SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 1-12644
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
(Exact name of registrant as specified in its charter)
New York 13-3261323
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
350 Park Avenue
New York, New York 10022
(Address of principal executive offices)
(212) 826-0100
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
At July 31,1996, there were outstanding 32,276,301 shares of Common Stock, par
value $0.01 per share, of the registrant, including 2,138,838 shares held in
treasury.
<PAGE>
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Financial Security Assurance Holdings Ltd.
and Subsidiaries Consolidated Balance Sheets
- June 30, 1996 and December 31, 1995 3
Consolidated Statements of Income -
Three months and Six months ended June 30, 1996 and 1995 4
Consolidated Statement of Changes in Shareholders'
Equity - Six months ended June 30, 1996 5
Consolidated Statements of Cash Flows
- Six months ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION, AS APPLICABLE
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
June 30, December 31,
ASSETS 1996 1995
---- ----
Bonds, at market value (amortized
cost of $1,066,444 and $1,027,414) $ 1,057,613 $ 1,058,076
Stocks, at market value (cost of $6,514) 6,581 --
Short-term investments 75,245 52,666
----------- -----------
Total investments 1,139,439 1,110,742
Cash 7,432 1,118
Deferred acquisition costs 133,950 132,951
Prepaid reinsurance premiums 144,881 133,548
Reinsurance recoverable on unpaid
losses 35,624 61,532
Receivable for securities sold 15,871 2,326
Other assets 39,099 48,045
----------- -----------
TOTAL ASSETS
$ 1,516,296 $ 1,490,262
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred premium revenue $ 496,061 $ 463,897
Losses and loss adjustment expenses 79,501 111,759
Deferred federal income taxes 26,038 41,936
Ceded reinsurance balances payable 14,267 13,664
Payable for securities purchased 78,646 9,516
Notes payable 30,000 30,000
Accrued expenses and other
liabilities 31,783 41,543
----------- -----------
TOTAL LIABILITIES 756,296 712,315
Preferred stock (3,000,000 shares
authorized; 2,000,000
issued and outstanding; par
value of $.01 per share) 20 20
Common stock (50,000,000 shares
authorized; 32,276,301
issued; par value of $.01 per share) 323 323
Additional paid-in capital -
preferred 680 680
Additional paid-in capital - common 695,152 696,253
Unrealized gain (loss) on
investments (net of deferred
income tax (benefit) provision
of ($3,067) and $10,731) (5,696) 19,931
Accumulated earnings 105,777 72,410
Deferred equity compensation 14,817 6,504
Less treasury stock at cost
(2,022,031 and 774,276 shares
held) (51,073) (18,174)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 760,000 777,947
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 1,516,296 $ 1,490,262
=========== ===========
See notes to condensed consolidated financial statements.
3
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
Three Months Six Months
Ended Ended
June 30 June 30
---------- ----------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Net premiums written (net
of premiums ceded
of $14,035, $8,856, $32,476 and $16,092) $ 30,726 $ 20,792 $ 64,865 $ 40,349
Decrease (increase) in deferred
premium revenue (10,976) (5,462) (22,381) (9,804)
-------- -------- -------- --------
Premiums earned (net of premiums ceded of
$8,188, $8,533, $21,167 and $16,426) 19,750 15,330 42,484 30,545
Net investment income 15,986 12,311 31,668 24,665
Net realized gains (losses) (22) 2,061 1,512 (2,732)
Other income 43 209 105 406
-------- -------- -------- --------
TOTAL REVENUES 35,757 29,911 75,769 52,884
-------- -------- -------- --------
Expenses:
Losses and loss adjustment expenses
(net of reinsurance recoveries
of $571, $1,017, $1,131 and $2,016) 1,530 1,605 3,155 3,305
Interest expense 542 1,083 57
Policy acquisition costs 4,965 3,596 12,620 7,197
Other operating expenses 3,509 3,058 7,466 6,259
-------- -------- -------- --------
TOTAL EXPENSES 10,546 8,259 24,324 16,818
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 25,211 21,652 51,445 36,066
Provision for income taxes 6,463 6,168 13,153 9,777
-------- -------- -------- --------
NET INCOME $ 18,748 $ 15,484 $ 38,292 $ 26,289
======== ======== ======== ========
Weighted average common shares outstanding 30,758 25,887 31,074 25,940
======== ======== ======== ========
Earnings per common share $ 0.61 $ 0.59 $ 1.23 $ 1.01
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
Addition Additional Unrealized Deferred
Paid-In Paid-In Gain Equity
Preferred Common Capital- Capital (Loss) Accumulated Compen- Treasury
Stock Stock Preferred Common Investments Earnings sation Stock Total
--------- ------ --------- ---------- ----------- ----------- --------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,1995 $20 $323 $680 $696,253 $19,931 $72,410 $6,504 $(18,174) $777,947
Net income 38,292 38,292
Net unrealized gain on (25,627) (25,627)
investments
Dividends paid on common
stock ($0.08 per share) (4,925) (4,925)
Deferred equity compensation 8,313 8,313
Repurchase of common (32,899) (32,899)
stock
Other common stock (1,101) (1,101)
transactions
--- ---- ---- -------- -------- -------- ------- -------- --------
BALANCE, June 30, 1996 $20 $323 $680 $695,152 $(5,696) $105,777 $14,817 $(51,073) $760,000
=== ==== ==== ======== ======== ======== ======= ========= ========
See notes to condensed consolidated financial statements.
5
</TABLE>
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended June 30,
-------------------------
1996 1995
---- ----
Cash flows from operating activities:
Premiums received, net $70,424 $40,036
Policy acquisition and
other operating expenses paid, net (25,272) (16,210)
Loss and LAE paid, net (9,603) (690)
Net investment income
received 30,627 20,526
Recoverable advances received (paid) 7,628 (2,325)
Federal income taxes paid (14,732) (3,952)
Interest paid (1,855) (771)
Other, net (851) (2,414)
------ --------
Net cash provided by operating activities 56,366 34,200
------ --------
Cash flows from investing activities:
Proceeds from sales of bonds 479,363 235,199
Purchases of bonds (467,682) (287,559)
Purchases of property and equipment (1,225) (441)
Net decrease (increase) in short-term securities (21,582) 36,044
------ --------
Net cash used for investing activities (11,126) (16,757)
------ --------
Cash flows from financing activities:
Payment of management notes (5,624)
Dividends paid (4,925) (4,148)
Treasury stock (34,001) (5,215)
------ --------
Net cash used for financing activities (38,926) (14,987)
------ --------
Net increase in cash 6,314 2,456
Cash at beginning of period 1,118 2,742
------ --------
Cash at end of period $7,432 $ 5,198
====== ========
6
See notes to condensed consolidated financial statements.
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 1996 and 1995
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Holdings Ltd. (the Company) is an insurance
holding company incorporated in the State of New York. The Company is primarily
engaged (through its insurance subsidiaries, collectively known as FSA) in the
business of providing financial guaranty insurance on asset-backed and municipal
obligations. At June 30, 1996, the Company was owned approximately 40.0% by U S
WEST Capital Corporation (U S WEST), 11.4% by Fund American Enterprises
Holdings, Inc. (Fund American), 6.4% by The Tokio Marine and Fire Insurance Co.,
Ltd. (Tokio Marine) and 42.2% by the public and employees.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with instructions to Form 10-Q and, accordingly, 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 Company's 1995 Annual
Report to Shareholders. The accompanying financial statements have not been
audited by independent accountants in accordance with generally accepted
auditing standards but, in the opinion of management, all adjustments, which
include only normal recurring adjustments, necessary to present fairly the
financial position, results of operations and cash flows at June 30, 1996 and
for all periods presented have been made. The December 31, 1995 condensed
balance sheet data was derived from audited financial statements. The results of
operations for the periods ended June 30, 1996 and 1995 are not necessarily
indicative of the operating results for the full year.
Certain amounts in the 1995 financial statements have been reclassed to
conform to the 1996 presentation.
In the first quarter of 1996, the Company recharacterized its cash
equivalents as short-term investments. The amount of cash equivalents
recharacterized were $26.7 million and $38.1 million, as of June 30, 1996 and
December 31, 1995, respectively.
3. COMMON STOCK TRANSACTIONS
In May 1996, the Company repurchased 1.0 million shares of it common stock
from U S WEST for a purchase price of $26.50 per share. At the same time, the
Company also entered into forward agreements with National Westminister Bank Plc
and Canadian Imperial Bank of Commerce (the Counterparties) in respect of 1.75
million shares (the Forward Shares) of the Company's common stock. Under the
forward agreements, the Company will have the right to either (a) purchase the
Forward Shares from the Counterparties for a price equal to $26.50 per share
plus carrying costs or (b) direct the Counterparties to sell the Forward Shares,
with the Company receiving any excess or making up any shortfall between the
sale proceeds and $26.50 per share plus carrying costs in cash or additional
shares, at its option.
7
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
1996 and 1995 Second Quarter Results
The Company's 1996 second quarter net income was $18.8 million, compared with
$15.5 million for the same period in 1995, an increase of 21.1%. The increase
was primarily attributable to higher core net income and capital gains. In
December 1995, a subsidiary of the Company merged with Capital Guaranty
Corporation, so that in the second quarter of 1996 the Company began to realize
the benefits of the merger when compared to the previous year as total core
revenues increased $9.0 million, from $26.7 million in 1995 to $35.7 million in
1996, while total core expenses increased only $2.5 million.
Operating net income (net income less the after-tax effect of net realized
capital gains or losses) was $18.8 million for the second quarter of 1996 versus
$14.1 million for the comparable period in 1995, an increase of $4.6 million or
32.7%. Core net income (operating net income less the after-tax effect of
refundings and prepayments) was $18.7 million for the second quarter of 1996
versus $13.5 million for the comparable period in 1995, an increase of $5.2
million or 38.4%.
There are two measures of gross premiums originated for a given period. Gross
premiums written captures premiums collected in the period, whether collected
up-front for business originated in the period, or in installments for business
originated in prior periods. An alternative measure, the gross present value of
premiums written (gross PV premiums written) reflects future installment
premiums discounted to a present value, as well as up-front premiums, but only
for business originated in the period. The Company considers gross PV premiums
written to be the better indicator of a given period's origination activity
because a substantial part of the Company's premiums are collected in
installments, a practice typical of the asset-backed business. Regardless of the
measure used, quarter to quarter comparisons are of limited significance because
originations fluctuate from quarter to quarter but historically have not
exhibited a seasonal pattern.
Gross premiums written increased 51.0%, from $29.7 million for the second
quarter of 1995 to $44.8 million for the second quarter of 1996. Also, gross PV
premiums written increased from $33.2 million in the second quarter of 1995 to
$55.9 million in 1996, an increase of 68.3%. In the second quarter of 1996,
asset-backed gross PV premiums written were $28.8 million, as compared to $15.7
million in 1995, as several large, high-premium transactions were underwritten
within the pooled corporate obligations sector. However, management does not
necessarily believe that this same growth level within the asset-backed sector
will continue throughout the year. For the municipal business, gross PV premiums
written in the second quarter increased from $17.5 million in 1995 to $27.1
million in 1996, an increase of 54.8%. This increase was primarily attributable
to the additional underwriting capabilities the Company realized from the
merger.
