, which the
Company shall have filed with the Securities and Exchange Commission
(or any governmental agency substituted therefor) or any national
securities exchange;
(f) promptly upon the mailing thereof to the shareholders of
the Company generally, copies of all financial statements, reports and
proxy statements so mailed;
(g) as soon as possible, and in any event within 10 days after
the Company knows or has reason to believe that any of the events or
conditions specified below with respect to any Plan or Multiemployer
Plan has occurred or exists, a statement signed by a senior financial
officer of the Company setting forth details respecting such event or
condition and the action, if any, that the Company or its ERISA
Affiliate proposes to take with respect thereto (and a copy of any
report or notice required to be filed with or given to PBGC by the
Company or an ERISA Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section
4043(b) of ERISA and the regulations issued thereunder, with
respect to a Plan, as to which PBGC has not by regulation
waived the requirement of Section 4043 (a) of ERISA that it be
notified within 30 days of the occurrence of such event
(PROVIDED that a failure to meet the minimum funding standard
of Section 412 of the Code or Section 302 of ERISA, including,
without limitation, the failure to make on or before its due
date a required installment under Section 412(m) of the Code
or Section 302(e) of ERISA, shall be a reportable event
regardless of the issuance of any waivers in
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accordance with Section 412(d) of the Code); and any request
for a waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of
a notice of intent to terminate any Plan or any action taken
by the Company or an ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under
Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from
a Multiemployer Plan that such action has been taken by PBGC
with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by the Company or any ERISA Affiliate that
results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a
result of a purchaser default) or the receipt by the Company
or any ERISA Affiliate of notice from a Multiemployer Plan
that it is in reorganization or insolvency pursuant to Section
4241 or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of
any Multiemployer Plan against the Company or any ERISA
Affiliate to enforce Section 515 of ERISA, which proceeding is
not dismissed within 30 days; and
(vi) the adoption of an amendment to any Plan that,
pursuant to Section 401 (a) (29) of the Code or Section 307 of
ERISA, would result in the loss of tax-exempt status of the
trust of which such Plan is a part if the Company or an ERISA
Affiliate fails to timely provide security to the Plan in
accordance with the provisions of said Sections;
(h) promptly after the Company knows or has reason to believe
that any Default has occurred, a notice of such Default specifying that
such notice is a "Notice of Default" and describing the same in
reasonable detail and, together with such notice or as soon thereafter
as possible, a description of the action that the Company has taken or
proposes to take with respect thereto; and
(i) from time to time such other information regarding the
financial condition, operations, business or prospects of the Company
or any of its Subsidiaries (including, without limitation, any Plan or
Multiemployer Plan and
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any reports or other information required to be filed under ERISA) as
any Bank or the Administrative Agent may reasonably request.
The Company will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
senior financial officer of the Company (i) to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that the
Company has taken or proposes to take with respect thereto) and (ii) setting
forth in reasonable detail the computations necessary to determine whether the
Company is in compliance with Sections 8.05(d) (v) (z), 8.06(i), 8.07(d), 8.09
and 8.10 hereof as of the end of the respective quarterly fiscal period or
fiscal year.
8.02 LITIGATION. The Company will promptly give to each Bank
and the Swingline Bank notice of all legal or arbitration proceedings, and of
all proceedings by or before any governmental or regulatory authority or agency,
and any material development in respect of such legal or other proceedings,
affecting the Company or any of its Subsidiaries, except proceedings which, if
adversely determined, could not, either individually or in the aggregate, have a
Material Adverse Effect.
8.03 EXISTENCE, ETC. The Company will, and will cause
each of its Material Subsidiaries to:
(a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises (PROVIDED that
nothing in this Section 8.03 shall prohibit any transaction expressly
permitted by Section 8.05 hereof);
(b) comply with the requirements of all applicable laws,
rules, regulations and orders of governmental or regulatory authorities
if failure to comply with such requirements could, either individually
or in the aggregate, have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any
of its Property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained in accordance with
GAAP;
(d) maintain all of its Properties material to its business in
reasonably adequate working order and condition, ordinary wear and tear
excepted;
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(e) keep adequate records and books of account, in which
complete entries will be made in accordance with generally accepted
accounting principles consistently applied; and
(f) permit representatives of any Bank or the Administrative
Agent, during normal business hours, to examine, copy and make extracts
from its books and records, to inspect any of its Properties, and to
discuss its business and affairs with its officers, all to the extent
reasonably requested by such Bank or the Administrative Agent (as the
case may be).
8.04 INSURANCE. The Company will, and will cause each of its
Material Subsidiaries to, keep insured by financially sound and reputable
insurers all Property of a character usually insured by corporations engaged in
the same or similar business similarly situated against loss or damage of the
kinds and in the amounts customarily insured against by such corporations and
carry such other insurance as is usually carried by such corporations.
8.05 PROHIBITION OF FUNDAMENTAL CHANGES.
(a) The Company will not, and will not permit any of its
Material Subsidiaries to, enter into any transaction of merger or consolidation
or amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution).
(b) The Company will not, and will not permit any of its
Subsidiaries to, acquire any business or Property from, or capital stock of, or
be a party to any acquisition of, any Person.
(c) The Company will not, and will not permit any of its
Material Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of
any part of its business or Property, whether now owned or hereafter acquired
(including, without limitation, receivables and leasehold interests).
(d) Notwithstanding the foregoing paragraphs of this Section
8.05:
(i) any Subsidiary of the Company may be merged or
consolidated with or into (x) the Company if the Company shall be the
continuing or surviving corporation or (y) any other Subsidiary of the
Company; PROVIDED that if any such transaction shall be between a
Subsidiary of the Company and a Wholly Owned Subsidiary of the Company,
such Wholly Owned Subsidiary shall be the continuing or surviving
corporation;
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(ii) the Company or any of its Subsidiaries may purchase
equipment, furniture and supplies to be used in the ordinary course of
business;
(iii) the Company or any of its Subsidiaries may make
Investments permitted by Section 8.08 hereof;
(iv) any Subsidiary of the Company may convey, sell, lease,
transfer or otherwise dispose of any or all of its Property (upon
voluntary liquidation or otherwise) to the Company or a Wholly Owned
Subsidiary of the Company; and
(v) the Company or any of its Subsidiaries may convey, sell,
lease, transfer or otherwise dispose of (x) equipment no longer used or
useful in its business, (y) any portfolio Investment sold or disposed
of in the ordinary course of business and (z) any other Investment
(including any Investment in the capital stock of Subsidiaries of the
Company other than ERC or Asset Guaranty) having a value, together with
the value (when sold, leased transferred or otherwise disposed of), of
all Investments sold, leased, transferred or otherwise disposed of in
reliance on this sub-clause (z), not in excess of $3,000,000.
(e) Except as expressly permitted by this Section 8.05, the
Company shall not, nor shall it permit any of its Material Subsidiaries to,
sell, transfer, convey or otherwise dispose of either directly or indirectly (x)
all or any portion of the capital stock of any of its Material Subsidiaries or
(y) all or substantially all of the Properties of any of its Material
Subsidiaries in one transaction or a series of related transactions; PROVIDED,
HOWEVER, the Company may transfer all of the capital stock of any of its
Insurance Subsidiaries to Enhance Investment.
8.06 LIMITATION ON LIENS. The Company will not, and will not
permit any of its Material Subsidiaries to, create, incur, assume or suffer to
exist any Lien upon any of its Property, whether now owned or hereafter
acquired, except:
(a) Liens in existence on the Effective Date and listed in
Part B of Schedule I hereto;
(b) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or which are being contested in good
faith and by appropriate proceedings, unless the amount thereof is
material with respect to it or its financial condition, if adequate
reserves with respect thereto are maintained on the books of the
Company or the affected Subsidiaries, as the case may be, in accordance
with GAAP;
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(c) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 30 days or
which are being contested in good faith and by appropriate proceedings
and Liens securing judgments but only to the extent for an amount and
for a period not resulting in an Event of Default under Section 9(h)
hereof;
(d) pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and
encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of Property or minor imperfections in title
thereto which, in the aggregate, are not material in amount, and which
do not in any case materially detract from the value of the Property
subject thereto or interfere with the ordinary conduct of the business
of the Company or any of its Subsidiaries;
(g) Liens on Property of any corporation which becomes a
Subsidiary of the Company after the Effective Date; PROVIDED that such
Liens are in existence at the time such corporation becomes a
Subsidiary of the Company and were not created in anticipation thereof;
(h) Liens upon real and/or tangible personal Property acquired
after the Effective Date (by purchase, construction or otherwise) by
the Company or any of its Subsidiaries, each of which Liens either
existed on such Property before the time of its acquisition and was not
created in anticipation thereof or was created solely for the purpose
of securing Indebtedness incurred to finance, refinance or refund the
cost (including the cost of construction) of such Property; PROVIDED
that (i) no such Lien shall extend to or cover any Property of the
Company or such Subsidiary other than the Property so acquired and
improvements thereon and (ii) the principal amount of Indebtedness
secured by any such Lien shall not exceed 75% of the fair market value
(as determined in good faith by a senior financial officer of the
Company) of such Property at the time it was acquired (by purchase,
construction or otherwise); and
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(i) any extension, renewal or replacement of the foregoing;
PROVIDED that the Liens permitted by this paragraph shall not extend to
or cover any additional Indebtedness or Property (other than a
substitution of like Property).
8.07 INDEBTEDNESS. The Company will not, and will not permit
any of its Material Subsidiaries to, create or incur any Indebtedness except:
(a) Indebtedness to the Banks and the Swingline Bank
hereunder;
(b) Indebtedness of the Company to any Subsidiary of the
Company or Indebtedness of any Wholly Owned Subsidiary to the Company
or to any other Wholly Owned Subsidiary of the Company;
(c) Indebtedness of the Company and its Material Subsidiaries
secured by Liens permitted by Section 8.06(h) hereof;
(d) additional Indebtedness of the Company and its Material
Subsidiaries provided that on the date such Indebtedness is incurred
and after giving effect thereto and to the concurrent retirement of any
other Indebtedness of the Company and its Material Subsidiaries, total
consolidated Indebtedness of the Company and its Subsidiaries
(including Indebtedness created or incurred under any other subsection
of this Section 8.07) does not exceed 25% of Total Capitalization or
60% of Combined Statutory Surplus; and
(e) Indebtedness of ERC not exceeding $100,000,000 in
aggregate principal amount incurred under a credit facility established
by ERC solely for the purpose of acquiring or supporting one or more of
its claims-paying ability ratings.
8.08 INVESTMENTS. The Company will not, and will not permit
any of its Material Subsidiaries to, make or permit to remain outstanding any
Investments except:
(a) Investments constituting (i) operating deposit accounts
with banks and (ii) accounts receivable arising in the ordinary course
of business on ordinary business terms that are not overdue;
(b) portfolio Investments constituting short-term debt
instruments that are rated at least A-1 by Standard & Poor's
Corporation or P-l by Moody's Investors Service Inc.;
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(c) portfolio Investments constituting fixed income debt
securities if, after giving effect to such Investment:
(i) the weighted average credit quality of the fixed
income debt securities portfolio of the Company or any
Material Subsidiary, as determined by the rating system of
Standard & Poor's Corporation, is AA or higher; or
(ii) the aggregate amount invested by the Company and
each of its Material Subsidiaries in fixed income debt
securities which are rated lower than BBB by Standard & Poor's
Corporation or Baa2 by Moody's Investors Service Inc. does not
exceed 1% of the aggregate amount of all portfolio Investments
of the Company and its Material Subsidiaries;
(d) equity Investments if, after giving effect to such
Investments, the aggregate amount of equity Investments of the Company
and of its Material Subsidiaries (including, without limitation,
Investments in Subsidiaries of the Company that are not Wholly Owned
Subsidiaries of the Company) (i) in any one Person, including
Affiliates thereof, does not exceed at any time 75% of the aggregate
amount of equity Investments of the Company and its Material
Subsidiaries and (ii) does not exceed at any time during the periods
set forth below, the following percentages of the aggregate amount of
the consolidated Investments (both debt and equity) of the Company and
its Material Subsidiaries:
-------------------------------- ---------------------------------------
Maximum Aggregate Equity Investments
DURING THE FISCAL YEAR ENDING: as Percentage of CONSOLIDATED
INVESTMENTS
-------------------------------- ---------------------------------------
December 31, 1998 and
December 31, 1999 10.0%
-------------------------------- ---------------------------------------
December 31, 2000 12.0%
-------------------------------- ---------------------------------------
December 31, 2001 and thereafter 14.5%
-------------------------------- ---------------------------------------
For purposes of this subsection (d), the amount of equity
Investments shall not include any increases in the value of
such equity Investments resulting from undistributed earnings
on such equity Investment.
(e) travel and similar advances by the Company and its
Material Subsidiaries in the ordinary course of business and loans to
officers and directors of the Company and its Material Subsidiaries,
provided that such travel and similar advances and loans to officers
and directors at any one time do not, in the aggregate, exceed $500,000
for the Company and its Material Subsidiaries.
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8.09 RESTRICTED PAYMENTS. The Company will not declare or make
any Restricted Payment unless, on the date of declaration in the case of any
proposed dividend and on the date of payment or distribution in the case of the
making of any other Restricted Payment (the "COMPUTATION DATE"), and after
giving effect thereto:
(i) the aggregate amount of all Restricted Payments
made during the period commencing on January 1, 1998 and
ending on and including the Computation Date (the "COMPUTATION
PERIOD") shall not exceed an amount equal to the sum of:
(a) 25% (or, in the case of a deficit, minus
100%) of consolidated net income of the Company and
its Subsidiaries for the Computation Period, PLUS
(b) the net cash proceeds received by the
Company from the issue or sale (other than to a
Subsidiary) of shares of common or preferred stock
(other than Redeemable Preferred Stock) of the
Company (including shares of common stock issued upon
conversion of Indebtedness to common stock, it being
understood and agreed that in any such conversion,
the Company shall be deemed to have received cash
proceeds in an amount equal to the principal amount
of Indebtedness converted to common stock), and
(ii) no Default shall have occurred and be
continuing;
PROVIDED, that the Company shall not in any fiscal quarter of the Company
declare any dividend to the extent that the amount of such dividend, together
with the sum of (i) the aggregate amount of all dividends theretofore declared
in such fiscal quarter PLUS (ii) the aggregate amount of dividends actually paid
during the period (the "MEASURING PERIOD") of four consecutive fiscal quarters
of the Company ended on (or most recently ended prior to) such declaration,
would exceed 25% of the consolidated net income of the Company and its
Subsidiaries for the Measuring Period (and the Company shall not pay any
dividends it has not previously declared as permitted hereby); and PROVIDED
FURTHER, that no Restricted Payments shall be permitted if and for so long as
the claims-paying ability rating, as rated by S&P (if rated by S&P), of ERC
falls below AA+ (or is withdrawn) or of any other Insurance Subsidiary of the
Company falls below AA- (or is withdrawn).
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8.10 FINANCIAL COVENANT - TANGIBLE NET WORTH. The Company will
not on any date permit Tangible Net Worth to be less than $400,000,000.
8.11 LINES OF BUSINESS. The Company will not permit any of its
Insurance Subsidiaries to engage to any substantial extent in any line or lines
of business activity other than the business of issuing financial guaranty
insurance, credit insurance and residual value insurance (and reinsurance of the
same), surety bonds, and similar or related products.
8.12 TRANSACTIONS WITH AFFILIATES. The Company will not, and
will not permit any of its Subsidiaries to, directly or indirectly:
(a) make any Investment in any Affiliate of the Company;
(b) transfer, sell, lease, assign or otherwise dispose of any
Property to any such Affiliate;
(c) purchase or acquire Property from any such Affiliate; or
(d) enter into any other transaction directly or indirectly
with or for the benefit of any such Affiliate (including, without
limitation, Guarantees and assumptions of obligations of any such
Affiliate);
PROVIDED that the Company and its Subsidiaries may enter into transactions
(other than Investments by the Company or any of its Subsidiaries in any
Affiliate of the Company) providing for the leasing of Property, the rendering
or receipt of services or the purchase or sale of Property in the ordinary
course of business if the monetary or business consideration arising therefrom
would be substantially as advantageous to the Company and its Subsidiaries as
the monetary or business consideration which would obtain in a comparable
transaction with a Person not an Affiliate of the Company.
8.13 USE OF PROCEEDS. The Company will use the proceeds of the
Loans hereunder solely for general corporate purposes, including repayment of
all of its outstanding obligations under the Existing Credit Agreement and
acquisitions, in compliance with all applicable legal and regulatory
requirements; PROVIDED that (a) the proceeds of any Swingline Loan may not be
used to repay or prepay any other Swingline Loan and (b) none of the
Administrative Agent, any Bank or the Swingline Bank shall have any
responsibility as to the use of any of such proceeds.
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8.14 CERTAIN OBLIGATIONS RESPECTING SUBSIDIARIES.
(a) Subject to Section 8.05 hereof, the Company will, and will
cause each of ERC and Asset Guaranty to, take such action from time to time as
shall be necessary to ensure that each of ERC and Asset Guaranty is a Wholly
Owned Subsidiary.
(b) The Company will not permit any of ERC or Asset Guaranty
to issue any shares of stock of any class whatsoever to any Person (other than
to the Company).
8.15 MODIFICATIONS OF CERTAIN DOCUMENTS. The Company will not
consent to any modification, supplement or waiver of any of the provisions of
the Indenture that would materially increase the obligations, or materially
reduce the rights, of the Company or any of its Subsidiaries thereunder.
8.16 CLAIMS-PAYING RATING. The Company will not allow the
claims-paying rating, as rated by S&P, of ERC to be less than AA+ (or to be
withdrawn) or of any other Insurance Subsidiary to be less than AA-(or to be
withdrawn) at any time.
8.17 DIVIDENDS TO OR INVESTMENTS IN THE COMPANY BY
SUBSIDIARIES. The Company will not, nor will it permit any of its Subsidiaries
to, issue any securities or enter into any agreements (other than with or as
required by applicable regulatory authorities) that will either (i) limit the
ability of any of the Subsidiaries of the Company to declare or pay or set apart
any funds for the payment of any dividend or make any distribution to or
Investment in the Company or (ii) prevent such Subsidiary from paying to the
Company the entire amount available to be paid as dividends or distributions by
such Subsidiary; PROVIDED, that nothing herein shall be deemed to require any
Subsidiary of the Company to pay any dividend to, or make any Investment in, the
Company in excess of the amount necessary to enable the Company to make all
payments required hereunder and under the Notes.
Section 9. EVENTS OF DEFAULT. If one or more of the
following events (herein called "EVENTS OF DEFAULT") shall occur and be
continuing:
(a) The Company shall: (i) default in the payment of any
principal of any Loan when due (whether at stated maturity or upon
mandatory or optional prepayment); or (ii) default in the payment of
any interest on any Loan or any fee hereunder when due and such default
shall have continued unremedied for five or more days; or
(b) The Company or any of its Subsidiaries shall default in
the payment when due of any principal of or interest on any of its
Indebtedness aggregating $3,000,000 (or its equivalent in any other
currency) or more (other than the Indebtedness referred to in paragraph
(a) above); or any event specified in any note, agreement, indenture or
other document evidencing or relating to any
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such Indebtedness shall occur if the effect of such event is to cause,
or (with the giving of any notice or the lapse of time or both) to
permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause, such Indebtedness
to become due, or to be prepaid in full (whether by redemption,
purchase, offer to purchase or otherwise), prior to its stated maturity
or to have the interest rate thereon reset to a level so that
securities evidencing such Indebtedness trade at a level specified in
relation to the par value thereof; or
(c) Any representation, warranty or certification made or
deemed made herein or in any other Basic Document (or in any
modification or supplement hereto or thereto) by the Company, or any
certificate furnished to any Bank, the Swingline Bank or the
Administrative Agent pursuant to the provisions hereof or thereof,
shall prove to have been false or misleading as of the time made,
deemed made or furnished in any material respect; or
(d) The Company shall default in the performance of any of its
obligations under any of Sections 8.01(h), 8.05, 8.06, 8.07, 8.09,
8.10, 8.11 and 8.13 to 8.18 (inclusive) hereof; or the Company shall
default in the performance of any of its other obligations in this
Agreement or any other Basic Document and such default shall continue
unremedied for a period of 15 days after notice thereof to the Company
by the Administrative Agent, any Bank or the Swingline Bank (in either
case, through the Administrative Agent); or
(e) The Company or any of its Material Subsidiaries shall
admit in writing its inability to, or be generally unable to, pay its
debts as such debts become due; or
(f) The Company or any of its Material Subsidiaries shall (i)
apply for or consent to the appointment of, or the taking of possession
by, a receiver, custodian, trustee, examiner, rehabilitator,
conservator or liquidator of itself or of all or a substantial part of
its Property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Bankruptcy Code,
(iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or readjustment
of debts, (v) fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code or (vi) take any corporate
action for the purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the
application or consent of the Company or any of its Material
Subsidiaries, in any court of
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competent jurisdiction, seeking (i) its reorganization, rehabilitation,
conservation, liquidation, dissolution, arrangement or winding-up, or
the composition or readjustment of its debts, (ii) the appointment of a
receiver, custodian, trustee, examiner, rehabilitator, conservator,
liquidator or the like of the Company or such Material Subsidiary or of
all or any substantial part of its Property, or (iii) similar relief in
respect of the Company or such Subsidiary under any law relating to
bankruptcy, insolvency, reorganization, rehabilitation, conservation,
liquidation, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing (other
than an order for relief in an involuntary case under the Bankruptcy
Code) shall be entered and continue unstayed and in effect, for a
period of 60 or more days; or an order for relief against the Company
or such Material Subsidiary shall be entered in an involuntary case
under the Bankruptcy Code; or
(h) A final judgment or judgments for the payment of money in
excess of $3,000,000 (or its equivalent in any other currency) in the
aggregate (exclusive of judgment amounts fully covered by insurance
where the insurer has admitted liability in respect of such judgment)
or in excess of $5,000,000 (or its equivalent in any other currency) in
the aggregate (regardless of insurance coverage) shall be rendered by
one or more courts, administrative tribunals or other bodies having
jurisdiction against the Company or any of its Subsidiaries and the
same shall not be discharged (or provision shall not be made for such
discharge), or a stay of execution thereof shall not be procured,
within 30 days from the date of entry thereof and the Company or the
relevant Subsidiary shall not, within said period of 30 days, or such
longer period during which execution of the same shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or
(i) An event or condition specified in Section 8.01(g) hereof
shall occur or exist with respect to any Plan or Multiemployer Plan
and, as a result of such event or condition, together with all other
such events or conditions, the Company or any ERISA Affiliate shall
incur or in the opinion of the Majority Banks shall be reasonably
likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or
any combination of the foregoing) which, in the determination of the
Majority Banks, could have a Material Adverse Effect; or
(j) A Change in Control shall occur;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
paragraph (f) or (g) of this Section 9 with respect to the Company, the
Administrative Agent may and, upon request of the Majority Banks (or with
respect to Swingline Loans, upon the request of the Swingline Bank), shall, by
notice to the Company, terminate the Commitments (and/or the Swingline
Commitment) and/or declare the principal amount then outstanding of, and the
accrued interest on, the Loans and all other amounts payable
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by the Company hereunder and under the Notes (including, without limitation, any
amounts payable under Section 5.05 hereof) to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by the Company; and (2) in the case of the occurrence of an
Event of Default referred to in paragraph (f) or (g) of this Section 9 with
respect to the Company, the Commitments shall automatically be terminated and
the principal amount then outstanding of, and the accrued interest on, the Loans
and all other amounts payable by the Company hereunder and under the Notes
(including, without limitation, any amounts payable under Section 5.05 hereof)
shall automatically become immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by the Company.
Section 10. THE ADMINISTRATIVE AGENT.
10.01 APPOINTMENT, POWERS AND IMMUNITIES. Each Bank and the
Swingline Bank hereby irrevocably (subject to Section 10.08 hereof) appoints and
authorizes the Administrative Agent to act as its agent hereunder and under the
other Basic Documents with such powers as are specifically delegated to the
Administrative Agent by the terms of this Agreement and of the other Basic
Documents, together with such other powers as are reasonably incidental thereto.
The Administrative Agent (which term as used in this sentence and in Section
10.05 and the first sentence of Section 10.06 hereof shall include reference to
its affiliates and its own and its affiliates' officers, directors, employees
and agents): (a) shall have no duties or responsibilities except those expressly
set forth in this Agreement and in the other Basic Documents, and shall not by
reason of this Agreement or any other Basic Document be a trustee for any Bank
or the Swingline Bank; (b) shall not be responsible to the Banks or the
Swingline Bank for any recitals, statements, representations or warranties made
by any other Person contained in this Agreement or in any other Basic Document,
or in any certificate or other document referred to or provided for in, or
received by any of them under, this Agreement or any other Basic Document, or
for the value, validity, effectiveness (other than the Agent's own due
execution), genuineness, enforceability or sufficiency of this Agreement or any
Note or any other document referred to or provided for herein or herein or for
any failure by the Company or any other Person to perform any of its obligations
hereunder or thereunder; (c) shall not be required to initiate or conduct any
litigation or collection proceedings hereunder or under any other Basic
Document; (d) shall not be responsible for any action taken or omitted to be
taken by it hereunder or under any other Basic Document or under any other
document or instrument referred to or provided for herein or therein or in
connection herewith or therewith, except for its own gross negligence or willful
misconduct; and (e) shall not be responsible to the Company, the Banks or the
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Swingline Bank for (i) determining whether or not any of the transactions
contemplated hereby qualifies as a highly leveraged transaction ("HLT") as
defined by any bank regulatory authority, (ii) notifying the Banks or the
Swingline Bank regarding the HLT status of any transaction contemplated hereby
or of any change in that status or (iii) the correctness of any determination as
to HLT status. The Administrative Agent may employ agents and attorneys-in-fact
and shall not be responsible for the negligence or misconduct of any such agents
or attorneys-in-fact selected by it in good faith. The Administrative Agent may
deem and treat the payee of any Note as the holder thereof for all purposes
hereof unless and until a notice of the assignment or transfer thereof shall
have been filed with the Administrative Agent, together with the consent of the
Company to such assignment or transfer (to the extent provided in Section
11.06(b) hereof).