In the second quarter of 1996, the Company insured par value of bonds totaling
$7.4 billion, a 93.0% increase over the same period in 1995. The second quarter
asset-backed component rose 68.7% to $4.4 billion while the municipal sector
rose 145.0% to $3.0 billion. Compared with the combined FSA and Capital Guaranty
second quarter production in 1995, the increase would have been 29.8%.
Net premiums written were $30.7 million for the second quarter of 1996, an
increase of $9.9 million or 47.8% when compared with $20.8 million in 1995. The
increase in net premiums written was less than that of gross premiums written
because the Company increased the amounts ceded on a facultative basis for the
asset-backed business in 1996 as compared to the second quarter of 1995. This
facultative reinsurance was utilized on the several large, high-premium
transactions noted above, and therefore this level of reinsurance may not
continue at the same rate over the year.
8
<PAGE>
Net premiums earned for the second quarter of 1996 were $19.8 million, compared
with $15.3 million in the second quarter of 1995, an increase of 28.8%. Premiums
earned from refundings and prepayments were $0.1 million for the second quarter
of 1996 and $1.2 million for the same period of 1995, contributing $0.1 million
and $0.6 million, respectively, to after-tax earnings. Net premiums earned for
the quarter grew 38.8% relative to the same period in 1995 when the effects of
refundings and prepayments are eliminated.
Net investment income was $16.0 million for the second quarter of 1996 and $12.3
million for the comparable period in 1995, an increase of 29.8%. The increase in
investment income is primarily due to additional invested assets acquired in the
merger. The Company's effective tax rate on investment income has decreased from
23.0% for the second quarter of 1995 to 19.6% in 1996, as the holdings of
tax-exempt securities has increased. In the second quarter of 1996, the Company
realized $22 thousand in net capital losses as compared with realized net
capital gains of $2.1 million for the same period in 1995. Capital gains and
losses are a by-product of the normal investment management process and will
vary substantially from period to period.
The provisions for losses and loss adjustment expenses during the second
quarters of 1996 and 1995 were $1.5 million and $1.6 million, respectively,
representing additions to the Company's general loss reserve. The additions to
the general reserve represent management's estimate of the amount required to
adequately cover the net cost of claims. The Company will, on an ongoing basis,
monitor these reserves and may periodically adjust such reserves based on the
Company's actual loss experience, its future mix of business, and future
economic conditions. At June 30, 1996, the unallocated balance in the Company's
general loss reserve was $34.7 million.
Total policy acquisition and other operating expenses were $8.5 million for the
second quarter of 1996 compared with $6.7 million for the same period in 1995,
an increase of 27.4%. Excluding the effects of refundings, total policy
acquisition and other operating expenses were $8.4 million for the second
quarter of 1996 compared with $6.4 million for the same period in 1995, an
increase of 31.1%. The increase was primarily the result of higher DAC
amortization due to a higher level of premiums earned and increased accruals for
performance plan payouts due to the addition of another plan year to the accrual
base.
Income before income taxes for the second quarter of 1996 was $25.2 million, up
from $21.7 million, or 16.4%, for the same period in 1995.
The Company's effective tax rate for the second quarter of 1996 was 25.6%
compared with 28.5% for the same period in 1995. The decrease in effective tax
rates from the second quarter of 1995 to 1996 was due to a higher proportion of
tax-exempt interest income.
The weighted average number of shares of common stock outstanding increased to
30,758,000 for the quarter ended June 30, 1996, from 25,887,000 during the
second quarter of 1995. This increase was due to the issuance of new shares in
the merger with Capital Guaranty, net of shares the Company repurchased as
discussed below in "Liquidity and Capital Resources." Earnings per share
increased from $0.59 for the second quarter of 1995 to $0.61 for the same period
in 1996.
1996 and 1995 First Six Months Results
The Company's net income for the first six months of 1996 was $38.3 million,
compared with $26.3 million for the same period in 1995, an increase of 45.7%.
The increase was primarily attributable to higher core net income due to the
merger and realization of capital gains, partially offset by lower refundings.
Operating net income was $37.3 million for the first six months of 1996 versus
$28.1 million for the comparable period in 1995, an increase of 32.9%. Core net
income was $36.3 million for the first six months of 1996 versus $26.4 million
for the comparable period in 1995, an increase of 37.4%.
9
<PAGE>
Gross premiums written increased 72.5%, to $97.3 million for the first six
months of 1996 from $56.4 million for the first six months of 1995. Also, gross
PV premiums written for the first six months of 1996 increased by 57.8%, to
$117.3 million from the prior year's total of $74.3 million. In the first six
months of 1996, asset-backed gross PV premiums written were up 71.8% to $70.4
million, as business increased due to several large, high-premium transactions
in the pooled corporate obligations sector, as compared to gross PV premiums
written in the first six months of 1995 of $40.9 million. For the municipal
business, gross PV premiums written in the first six months increased 40.6% to
$46.9 million in 1996 from $33.4 million in 1995.
In the first six months of 1996, the Company insured bonds totaling $12.8
billion, a 63.2% increase over the same period in 1995. The second quarter
asset-backed component rose 36.7% to $7.5 billion while the municipal sector
rose 124.9% to $5.3 billion. Compared with the combined FSA and Capital Guaranty
six month production in 1995, the increase would have been 29.8%. In the first
six months of 1996, the estimated total market par volume of municipal new
issues was $89.8 billion, an increase of 27.7% from 1995's level and the par
insured by the industry increased 50% to $41.1 billion in 1996.
Net premiums written were $64.9 million for the first six months of 1996, an
increase of 60.7% when compared with 1995. The increase in net premiums written
was less than that of gross premiums written because the Company increased the
amounts ceded on a facultative basis for the asset-backed business in 1996 as
compared to the first six months of 1995. This facultative reinsurance was
utilized on the several large, high-premium transactions noted above, and
therefore this level of reinsurance may not continue at the same rate over the
year.
Net premiums earned for the first six months of 1996 were $42.5 million,
compared with $30.5 million in 1995, an increase of 39.1%. Premiums earned from
refundings and prepayments were $4.5 million for the first six months of 1996
and $3.2 million for the same period of 1995, contributing $1.0 million and $1.7
million to after-tax earnings. Net premiums earned for the period grew 38.9%
relative to 1995 when the effects of refundings and prepayments were eliminated.
While prepayments may continue throughout the remainder of the year, no
assurances can be given that they will continue at the same level that was
experienced in the first six months of 1996.
Net investment income was $31.7 million for the first six months of 1996 and
$24.7 million for the comparable period in 1995, an increase of 28.4%. The
increase in investment income is primarily due to additional invested assets
acquired in the merger. The Company's effective tax rate on investment income
has decreased from 23.0% for the first six months of 1995 to 19.1% in 1996, as
the holdings of tax-exempt securities has increased. Year-to-date 1996, the
Company has realized $1.5 million of capital gains as compared with realized net
capital losses of $2.7 million for the same period in 1995.
The provisions for losses and loss adjustment expenses during the first six
months of 1996 and 1995 were $3.2 million and $3.3 million, respectively,
representing additions to the Company's general loss reserve.
Total policy acquisition and other operating expenses were $20.1 million for the
first six months of 1996 compared with $13.5 million for the same period in
1995, an increase of 49.3%. Eliminating the effect of refundings and
prepayments, total policy acquisition and other operating expenses would have
increased 33.5% due to higher amortization of deferred acquisition costs in
1996. The increase was primarily the result of higher DAC amortization due to a
higher level of premiums earned and increased accruals for performance plan
payouts due to another plan year added to the accrual base.
Income before income taxes for the first six months of 1996 was $51.4 million,
up from $36.1 million, or 42.6%, for the same period in 1995.
The Company's effective tax rate for the first six months of 1996 was 25.6%
compared with 27.1% for the same period in 1995. The decrease in effective tax
rates from the first six months of 1995 to 1996 was due to a higher proportion
of tax-exempt interest income.
The weighted average number of shares of common stock outstanding increased from
25,940,000 during the first six months of 1995 to 31,074,000, for the six months
ended June 30, 1996. This increase was due to the issuance of new shares in the
merger, partially offset by a repurchase of shares as discussed below in
"Liquidity and Capital Resources." Earnings per share increased to $1.23 for the
first six months of 1996 from $1.01 for the same period in 1995.
10
<PAGE>
Liquidity and Capital Resources
The Company's consolidated invested assets and cash equivalents at June 30,
1996, net of unsettled security transactions, was $1,076.7 million, a 2.4%
decrease from the December 31, 1996 balance of $1,103.6 million. This decrease
is primarily the result of a change in the market value of the investment
portfolio, which included an unrealized gain position of $30.7 million at
December 31, 1995 and an unrealized loss position of $8.8 million at June 30,
1996.
A subsidiary of the Company has $30.0 million outstanding long-term debt. The
Company has no material plans for capital expenditures within the next twelve
months.
Because the operations of the Company are conducted through FSA, the ability of
the Company to declare and pay dividends both on a short- and long-term basis
will be largely dependent upon FSA's ability to do so and upon external
financings.
FSA's ability to pay dividends is dependent upon FSA's financial condition,
results of operations, cash requirements, rating agency approval and other
related factors and is also subject to restrictions contained in the insurance
laws and related regulations of New York and other states. Under New York State
insurance law, FSA may pay dividends out of earned surplus, provided that,
together with all dividends declared or distributed by FSA during the preceding
12 months, the dividends do not exceed the lesser of (i) 10% of policyholders'
surplus as of its last statement filed with the New York Superintendent of
Insurance or (ii) adjusted net investment income during this period. FSA has
paid dividends of $18.0 million for the six months ended June 1996. Based upon
FSA's statutory statements for the quarter ended June 30, 1996 and considering
dividends which can be paid by its subsidiary, the maximum amount available for
payment of dividends by FSA without regulatory approval over the following 12
months is approximately $37.3 million. As a customary condition for approving in
September, 1994, the application of Fund American for a change in control of
FSA, the prior approval of the New York Superintendent is required for payment
of dividends by FSA to the Company for a period of two years following such
change of control. Such prior approval requirement will lapse in September 1996.
Such prior approvals have been obtained by FSA in respect of such quarterly
dividend since September, 1995 in the ordinary course.
FSA has several sources of liquidity as described in the Company's 1996 Annual
Report to Shareholders. In addition to these sources, in April 30, 1996, FSA
entered into an agreement with a AAA/Aaa rated international bank for a $125.0
million credit facility which expires on January 31, 2003, unless extended. This
facility is a seven-year stand-by irrevocable limited recourse line-of-credit
which provides liquidity and credit support to FSA in the event losses from
municipal obligations in FSA's insured portfolio exceed specified limits.
Repayment of amounts drawn under the line will be limited primarily to
recoveries of losses related to such municipal obligations.