10.02 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative
Agent shall be entitled to rely upon any certification, notice or other
communication (including, without limitation, any thereof by telephone,
telecopy, telex, telegram or cable) believed by it to be genuine and correct and
to have been signed or sent by or on behalf of the proper Person or Persons, and
upon advice and statements of legal counsel, independent accountants and other
experts selected by the Administrative Agent. As to any matters not expressly
provided for by this Agreement or any other Basic Document, the Administrative
Agent shall in all cases be fully protected in acting, or in refraining from
acting, hereunder or thereunder in accordance with instructions given by the
Majority Banks or, if provided herein, in accordance with the instructions given
by the Majority Banks or all of the Banks as is required in such circumstance,
and such instructions of such Banks and any action taken or failure to act
pursuant thereto shall be binding on all of the Banks.
10.03 DEFAULTS. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of a Default (other than the
non-payment of principal of or interest on Loans) unless the Administrative
Agent has received notice from a Bank or the Company specifying such Default and
stating that such notice is a "Notice of Default". In the event that the
Administrative Agent receives such a notice of the occurrence of a Default, the
Administrative Agent shall give prompt notice thereof to the Banks and the
Swingline Bank (and shall give each Bank, and with respect to Swingline Loans,
the Swingline Bank, prompt notice of each such non-payment). The Administrative
Agent shall (subject to Sections 10.01, 10.07 and 11.04 hereof) take such action
with respect to such Default as shall be directed by the Majority Banks or in
the case of Swingline Loans, the Swingline Bank, PROVIDED that, unless and until
the Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall deem advisable in
the best interest of the Banks except to the extent that this Agreement
expressly requires that such action be taken, or not be taken, only with the
consent or upon the authorization of the Majority Banks or all of the Banks.
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10.04 RIGHTS AS A BANK. With respect to its Commitments, its
Swingline Commitment and the Loans made by it, Fleet (and any successor acting
as Administrative Agent) in its capacity as a Bank or the Swingline Bank
hereunder shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not acting as the Administrative Agent,
and the term "Bank" or "Banks" or "Swingline Bank" shall, unless the context
otherwise indicates, include the Administrative Agent in its individual
capacity. Fleet (and any successor acting as Administrative Agent) and its
affiliates may (without having to account therefor to any Bank) accept deposits
from, lend money to, make investments in and generally engage in any kind of
banking, trust or other business with the Company (and any of its Subsidiaries
or Affiliates) as if it were not acting as the Administrative Agent, and Fleet
and its affiliates may accept fees and other consideration from the Company for
services in connection with this Agreement or otherwise without having to
account for the same to the Banks or the Swingline Bank.
10.05 INDEMNIFICATION. The Banks agree to indemnify the
Administrative Agent (to the extent not reimbursed under Section 11.03 hereof,
but without limiting the obligations of the Company under said Section 11.03)
ratably in accordance with the aggregate principal amount of the Loans held by
the Banks (or, if no Loans are at the time outstanding, ratably in accordance
with their respective Commitments), for any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever that may be imposed on, incurred
by or asserted against the Administrative Agent (including by any Bank) arising
out of or by reason of any investigation in or in any way relating to or arising
out of this Agreement or any other Basic Document or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including, without limitation, the costs and
expenses that the Company is obligated to pay under Section 11.03 hereof, but
excluding, unless a Default has occurred and is continuing, normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or thereof or of
any such other documents, PROVIDED that no Bank shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified.
10.06 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER BANKS.
Each Bank agrees that it has, independently and without reliance on the
Administrative Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Company and its Subsidiaries and decision to enter into this Agreement and that
it will, independently and without reliance upon the Administrative Agent or any
other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement. The Administrative Agent shall
not be required to keep itself informed as to the performance or observance by
the Company of this Agreement or any of the other Basic Documents or any other
document referred to or provided for herein or therein or to inspect the
Properties or
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books of the Company or any of its Subsidiaries. Except for notices, reports and
other documents and information expressly required to be furnished to the Banks
by the Administrative Agent hereunder, the Administrative Agent shall not have
any duty or responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition or business of the
Company or any of its Subsidiaries (or any of their affiliates) that may come
into the possession of the Administrative Agent or any of its affiliates.
10.07 FAILURE TO ACT. Except for action expressly required of
the Administrative Agent hereunder and under the other Basic Documents, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder and thereunder unless it shall receive further
assurances to its satisfaction from the Banks of their indemnification
obligations under Section 10.05 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.
10.08 RESIGNATION OR REMOVAL OF ADMINISTRATIVE AGENT. Subject
to the appointment and acceptance of a successor Administrative Agent as
provided below, the Administrative Agent may resign at any time by giving notice
thereof to the Banks and the Company, and the Administrative Agent may be
removed at any time with or without cause by the Majority Banks. Upon any such
resignation or removal, the Majority Banks shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Majority Banks and shall have accepted such appointment
within 30 days after the retiring Administrative Agent's giving of notice of
resignation or the Majority Banks' removal of the retiring Administrative Agent,
then the retiring Administrative Agent may, on behalf of the Banks, after
consultation with the Company, appoint a successor Administrative Agent that
shall be a bank which has an office in New York, New York and which has a
combined capital and surplus of at least $500,000,000. Upon the acceptance of
any appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations hereunder. After any retiring Administrative
Agent's resignation or removal hereunder as Administrative Agent, the provisions
of this Section 10 shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as the
Administrative Agent.
10.09 CONSENTS UNDER BASIC DOCUMENTS. Except as otherwise
provided in Section 11.04 hereof with respect to this Agreement, the
Administrative Agent may, with the prior consent of the Majority Banks (but not
otherwise), consent to any modification, supplement or waiver under any of the
Basic Documents.
<PAGE>
-70-
Section 11. MISCELLANEOUS.
11.01 WAIVER. No failure on the part of the Administrative
Agent or any Bank or the Swingline Bank to exercise and no delay in exercising,
and no course of dealing with respect to, any right, power or privilege under
this Agreement or any Note shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege under this Agreement
or any Note preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
11.02 NOTICES. All notices, requests and other communications
provided for herein (including, without limitation, any modifications of, or
waivers, requests or consents under, this Agreement) shall be given or made in
writing (including, without limitation, by telecopy) delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof); or, as to any party, at such other address as shall be designated
by such party in a notice to each other party. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been duly given
when transmitted by telecopier or personally delivered or, in the case of a
mailed notice, upon receipt, in each case given or addressed as aforesaid.
11.03 EXPENSES, ETC. The Company agrees to pay or reimburse
each of the Banks and the Swingline Bank, the Administrative Agent and the
Arranger for paying: (a) all reasonable out-of-pocket costs and expenses of the
Administrative Agent (including, without limitation, the reasonable fees and
expenses of Day, Berry & Howard, LLP, special counsel to Fleet), in connection
with (i) the negotiation, preparation, execution and delivery of this Agreement
and the other Basic Documents and the making of the Loans hereunder and (ii) any
modification, supplement or waiver of any of the terms of this Agreement or any
of the other Basic Documents; (b) all costs and expenses of the Banks, the
Swingline Bank and the Administrative Agent (including, without limitation,
reasonable counsels' fees) in connection with (i) any Default and any
enforcement or collection proceedings resulting therefrom or in connection with
the negotiation of any restructuring or "work-out" (whether or not consummated)
of the obligations of the Company hereunder or under any of the other Basic
Documents and (ii) the enforcement of this Section 11.03; and (c) all transfer,
stamp, documentary or other similar taxes, assessments or charges levied by any
governmental or revenue authority in respect of this Agreement or any of the
other Basic Documents or any other document referred to herein or therein.
The Company hereby agrees to indemnify the Administrative
Agent, the Arranger, each Bank and the Swingline Bank and their respective
directors, officers, employees, attorneys and agents from, and hold each of them
harmless against, any and all losses, liabilities, claims, damages or expenses
incurred by any of them (other than liability of the Administrative Agent to any
Bank) arising out of or by reason of any investigation or litigation or other
proceedings (including any threatened investigation or litigation or other
proceedings and whether or not the Administrative Agent or such Bank
<PAGE>
-71-
or the Swingline Bank or other Person is a party thereto) relating to the
extensions of credit hereunder or any actual or proposed use by the Company or
any of its Subsidiaries of the proceeds of any of the extensions of credit
hereunder, including, without limitation, the reasonable fees and disbursements
of counsel incurred in connection with any such investigation or litigation or
other proceedings (but excluding any such losses, liabilities, claims, damages
or expenses incurred by reason of the gross negligence or willful misconduct of
the Person to be indemnified).
11.04 AMENDMENTS, ETC. Except as otherwise expressly provided
in this Agreement, any provision of this Agreement may be modified or
supplemented only by an instrument in writing signed by the Company, the
Administrative Agent and the Majority Banks, or by the Company and the
Administrative Agent acting with the consent of the Majority Banks, and, if the
rights or obligations hereunder of the Swingline Bank are affected thereby, the
Swingline Bank, and any provision of this Agreement may be waived by the
Majority Banks or by the Administrative Agent acting with the consent of the
Majority Banks and, if the rights or obligations hereunder of the Swingline Bank
are affected thereby, the Swingline Bank; PROVIDED that: (a) no modification,
supplement or waiver shall, unless by an instrument signed by all of the Banks
or by the Administrative Agent acting with the consent of all of the Banks (i)
increase or extend the term of any of the Commitments, or extend the time or
waive any requirement for the reduction or termination of any of the
Commitments, (ii) extend any date fixed for the payment of principal of or
interest on any Loan or any fee hereunder (other than any fee payable solely for
account of the Administrative Agent), (iii) reduce the amount of any such
payment of principal, (iv) reduce the rate at which interest is payable thereon
or any fee is payable hereunder (other than any fee payable solely for account
of the Administrative Agent), (v) alter the several nature of the obligations of
each Bank and the Swingline Bank hereunder, (vi) alter the terms of any of
Sections 2.07, 4.02 or 4.07 hereof or this Section 11.04, (vii) modify the
definition of the term "Majority Banks" or modify in any other manner the number
or percentage of the Banks required to make any determinations or waive any
rights hereunder or to modify any provision hereof, or (viii) waive any of the
conditions precedent set forth in Section 6 hereof; and (b) if at the time any
Swingline Loans shall be outstanding, no modification, supplement or waiver with
respect to any provision of Sections 8 or 9 hereof shall be effective without
the concurrence of the Swingline Bank; and (c) any modification of any of the
rights or obligations of the Administrative Agent hereunder shall require the
consent of the Administrative Agent.
11.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
<PAGE>
-72-
11.06 ASSIGNMENTS AND PARTICIPATIONS.
(a) The Company may not assign any of its rights or
obligations hereunder or under the Notes without the prior consent of all of the
Banks and the Administrative Agent and the Swingline Bank.
(b) Each Bank may, at any time or from time to time, assign to
one or more other Persons all or any portion of its Loans, its Notes, and its
Commitment (but only with the consent of the Company, the Administrative Agent
and the Swingline Bank, which consents shall not be unreasonably withheld);
PROVIDED that (i) no such consent by the Company, the Administrative Agent or
the Swingline Bank shall be required in the case of any assignment to another
Bank; (ii) any such partial assignment shall be in an amount at least equal to
$5,000,000 or any integral multiple of $1,000,000 in excess thereof; (iii) each
such assignment by a Bank of its Revolving Credit Loans, Revolving Credit Note,
Term Loan, Term Loan Note or Commitment shall be made in such manner so that the
same portion of its Revolving Credit Loans, Revolving Credit Note, Term Loan,
Term Loan Note and Commitment is assigned to the respective assignee; (iv) each
such assignment shall be effected by an Assignment and Acceptance in
substantially the form of Exhibit D hereto. Upon execution and delivery by the
assignee to the Company and the Administrative Agent of an Assignment and
Acceptance pursuant to which such assignee agrees to become a "Bank" hereunder
(if not already a Bank) having the Commitment and Loans specified in such
Assignment and Acceptance, and upon consent thereto by the Company and the
Administrative Agent, to the extent required above, the assignee shall have, to
the extent of such assignment (unless otherwise provided in such assignment with
the consent of the Company and the Administrative Agent), the obligations,
rights and benefits of a Bank hereunder holding the Commitment and Loans (or
portions thereof) assigned to it (in addition to the Commitment and Loans, if
any, theretofore held by such assignee) and the assigning Bank shall, to the
extent of such assignment, be released from the Commitment (or portion thereof)
so assigned. Notwithstanding the foregoing, no assignee or other transferee of
any of the rights, obligations or benefits of a Bank in respect of the Loans
shall be entitled to receive any greater payment under Sections 5.01, 5.05 and
5.06 than such Bank would have been entitled to receive with respect to the
Loans unless such transfer is made with the Company's prior written consent
specifically detailing the nature of the greater payments to be due, or at a
time when the circumstances giving rise to such greater payment did not exist or
had not been announced. Upon each such assignment the assigning Bank shall pay
the Administrative Agent an assignment fee of $3,500.