In May 1996, the Company repurchased 1.0 million shares of it common stock from
U S WEST for a purchase price of $26.50 per share. At the same time, the Company
also entered into forward agreements with National Westminister Bank Plc and
Canadian Imperial Bank of Commerce (the Counterparties) in respect of 1.75
million shares (the Forward Shares) of the Company's common stock. Under the
forward agreements, the Company will have the right to either (a) purchase the
Forward Shares from the Counterparties for a price equal to $26.50 per share
plus carrying costs or (b) direct the Counterparties to sell the Forward Shares,
with the Company receiving any excess or making up any shortfall between the
sale proceeds and $26.50 per share plus carrying costs in cash or additional
shares, at its option. If the Company were to settle these Forward Shares at the
Company's June 30, 1996 market price of $27.375, it would receive approximately
49 thousand shares.
11
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Shareholders was held on Thursday, May 9, 1996.
At the 1996 Annual Meeting, shareholders elected all 15 nominees for director
and approved the Company's selection of Coopers & Lybrand L.L.P. as independent
auditors for the year ending December 31, 1996. The number of votes cast with
respect to each director nominee were at least as follows:
Number of Shares Number of
Nominee Voted For Shares Withheld
- ------------------ ----------------- ---------------
John J. Byrne 30,495,058 12,888
Robert P. Cochran 30,495,058 12,888
Michael Djordjevich 30,495,083 12,863
Robert N. Downey 30,495,083 12,863
Anthony M. Frank 30,493,808 14,138
K. Thomas Kemp 30,493,808 14,138
Kozo Kusakari 30,494,648 13,298
David O. Maxwell 30,495,083 12,863
James M.Osterhoff 30,494,748 13,198
James H. Ozanne 30,495,083 12,863
Staats M.Pellett, Jr. 30,495,083 12,863
Richard A. Post 30,494,648 13,298
Roger K. Taylor 30,495,058 12,888
Allan L. Waters 30,495,083 12,863
Howard M. Zelikow 30,495,083 12,863
The selection of Coopers & Lybrand L.L.P. was ratified by at least 30,501,585
shares; at least 685 shares were voted against ratification and at least 5,676
shares abstained from voting on this matter.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(1) Condensed consolidated financial statements of Financial Security
Assurance Inc. for the six month period ended June 30, 1996.
(2) Credit Agreement dated as of April 30, 1996, among Financial
Security Assurance Inc., Financial Security Assurance of Maryland
Inc., Financial Security Assurance of Oklahoma, Inc., the Banks
signatory thereto and Bayerische Landesbank Girozentrale, New
York Branch, as Agent.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated April 26, 1996, was filed by the
Company in respect of Item 5 of Form 8-K (Other Events)
12
<PAGE>
SIGNATURES
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.
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
By /s/ Jeffrey S. Joseph
---------------------------
August 9, 1996 Jeffrey S. Joseph
Managing Director & Controller
(Chief Accounting Officer)
13
<PAGE>
Exhibit Index
Exhibit No. Exhibit
- ---------- ---------
1. Condensed financial statements of Financial Security Assurance Inc.
for the six month period ended June 30, 1996
2. Credit Agreement dated as of April 30, 1996, among Financial Security
Assurance Inc., Financial Security Assurance of Maryland Inc.,
Financial Security Assurance of Oklahoma, Inc., the Banks signatory
thereto and Bayerische Landesbank Girozentrale, New York Branch, as
Agent
EXHIBIT 1
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
June 30, 1996
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1996 and 1995
INDEX
FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4
The New York State Insurance Department recognizes only statutory accounting
practices for determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under the New
York Insurance Law, and for determining where its financial condition warrants
the payment of a dividend to its stockholders. No consideration is given by the
New York State Insurance Department to financial statements prepared in
accordance with generally accepted accounting principles in making such
determinations.
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
June 30 December 31,
1996 1995
----- ------------
Bonds at market value (amortized
cost of $1,061,866 and $1,006,084) $ 1,053,120 $ 1,036,382
Short-term investments 75,256 49,845
----------- -----------
Total investments 1,128,376 1,086,227
Cash 5,970 555
Deferred acquisition costs 133,950 132,951
Prepaid reinsurance premiums 144,881 133,548
Reinsurance recoverable on unpaid losses 35,624 61,532
Receivable for securities sold 15,871 2,326
Other assets 57,745 59,499
----------- -----------
TOTAL ASSETS $ 1,522,417 $ 1,476,638
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Deferred premium revenue $ 496,061 $ 463,897
Losses and loss adjustment expenses 79,501 111,759
Deferred federal income taxes 27,414 43,205
Ceded reinsurance balances payable 14,267 13,664
Payable for securities purchased 78,646 9,516
Accrued expenses and other liabilities 41,456 44,611
----------- -----------
TOTAL LIABILITIES 737,345 686,652
----------- -----------
Common stock (1,000 shares authorized;
750 shares issued and outstanding; par
value of $20,000 per share) 15,000 15,000
Additional paid-in capital 681,470 681,470
Unrealized gain (loss) on
investments (net of deferred
income tax provision (benefit)
of ($3,061) and $10,604) (5,685) 19,694
Accumulated earnings 94,287 73,822
----------- -----------
TOTAL SHAREHOLDER'S EQUITY 785,072 789,986
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 1,522,417 $ 1,476,638
=========== ===========
See notes to condensed consolidated financial statements.
1
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
Six Months Ended June 30,
-------------------------
1996 1995
---- ----
REVENUES:
Net premiums written (net of premiums ceded of
$32,476 and $16,092) $ 64,865 $ 40,349
Increase in deferred premium revenue (22,381) (9,804)
-------- --------
Premiums earned (net of premiums ceded of
$21,167 and $16,426) 42,484 30,545
Net investment income 30,103 23,811
Net realized gains (losses) 1,457 (2,785)
Other income 163 319
-------- --------
TOTAL REVENUES 74,207 51,890
-------- --------
EXPENSES:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $1,131 and $2,016) 3,155 3,305
Policy acquisition costs 12,620 7,197
Other operating expenses 6,674 5,783
-------- --------
TOTAL EXPENSES 22,449 16,285
-------- --------
INCOME BEFORE INCOME TAXES 51,758 35,605
Provision for income taxes 13,293 9,676
-------- --------
NET INCOME $ 38,465 $ 25,929
======== ========
See notes to condensed consolidated financial statements.
2
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended June 30,
-------------------------
1996 1995
---- ----
Cash flows from operating activities:
Premiums received, net $ 70,424 $ 40,036
Policy acquisition and other operating
expenses paid, net (35,304) (17,906)
Recoverable advances received (paid) 7,628 (2,325)
Loss and LAE paid, net (9,603) (690)
Net investment income received 28,790 19,479
Federal income taxes paid (15,240) (5,891)
Interest paid (798) (715)
Other, net 1,807 (42)
-------- --------
Net cash provided by operating activities 47,704 31,946
-------- --------
Cash flows from investing activities:
Proceeds from sales of bonds 458,659 219,622
Purchases of bonds (457,287) (277,487)
Purchases of property and equipment (1,225) (420)
Net decrease (increase) in short-term securities (24,436) 37,677
-------- --------
Net cash used for investing activities (24,289) (20,608)
-------- --------
Cash flows from financing activities:
Dividends paid (18,000) (9,000)
-------- --------
Net cash used for financing activities (18,000) (9,000)
-------- --------
Net increase in cash 5,415 2,338
Cash at beginning of period 555 2,663
-------- --------
Cash at end of period $ 5,970 $ 5,001
======== ========
See notes to condensed consolidated financial statements.
3
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Inc. (the Company), a wholly owned subsidiary
of Financial Security Assurance Holdings Ltd. (the Parent), is an insurance
company domiciled in the State of New York. The Company is primarily engaged in
the business of providing financial guaranty insurance on asset-backed
financings and municipal obligations.
2. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by the Company and are unaudited. In the opinion of management, all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows at
June 30, 1996 and for all periods presented, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These statements should be read in conjunction
with the Company's December 31, 1995 consolidated financial statements and notes
thereto. The year-end condensed balance sheet was derived from audited financial
statements. The results of operations for the periods ended June 30, 1996 and
1995 are not necessarily indicative of the operating results for the full year.
Certain amounts in the 1995 financial statements have been reclassed to
conform to the 1996 presentation.
In the first quarter of 1996, the Company recharacterized its cash
equivalents as short-term investments. The amount of cash equivalents
recharacterized were $26.7 million and $35.3 million, as of June 30, 1996 and
December 31, 1995, respectively.
4
EXHIBIT 2
$125,000,000
CREDIT AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
FINANCIAL SECURITY ASSURANCE OF MARYLAND INC.