(c) A Bank may, at any time or from time to time, sell or
agree to sell to one or more other Persons a participation in all or any part of
any Loans held by it, or in its Commitment, but no purchaser of a participation
(a "PARTICIPANT") shall, except as otherwise provided in Section 4.07(c) hereof,
have any rights or benefits under this Agreement or any Note or any other Basic
Document (the Participant's rights against such Bank in respect of such
participation to be those set forth in the agreements executed by such Bank in
favor of the Participant). All amounts payable by the Company to any Bank
<PAGE>
-73-
under Section 5 hereof in respect of the Loans held by it, and its Commitment,
shall be determined as if such Bank had not sold or agreed to sell any
participations in such Loans and Commitment, and as if such Bank were funding
each of such Loan and Commitment in the same way that it is funding the portion
of such Loan and Commitment in which no participations have been sold. In no
event shall a Bank that sells a participation agree with the Participant to take
or refrain from taking any action hereunder or under any other Basic Document
except that such Bank may agree with the Participant that it will not, without
the consent of the Participant, agree to (i) increase or extend the term, or
extend the time or waive any requirement for the reduction or termination, of
such Bank's related Commitment, (ii) extend any date fixed for the payment of
principal of or interest on the related Loan or Loans or any portion of any fee
hereunder payable to the Participant, (iii) reduce the amount of any such
payment of principal, (iv) reduce the rate at which interest is payable thereon,
or any fee hereunder payable to the Participant, to a level below the rate at
which the Participant is entitled to receive such interest or fee, (v) increase
the rights or reduce the obligations of the Company to prepay the related Loans
or (vi) consent to any modification, supplement or waiver hereof or of any of
the other Basic Documents to the extent that the same, under Section 10.09 or
11.04 hereof, requires the consent of each Bank.
(d) In addition to the assignments and participations
permitted by the foregoing provisions of this Section 11.06, any Bank may assign
and pledge all or any portion of its Loans and its Notes to any Federal Reserve
Bank as collateral security pursuant to Regulation A and any Operating Circular
issued by such Federal Reserve Bank. No such assignment shall release the
assigning Bank from its obligations hereunder.
(e) A Bank or the Swingline Bank may furnish any information
concerning the Company or any of its Subsidiaries in the possession of such Bank
from time to time to assignees and participants (including prospective assignees
and participants), subject, however, to the provisions of Section 11.12(b)
hereof.
(f) Anything in this Section 11.06 to the contrary
notwithstanding, neither the Company nor any of its Subsidiaries or Affiliates
may acquire (whether by assignment, participation or otherwise), and neither any
Bank nor the Swingline Bank shall assign or participate to the Company or any of
its Subsidiaries or Affiliates, any interest in any Commitment or Loan without
the prior consent of each Bank.
(g) The Swingline Bank may not (except as provided in Section
2.02(c) hereof) assign or sell participations in all or any part of its
Swingline Loans, its Swingline Note or its Swingline Commitment; PROVIDED that
the Swingline Bank may
<PAGE>
-74-
assign to another Bank all of its obligations, rights and benefits in respect of
its Swingline Loans, its Swingline Note and its Swingline Commitment (but only
with the consent of the Company which consent will not be unreasonably
withheld). Upon the effectiveness of any such assignment, the assignee shall
have the obligations, rights and benefits of the Swingline Bank hereunder
holding the Swingline Commitment and Swingline Loans assigned to it, and the
assigning Swingline Bank shall be released from its Swingline Commitment so
assigned.
11.07 SURVIVAL. The obligations of the Company under Sections
5.01, 5.05, 5.06 and 11.03 hereof and the obligations of the Banks under Section
10.05 hereof shall survive the repayment of the Loans and the termination of the
Commitments. In addition, each representation and warranty made, or deemed to be
made by a notice of any Loan, herein or pursuant hereto shall survive the making
of such representation and warranty, and no Bank shall be deemed to have waived,
by reason of making any Loan, any Default which may arise by reason of such
representation or warranty proving to have been false or misleading,
notwithstanding that such Bank or the Swingline Bank or the Administrative Agent
may have had notice or knowledge or reason to believe that such representation
or warranty was false or misleading at the time such Loan was made.
11.08 CAPTIONS. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
11.09 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
11.10 GOVERNING LAW; SUBMISSION TO JURISDICTION. This
Agreement and the Notes shall be governed by, and construed in accordance with,
the law of the State of New York. The Company hereby submits to the nonexclusive
jurisdiction of the United States District Court for the District of Connecticut
and of any Connecticut State court sitting in Connecticut for the purposes of
all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. The Company irrevocably waives, to the fullest
extent permitted by applicable law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum.
11.11 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE
ADMINISTRATIVE AGENT AND THE BANKS AND THE SWINGLINE BANK HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
<PAGE>
-75-
11.12 TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY.
(a) The Company acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
the Company or one or more of its Subsidiaries (in connection with this
Agreement or otherwise) by any Bank or by one or more subsidiaries or affiliates
of such Bank and the Company hereby authorizes each Bank and the Swingline Bank
to share any information delivered to such Bank by the Company and its
Subsidiaries pursuant to this Agreement, or in connection with the decision of
such Bank or the Swingline Bank to enter into this Agreement, to any such
subsidiary or affiliate, it being understood that any such subsidiary or
affiliate receiving such information shall be bound by the provisions of
paragraph (b) below as if it were a Bank hereunder.
(b) Each Bank and the Swingline Bank and the Administrative
Agent agrees (on behalf of itself and each of its affiliates, directors,
officers, employees and representatives) to use reasonable precautions to keep
confidential, in accordance with their customary procedures for handling
confidential information of this nature and in accordance with safe and sound
banking practices, any non-public information supplied to it by the Company
pursuant to this Agreement which is identified by the Company as being
confidential at the time the same is delivered to the Banks or the Swingline
Bank or the Administrative Agent, PROVIDED that nothing herein shall limit the
disclosure of any such information (i) to the extent required by statute, rule,
regulation or judicial process (with concurrent notice thereof to be given to
the Company), (ii) to counsel, auditors or accountants for any of the Banks or
the Swingline Bank or the Administrative Agent (so long as they are advised of
the non-public nature of the information), (iii) to bank examiners, (iv) to the
Administrative Agent or any other Bank or the Swingline Bank, (v) in connection
with any litigation to which any one or more of the Banks or the Swingline Bank
or the Administrative Agent is a party, (vi) to a subsidiary or affiliate of
such Bank as provided in paragraph (a) above or (vii) to any assignee or
participant (or prospective assignee or participant) so long as such assignee or
participant (or prospective assignee or participant) first executes and delivers
to the respective Bank and the Company a Confidentiality Agreement substantially
in the form of Exhibit C hereto; PROVIDED, FURTHER, that in no event shall any
Bank or the Administrative Agent be obligated or required to return any
materials furnished by the Company. The obligations of each Bank under this
Section 11.12 shall supersede and replace the obligations of such Bank under the
confidentiality letter in respect of this financing signed and delivered by such
Bank to the Company prior to the Effective Date.
<PAGE>
S-1
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
ENHANCE FINANCIAL SERVICES GROUP INC.
By
-----------------------------------------
Title:
Address for Notices:
Enhance Financial Services Group Inc.
335 Madison Avenue
25th Floor
New York, NY 10017-4605
Attention: Arthur Dubroff
Executive Vice President
and Chief Financial Officer
Telecopier No.: (212) 983-3129
Telephone No.: (212) 983-3100
<PAGE>
S-2
BANKS
COMMITMENT FLEET NATIONAL BANK
$30,000,000
By
-------------------------------------
Title:
Lending Office for all Loans:
Fleet National Bank
777 Main Street, CT MO 0250
Hartford, Connecticut 06115
Address for Notices:
Fleet National Bank
777 Main Street, CT MO 0250
Hartford, Connecticut 06115
Attention: Financial Institutions Group
Telecopier No.: (860) 986-1264
Telephone No.: (860) 986-4535
<PAGE>
S-3
COMMITMENT BANK OF NEW YORK
$25,000,000
By
-------------------------------------
Title:
Lending Office for all Loans:
The Bank of New York
Insurance Division
One Wall Street, 17th Floor
New York, New York 10286
Address for Notices:
The Bank of New York
Insurance Division
One Wall Street, 17th Floor
New York, New York 10286
Attention: Louis DiFranco
Telecopier No.: (212) 809-9520
Telephone No.: (212) 635-6067
<PAGE>
S-4
COMMITMENT THE FIRST NATIONAL BANK OF CHICAGO
$25,000,000
By
-------------------------------------
Title:
Lending Office for all Loans:
The First National Bank of Chicago
1 First National Plaza
Chicago, IL 60670
Address for Notice:
The First National Bank of Chicago
153 West 51st Street
New York, NY 10019
Attention: Timothy J. Stambaugh
Telecopier No.: 212-373-1439
Telephone No.: 212-373-1124
<PAGE>
S-5
COMMITMENT DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLAND BRANCHES
$20,000,000
By
-------------------------------------
Title:
and
By
-------------------------------------
Title:
Lending Office for all Loans (other than
Eurodollar Loans):
Deutsche Bank AG
New York Branch
31 West 52nd Street
New York, NY 10019
Lending Office for Eurodollar Loans:
Deutsche Bank AG
Cayman Islands Branch
31 West 52nd Street
New York, NY 10019
Address for Notices:
Deutsche Bank AG
31 West 52nd Street
New York, NY 10019
Attention: John McGill
Telecopier No.: (212) 469-8366
Telephone No.: (212) 469-8666
Telex/Answerback: 429166/DEUT BK NY
<PAGE>
S-6
SWINGLINE BANK
--------------
FLEET NATIONAL BANK,
as Swingline Bank
By
-------------------------------------
Title:
<PAGE>
S-7
FLEET NATIONAL BANK,
as Administrative Agent
By
-------------------------------------
Title:
Address for Notices to the Administrative
Agent:
Fleet National Bank
One Federal Street
Boston, MA 02110
Attention: Agency Services Group
Telecopier No.: (617) 346-5833
Telephone No.: (617) 346-0339
<PAGE>
SCHEDULE I
MATERIAL AGREEMENTS AND LIENS
Part A - MATERIAL AGREEMENTS
1. Indenture dated as of March 5, 1993 between Enhance Financial Services
Group Inc. and The Chase Manhattan Bank, as Trustee, and $75 million
principal amount of 6 3/4% Debentures due 2003 issued pursuant thereto.
2. Guaranty of Enhance Financial Services Group Inc. to Bank America
National Trust and Savings Association ("BofA"), dated as of January
30, 1998, guaranteeing up to $25 million of the obligations of
Credit-Based Asset Servicing and Securitization LLC, an affiliate of
Enhance Financial Services Group Inc. ("C-BASS"), to BofA pursuant to a
Credit Agreement, dated as of January 30, 1998 (the "C-BASS Credit
Agreement") between BofA and C-BASS. It is anticipated that the C-BASS
Credit Agreement (and the obligations of Enhance Financial Services
Group Inc. under the above referenced guaranty) will terminate on or
about June 30, 1999.
3. Guaranty of Enhance Financial Services Group Inc. to BofA, dated as of
May 27, 1999, guaranteeing up to $25 million of the obligations of
Sherman Financial Group LLC, an affiliate of Enhance Financial Services
Group Inc. ("Sherman Financial"), to BofA pursuant to a Credit
Agreement, dated as of May 27, 1999 between BofA and Sherman Financial.
Part B - LIENS
None
<PAGE>
SCHEDULE II
SUBSIDIARIES
[See Section 7.15]
(A) ENHANCE INVESTMENT CORPORATION
(i) Delaware
(ii) Enhance Financial Services Group Inc.
(iii) 100% of the outstanding common stock
(B) ENHANCE REINSURANCE COMPANY
(i) New York
(ii) Enhance Investment Corporation
(iii) 100% of the outstanding common stock
(C) ASSET GUARANTY INSURANCE COMPANY
(i) New York
(ii) Enhance Investment Corporation
(iii) 100% of the outstanding common stock
(D) ENHANCE REINSURANCE BERMUDA, LTD.
(i) Bermuda
(ii) Enhance Investment Corporation
(iii) 100% of the outstanding common stock
(E) SINGER ASSET FINANCE COMPANY, L.L.C.
(i) Delaware
(ii) Enhance Financial Services Group Inc.
(iii) 100% of the outstanding membership interests
<PAGE>
(F) VAN-AMERICAN COMPANIES, INC.
(i) Delaware
(ii) Asset Guaranty Insurance Company and certain current and
former employees of Van-American Companies, Inc.
(iii) 95.8% of the common stock, 100% of the non-cumulative senior
preferred stock; 100% of the non-cumulative convertible
preferred stock Note: The remaining 4.2% of the common stock
is owned by employees of Van-American Companies, Inc. In
addition, certain employees of Van-American Companies, Inc.
own options to purchase common stock of Van-American
Companies, Inc. which if fully exercised would not materially
dilute the Company's interest in Van-American Companies, Inc.
(G) VAN-AMERICAN INSURANCE COMPANY, INC.
(i) Kentucky
(ii) Van-American Companies, Inc.
(iii) 100% of the common stock
(H) VAN-AMERICAN INSURANCE AGENCY, INC.
(i) Kentucky
(ii) Van-American Companies, Inc.
(iii) 100% of the common stock
(I) VANTAGE COAL SALES, INC.
(i) Kentucky
(ii) Van-American Insurance Company, Inc.
(iii) 100% of the common stock
(J) VAN-AMERICAN BUSINESS SERVICES, INC.
(i) Kentucky
(ii) Van-American Insurance Company, Inc.
(iii) 100% of the common stock
(K) ENHANCE CONSUMER SERVICES LLC
(i) Delaware
(ii) Enhance Financial Services Group Inc.
(iii) 100% of the outstanding membership interests
II-2
<PAGE>
(L) ENHANCE LIFE BENEFITS LLC
(i) Delaware
(ii) Enhance Consumer Services LLC
(iii) 100% of the outstanding membership interests
(M) ENHANCE CONSUMER SERVICES (CANADA) COMPANY
(i) Nova Scotia, Canada
(ii) Enhance Consumer Services LLC
(iii) 100% of the outstanding membership interests
(N) ABC ACCELERATED BENEFITS CORPORATION
(i) Quebec, Canada
(ii) Enhance Consumer Services (Canada) Company
(iii) 100% of the outstanding common stock
(O) ALEGIS GROUP INC.
(i) Texas
(ii) Enhance Financial Services Group Inc.
(iii) 100% of the outstanding common stock
(P) ALEGIS CORPORATION
(i) Texas
(ii) Alegis Group Inc.
(iii) 100% of the outstanding common stock
(Q) ALEGIS CAPITAL CORP.
(i) Texas
(ii) Alegis Group Inc.
(iii) 100% of the outstanding common stock
(R) TEXAS MUNICIPAL SERVICES, INC.
(i) Texas
(ii) Alegis Group Inc.
(iii) 100% of the outstanding common stock
II-3
<PAGE>
(S) AGS FINANCIAL LLC
(i) Delaware
(ii) Enhance Financial Services Group Inc.
(iii) 80% of the outstanding membership interests
Note: two members of management of AGS Financial LLC each own
10% of the outstanding membership interests of AGS Financial
LLC
(T) AGS BRASIL, S.A.
(i) Brazil
(ii) AGS Financial LLC
(iii) 99% of the outstanding common stock
(U) AGS SECURITIES INC.
(i) New York
(ii) AGS Financial LLC
(iii) 100% of the outstanding common stock
(V) FINPAC SECURITIZADORA S.A.
(i) Brazil
(ii) AGS Brazil, S.A.
(iii) 95% of the outstanding common stock
(W) GUARANTY RISK SERVICES, INC.
(i) New York
(ii) Enhance Financial Services Group Inc.
(iii) 100% of the outstanding common stock
(X) CREDIT-BASED ASSET SERVICING AND SECURITIZATION, INC.
(i) New York
(ii) Enhance Financial Services Group Inc.
(iii) 100% of the outstanding stock
II-4
<PAGE>
(Y) A.G. INTERMEDIARIES, INC.
(i) New York
(ii) Enhance Financial Services Group Inc.
(iii) 100% of the outstanding common stock
(Z) ORLEANS ACQUISITION CORP.
(i) Illinois
(ii) Enhance Financial Services Group Inc.
(iii) 100% of the outstanding common stock
(AA) LITTON LOAN SERVICING INC.
(i) Texas
(ii) Enhance Financial Services Group Inc.
(iii) 100% of the outstanding common stock
II-5
<PAGE>
SCHEDULE III
LITIGATION
None
<PAGE>
EXHIBIT A-1
[Form of Revolving Credit Note]
PROMISSORY NOTE
$________________ ____________, 1998
New York, New York
FOR VALUE RECEIVED, ENHANCE FINANCIAL SERVICES GROUP INC., a New York
corporation (the "Company"), hereby promises to pay to the order of
________________ (the "PAYEE"), for the account of its respective Applicable
Lending Offices provided for by the Credit Agreement referred to below, at the
principal office of Fleet National Bank at 777 Main Street, Hartford,
Connecticut 06115, the principal sum of ________________ Dollars (or such lesser
amount as shall equal the aggregate unpaid principal amount of the Revolving
Credit Loans made by the Payee to the Company under the Credit Agreement), in
lawful money of the United States of America 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 Revolving Credit
Loan, at such office, in like money and funds, for the period commencing on the
date of such Revolving Credit Loan until such Revolving Credit Loan shall be
paid in full, at the rates per annum and on the dates provided in the Credit
Agreement.
The date, amount, interest rate and duration of Interest Period of each
Revolving Credit Loan made by the Payee to the Company, and each payment made on
account of the principal thereof, shall be recorded by the Payee on its books
and, prior to any transfer of this Note, endorsed by the Payee on the schedule
attached hereto or any continuation thereof, PROVIDED that the failure of the
Payee to make any such recordation or endorsement shall not affect the
obligations of the Company to make a payment when due of any amount owing under
the Credit Agreement or hereunder in respect of the Revolving Credit Loans made
by the Payee.
This Note is one of the Revolving Credit Notes referred to in the
Credit Agreement dated as of June 30, 1998 (as modified and supplemented and in
effect from time to time, the "CREDIT AGREEMENT") among the Company, the banks
party thereto and Fleet National Bank, as Swingline Bank and Administrative
Agent, and evidences Revolving Credit Loans made by the Payee thereunder. Terms
used but not defined in this Note have the respective meanings assigned to them
in the Credit Agreement.
<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 Sections 11.06(b) and 11.06(d) of the Credit
Agreement, this Note may not be assigned by the Payee to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
ENHANCE FINANCIAL SERVICES GROUP INC.
By
----------------------------------------
Title:
<PAGE>
SCHEDULE OF REVOLVING CREDIT LOANS
This Note evidences Revolving Credit Loans made, Continued or Converted
under the within-described Credit Agreement to the Company, on the dates, in the
principal amounts, of the Types bearing interest at the rates and having
Interest Periods (if applicable) of the durations set forth below, subject to
the payments and prepayments, Continuations, and Conversions of principal set
forth below:
<TABLE>
<CAPTION>
Amount
Date Paid,
Made, Principal Duration Prepaid,
Continued Type Amount of Continued Unpaid
or of of Interest Interest or Principal Notation
Converted Loan Loan Rate Period Converted Amount Made by
--------- ---- ---- ---- ------ --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT A-2
[Form of Term Loan Note]
PROMISSORY NOTE
$_________________ ______________ , 199_
New York, New York
FOR VALUE RECEIVED, ENHANCE FINANCIAL SERVICES GROUP INC., a New York
corporation (the "Company"), hereby promises to pay to the order of
________________ (the "PAYEE"), for the account of its Applicable Lending Office
provided for by the Credit Agreement referred to below, at the principal office
of Fleet National Bank at 777 Main Street, Hartford, Connecticut 06115, the
principal sum of ______________ Dollars, in lawful money of the United States of
America 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 hereof, at such office, in like money and funds, for the period
commencing on the date hereof until this Note shall be paid in full, at the
rates per annum and on the dates provided in the Credit Agreement.
This Note is one of the Term Loan Notes referred to in the Credit
Agreement dated as of June 30, 1998 (as modified and supplemented and in effect
from time to time, the "CREDIT AGREEMENT") among the Company, the banks party
thereto and Fleet National Bank, as Swingline Bank and Administrative Agent, and
evidences a Term Loan made by the Payee thereunder. Terms used but not defined
in this Note have the respective meanings assigned to them in the Credit
Agreement.
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of Term
Loans upon the terms and conditions specified therein.
Except as permitted by Sections 11.06(b) and 11.06(d) and of the Credit
Agreement, this Note may not be assigned by the Payee to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
ENHANCE FINANCIAL SERVICES GROUP INC.
By
----------------------------------------
Title:
<PAGE>
EXHIBIT A-3
[Form of Swingline Note]
PROMISSORY NOTE
$10,000,000.00 ______________, 1998
New York, New York
FOR VALUE RECEIVED, ENHANCE FINANCIAL SERVICES GROUP INC., a New York
corporation (the "Company"), hereby promises to pay to the order of FLEET
NATIONAL BANK (the "Bank") at its principal office at 777 Main Street, Hartford,
Connecticut 06115, the principal sum of TEN MILLION Dollars (or such lesser
amount as shall equal the aggregate unpaid principal amount of the Swingline
Loans made by the Bank to the Company under the Credit Agreement), in lawful
money of the United States of America 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 Swingline Loan, at such
office, in like money and funds, for the period commencing on the date of such
Swingline Loan until such Swingline Loan shall be paid in full, at the rates per
annum and on the dates provided in the Credit Agreement.
The date and amount of each Swingline Loan made by the Bank to the
Company, and each payment made on account of the principal thereof, shall be
recorded by the Bank on its books and, prior to any transfer of this Note,
endorsed by the Bank on the schedule attached hereto or any continuation
thereof, PROVIDED that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Company to make a payment
when due of any amount owing under the Credit Agreement or hereunder in respect
of the Swingline Loans made by the Bank.
This Note is the Swingline Note referred to in the Credit Agreement
dated as of June 30, 1998 (as modified and supplemented and in effect from time
to time, the "CREDIT AGREEMENT") between the Company, the banks party thereto
(including the Bank) and Fleet National Bank, as Swingline Bank and
Administrative Agent, and evidences Swingline Loans made by the Bank thereunder.
Terms used but not defined in this Note have the respective meanings assigned to
them in the Credit Agreement.
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.
<PAGE>
Except as permitted by Section 11.06(g) 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.
ENHANCE FINANCIAL SERVICES GROUP INC.
By
-----------------------------------------
Title:
<PAGE>
SCHEDULE OF SWINGLINE LOANS
This Note evidences Swingline Loans made under the
within-described Credit Agreement to the Company, on the dates and in the
principal amounts set forth below, subject to the payments and prepayments of
principal set forth below:
<TABLE>
<CAPTION>
Principal
Date Amount Amount Unpaid
of of Paid or Principal Notation
Loan Loan Prepaid Amount Made by
---- ---- ------- ------ -------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT A-4
[Form of Competitive Note]
PROMISSORY NOTE
$_______________ ______________, 1998
New York, New York
FOR VALUE RECEIVED, ENHANCE FINANCIAL SERVICES GROUP INC., a New York
corporation (the "Company"), hereby promises to pay to the order of
____________________ (the "Payee") at the principal office of Fleet National
Bank at 777 Main Street, Hartford, Connecticut 06115, the principal sum of
________________ Dollars (or such lesser amount as shall equal the aggregate
unpaid principal amount of the Competitive Loans made by the Payee to the
Company under the Credit Agreement), in lawful money of the United States of
America 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 Competitive Loan, at such office, in like money
and funds, for the period commencing on the date of such Competitive Loan until
such Competitive Loan shall be paid in full, at the rates per annum and on the
dates provided in the Credit Agreement.
The date and amount of each Competitive Loan made by the Payee to the
Company, and each payment made on account of the principal thereof, shall be
recorded by the Payee on its books and, prior to any transfer of this Note,
endorsed by the Payee on the schedule attached hereto or any continuation
thereof, PROVIDED that the failure of the Payee to make any such recordation or
endorsement shall not affect the obligations of the Company to make a payment
when due of any amount owing under the Credit Agreement or hereunder in respect
of the Competitive Loans made by the Payee.
This Note is the Note referred to in the Credit Agreement dated as of
June 30, 1998 (as modified and supplemented and in effect from time to time, the
"CREDIT AGREEMENT") between the Company, the banks party thereto and Fleet
National Bank, as Swingline Bank and Administrative Agent, and evidences
Competitive Loans made by the Payee thereunder. Terms used but not defined in
this Note have the respective meanings assigned to them in the Credit Agreement.
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.
<PAGE>
Except as permitted by Section 11.06(g) 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.
ENHANCE FINANCIAL SERVICES GROUP INC.
By
----------------------------------------
Title:
<PAGE>
EXHIBIT B
[Form of Opinion of General Counsel to the Company]
_______________, 1998
Each of the Banks party
to the Credit Agreement
referred to below
Fleet National Bank,
as Administrative Agent for said Banks
777 Main Street
Hartford, Connecticut 06115
Ladies and Gentlemen:
I am Executive Vice President and General Counsel to Enhance Financial
Services Group Inc., a corporation organized under the law of the State of New
York (the "COMPANY"), and am rendering this opinion in connection with the
Credit Agreement dated as of ____________, 1998 (the "CREDIT AGREEMENT") among
the Company, the banks party thereto (the "BANKS") and Fleet National Bank, in
its capacity as agent for said Banks (the "ADMINISTRATIVE AGENT"). All
capitalized terms used but not defined herein have the respective meanings given
to such terms in the Credit Agreement.