FINANCIAL SECURITY ASSURANCE OF OKLAHOMA, INC.,
VARIOUS BANKS,
and
BAYERISCHE LANDESBANK GIROZENTRALE,
Acting Through Its New York Branch
Individually and as Agent
--------------------------
Dated as of April 30, 1996
--------------------------
<PAGE>
CREDIT AGREEMENT
TABLE OF CONTENTS
Page
----
PARTIES......................................................... 1
PREAMBLES....................................................... 1
ARTICLE I
DEFINITIONS AND PRINCIPLES OF CONSTRUCTION
Section 1.01. Defined Terms.................................... 1
Section 1.02. Principles of Construction....................... 9
ARTICLE II
AMOUNT AND TERMS OF CREDIT
Section 2.01. The Loans........................................ 9
Section 2.02. Amount of Each Borrowing......................... 9
Section 2.03. Notice of Borrowing.............................. 9
Section 2.04. Disbursement of Funds............................ 10
Section 2.05. Notes............................................ 10
Section 2.06. Interest......................................... 10
Section 2.07. Capital Adequacy................................. 10
ARTICLE III
FEES; TERMINATION OF COMMITMENT
Section 3.01. Fees............................................. 11
Section 3.02. Voluntary Termination of Unutilized Commitments.. 12
Section 3.03. Mandatory Termination of Commitments............. 12
Section 3.04. Expiry Date...................................... 12
ARTICLE IV
PREPAYMENTS; PAYMENTS
i
<PAGE>
Section 4.01. Voluntary Prepayments............................ 13
Section 4.02. Mandatory Prepayments............................ 13
Section 4.03. Method and Place of Payment...................... 13
Section 4.04. Net Payments..................................... 13
Section 4.05. Limitations on Sources of Payment................ 15
ARTICLE V
CONDITIONS PRECEDENT TO EFFECTIVENESS
Section 5.01. Execution of Agreement; Notes.................... 15
Section 5.02. No Default; Representations and Warranties....... 16
Section 5.03. Opinions of Counsel.............................. 16
Section 5.04. Corporate Documents; Proceedings................. 16
Section 5.05. Security Agreement............................... 16
Section 5.06. Covered Portfolio, etc........................... 17
Section 5.07. Adverse Change, Rating, etc...................... 17
Section 5.08. Litigation....................................... 17
Section 5.09. Fees, etc........................................ 18
ARTICLE VI
CONDITIONS PRECEDENT TO ALL CREDIT EVENTS
Section 6.01. Loss Threshold Incurrence Date................... 18
Section 6.02. Cumulative Losses................................ 18
Section 6.03. Principal Amount................................. 18
Section 6.04. Notice of Borrowing.............................. 18
ARTICLE VII
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
Section 7.01. Corporate Status................................. 18
Section 7.02. Corporate Power and Authority.................... 19
Section 7.03. No Violation..................................... 19
Section 7.04. Governmental Approvals........................... 19
Section 7.05. Financial Statements; Financial Condition;
Undisclosed Liabilities; etc. ................... 19
Section 7.06. Litigation....................................... 20
Section 7.07. True and Complete Disclosure..................... 20
Section 7.08. Use of Proceeds; Margin Regulations.............. 20
Section 7.09. Tax Returns and Payments......................... 21
Section 7.10. Compliance with ERISA............................ 21
ii
<PAGE>
Section 7.11. Capitalization................................... 21
Section 7.12. Subsidiaries..................................... 21
Section 7.13. Compliance with Statutes, etc.................... 21
Section 7.14. Investment Company Act........................... 22
Section 7.15. Public Utility Holding Company Act............... 22
Section 7.16. Compliance with Insurance Law.................... 22
Section 7.17. Covered Portfolio................................ 23
iii
<PAGE>
ARTICLE VIII
AFFIRMATIVE COVENANTS
Section 8.01. Information Covenants............................ 23
Section 8.02. Books, Records and Inspections................... 25
Section 8.03. Maintenance of Property, Insurance............... 25
Section 8.04. Corporate Franchises............................. 25
Section 8.05. Compliance with Statutes, etc.................... 25
Section 8.06. ERISA............................................ 25
Section 8.07. Performance of Obligations....................... 26
Section 8.08. Use of Proceeds.................................. 26
Section 8.09. Conduct of Business.............................. 26
Section 8.10. Underwriting Criteria............................ 26
Section 8.11. Collection of Pledged Recoveries and
Pledged Premiums .............................. 26
Section 8.12. Pledged Reserve Release Notice................... 26
Section 8.13. Registry......................................... 26
ARTICLE IX
NEGATIVE COVENANTS
Section 9.01. Liens............................................ 27
Section 9.02. Consolidation, Merger, Sale of Assets, etc....... 28
ARTICLE X
EVENTS OF DEFAULT
Section 10.01. Payments........................................ 29
Section 10.02. Representations, etc............................ 29
Section 10.03. Covenants....................................... 29
Section 10.04. Default Under Other Agreements.................. 29
Section 10.05. Bankruptcy, etc................................. 30
Section 10.06. ERISA........................................... 30
Section 10.07. Security Agreement.............................. 30
Section 10.08. Judgments....................................... 31
Section 10.09. Change of Control............................... 31
ARTICLE XI
THE AGENT
iv
<PAGE>
Section 11.01. Appointment..................................... 31
Section 11.02. Nature of Duties................................ 31
Section 11.03. Lack of Reliance on the Agent................... 31
Section 11.04. Certain Rights of the Agent..................... 32
Section 11.05. Reliance........................................ 32
Section 11.06. Indemnification................................. 32
Section 11.07. The Agent in Its Individual Capacity............ 32
Section 11.08. Resignation by the Agent........................ 33
ARTICLE XII
MISCELLANEOUS
Section 12.01. Payment of Expenses. etc........................ 33
Section 12.02. Right of Setoff................................. 34
Section 12.03. Notices......................................... 34
Section 12.04. Benefit of Agreement............................ 34
Section 12.05. No Waiver; Remedies Cumulative.................. 36
Section 12.06. Calculations; Computations...................... 36
Section 12.07. Governing Law; Submission to Jurisdiction; Venue 36
Section 12.08. Obligation to Make Payments in Dollars.......... 37
Section 12.09. Counterparts.................................... 37
Section 12.10. Effectiveness................................... 37
Section 12.11. Headings Descriptive............................ 37
Section 12.12. Amendment or Waiver............................. 38
Section 12.13. Survival........................................ 38
Section 12.14. Exclusions from Covered Portfolio............... 38
TESTIMONIUM......................................................38
SIGNATURES.......................................................38
SCHEDULE I COMMITMENTS
SCHEDULE II UNDISCLOSED LIABILITIES - NONE
SCHEDULE III SUBSIDIARIES
SCHEDULE IV LIST OF REINSURANCE AGREEMENTS
EXHIBIT A NOTICE OF BORROWING
EXHIBIT B NOTE AND GRID
EXHIBIT C OPINIONS OF COUNSEL
EXHIBIT D OFFICER'S CERTIFICATE
v
<PAGE>
EHXIBIT E FORM OF SECURITY AGREEMENT
EXHIBIT F FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT G FORM 404(b)(iii) CERTIFICATE
EXHIBIT H NOTE REGISTER
vi
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of April 30, 1996, among FINANCIAL SECURITY
ASSURANCE INC. ("FSA"), FINANCIAL SECURITY ASSURANCE OF MARYLAND INC. ("FSAM")
and FINANCIAL SECURITY ASSURANCE OF OKLAHOMA, INC. ("FSAO") (each a "Borrower"
and collectively, the "Borrowers"), the Banks party hereto from time to time and
BAYERISCHE LANDESBANK GIROZENTRALE, acting through its New York Branch acting in
its capacity as Agent pursuant to Article XI hereof. Capitalized terms used
herein and not otherwise defined shall have the meaning assigned in Section
1.01.
W I T N E S S E T H :
WHEREAS, subject to and upon the terms and conditions herein set forth, the
Banks are willing to make available to the Borrowers the credit facility
provided for herein.
NOW, THEREFORE, IT IS AGREED:
ARTICLE I
DEFINITIONS AND PRINCIPLES OF CONSTRUCTION
Section 1.01. Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Affiliate" shall mean, with respect to any Person, any other Person (other
than an individual) directly or indirectly controlling, controlled by, or under
direct or indirect common control with, such Person; provided, however, that an
Affiliate of a Borrower shall include any Person that directly or indirectly
owns more than 5% of such Borrower and any officer or director of such Borrower
or any such Person. A Person shall be deemed to control another Person if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether through
the ownership of voting securities, by contract or otherwise.
"Agent" shall mean Bayerische Landesbank Girozentrale, a public law
financial institution organized and existing under the laws of Germany, acting
through its New York Branch, in its capacity as Agent for the Banks hereunder,
and shall include any successor to the Agent appointed pursuant to Section
11.08.
1
<PAGE>
"Agreement" shall mean this Credit Agreement, as modified, supplemented or
amended from time to time as permitted under Section 12.12.
"Assignment and Assumption Agreement" shall mean any Assignment and
Assumption Agreement substantially in the form of Exhibit F entered into
pursuant to the terms hereof.
"Authorized Officer" shall mean, with respect to each Borrower, any
president, chief operating officer, general counsel, chief financial officer,
chief accounting officer or treasurer of each Borrower.
"Average Annual Debt Service" as of a specified date with respect to an
Insured Obligation, shall mean the applicable Retained Percentage times the sum
of (a) the aggregate outstanding principal amount of such Insured Obligation,
and (b) the aggregate amount of interest thereafter required to be paid on such
Insured Obligation (giving effect to all mandatory sinking fund payments or
other regularly scheduled required redemptions, prepayments or other retirement
of principal), divided by the number of whole and fractional years (but in no
case less than one (1) year) from the date of determination to the latest
maturity date of such Insured Obligation, and with respect to the Covered
Portfolio as of such date as specified, shall mean the sum of the Average Annual
Debt Service as of such date of all Insured Obligations contained in the Covered
Portfolio. In the event that an Insured Obligation bears interest at a variable
rate, the interest thereon for purposes of the determination of Average Annual
Debt Service shall be calculated at the rate employed by the Borrowers to
compute average annual debt service with respect to such Insured Obligation in
accordance with its customary business practices.
"Bank" shall mean Bayerische Landesbank Girozentrale, a public law
financial institution organized and existing under the laws of Germany, acting
through its New York Branch, as well as any institution which becomes a Bank
hereunder pursuant to Section 12.04(b).
"Bankruptcy Code" shall have the meaning provided in Section 10.05.
"Base Rate" shall mean for any day the higher of (a) the base commercial
lending rate most recently established by the Agent, or (b) one-quarter of one
percent (1/4%) plus the Federal Funds Rate.
"Borrower" shall have the meaning provided in the first paragraph of this
Agreement. Unless the context otherwise requires, all references to (a) the
"Borrower" shall mean each Borrower jointly and severally and (b) the
"Borrowers" shall mean all Borrowers collectively and (c) "entity comprising the
Borrower" shall mean FSA and, so long as they are Borrowers, FSAM and FSAO. By
written notice to the Agent, FSA may designate that FSAM or FSAO shall cease to
be a Borrower and thereafter such entity shall cease to be a Borrower hereunder;
provided that no Loan shall be outstanding and provided further, that FSA shall
at all times remain liable for all obligations of the Borrowers hereunder and
under the other Credit Documents.
2
<PAGE>
"Borrower's Rating" shall mean, with respect to each Borrower, such
Borrower's claims-paying ability rating in the case of S&P and insured financial
strength rating in the case of Moody's.
"Borrowing" shall mean the borrowing of Loans on a given date.
"Business Day" shall mean any day except Saturday, Sunday and any day which
shall be in New York City a legal holiday or a day on which banking institutions
are authorized or required by law or other government action to close.
"Change of Control" shall mean and include the occurrence of any of the
following events: any Person, entity or "group" (within the meaning of Sections
13(d) or 14(d) of the Securities Exchange Act of 1934) other than U S WEST,
Inc., Fund American Enterprises Holdings, Inc., The Tokio Marine and Fire
Insurance Co., Ltd., or any affiliate thereof or any Person, entity or "group"
which, immediately prior to such event, was a Subsidiary of the Parent (a) shall
have acquired beneficial ownership of 20% or more of any outstanding class of
capital stock of the Parent or any Borrower having ordinary voting power in the
election of directors, provided that any Person, entity or group shall be
permitted to acquire up to 25% of the outstanding capital stock of any such
class in a transaction approved before the consummation of same by a majority of
the directors of the Parent or any Borrower or (b) shall have obtained the power
(whether or not exercised) to elect the majority of the Board of Directors of
the Parent or any Borrower.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean all "Collateral" as defined in the Security
Agreement.
"Collateral Account" shall have the meaning set forth in the Security
Agreement.
"Collateral Agent" shall have the meaning set forth in the Security
Agreement.
"Commitment" shall mean for each Bank the amount set forth opposite such
Bank's name in Schedule I hereto directly below the column entitled
"Commitment," as the same may be (a) reduced from time to time pursuant to
Sections 3.02 and/or 3.03 and (b) adjusted from time to time as a result of
assignments to or from such Bank pursuant to Section 12.04.
"Commitment Fee" shall have the meaning provided in Section 3.01(a).
"Commitment Period" initially shall mean the period commencing on the
Effective Date and ending on the Expiry Date and, from and after the date of any
extension of the Expiry Date
3
<PAGE>
pursuant to Section 3.04, shall mean the period commencing on January 31 which
is seven years prior to the Expiry Date and ending on the Expiry Date.
"Contingent Obligation" shall mean, as to any Person, any obligation of
such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the holder of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the holder
of such primary obligation against loss in respect thereof; provided, however,
that the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Covered Portfolio" shall mean and include each Insured Obligation as of
the Effective Date and each Insured Obligation issued thereafter and prior to
the Loss Threshold Incurrence Date other than any Insured Obligation which is
excluded from the Covered Portfolio pursuant to Section 12.14.
"Credit Documents" shall mean this Agreement, each Note and the Security
Agreement.
"Credit Event" shall mean the making of any Loan.
"Cumulative Losses" for a specified period shall mean the aggregate Losses
of the Borrowers determined cumulatively during such period without regard to
Pledged Recoveries.
"Default" shall mean any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"Department" shall mean the Insurance Department of the States of New York,
Maryland and/or Oklahoma, to the extent applicable in the context in which such
term is used.
"Dollars" and the sign "$" shall each mean freely transferable lawful money
of the United States.
4
<PAGE>
"Effective Date" shall have the meaning provided in Section 12.10.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA, as in effect at the date
of this Agreement, and to any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean any person (as defined in Section 3(9) of
ERISA) which together with the Borrowers or any of their Subsidiaries would be
deemed to be a "single employer" within the meaning of Section 414(b), (c), (m)
or (o) of the Code.
"Event of Default" shall have the meaning provided in Article X.
"Expiry Date" shall have the meaning set forth in Section 3.04.
"Extension Request" shall have the meaning set forth in Section 3.04.
"Federal Funds Rate" shall mean for any period, a fluctuating per annum
interest rate (rounded upwards, if necessary, to the nearest one hundredth
(1/100th) of one percent (1%)) equal for each day during such period to the
weighted average of the rates on overnight Federal Funds transactions with
members of the Federal Reserve System arranged by Federal Funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by the Agent from three
Federal Funds brokers of recognized standing selected by the Agent.
"Fees" shall mean all amounts payable pursuant to or referred to in Section
3.01.
"FSA" shall have the meaning provided in the first paragraph of this
Agreement.
"FSAM" shall have the meaning provided in the first paragraph of this
Agreement.
"FSAO" shall have the meaning provided in the first paragraph of this
Agreement.
"Holder of any Note" shall mean any Federal Reserve Bank to which a Bank
has pledged its Note to the extent such Federal Reserve Bank has foreclosed upon
such Note.
"Indebtedness" shall mean, as to any Person, without duplication, (a) all
indebtedness (including principal, interest, fees and charges) of such Person
for borrowed money or for the deferred purchase price of property or services,
(b) the face amount of all letters of credit issued for the account of such
Person and all drafts drawn thereunder, (c) current liabilities in respect of
5
<PAGE>
unfunded vested benefits under plans covered by ERISA, (d) all liabilities
secured by any Lien on any property owned by such Persons, whether or not such
liabilities have been assumed by such Person, (e) the aggregate amount required
to be capitalized under leases under which such Person is the lessee and (f) all
Contingent Obligations of such Person, provided that, the term "Indebtedness"
shall not include (i) any indebtedness arising from investment activities in the
ordinary course of business that are not required to be classified as
indebtedness on such Person's balance sheet in accordance with generally
accepted accounting principles, (ii) intercompany indebtedness and (iii)
indebtedness constituting the purchase price of goods or equipment used in the
ordinary course of business.
"Initial Borrowing Date" shall mean the date on which the initial Borrowing
occurs.
"Installment Premiums" shall mean any and all premiums which are required
to be paid or claimed to be required to be paid to or for the account of any
Borrowers in respect of Insured Obligations in the Covered Portfolio on a
periodic basis rather than by payment in full on the date of the effectiveness
of the relevant Insurance Contract.
"Insurance Contracts" shall have the meaning set forth in Section 7.16.
"Insured Obligation" shall mean any "municipal obligation bonds," "special
revenue bonds," "industrial development bonds" and "utility first mortgage
obligations" which a Borrower is permitted to insure under the provisions of
Section 6904(b)(1)(A), (B), (C) or (I) of the New York Insurance Law (without
regard to clause (J) thereof), as in effect on the date hereof, issued by the
United States of America, a state thereof or the District of Columbia, a
municipality or governmental unit or other political subdivision of the
foregoing or any public agency or instrumentality thereof, to the extent that
the payment of principal thereof, together with interest thereon, or other
amounts due in respect thereof, is insured, reinsured or otherwise guaranteed by
any Borrower under an Insurance Contract.
"Lending Office" shall mean the office of the Agent located at 560
Lexington Avenue, New York, NY 10022 or such other office, Subsidiary or
Affiliate of the Agent as the Agent may from time to time specify as such to the
Borrowers.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), preference, priority or
other security agreement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any other
similar recording or notice statute, and any lease having substantially the same
effect as any of the foregoing).
"Loan" shall have the meaning provided in Section 2.01.
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"Loss" shall mean at any time the aggregate sum of (i) the amount paid by
any Borrower at such time or required at such time to be paid by such Borrower
on claims under an Insurance Contract with respect to an Insured Obligation in
the Covered Portfolio by reason of the failure by the issuer thereof or other
obligor with respect thereto to pay insured amounts on such Insured Obligations
when due, plus (ii) Permitted Reserves at such time minus (iii) amounts paid at
such time or reasonably expected by the Borrower at such time to be paid to such
Borrower under reinsurance agreements (whether facultative or treaty) and
similar arrangements with respect to the claims referred to in clause (i) above
provided by any Person other than a Wholly-Owned Subsidiary of the Parent;
provided that, without limiting the generality of the foregoing, the term "Loss"
shall not include any damages or penalties required at such time to be paid by
such Borrower in respect of an Insurance Contract by reason of the breach by
such Borrower of its obligations thereunder or the cancellation or termination
thereof other than in accordance with its terms.
"Loss Threshold Amount" shall mean an amount equal to the greater of (i)
$200 million and (ii) five and seventy-five hundredths percent (5.75%) of
Average Annual Debt Service on the Covered Portfolio as of such date.
"Loss Threshold Incurrence Date" shall mean the date on which Cumulative
Losses (net of recoveries) during the relevant Commitment Period equal the Loss
Threshold Amount.
"Majority Banks" shall mean at any time Banks owed at least 51% of the
aggregate principal amount of the Loans outstanding at such time or, if no Loans
are outstanding at such time, Banks holding at least 51% of the aggregate
Commitments at such time.
"Margin Stock" shall have the meaning provided in Regulation U of the Board
of Governors of the Federal Reserve System.
"Moody's" shall mean Moody's Investors Service, Inc.
"Note" shall have the meaning provided in Section 2.05.
"Notice of Borrowing" shall have the meaning provided in Section 2.03.
"Notice Office" shall mean the office of the Agent located at 560 Lexington
Avenue, New York, NY 10022, Attention: Mr. Scott M. Allison, Telephone No. (212)
310-9869, Telecopy No. (212) 310-9868, or such other office as the Agent may
hereafter designate in writing as such to the Borrowers.
"Obligations" shall mean all amounts owing to the Agent, Collateral Agent
or any Bank pursuant to the terms of this Agreement or any other Credit
Document.
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"Parent" shall mean Financial Security Assurance Holdings Ltd., a New York
corporation.
"Participant" shall mean any bank(s) or other financial institution(s)
which may purchase a participation interest from the Bank in this Agreement and
certain of the Credit Documents pursuant to a participation agreement between
the Bank and the Participant(s).
"Payment Office" shall mean the office of the Agent located at 560
Lexington Avenue, New York, NY 10022 and any payment to the Payment Office shall
be made pursuant to the wire transfer instruction set forth in Section 4.03, or
such other office as the Agent may hereafter designate in writing as such to the
Borrowers.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA or any successor thereto.
"Permitted Liens" shall have the meaning set forth in Section 9.01.
"Permitted Reserves" shall mean at any time any and all reserves
established or maintained by any Borrowers at such time which are deemed
necessary or prudent in the reasonable judgment of the management of such
Borrower by reason of the failure or anticipated failure by the issuer of an
Insured Obligation contained in the Covered Portfolio or other obligor with
respect thereto to pay such Insured Obligation when due as reflected on such
Borrower's books and which are or will be reported by such Borrower in its
statutory financial statements.
"Person" shall mean any individual, partnership, limited liability company,
joint venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or any agency, department or instrumentality
thereof.
"Plan" shall mean any multiemployer plan or single-employer plan as defined
in Section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute of), or at any time during the five
calendar years preceding the date of this Agreement was maintained or
contributed to by (or to which there was an obligation to contribute of), any
Borrower or by a Subsidiary of any Borrower or an ERISA Affiliate.
"Pledged Premiums" shall mean at any time on and after the Loss Threshold
Incurrence Date (i) any and all Installment Premiums which are paid or payable
to any Borrower at such time with respect to any and all defaulted Insured
Obligations in the Covered Portfolio minus (ii) the aggregate amount of such
Installment Premiums referred to in clause (i) of this definition paid or
payable to any Person other than a Borrower (or any Wholly-Owned subsidiary of
the Parent) at such time under reinsurance agreements (whether facultative or
treaty) and similar arrangements.
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"Pledged Recoveries" shall mean at any time on and after the Loss Threshold
Incurrence Date any and all moneys and other payments, property and other
consideration and compensation received or receivable by or for the account of a
Borrower at such time (excluding the aggregate amount of any and all moneys,
payments, property, consideration and compensation paid or payable to any Person
other than a Borrower or Wholly-Owned Subsidiary of the Parent, under
reinsurance agreements (whether facultative or treaty) and similar arrangements)
as repayment or reimbursement of, or otherwise in respect of or arising out of,
the payment of a claim by such Borrower under an Insurance Contract covering any
Insured Obligation in the Covered Portfolio (without regard to whether such
claim was paid from the proceeds of a Loan), whether from the issuer thereof or
any other Person including without limitation under or pursuant to (i) such
Insurance Contract, any reimbursement agreement, guaranty, letter of credit,
mortgage, security agreement, pledge agreement or other contract, agreement or
arrangement, (ii) any account or account receivable, (iii) any compromise,
settlement or similar arrangement, (iv) any voluntary payment or gift, (v) any
reinsurance of such Insured Obligation to the extent that payment or expected
payment under such reinsurance was not deducted in determining the Loss
attributed to a Borrower's payment or required payment of such claim, (vi) any
contractual, statutory, common law or other right of subrogation, (vii) any
realization upon any mortgage, security interest or other Lien, (viii) any cause
of action, whether sounding in tort, contract or otherwise, and any judicial,
arbitration or other proceeding by or before any court, agency, tribunal,
association or other governmental or private body, or (ix) any other legal or
equitable right or claim, whether or not similar to the foregoing), less the
out-of-pocket costs and expenses, including without limitation attorneys fees
and court costs, reasonably incurred a the Borrower in connection with the
collection or other realization of such moneys and other payments, property and
other consideration and compensation.
"Pledged Reserves Account" shall mean an account established with the Agent
in accordance with Section 2.01(b) of the Security Agreement.
"Pledged Reserves Account Funds" shall mean at any time the aggregate
amount of proceeds of Loans borrowed hereunder for the purpose of establishing
or maintaining Permitted Reserves, such proceeds to be deposited in the Pledged
Reserves Account in accordance with Section 2.01(b) of the Security Agreement.
"Pledged Reserve Release Notice" shall have the meaning set forth in
Section 8.12.