In rendering the opinions expressed below, I have examined:
(i) the Credit Agreement;
(ii) the Revolving Credit Notes, the Competitive Notes, the
Swingline Notes and the form of the Term Notes (together with
the Credit Agreement, the "CREDIT DOCUMENTS"); and
(iii) such corporate records of the Company and such other documents
as I have deemed necessary as a basis for the opinions
expressed below.
In my examination, I have assumed the genuineness of all signatures, the
authenticity of all documents submitted to me as originals and the conformity
with authentic original documents of all documents submitted to me as copies.
<PAGE>
-2-
In rendering the opinions expressed below, I have assumed, with respect
to all of the documents referred to in this opinion, that (except, to the extent
set forth in the opinions expressed below, as to the Company):
(i) such documents have been duly authorized by, have been (or, in
the case of the Term Notes, will be) duly executed and
delivered by, and constitute (or, in the case of the Term
Notes, will constitute) legal, valid, binding and enforceable
obligations of, all of the parties to such documents;
(ii) all signatories to such documents have been duly authorized;
and
(iii) all of the parties to such documents are duly organized and
validly existing and have the power and authority (corporate
or other) to execute, deliver and perform such documents.
Based upon and subject to the foregoing and subject also to the
comments and qualifications set forth below, and having considered such
questions of law as I have deemed necessary as a basis for the opinions
expressed below, I am of the opinion that:
1. The Company is a corporation duly organized, validly
existing and in good standing under the law of the State of New York.
The Company has all material government licenses, authorizations,
consents and approvals necessary to own assets and carry on its
business as now being conducted.
2. The Company has all requisite corporate power to execute
and deliver, and to perform its obligations under, each Credit
Document. The Company has all requisite corporate power to borrow under
the Credit Agreement.
3. The execution, delivery and performance by the Company of
each Credit Document has been duly authorized by all necessary
corporate action on the part of the Company.
4. Each Credit Document (other than the Term Notes) has been
duly executed and delivered by the Company.
5. Each Credit Document (other than the Term Notes)
constitutes, and each Term Note upon its execution and delivery by the
Company for value will constitute, the legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting the rights of creditors generally and except as the
enforceability of the Credit Documents is subject to the application of
general principles of equity (regardless of whether considered in a
proceeding in equity or at law), including, without limitation, (a) the
possible
<PAGE>
-3-
unavailability of specific performance, injunctive relief or any other
equitable remedy and (b) concepts of materiality, reasonableness, good
faith and fair dealing.
6. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or agency
of the United States of America or the State of New York is required on
the part of the Company for the execution, delivery or performance by
the Company of the Credit Documents or for any Borrowings by the
Company under the Credit Agreement.
7. The execution, delivery and performance by the Company of,
and the consummation by the Company of the transactions contemplated
by, the Credit Documents do not and will not (a) violate any provision
of the charter or by-laws of the Company, (b) violate any applicable
law, rule or regulation of the United States of America or the State of
New York, (c) violate any order, writ, injunction or decree of any
court or governmental authority or agency or any arbitral award
applicable to the Company or any of its Subsidiaries or (d) result in a
breach of, constitute a default under, require any consent under, or
result in the acceleration or required prepayment of any indebtedness
pursuant to the terms of, any agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which any of them
is bound or to which any of them is subject, or result in the creation
or imposition of any Lien upon any Property of the Company or any of
its Subsidiaries pursuant to the terms of any such agreement or
instrument.
8. Except as disclosed in Schedule III to the Credit
Agreement, there are no legal or arbitral proceedings, or any
proceedings by or before any governmental or regulatory authority or
agency, now pending or to my knowledge threatened against the Company
or any of its Subsidiaries or any of their respective Properties that,
if adversely determined, could have a Material Adverse Effect.
9. Neither the Company nor any of its Subsidiaries is an
"investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as
amended.
10. Neither the Company nor any of its Subsidiaries is a
"holding company", or an "affiliate" of a "holding company" or a
"subsidiary company" of a "holding company", within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
The foregoing opinions are subject to the following comments
and qualifications:
A. The enforceability of Section 11.03 of the Credit Agreement
may be limited by laws rendering unenforceable indemnification contrary
to Federal or state securities laws and the public policy underlying
such laws.
<PAGE>
-4-
B. The enforceability of provisions in the Credit Documents to
the effect that terms may not be waived or modified except in writing
may be limited under certain circumstances.
C. I express no opinion as to (i) the effect of the laws of
any jurisdiction in which any Bank is located (other than the State of
New York) that limit the interest, fees or other charges such Bank may
impose, (ii) the last sentence of Section 2.02(c) and Section 4.07(c)
of the Credit Agreement and (iii) the second sentence of Section 11.10
of the Credit Agreement, insofar as such sentence relates to the
subject matter jurisdiction of the United States District Court for the
District of Connecticut to adjudicate any controversy related to the
Credit Documents.
The foregoing opinions are limited to matters involving the
Federal laws of the United States of America and the law of the State of New
York, and I do not express any opinion as to the laws of any other jurisdiction.
At the request of the Company, this opinion is, pursuant to
Section 6.01(c) of the Credit Agreement, provided to you by me in my capacity as
General Counsel to the Company and may not be relied upon by any Person other
than the addressees hereof without, in each instance, my prior written consent.
Very truly yours,
Samuel Bergman
Executive Vice President and
General Counsel
<PAGE>
EXHIBIT C
[Form of Confidentiality Agreement]
CONFIDENTIALITY AGREEMENT
[Date]
[Insert Name and
Address of Prospective
Participant or Assignee]
Re: Credit Agreement dated as of ____________, 1998 (the "CREDIT
AGREEMENT"), among Enhance Financial Services Group Inc. (the
"Company"), the banks named therein and Fleet National Bank,
as Administrative Agent.
Ladies and Gentlemen:
As a Bank party to the Credit Agreement, we have agreed with the
Company pursuant to Section 11.12 of the Credit Agreement to use reasonable
precautions to keep confidential, except as otherwise provided therein, all
non-public information identified by the Company as being confidential at the
time the same is delivered to us pursuant to the Credit Agreement.
As provided in said Section 11.12, we are permitted to provide you, as
a prospective [holder of a participation in the Loans (as defined in the Credit
Agreement)] [assignee Bank], with certain of such non-public information subject
to the execution and delivery by you, prior to receiving such non-public
information, of a Confidentiality Agreement in this form. Such information will
not be made available to you until your execution and return to us of this
Confidentiality Agreement.
Accordingly, in consideration of the foregoing, you agree (on behalf of
yourself and each of your affiliates, directors, officers, employees and
representatives) that (A) such information will not be used by you except in
connection with the proposed [participation] [assignment] mentioned above and
(B) you shall use reasonable precautions, in accordance with your customary
procedures for handling confidential information and in accordance with safe and
sound banking practices, to keep such information confidential, PROVIDED that
nothing herein shall limit the disclosure of any such information (i) to the
extent required by statute, rule, regulation or judicial process, (ii) to your
counsel or to counsel for any of the Banks or the Administrative Agent, (iii) to
bank examiners, auditors or accountants, (iv) to the Administrative Agent or any
other Bank, (v) in connection with any litigation to which you or any one or
more of the Banks or the Administrative Agent are a party, (vi) to a subsidiary
or affiliate of yours as provided in Section 11.12(a) of the Credit Agreement or
(vii) to any assignee or participant (or prospective assignee or participant) so
long as such assignee or participant (or
<PAGE>
-2-
prospective assignee or participant) first executes and delivers to you a
Confidentiality Agreement substantially in the form hereof; PROVIDED, FURTHER,
that in no event shall you be obligated to return any materials furnished to you
pursuant to this Confidentiality Agreement.
Please indicate your agreement to the foregoing by signing as provided
below the enclosed copy of this Confidentiality Agreement and returning the same
to us.
Very truly yours,
[INSERT NAME OF BANK]
By
------------------------------------
Title:
AGREED AS AFORESAID:
[INSERT NAME OF PROSPECTIVE
PARTICIPANT OR ASSIGNEE]
By
-------------------------------
Title:
<PAGE>
EXHIBIT D
[Form of Assignment and Acceptance]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as of ____________,
1998 (as modified and supplemented and in effect from time to time, the "CREDIT
AGREEMENT"), among Enhance Financial Services Group Inc. (the "COMPANY"), the
banks named therein, and Fleet National Bank, as agent for such banks (the
"ADMINISTRATIVE AGENT"). Terms defined in the Credit Agreement are used herein
as defined therein.
___________________ (the "ASSIGNOR") and ___________________ (the
"ASSIGNEE") agree as follows:
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date as set forth in Schedule 1 hereto (the "EFFECTIVE DATE"), an
interest (the "ASSIGNED INTEREST") in and to the Assignor's rights and
obligations under the Credit Agreement with respect to those credit facilities
contained in the Credit Agreement as are set forth on Schedule 1 (individually,
an "ASSIGNED FACILITY"; collectively, the "ASSIGNED FACILITIES"), in a principal
amount and percentage for each Assigned Facility as set forth on Schedule 1.
2. The Assignor (i) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement, any other Basic Document or
any other instrument or document furnished pursuant thereto, or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of the
Credit Agreement, any other Basic Document or any other instrument or document
furnished pursuant thereto, other than that it has not created any adverse claim
upon the interest being assigned by it hereunder and that such interest is free
and clear of any such adverse claim; (ii) makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Company, any of its Subsidiaries or any other obligation or the performance or
observance by the Company, any of its Subsidiaries or any other obligor of any
of their respective obligations under the Credit Agreement or any other Basic
Document or any other instrument or document furnished pursuant hereto or
thereto; and (iii) attaches the Note(s) held by it evidencing the Assigned
Facilities and requests that the Administrative Agent exchange such Note(s) for
a new Note or Notes payable to the Assignor (if the Assignor has retained any
interest in the Assigned Facility) and a new Note or Notes payable to the
Assignee in the respective amounts which reflect the assignment being made
hereby (and after giving effect to any other assignments which have become
effective on the Effective Date).
3. The Assignee (i) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (ii) confirms that it
has received a copy of the Credit
<PAGE>
Agreement, together with copies of the financial statements referred to in
Section 7.02 thereof, the financial statements delivered pursuant to Section
8.01 thereof, if any, and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (iii) agrees that it will, independently and without
reliance upon the Assignor, the Administrative Agent or any other Bank and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement, the other Basic Documents or any other instrument or
document furnished pursuant hereto or thereto; (iv) appoints and authorizes the
Administrative Agent to take such action as administrative agent on its behalf
and to exercise such powers and discretion under the Credit Agreement, the other
Basic Documents or any other instrument or document furnished pursuant hereto or
thereto as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are incidental thereto; and (v) agrees that it will
be bound by the provisions of the Credit Agreement and will perform in
accordance with its terms all the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Bank including, if it is
organized under the laws of a jurisdiction outside the United States of America,
its obligation pursuant to Section 5.06 of the Credit Agreement to deliver the
forms prescribed by the Internal Revenue Service of the United States certifying
as to the Assignee's exemption from United States withholding taxes with respect
to all payments to be made to the Assignee under the Credit Agreement, or such
other documents as are necessary to indicate that all such payments are subject
to such tax at a rate reduced by an applicable tax treaty.
4. Following the execution of this Assignment and Acceptance, it will
be delivered to the Administrative Agent for acceptance by the Administrative
Agent pursuant to Section 11.06(b) of the Credit Agreement, effective as of the
Effective Date (which date shall not, unless otherwise agreed to by the
Administrative Agent, be earlier than five Business Days after the date of such
acceptance.
5. Upon such acceptance, from and after the Effective Date, the
Administrative Agent shall make all payments in respect of the Assigned Interest
(including payments of principal, interest, fees and other amounts) to the
Assignee which accrue subsequent to the Effective Date.
6. From and after the Effective Date, (i) the Assignee shall be a party
to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Bank thereunder and under the
other Basic Documents and shall be bound by the provisions thereof and (ii) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement except as provided in Section 11.07 of the Credit Agreement.
7. This Assignment and Acceptance shall be governed by and construed in
accordance with the law of the State of New York.
<PAGE>
8. This Assignment and Acceptance may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Assignment and
Acceptance by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers on Schedule 1 hereto.
<PAGE>
[ASSIGNEE] [ASSIGNOR]
By:________________________ By:_______________________
Title: Title:
[Consented to and] Accepted:
FLEET NATIONAL BANK, as
Administrative Agent
By:_______________________
Title:
[Consented to:
ENHANCE FINANCIAL SERVICES
GROUP INC.