"Pledged Reserve Repayment Date" shall mean the date on which a Borrower
delivers the Pledged Reserve Release Notice required by Section 8.12.
"Reportable Event" shall mean an event described in Section 4043(b) of
ERISA with respect to a Plan as to which the 30-day notice requirement has not
been waived by the PBGC.
"Retained Percentage" of an Insured Obligation shall mean 100% minus the
aggregate percentage of the risk under Insurance Contracts with respect thereto
which has been ceded by a Borrower to other Persons under reinsurance agreements
(whether facultative or treaty) and similar arrangements with Persons other than
Wholly-Owned Subsidiaries of the Parent.
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"SEC" shall have the meaning provided in Section 8.01(f).
"Security Agreement" shall have the meaning provided in Section 5.05.
"S&P" shall mean Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Subsidiary" shall mean, as to any Person, (i) any corporation more than
50% of whose stock of any class or classes having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has more than a 50% equity interest and the ability to direct such
partnership, association, joint venture or other entity at the time.
"Taxes" shall have the meaning provided in Section 4.04(a).
"UCC" shall mean the Uniform Commercial Code as from time to time in effect
in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan shall mean the amount, if any, by
which the present value of the accrued benefits under the Plan as of the close
of its most recent plan year, determined in accordance with Statement of
Financial Accounting Standards No. 35, based upon the actuarial assumptions used
by the Plan's actuary in the most recent annual valuation of the Plan, exceeds
the fair market value of the assets allocable thereto, determined in accordance
with Section 412 of the Code.
"United States" and "U.S." shall each mean the United States of America.
"Unutilized Commitment" shall mean, for any Bank, at any time, the
Commitment of such Bank at such time less (a) the aggregate principal amount of
all Loans made by such Bank prior to such time plus (b) Loans previously made by
such Bank to establish Permitted Reserves to the extent (i) such Loans were
previously repaid by the Borrowers and (ii) the proceeds of such Loans were not
used to pay Losses.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any corporation
100% of whose capital stock is at the time owned by such Person and/or one or
more Wholly-Owned Subsidiaries of such Person and (ii) any partnership,
association, joint venture or other entity in which such Person and/or one or
more Wholly-Owned Subsidiaries of such Person has a 100%
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equity interest and the ability to direct such partnership, association,
joint venture or other entity at such time.
Section 1.02. Principles of Construction. All references to sections,
schedules and exhibits are to sections, schedules and exhibits in or to this
Agreement unless otherwise specified. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement.
ARTICLE II
AMOUNT AND TERMS OF CREDIT
Section 2.01. The Loans. Subject to and upon the terms and conditions set
forth herein, each Bank severally agrees, at any time and from time to time
prior to the Expiry Date, to make loans (each a "Loan" and collectively, the
"Loans") to the Borrowers, provided, however, that the principal amount of any
Loan made by a Bank at any time shall not exceed the lesser of (a) the
Unutilized Commitment of such Bank at such time and (b) the total amount
requested by the Borrowers in connection with any Credit Event multiplied by a
fraction the numerator of which is equal to such Bank's Commitment and the
denominator of which is equal to the aggregate amount of all Banks Commitments.
Once repaid, Loans incurred hereunder may not be reborrowed other than those
Loans borrowed to establish or maintain Permitted Reserves, which may be
reborrowed once repaid to the extent that the proceeds of such Loans in whole or
in part were not used to pay Losses. No Bank shall have any liability for the
failure of any other Bank to make Loans hereunder.
Section 2.02. Amount of Each Borrowing. The aggregate principal amount of
each Borrowing hereunder shall not (a) be less than $2,000,000, and if greater,
shall be in an integral multiple of $1,000,000 and (b) exceed the lesser of (i)
Cumulative Losses in excess of the Loss Threshold Amount less the aggregate
principal amount of all Loans previously made and (ii) the aggregate Unutilized
Commitments of all Banks as in effect on the date such Borrowing is made.
Section 2.03. Notice of Borrowing. Whenever the Borrowers desire to make a
Borrowing hereunder, they shall give the Agent at its Notice Office at least two
Business Days' prior notice made hereunder, provided that any such notice shall
be deemed to have been given on a certain day only if received before 12:00 Noon
(New York time) on such day. Each such notice (each a "Notice of Borrowing")
shall be in the form of Exhibit A, appropriately completed to specify the
aggregate principal amount of the Loans to be made pursuant to such Borrowing,
and the date of such Borrowing (which shall be a Business Day).
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Section 2.04. Disbursement of Funds. No later than 12:00 Noon (New York
time) on the date specified in each Notice of Borrowing, (a) each Bank will make
available at the Payment Office of the Agent its pro rata portion of the amount
of each Borrowing requested to be made on such date, in Dollars and in
immediately available funds and (b) the Agent will make available to the
Borrowers the aggregate of the amounts so made available by the Banks on such
day at its Payment Office.
Section 2.05. Notes. The Borrowers shall be jointly and severally obligated
to pay the principal of and interest on the Loans. The Borrowers' obligation to
pay the principal of, and interest on, the Loans made by each Bank shall be
evidenced by a promissory note duly executed and delivered by the Borrowers
substantially in the form of Exhibit B with blanks appropriately completed in
conformity herewith (each a "Note" and, collectively, the "Notes"). Each Note
shall (a) be payable to the order of such Bank and be dated the Effective Date
if such Bank shall be a party hereto on the Effective Date or the effective date
of the Assignment and Assumption Agreement pursuant to which it becomes a party
hereto if such Bank shall become a party hereto after the Effective Date, (b) be
in a stated principal amount equal to such Bank's Commitment and be payable in
the principal amount of the Loans evidenced thereby, (c) mature, with respect to
each Loan evidenced thereby, on the Expiry Date, (d) bear interest as provided
in the appropriate clause of Section 2.06 and (e) be entitled to the benefits of
this Agreement and be secured by the Security Agreement. Each Bank will note on
its internal records the amount of each Loan made by it and each payment in
respect thereof and will prior to any transfer of its Note endorse on the
reverse side thereof the outstanding principal amount of Loans evidenced
thereby. Failure to make any such notation shall not affect the Borrowers'
obligations in respect of such Loans.
Section 2.06. Interest.
(a) The Borrowers agree, jointly and severally, to pay to the Agent for the
account of the Banks interest in respect of the unpaid principal amount of each
Loan from the date the proceeds thereof are made available to the Borrowers
until the maturity thereof (whether by acceleration or otherwise) at a rate per
annum which shall be equal to the Base Rate in effect from time to time plus
.
(b) The Borrowers, jointly and severally, agree to pay to the Agent for the
account of the Banks interest on any amount owed by the Borrowers to the Banks
under this Agreement or any of the Credit Documents from and after the earlier
of (a) the occurrence of an Event of Default and (b) the date such amount is due
and payable but not paid until payment thereof in full at a rate per annum equal
to the Base Rate in effect from time to time plus (the "Default Rate").
(c) Accrued (and theretofore unpaid) interest shall be payable (i) in
respect of each Loan, quarterly in arrears on the first Business Day of each
January, April, July and October, (ii) in respect of each Loan, on any
prepayment (on the amount prepaid),
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at maturity (whether by acceleration or otherwise) and, after such maturity, on
demand and (iii) with respect to the interest accrued at the Default Rate, upon
demand.
Section 2.07. Capital Adequacy. In the event that after the date of the
execution hereof (a) the application, enactment or adoption of, or any change
in, any law, rule, regulation, treaty, guideline or directive, or the occurrence
of the effective date of any law, rule, regulation, treaty guideline or
directive or any provision thereof enacted or adopted on the date of the
execution hereof but which has not yet become effective, or the application,
interpretation or enforcement of any of the foregoing by any court, central
bank, administrative or governmental authority charged with the administration
thereof (whether or not having the force of law) (each a "Regulatory Change")
shall either (i) impose, modify or deem applicable any reserve, deposit,
insurance premium, assessment, fee, capital requirement, tax (other than taxes
imposed on the net income of any of the Banks or any Participant), or similar
requirement applicable to the existence of the Commitments or (ii) impose any
other condition in connection with the maintenance of the Commitments, or (b)
any of the Banks or any Participant shall, in good faith, (i) voluntarily
impose, modify or deem applicable to itself, any reserve, deposit, insurance
premium, assessment, fee, capital requirement or similar requirement applicable
to the Commitments or (ii) voluntarily impose any other condition in connection
with any of the Commitments, designed to comply with or prepare for future
compliance with any Regulatory Change, and the result of any of the foregoing
shall be to increase the cost to any of the Banks or any Participant of
extending, issuing or maintaining the Commitments or to reduce any amount (or
the effective return on any amount) received or receivable by any of the Banks
or any Participant in connection with this Agreement (which increase in cost or
reduction in yield shall be the result of any such Bank's or any such
Participant's reasonable allocation, in a nondiscriminatory manner among
borrowers having obligations to such Bank or such Participant similar to those
of the Borrowers, of the aggregate of such cost increases or yield reductions
resulting from such event), then, upon written demand by the such Bank, the
Borrowers, jointly and severally, agree to promptly pay to such Bank, from time
to time as specified by such Bank, additional amounts which shall be sufficient
to compensate such Bank for all such increased costs or reductions in yield
accruing from and after the date of such demand. Such Bank shall submit to the
Borrowers, at or prior to the making of each such demand, a certificate setting
forth in reasonable detail such increased costs or yield reductions incurred by
such Bank or any Participant as a result of any of the foregoing, which
certificate shall be conclusive, absent manifest error, as to the amount
thereof.
ARTICLE III
FEES; TERMINATION OF COMMITMENT
Section 3.01. Fees.
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(a) The Borrowers, jointly and severally, agree to pay to the Agent for the
account of the Banks in accordance with their respective Unutilized Commitments
a commitment fee (the "Commitment Fee") for the period from the Effective Date
until the Expiry Date (or such earlier date as the Commitments shall have been
terminated) computed at a rate equal to % per annum on the daily average
aggregate Unutilized Commitments of the Banks, provided, however, that (i) if
the Borrower's Rating for any Borrower assigned by either Moody's or S&P shall
be less than Aaa and AAA, respectively, but greater than or equal to A1 and A+,
respectively, the Commitment Fee shall be computed at a rate equal to % per
annum, and (ii) if the Borrower's Rating for any Borrower assigned by either
Moody's or S&P shall be less than Al or A+, respectively, the Commitment Fee
shall be computed at a rate equal to % per annum. In the case of a split
rating, the lower of the Moody's rating or the S&P rating shall determine the
Commitment Fee. Accrued Commitment Fees shall be due and payable quarterly in
advance commencing on the Effective Date and thereafter on the first Business
Day of each January, April, July and October of each year. The Commitment Fee
shall be calculated on the basis of the Unutilized Commitment on the date such
fee is due. Such fees shall be fully earned when due, except as provided in
Section 3.02, and nonrefundable when paid.
(b) The Borrowers, jointly and severally, agree to pay to the Agent such
fees in connection with the Credit Documents as may be agreed to from time to
time between FSA and the Agent.