By:_______________________
Title:
FLEET NATIONAL BANK,
as Swingline Bank
By:_______________________
Title:
<PAGE>
Schedule 1 to
Assignment and Acceptance
relating to the Credit Agreement,
dated as of _____________, 1998,
among Enhance Financial Services Group Inc.
the banks named therein and
Fleet National Bank, as agent for the Banks
(in such capacity, the "ADMINISTRATIVE AGENT")
Name of Assignor:
Name of Assignee:
Effective Date of Assignment:
Credit Principal Percentage
Facility Assigned Amount Assigned Assigned
----------------- --------------- --------
<PAGE>
EXHIBIT 10.2.2
ENHANCE FINANCIAL SERVICES GROUP INC.
1997 Long-Term Incentive Plan For Key Employees
AS AMENDED THROUGH JUNE 3, 1999
1. PURPOSES
The purposes of the Plan are to provide through the grant of Long-Term
Incentives under the Plan a means to attract and retain key personnel and to
provide to participating officers and other key employees long-term incentives
for sustained high levels of performance and for unusual efforts to improve the
financial performance of the Company.
2. DEFINITIONS
Unless otherwise required by the context, the following terms, when
used in this Plan, shall have the meanings set forth in this Section 2.
BENEFICIARY: A person or entity (including a trust or estate),
designated in writing by a Participant on such forms and in accordance with such
terms and conditions as the Committee may prescribe, to whom the Participant's
rights under the Plan shall pass in the event of the death of the Participant
or, if there be no such person or entity so designated, or if such person or
entity is not alive or in existence at the time of the Participant's death, such
other person to whom such Participant's rights under the Plan shall pass by will
or by the laws of descent or distribution.
BOARD OF DIRECTORS or BOARD: The Board of Directors of Enhance. The
terms "Board" and "Board of Directors" shall include the Committee, except for
purposes of paragraph 9(a) and Section 11.
CODE: The Internal Revenue Code of 1986, as amended and in effect from
time to time.
COMMITTEE: The committee of the Board of Directors designated to
administer the Plan pursuant to the provisions of paragraph 9(a) below.
COMMON STOCK: The common stock of Enhance, par value $.10 per share, or
such other class of shares or other securities or property as may be applicable
pursuant to the provisions of Section 7.
COMPANY: Enhance and its present and future Subsidiaries.
ENHANCE: Enhance Financial Services Group Inc., a New York corporation,
its successors and assigns.
FAIR MARKET VALUE: The fair market value of a share of Common Stock
determined in accordance with any reasonable method approved by the Board of
Directors; provided that in the case of a Non-Statutory Stock Option intended to
be performance-based for purposes of Section 162(m) of the Code or an Incentive
Stock Option, such method shall comply with, and be subject to, any applicable
requirements of the Code and the Treasury Regulations thereunder.
INCENTIVE STOCK OPTION: An option, including an Option as the context
may require, intended to meet the requirements of Section 422 of the code and
the regulations thereunder applicable to incentive stock options, or intended to
meet the requirements of a successor provision of the Code.
<PAGE>
KEY EMPLOYEE: An employee of Enhance or of a Subsidiary regularly
employed on a full-time basis, including a director if he is such an employee,
or an officer of Enhance or a Subsidiary not so employed, in either event, who,
in the opinion of the Committee, is in a position to make significant
contributions to the success of Enhance or of a Subsidiary.
LONG-TERM INCENTIVE: A long-term incentive granted under this Plan in
one of the forms provided for in Section 3.
NON-STATUTORY STOCK OPTION: An option, including an Option as the
context may require, which is not intended to be an Incentive Stock Option.
OPTION: An option granted under this Plan to purchase shares of Common
Stock.
PARTICIPANT: A Key Employee elected to receive one or more Long-Term
Incentives.
PLAN: The Enhance Financial Services Group Inc. 1997 Long-Term
Incentive Plan for Key Employees herein set forth as the same may from time to
time be amended.
RESTRICTED STOCK AWARD: Shares of Common Stock which are issued or
transferred to a Key Employee subject to restrictions precluding a sale or other
disposition for a period of time and requiring as a condition to retention
compliance with any other terms and conditions (relating to continued employment
and/or achievement of pre-established performance objectives and/or other
matters) that may be imposed by the Committee.
RULE 16b-3: As applied on a specific date, Rule 16b-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934 as then in
effect or any comparable provision that may have replaced such Rule and then be
in effect.
SUBSIDIARY: A corporation or other form of business association of
which shares (or other ownership interests) having more than 50% of the voting
power, or representing more than 50% of the net shareholders' equity interest
determined in accordance with generally accepted accounting principles, are
owned or controller, directly or indirectly, by Enhance; provided, however, that
in the case of an Incentive Stock Option, the term "Subsidiary" shall mean a
Subsidiary (as defined by the preceding clause) which is a "subsidiary
corporation" as defined in Section 424(f) of the Code and the regulations
thereunder, or any provisions that may be adopted to amend or replace such
Section or regulation or both.
3. GRANTS OF LONG-TERM INCENTIVES
(a) Subject to the provisions of this Plan, the Committee may at any
time or from time to time grant Long-Term Incentives to Key Employees.
(b) Long-Term Incentives maybe granted in either of the following
forms:
(i) a Restricted Stock Award, or
(ii) an Option.
(c) The Committee may amend a Long-Term Incentive at any time or from
time to time after the date on which it is granted, provided that no such
amendment shall affect such Long Term Incentive adversely without the consent of
the holder thereof.
4. STOCK SUBJECT TO THIS PLAN
(a) (1) GENERAL LIMITATIONS Subject to the provisions below of
paragraph 4(c) and of Section 7 the maximum number of shares of Common
Stock which may be issued or transferred, and are hereby reserved for
issuance or transfer pursuant to Long-Term Incentives shall not exceed
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<PAGE>
5,000,000 shares of Common Stock provided that no more than 25% of such
shares of Common Stock shall be issued in the form of Restricted Stock
Awards.
(2) INDIVIDUAL LIMITATIONS The maximum number of shares of
Common Stock which may be subject to any Option that may be granted to
any Key Employees elected to participate hereunder shall not exceed
300,000 shares of Common Stock (subject to any increase or decrease
pursuant to Section 7) for each calendar year during the entire term of
the Plan. The maximum number of shares to Common Stock which may be
issued or transferred pursuant to a Restricted Stock Award that may be
granted to any Key Employee selected to participate hereunder shall not
exceed 75,000 (subject to any increase or decrease pursuant to Section
7) for each calendar year during the entire term of the Plan. To the
extent that the maximum number of shares of Common Stock with respect
to which Options or Restricted Stock Awards may be granted are not
granted in a particular year to a Key Employee, such ungranted Options
or Restricted Stock Awards for any year shall increase the maximum
number of shares of Common Stock available to be granted to such Key
Employee in subsequent calendar years during the term of the Plan until
used.
(b) Authorized but unissued shares of Common Stock and shares of Common
Stock held in the treasury, whether acquired by Enhance specifically for use
under this Plan or otherwise, may be used, as the Board of Directors may from
time to time determine, for purposes of this Plan, provided, however, that any
shares acquired or held by Enhance for the purposes of this Plan shall, unless
and until transferred to a Participant in accordance with the terms and
conditions of a Long Term Incentive, be and at all times remain treasury shares
of Enhance, irrespective of whether such shares are entered in a special account
for purposes of this Plan, and shall be available for any corporate purpose.
(c) If any shares of Common Stock subject to a Long-Term Incentive
shall not be issued or transferred and shall cease to be issuable or
transferable because of the termination, in whole or in part, of such Long-Term
Incentive or for any other reason, or if any such shares shall, after issuance
or transfer, be reacquired by Enhance or a Subsidiary because of the
Participant's failure to comply with the terms and conditions of the Long-Term
Incentive granted to him, the shares not so issued or transferred, or the shares
so reacquired by Enhance or a Subsidiary, shall no longer be charged against the
limitations provided for in paragraph (a)(1) above of this Section 4 and shall
again be available for grant in the form of or pursuant to Long-Term Incentives.
(d) Any Long-Term Incentive granted under this Plan may contain such
provisions requiring or permitting the Participant (or his successor in
interest) to resell to the Company any shares issued or transferred under such
Long-Term Incentive at such time or times, under such circumstances and for such
consideration as the Committee may prescribe.
5. RESTRICTED STOCK AWARDS
Long-Term Incentives in the form of Restricted Stock Awards shall be
subject to such terms and conditions, including, without limitation,
restrictions on the sale or other disposition of the Restricted Stock Award or
of the shares issued or transferred pursuant to such Restricted Stock Award, and
conditions calling for forfeiture of the Restricted Stock Award or the shares
issued or transferred pursuant thereto in designated circumstances, as the
Committee shall determine; provided, however, that upon the issuance or transfer
of shares pursuant to any such Restricted Stock Award, the Participant shall,
with respect to such shares, be and become a shareholder of Enhance fully
entitled to receive dividends, to vote and to exercise all other rights of a
shareholder except to the extent otherwise provided in the Restricted Stock
Award. The Committee may but need not require the Participant to pay the par
value of the shares to be issued or transferred pursuant to a Restricted Stock
Award. Each Restricted Stock Award shall be evidenced by a written instrument in
such form as the Committee shall determine and shall be deemed to incorporate
this Plan by reference, provided that such instrument is consistent with this
Plan.
3
<PAGE>
6. OPTIONS
Long-Term Incentives in the form of Options shall be subject to the
following provisions:
(a) Subject to the provisions of Section 7, the purchase price per
share shall be, in the case of an Incentive Stock Option, not less than 100% of
the Fair Market Value of a share of Common Stock on the date the Incentive Stock
Option is granted (or in the case of a Participant who, at the time such
Incentive Stock Option is granted, owns (after applying the constructive
ownership rules of Section 424(d) of the Code) stock possessing more than ten
percent of the total combined voting power of all classes of stock of his
employer corporation or of its parent or subsidiary corporation (as those terms
are defined in Sections 424(e) and (f) of the Code) (a "10% Shareholder"), not
less than 110% of the Fair Market Value of a share of Common Stock on the date
the Incentive Stock Option is granted) and, in the case of a non-statutory stock
option, not less than 100% of the Fair Market Value of a share of Common Stock
on the date the Non-Statutory Stock Option is granted. The purchase price shall
be paid in cash or, if so provided in the Option (and subject to such terms and
conditions as are specified in the Option), in shares of Common Stock
surrendered to Enhance or in a combination of cash and such shares. Shares of
Common Stock thus surrendered shall be valued at their Fair Market Value on the
date of exercise.
(b) Each Option may become exercisable in one or more installments and
at such time or times and subject to such terms and conditions, as the Committee
shall determine. Unless otherwise provided in the Option, an Option, to the
extent it is or becomes exercisable, may be exercised at any time in whole or in
part until the expiration or termination of the Option. No fractional shares
shall be issued pursuant to the exercise of an Option, and no cash payment shall
be made in lieu of fractional shares.
(c) Each Option shall be exercisable during the life of the optionee
only by him or his guardian or legal representative, and after death only by his
Beneficiary. Notwithstanding the foregoing provisions of this paragraph (c) or
any other provision of this Plan, (i) no Option shall be exercisable after the
expiration of a period of ten years from the date the Option is granted,
provided that no Incentive Stock Option which is granted to a 10% shareholder
shall be exercisable after the expiration of five years from the date such
Option is granted.
(d) Options shall be granted for such lawful consideration as may be
provided in the Option or as the Committee may determine.
(e) Unless otherwise provided in the Option (and subject to such terms
and conditions as are specified in the Option), no Option or any right
thereunder may be assigned or transferred except to a Beneficiary of the
Participant.
(f) To the extent that the aggregate Fair Market Value (determined as
of the time a particular Option is granted) of the stock with respect to which
Incentive Stock Options are exercisable for the first time by any individual
during any calendar year (under all plans, including this Plan, of his employer
corporation and its parent and subsidiary corporations (as those terms are
defined in Section 424(e) or (f) of the Code)) exceeds $100,000, such Incentive
Stock Options shall be treated as Non-Statutory Stock Options, notwithstanding
any provision thereof to the contrary. The next preceding sentence shall be
applied by taking options into account in the order in which they were granted.
(g) Each Option shall be evidenced by a written instrument, which shall
contain such terms and conditions, and shall be in such form, as the Committee
shall determine and shall be deemed to incorporate this Plan by reference,
provided the instrument is consistent with this Plan. An Option, if so approved
by the Committee, may include terms, conditions, restrictions and limitation in
addition to those provided for in this Plan including, without limitation, terms
and conditions providing for the transfer or issuance of shares on exercise of
an Option, which may be non-transferable and forfeitable to Enhance in
designated circumstances, or providing for the transfer or issuance of shares on
a date subsequent to the date of exercise of the Option.
4
<PAGE>
7. ADJUSTMENT PROVISIONS
(a) In the event that any recapitalization, reclassification, split-up
or consolidation of shares of Common Stock shall be effected, or the outstanding
shares of Common Stock shall be effected, or the outstanding shares of Common
Stock shall, in connection with a merger or consolidation of Enhance or a sale
by Enhance of all or a part of its assets, be exchanged for a different number
or class of shares of stock or other securities or property of Enhance or any
other entity or person, or a record date for determination of holders of Common
Stock entitled to receive a dividend payable in Common Stock shall occur, (a)
the number and class of shares or other securities or property that may be
issued or transferred pursuant to Long-Term Incentives thereafter granted, (b)
the number and class of shares or other securities or property that may be
issued or transferred under outstanding Long-Term Incentives, (c ) the purchase
price (if any) to be paid per share under outstanding and future Long-Term
Incentives, and (d) the price (if any) to be paid per share by Enhance or a
Subsidiary for shares or other securities or property issued or transferred
pursuant to Long-Term Incentives which are subject to a right of Enhance or a
Subsidiary to reacquire such shares or other securities or property, shall in
each case be equitably adjusted.
(b) Upon any merger or consolidation in which Enhance is not the
surviving corporation or a dissolution or liquidation of Enhance, all
outstanding Options shall terminate provided that all holders of outstanding
Options shall be furnished with written notice of the proposed merger,
consolidation, dissolution or liquidation contemporaneously with the mailing to
stockholders of Enhance of notice of the meeting of stockholders at which such
proposed transaction is to be considered. The foregoing shall be of no effect in
the case of such a merger or consolidation if provision is made in writing in
connection therewith for the continuance of the Plan and for the assumption of
Options theretofore granted or the substitution for such Options of new options
and stock appreciation rights covering the shares of the successor corporation,
or a parent or subsidiary thereof, with appropriate adjustments, in which event
the Plan and the Options theretofore granted or the new options covering the
shares of the successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments, in which event the Plan and the Options theretofore
granted or the new options substituted therefore, shall continue in the manner
and under the terms so provided.
(c) At the discretion of the Committee, any Long-Term Incentive may
provide that, upon the occurrence of any of certain specified events determined
by the Committee, including a change in control of the Company (as such may be
defined by the Committee in its discretion in any agreement granting a Long-Term
Incentive, which definition need not be identical for all such agreements), such
Long-Term Incentive shall, to the extent not theretofore exercisable, payable or
free from restrictions, as the case may be, become immediately exercisable,
payable, or free from restrictions, as the case may be, in its entirety and any
shares of Common Stock acquired pursuant to a Long-Term Incentive which are not
fully vested shall immediately become fully vested, notwithstanding any other
provision of the Long-Term Incentive or the Plan.
(d) Each Long-Term Incentive shall provide that, in the event of a
merger or consolidation of Enhance with a third party which is proposed to be
accounted for as a pooling of interests, the Participant shall, if so requested
by the Company and notwithstanding any other provision of such Long-Term
Incentive, agree, as a condition to the exercisability, payment, or lapsing of
restrictions, as the case may be, of such Long-Term Incentive, not to sell,
assign, or gift or in any other way reduce his or her risk relative to the share
of Common Stock issuable pursuant to such Long-Term Incentive and all other
shares of Common Stock owned by such Participant for such period after the
consummation of such merger or consolidation as the Company shall, upon the
advice of its outside accountants, conclusively determine as necessary to ensure
that such merger or consolidation may be validly accounted for as a pooling of
interests.
(e) Adjustments under paragraphs 7(a) and 7(b) shall be made by the
Committee, whose determination as to what adjustments will be made and the
extent thereof shall be final, binding, and conclusive. No fractional interests
shall be issued under the Plan resulting from any such adjustments. The
Committee shall give prompt notice to each Participant affected thereby of the
occurrence of any event
5
<PAGE>
giving rise to any adjustment, which notice shall set forth the new purchase
price after giving effect to the adjustment, provided that such adjustment shall
be effective whether or not such notice is given.
8. TERM
The Plan shall become effective upon the date of its adoption by the
Board, subject, however, to approval by the shareholders of Enhance within
twelve months next following such adoption. Prior to such approval, the Board
may in its sole discretion authorize the granting of Long-Term Incentives,
including Options provided the exercisability thereof shall be deferred until,
and expressly subject to the condition that, the Plan shall have been so
approved. If the Plan is not so approved by the shareholders of Enhance, the
Plan and all Long-Term Incentive granted hereunder shall be automatically
canceled and any shares of Common Stock or cash previously issued or paid under
all Long-Term Incentives shall promptly be returned to the Company in return for
any money or properly it received therefore. The Plan shall terminated at the
close of business on the last day of the ten-year period commencing on the date
the Plan is adopted by the Board, and no Long-Term Incentives may thereafter be
granted, but such termination shall not affect any Long-Term Incentives
theretofore granted. No Long-Term Incentive shall be granted under this Plan
after the number of shares authorized for issuance or transfer hereunder have
been exhausted, but the Plan shall continue in effect thereafter with respect to
Long-Term Incentives theretofore granted.
9. ADMINISTRATION
(a) The Plan shall be administered by a Committee of three or more
persons selected by the Board from its own membership. Each member of such
Committee shall qualify (i) during such time as Enhance is a reporting company
under the Securities Exchange Act of 1934, as a "non-employee director" as
defined in Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange
Act of 1934 to the extent then required and (ii) as an "outside director" as
defined under Section 162(m) of the Code.
(b) The Committee may establish such rules and regulations, not
inconsistent with the provisions of this Plan, as it may deem necessary for the
proper administration of this Plan, and may amend or revoke any rule or
regulation so established. The Committee shall, subject to the provisions of the
Plan, have full power to interpret and administer the Plan and full authority to
select the Participants in the Plan and determine the number of shares (if any)
to be made subject to each Long-Term Incentive, the type of Long-Term Incentive
to be granted and the terms and conditions of each Long-Term Incentive (which
need not be identical). The interpretation by the Committee of the terms and
provisions of the Plan and the administration thereof, and all action taken by
the Committee, shall be final, binding and conclusive on Enhance, its
stockholders, Subsidiaries, all Participants and employees, and upon their
respective Beneficiaries, successors and assigns, and upon all other persons
claiming under or through any of them.
(c) Members of the Board of Directors and members of the Committee
acting under this Plan shall be fully protected in relying in good faith upon
the advice of counsel and shall incur no liability except for gross or willful
misconduct in the performance of their duties.
(d) The Plan is intended to comply with the exception for performance
based compensation under Section 162(m) of the Code and the regulations
thereunder with respect to Options, and grants of Options shall be limited,
construed and interpreted in a manner so as to comply therewith unless
determined otherwise by the Committee with respect to a particular grant of an
Option.
10. GENERAL PROVISIONS
(a) Nothing in this Plan or in any instrument executed pursuant hereto
shall confer upon any person any right to continue in the employment of Enhance
or a Subsidiary, or shall affect the right of Enhance or a Subsidiary to
terminate the employment of any person at any time with or without cause.
(b) No shares of Common Stock shall be issued or transferred pursuant
to a Long-Term Incentive unless and until all legal requirement applicable to
the issuance or transfer, of such shares have, in the opinion of counsel to
Enhance, been complied with. In connection with any such issuance or transfer,
6
<PAGE>
the person acquiring the shares shall if requested by Enhance and whether or not
otherwise required by the terms of the Participant's Long-Term Incentive, give
assurances satisfactory to counsel to Enhance, in respect of such matters as
Enhance or a Subsidiary may deem desirable to assure compliance with all
applicable legal requirements and take any reasonable action to comply with such
requirements.
(c) No provision of this Plan shall be interpreted or construed to
obligate Enhance to register the shares issuable or transferable hereunder under
the Securities Act of 1933 or disposition of shares of Common Stock issued or
transferred under any Long-Term Incentive may be made unless and until Enhance's
counsel is satisfied that the shares have been registered under the Securities
Act of 1933 and any other applicable federal or state securities laws or that an
exemption from such registration is available. Certificates evidencing any
shares of Common Stock issued or transferred under any Long-Term Incentive shall
be legended in such manner as Enhance's counsel may deem to be necessary or
appropriate to reflect the provisions of this paragraph 10(c).
(d) No person (individually or as a member of a group) and no
Beneficiary or other person claiming under or through him, shall have any right,
title or interest in or to any shares of Common Stock allocated or reserved for
the purposes of this Plan or subject to any Long-Term Incentive except as to
such shares of Common Stock, if any, as shall have been issued or transferred to
him.
(e) In the case of a grant of a Long-Term Incentive to a Key Employee
of a Subsidiary, such grant may, if the Board of Directors so approves, be
implemented by Enhance entering into an agreement with the Subsidiary containing
such terms and provisions as the Board of Directors may authorize, including,
without limitation, a provision for the issuance or transfer of the shares
covered by the Long-Term Incentive to the Subsidiary, for such consideration as
the Board of Directors may approve, upon the condition or understanding that the
Subsidiary will transfer the shares to the Key Employee in accordance with the
terms of the Long-Term Incentive.
(f) Enhance or a Subsidiary may make such provisions as it may deem
appropriate for the withholding of any taxes which Enhance or a Subsidiary
determines it is required to withhold in connection with any Long-Term
Incentive. The Committee may, in its sole discretion and subject to such rules
as it may adopt, permit a Participant to elect to satisfy any such withholding
obligation, in whole or in part, by having the Company withhold shares of Common
Stock that are otherwise issuable in connection with such Long-Term Incentive
and have a Fair Market Value equal to the amount required to be withheld, or by
surrendering to the Company previously-acquired shares of Common Stock that have
such a Fair Market Value. Each holder of an Incentive Stock Option shall give
prompt notice to the Company in the event of the disposition by him of any
shares where such disposition occurs within two years after the date of the
grant of such Option or within one year after the date of the such exercise.
(g) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or fringe benefits to directors,
officers, employees or consultants generally, or to any class or group of such
persons, which Enhance or any Subsidiary now has or may hereafter lawfully put
into effect, including, without limitation, any incentive compensation,
retirement, pension, group insurance, stock purchase, stock bonus or stock
option plan.
(h) In no event shall Long-Term Incentives be considered compensation
to a Participant for purposes of any other plan of the Company (including any
pension, profit-sharing, severance pay or other employee benefit plans) in
determining benefits to which such Participant may be entitled under such plan.
(i) By accepting any benefits under the Plan, each Participant, and
each person claiming under or through him, shall be conclusively deemed to have
indicated his acceptance and ratification of, and consent to, all provision of
the Plan and any action or decision under the Plan by Enhance, its agents and
employees, the Committee, and the Board.
(j) The validity, construction, interpretation and administration of
the Plan and of any determinations or decisions made thereunder, and the rights
of all persons having or claiming to have any
7
<PAGE>
interest therein or thereunder, shall be governed by, and determined exclusively
in accordance with, the laws of the State of New York, the state in which
Enhance is incorporated, but without giving effect to the principles of
conflicts of laws theretofore. Without limiting the generality of the foregoing,
the period within which any action arising under or in connection with the Plan
must be commenced, shall be governed by the laws of the State of New York,
without giving effect to the principles of conflicted of laws thereof,
irrespective of the place where the act or omission complained of took place and
of the residence of any party to such action and irrespective of the place where
the action may be brought.
(k) The use of the masculine gender shall also include with it a
meaning the feminine. The use of the singular shall include within its meaning
the plural and vice versa.
11. AMENDMENT AND TERMINATION
(a) This Plan may be amended or terminated by the Board of Directors at
any time and in any respect, including without limitation to permit or
facilitate qualification of Options theretofore or thereafter granted as
Incentive Stock Options under the Code, provided that, without the approval of
the shareholders of the Company, no amendment shall be made which (i) increases
the maximum number of shares of Common Stock that may be issued or transferred
pursuant to Long-Term Incentives, as provided in paragraph (a)(1) of Section 4
or increase the maximum number of shares of Common Stock that may be granted as
Options or Restricted Stock Awards to any Key Employee selected to participate
in the Plan as provided in paragraph (a)(2) of Section 4, (ii) except as may be
required or desirable to conform this Plan to the federal or state securities
laws and regulations that may apply to it from time to time, withdraws the
administration of this Plan from the Committee, (iii) transfers the
administration of this Plan to any person who is not a "non-employee director"
under Rule 16b-3, if Enhance is then a reporting company under the Securities
Exchange Act of 1934, (iv) permits any person who is not a Key Employee to be
granted a Long-Term Incentive, (v) changes the minimum exercise price of any
Option or extends the maximum exercise term of any Option or otherwise
materially increases the benefits accruing to participants in the Plan, (vi)
amends this Section 11, or (v) requires shareholder approval in order for the
Plan to continue to comply with the exception for performance-based compensation
under Section 162(m) of the Code.
(b) No amendment or termination of this Plan by the Board of Directors
or the shareholders of Enhance shall affect adversely any Long-Term Incentive
theretofore granted without the consent of the holder thereof.
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
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<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,929
<SECURITIES> 948,125
<RECEIVABLES> 29,426
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<BONDS> 174,676
0
0
<COMMON> 3,996
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<TOTAL-LIABILITY-AND-EQUITY> 1,394,055
<SALES> 0
<TOTAL-REVENUES> 96,062
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<TOTAL-COSTS> (58,669)
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