Section 3.02. Voluntary Termination of Unutilized Commitments. Upon at
least five (5) Business Days prior notice to the Agent at its Notice Office, the
Borrowers shall have the right to terminate the Unutilized Commitments of all or
any Bank in whole or in part, in respect of one or more Banks, in minimum
amounts of $5,000,000 (or, if greater, in integral multiples of $1,000,000) and,
in the event such termination occurs following a reduction, withdrawal or
suspension of the rating assigned to such Bank's senior unsecured long-term debt
obligations by Moody's or S&P, upon such termination any Commitment Fee
previously paid for the period from the date of the termination to the next date
on which a Commitment Fee would be payable but for such termination shall be
refunded to the Borrowers by the Bank whose commitment has been terminated.
Section 3.03. Mandatory Termination of Commitments.
(a) Except as otherwise provided in Section 2.01, the Commitment of each
Bank shall be mandatorily and permanently reduced on each date a Loan is made by
such Bank hereunder by the amount of such Loan, without regard to prepayments or
repayments.
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(b) In addition to any other mandatory Commitment reductions pursuant to
this Section 3.03, the Commitment of any Bank which does not agree to extend the
Expiry Date pursuant to Section 3.04 shall terminate in its entirety on such
Expiry Date then in effect.
(c) In addition to any other mandatory Commitment reductions pursuant to
this Section 3.03, the Commitment of each Bank shall terminate in its entirety
on the Expiry Date.
Section 3.04. Expiry Date. The Commitments of the Banks shall expire on
January 31, 2003 (the "Expiry Date"); provided, however, that before (but not
earlier than 120 days nor later than 90 days before) each January 31, commencing
January 31, 1997, the Borrowers may make a written request (an "Extension
Request") to the Agent at its Notice Office who shall forward a copy to each of
the Banks that the Expiry Date be extended by one calendar year. Such Extension
Request shall include a certification by an Authorized Officer of each Borrower
that no Default or Event of Default has occurred and is continuing and all
representations and warranties contained herein and the other Credit Documents
are true and correct in all material aspects on and as of the date of the
Extension Request (it being understood and agreed that any representation or
warranty which expressly refers by its terms to a specified date shall be
required to be true only as of such date). If by the date occurring 30 days next
succeeding the Agent's receipt of such Extension Request, any Bank agrees
thereto in writing by so indicating on counterparts of the Extension Request and
delivering such counterpart to the Borrowers, "Expiry Date" as to such Bank
shall mean the January 31, with such extension of the Expiry Date to be
effective from and after January 31 in respect of which the Extension Request
was made and such extension shall be for a period so as to maintain a Commitment
Period of seven (7) years, provided that any failure to so notify the Borrowers
shall be deemed to be a disapproval by such Bank of the Borrowers' Extension
Request. The Commitment of any Bank which does not so agree shall terminate upon
the Expiry Date then in effect. No Bank shall be obligated to grant any
extension pursuant to this Section 3.04 and any such extension shall be in the
sole discretion of each Bank. The Borrowers, jointly and severally, agree to pay
to each Bank which does not so agree all amounts owing under its Note and this
Agreement on the effective date of the termination of such Bank's Commitment.
ARTICLE IV
PREPAYMENTS; PAYMENTS
Section 4.01. Voluntary Prepayments. The Borrowers shall have the right to
prepay the Loans, without premium or penalty, in whole or in part from time to
time, provided that the Borrowers shall give the Agent at its Notice Office at
least three Business Days' prior notice of its intent to prepay the Loans.
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Section 4.02. Mandatory Prepayments. On each Pledged Reserve Repayment
Date, an amount equal to 100% of the Pledged Reserves Account Funds with respect
to which the Borrowers have delivered a Pledged Reserve Release Notice as
required by Section 8.12 shall be applied as a mandatory prepayment of principal
of outstanding Loans.
Section 4.03. Method and Place of Payment. All payments by the Borrowers to
the Agent for the account of the Banks or any of them hereunder shall be fully
earned when due and nonrefundable when paid, except as provided in Section 3.02
and made in lawful currency of the United States and in immediately available
funds. Amounts payable to the Agent hereunder shall be transferred to the Bank's
account No. 544-7-07960 at Chemical Bank, 270 Park Avenue, New York, NY 10017,
ABA #: 021000128, Reference: FSA Line of Credit, (or to such other account of
the Agent as the Agent may specify by written notice to the Borrowers) not later
than 12:00 noon, New York, New York time, on the date payment is due. Any
payment received by the Agent after 12:00 noon, New York, New York time, shall
be deemed to have been received by the Agent on the next Business Day. If any
payment hereunder is due on a day that is not a Business Day, then such payment
shall be due on the immediately succeeding Business Day. Payments received
hereunder by the Agent for the account of the Banks shall be promptly
distributed to each Bank in the same proportion that each Bank's Commitment
bears to the aggregate of all Banks' Commitments.
Section 4.04. Net Payments.
(a) All payments made by the Borrowers hereunder or under any Note
will be made without setoff, counterclaim or other defense. Except as
provided in Section 4.04(b) and Section 12.04(b), all such payments will be
made free and clear of, and without deduction or withholding for, any
present or future taxes, levies, imposts, duties, fees, assessments or
other charges of whatever nature now or hereafter imposed by any
jurisdiction or by any political subdivision or taxing authority thereof or
therein with respect to such payment (but excluding any tax imposed on or
measured by the net income or gross income or gross receipts of any Bank
(other than withholding taxes or taxes in lieu of withholding taxes)
pursuant to the laws of the jurisdiction (or any political subdivision or
taxing authority thereof or therein) in which the principal office or
lending office of such Bank is located or in which such Bank is organized
or in which such Bank is doing business through a branch or office from
which such jurisdiction treats a Loan as having been made) and all
interest, penalties or similar liabilities with respect thereto
(collectively, "Taxes"). If any Taxes are so levied or imposed, the
Borrowers, jointly and severally, agree to pay the full amount of such
Taxes and such additional amounts as may be necessary so that every payment
of all amounts due hereunder or under any Note, after withholding or
deduction for or on account of any Taxes, will not be less than the amount
provided for herein or in such Note. The Borrowers, jointly and severally,
agree to reimburse each Bank, upon its written request, which request shall
show the basis for calculation of such reimbursement, for taxes imposed on
or measured by the net income
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of such Bank pursuant to the laws of the jurisdiction (or any political
subdivision or taxing authority thereof or therein) in which its principal
office or lending office is located or in which such Bank is organized or
in which such Bank is doing business through a branch or office from which
such jurisdiction treats a Loan as having been made as it shall determine
are payable by it in respect of amounts paid to or on behalf of such Bank
pursuant to the preceding sentence. The Borrowers, shall furnish to the
applicable Bank within 45 days after the date the payment of any Taxes is
due pursuant to applicable law certified copies of any tax receipts
available to the Borrowers evidencing such payment by the Borrowers. The
Borrowers, jointly and severally, agree to indemnify and hold harmless each
Bank, and reimburse each Bank upon its written request, for the amount of
any Taxes so levied or imposed and paid by such Bank.
(b) Each Bank which is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax
purposes agrees (i) in the case of any such Bank that is a "bank" within
the meaning of Section 881(c)(3)(A) of the Code and which constitutes a
Bank hereunder on the Effective Date, to provide to the Borrowers and the
Agent on or prior to the Effective Date two original signed copies of
Service Form 4224 or Form 1001 certifying to such Bank's entitlement to an
exemption from United States withholding tax with respect to payments to be
made under this Agreement and under any Note, (ii) in the case of any such
Bank that is a "bank" within the meaning of Section 881(c)(3)(A) of the
Code, that, to the extent legally entitled to do so, (x) with respect to a
Bank that is an assignee or transferee of an interest under this Agreement
pursuant to Section 12.04(b) (unless the respective Bank was already a Bank
hereunder immediately prior to such assignment or transfer), upon the date
of such assignment or transfer to such Bank, and (y) with respect to any
such Bank, from time to time upon the reasonable written request of the
Borrowers after the Effective Date, such Bank will provide to the Borrowers
two original signed copies of Internal Revenue Service Form 4224 or Form
1001 (or any successor forms) certifying to such Bank's entitlement to an
exemption from United States withholding tax with respect to payments to be
made under this Agreement and under any Note, (iii) in the case of a Bank
other than a Bank described in clause (i) or (ii) above on or prior to the
Effective Date, to provide to the Borrowers (1) a certificate substantially
in the form of Exhibit G hereto (any such certificate, a "Section
4.04(b)(iii) Certificate") and (2) two accurate and complete original
signed copies of Internal Revenue Service Form W-8, certifying to such
Bank's legal entitlement at the date of such certificate (assuming
compliance by the Borrowers with Section 8.13), to an exemption from U.S.
withholding tax under the provisions of Section 881(c) of the Code with
respect to payments to be made under this Agreement and (iv) in the case of
any such Bank (other than a Bank described in clause (i) or (ii) above),
(x) with respect to a Bank that is an assignee or transferee of an interest
under this Agreement pursuant to Section 12.04(b) (unless the respective
Bank was already a Bank hereunder immediately prior to such assignment or
transfer), upon the date of such assignment or transfer to such Bank, and
(y) with respect to any such Bank, from time to time upon the reasonable
written request of the Borrowers after the Effective
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Date, to provide to the Borrowers such other forms as may be required in
order to establish the entitlement of such Bank to an exemption from
withholding with respect to payments under this Agreement and under any
Note. Notwithstanding anything to the contrary contained in Section
4.04(a), but subject to the immediately succeeding sentence, the Borrowers
shall be entitled, to the extent it is required to do so by law, to deduct
or withhold Taxes imposed by the United States (or any political
subdivision or taxing authority thereof or therein) from interest, fees or
other amounts payable hereunder (without any obligation to indemnify or pay
the respective Bank additional amounts with respect thereto) for the
account of any Bank which is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax
purposes and which has not provided to the Borrowers such forms required to
be provided to the Borrowers pursuant to the first sentence of this Section
4.04(b). Notwithstanding anything to the contrary contained in the
preceding sentence and except as set forth in Section 12.04(b), the
Borrowers, jointly and severally, agree to indemnify each Bank in the
manner set forth in Section 4.04(a) in respect of any amounts deducted or
withheld by it as described in the immediately preceding sentence as a
result of any changes after the Effective Date in any applicable law,
treaty, governmental rule, regulation, guideline or order, or in the
interpretation thereof, relating to the deducting or withholding of Taxes.
(c) If the Borrowers pay an additional amount pursuant to Section 4.04
and a Bank receives any refund of tax or credit against its tax liabilities
as a result of such payment by the Borrowers, such Bank shall pay to the
Borrowers an amount that such Bank determines, in its reasonable judgment,
is equal to the net tax benefit obtained by such Bank as a result of such
payment by the Borrowers. Any such payment required pursuant to the
immediately preceding sentence shall be accompanied by a schedule that sets
forth the Bank's basis for its calculation of such net tax benefit. Whether
or not a Bank claims any refund or credit shall be in the sole discretion
of each Bank. Nothing in this Section 4.04(c) shall require a Bank to
disclose or detail its calculation of the amount of any tax benefit or any
other amount to the Borrowers or any other Person (including, without
limitation, any tax return) other than the provision of the schedule
referred to above.
(d) Payments by the Borrowers under this Section 4.04 shall only be
due to the extent that payment is demanded by the Banks from other
borrowers having similar obligations.
Section 4.05. Limitations on Sources of Payment. Notwithstanding any other
provision of this Agreement or of any other Credit Document, the obligations of
the Borrowers to make payments of principal and interest on the Loans and the
Notes are limited recourse obligations of the Borrowers payable solely from the
Pledged Recoveries, the Pledged Premiums, the Pledged Reserves Account Funds and
the other Collateral described in the Security Agreement, and none of the Agent,
the Collateral Agent, any Bank or any other Person shall be entitled to procure
any money judgment against or to levy or foreclose upon or attach any other
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assets or properties of the Borrowers for payment of such obligations; provided,
however, that nothing herein contained shall limit, restrict or impair the lien
created by the Security Agreement or the right of any Bank to exercise any of
its rights herein or in any of the other Credit Documents upon the occurrence of
an Event of Default or otherwise, or to bring suit and obtain a judgment against
the Borrowers or any of them (recourse thereon being limited only as to payment
of principal and interest on the Loans and the Notes as provided in this Section
4.05).
ARTICLE V
CONDITIONS PRECEDENT TO EFFECTIVENESS
This Agreement shall become effective subject to the satisfaction (or
waiver by the Banks) of the following conditions:
Section 5.01. Execution of Agreement; Notes. The Borrowers and each Bank
shall have signed a copy hereof (whether the same or different copies) and shall
have delivered the same to the Agent at its Notice Office and there shall have
been delivered to each Bank a Note executed by the Borrowers in the amount,
maturity and as otherwise provided herein.
Section 5.02. No Default; Representations and Warranties. There shall exist
no Default or Event of Default and all representations and warranties contained
herein and in the other Credit Documents shall be true and correct in all
material respects with the same effect as though such representations and
warranties had been made on and as of the Effective Date.
Section 5.03. Opinions of Counsel.
(a) The Agent shall have received an opinion addressed to it and the Banks
and dated the Effective Date (i) from Bruce E. Stern, General Counsel of the
Borrowers, covering the matters set forth in Exhibit C-1 and (ii) from Kutak
Rock and in-house German counsel to the Agent, in form and substance
satisfactory to it.
(b) Moody's, S&P and the Borrowers shall have received an opinion addressed
to each of them and dated the Effective Date from counsel to each Bank in form
and substance satisfactory to each of them.
Section 5.04. Corporate Documents; Proceedings.
(a) The Agent shall have received a certificate, dated the Effective Date,
signed by an Authorized Officer of each Borrower, and attested to by the
Secretary or any Assistant Secretary of each Borrower, each in the form of
Exhibit D with appropriate insertions, together with copies of the articles of
incorporation and by-laws of each Borrower and the resolutions of each Borrower
referred to in each such certificate.
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(b) All corporate and legal proceedings and all instruments and agreements
in connection with the transactions contemplated in this Agreement and the other
Credit Documents shall be satisfactory in form and substance to the Agent, and
it shall have received all information and copies of all documents and papers,
including records of corporate proceedings and governmental approvals, if any,
which the Agent reasonably may have requested in connection therewith, such
documents and papers where appropriate to be certified by proper corporate or
governmental authorities.
(c) Certificates in respect of each Borrower in form and substance
satisfactory to the Agent, to the effect that each of them is in good standing
in such jurisdiction.
Section 5.05. Security Agreement. Each Borrower shall have duly authorized,
executed and delivered a Pledge and Security Agreement in the form of Exhibit E
(as modified, supplemented or amended from time to time, the "Security
Agreement") covering all each Borrower's present and future Collateral, together
with:
(a) executed copies of proper financing statements (Form UCC-l) to be filed
under the UCC of each jurisdiction as may be necessary or, in the opinion of the
Collateral Agent, desirable to perfect the security interests purported to be
created by the Security Agreement;
(b) certified copies of requests for information or copies (Form UCC-11),
or equivalent reports, listing all effective financing statements that name any
Borrower as debtor and that are filed in the jurisdictions referred to in said
clause (a), together with copies of such financing statements (none of which
shall cover the Collateral except to the extent evidencing Permitted Liens);
(c) evidence of the completion of all other recordings and filings of, or
with respect to, the Security Agreement as may be necessary or, in the opinion
of the Collateral Agent, desirable to perfect the security interests purported
to be created by the Security Agreement; and
(d) evidence that all other actions necessary or, in the opinion of the
Collateral Agent, desirable to perfect and protect the security interests
purported to be created by the Security Agreement have been taken.
Section 5.06. Covered Portfolio, etc. The Agent shall have received a
certificate, dated the Effective Date, signed by an Authorized Officer of FSA,
setting forth in reasonable detail as of March 31, 1996, (i) each Insured
Obligation in the Covered Portfolio and each reinsurance agreement or similar
arrangement which covers any material amount of such Insured Obligations, (ii)
each default by the issuer of any such Insured Obligation or other obligor with
respect thereto
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which has formed or could form the basis of a claim under an Insurance Contract,
(iii) each default by any party to any such reinsurance agreement or similar
arrangement, (iv) each claim paid by a Borrower under any Insurance Contract
with respect to such Insured Obligations, (v) the Borrowers' reasonable estimate
as of March 31, 1996 of the Average Annual Debt Service on the Covered
Portfolio, (vi) the Borrowers' Cumulative Losses (stating separately any
Permitted Reserves included therein) for the period from January 1, 1993 through
March 31, 1996, and (vii) the Borrowers' reasonable estimate as of March 31,
1996 of Installment Premiums payable with respect to the Covered Portfolio.
Section 5.07. Adverse Change, Rating, etc.
(a) Nothing shall have occurred (and no Bank shall have become aware of any
facts or conditions not previously known) which such Bank shall reasonably
determine has, or could reasonably be expected to have, a material adverse
effect on the rights or remedies of such Bank, or on the ability of a Borrower
to perform its obligations to such Bank or which has, or could reasonably be
expected to have, a materially adverse effect on the business, operations,
property, assets, liabilities or condition (financial or otherwise) of such
Borrower.
(b) All necessary governmental (domestic and foreign) and third party
approvals in connection with the transactions contemplated by the Credit
Documents and otherwise referred to herein or therein shall have been obtained
and remain in effect, and all applicable waiting periods shall have expired
without any action being taken by any competent authority which restrains,
prevents or imposes materially adverse conditions upon the consummation of the
transactions contemplated by the Credit Documents and otherwise referred to
herein or therein. Additionally, there shall not exist any judgment, order,
injunction or other restraint issued or filed or a hearing seeking injunctive
relief or other restraint pending or notified prohibiting or imposing materially
adverse conditions upon the making of the Loans.
(c) On the Effective Date, the Borrower's Rating assigned to each Borrower
by Moody's and S&P shall be Aaa and AAA, respectively.
Section 5.08. Litigation. No litigation by any entity (private or
governmental) shall be pending or threatened with respect to this Agreement or
any documentation executed in connection herewith or the transactions
contemplated hereby, or with respect to any material Indebtedness of any
Borrower or which any Bank shall determine could reasonably be expected to have
a materially adverse effect on the business, operations, property, assets,
liabilities or condition (financial or otherwise) of any Borrower.
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Section 5.09. Fees, etc. The Borrowers shall have paid to the Agent and to
the Banks all costs, fees (including those described in Section 3.01) and
expenses (including, without limitation, legal fees and expenses) payable to the
Agent and/or the Banks to the extent then due.
All of the certificates, legal opinions and other documents and papers
referred to in this Article V, unless otherwise specified, shall have been
delivered to the Agent at its Notice Office.
ARTICLE VI
CONDITIONS PRECEDENT TO ALL CREDIT EVENTS
The Obligation of the Banks to make Loans is subject, at the time of each
such Credit Event (except as hereinafter indicated), to the satisfaction of the
following conditions:
Section 6.01. Loss Threshold Incurrence Date. At or prior to the time of
each such Credit Event, the Loss Threshold Incurrence Date shall have occurred.
Section 6.02. Cumulative Losses. After giving effect to such Credit Event,
the aggregate principal amount of all Loans (other than those borrowed to
establish or maintain Permitted Reserves which have been repaid and which were
not used to pay Losses) made hereunder without regard to payments or prepayments
shall not exceed Cumulative Losses in excess of the Loss Threshold Amount.
Section 6.03. Principal Amount. The principal amount of the requested Loan
shall not exceed the Unutilized Commitment on the date the Loan is to be
advanced.
Section 6.04. Notice of Borrowing. Prior to the making of each Loan, the
Bank shall have received a Notice of Borrowing meeting the requirements of
Section 2.03.
The acceptance of the proceeds of each Credit Event shall constitute a
representation and warranty by the Borrowers to each Bank that the conditions
set forth in this Article have been satisfied on the date of such acceptance.
ARTICLE VII
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
In order to induce the Banks to enter into this Agreement, the Borrowers
make the following representations, warranties and agreements as of the
Effective Date, which shall survive the execution and delivery of this Agreement
and the Notes (it being understood and agreed that any representation or
warranty which expressly refers by its terms to a specified date shall be
required to be true and correct in all material respect only as of such date):
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Section 7.01. Corporate Status. Each Borrower and its Subsidiaries (i) is a
duly organized and validly existing corporation in good standing under the laws
of the jurisdiction of its incorporation, (ii) has the power and authority to
own its property and assets and to transact the business in which it is engaged
and (iii) is duly qualified as a foreign corporation and in good standing in
each jurisdiction where the ownership, leasing or operation of property or the
conduct of its business requires such qualification, except where the failure to
qualify or be in good standing would not have a material adverse effect on the
business, operations, property, assets, condition (financial or otherwise) or
prospects of the Borrowers and their Subsidiaries taken as a whole.
Section 7.02. Corporate Power and Authority. Each Borrower has the
corporate power to execute, deliver and perform the terms and provisions of each
of the Credit Documents to which it is party and has taken all necessary
corporate action to authorize the execution, delivery and performance by it of
each of such Credit Documents. Each Borrower has, or in the case of the Credit
Documents other than this Agreement, by the Effective Date will have, duly
executed and delivered each of the Credit Documents to which it is party, and
each of such Credit Documents constitutes or, in the case of each such other
Credit Document when executed and delivered, will constitute, its legal, valid
and binding obligation enforceable in accordance with its terms.
Section 7.03. No Violation. Neither the execution, delivery or performance
by Borrowers of the Credit Documents to which any of them is a party, nor
compliance by it with the terms and provisions thereof, nor the use of the
proceeds of the Loans (i) will contravene any provision of any law, statute,
rule or regulation or any order, writ, injunction or decree of any court or
governmental instrumentality, (ii) will conflict or be inconsistent with or
result in any breach of any of the terms, covenants, conditions or provisions
of, or constitute a default under, or result in the creation or imposition of
(or the obligation to create or impose) any Lien (except pursuant to the
Security Agreement) upon any of the Borrowers or any of their respective
Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust,
credit agreement, loan agreement or any other agreement, contract or instrument
to which any Borrower or any such Subsidiary is a party or by which any Borrower
or any of their respective property or assets is bound or to which any Borrower
may be subject or (iii) will violate any provision of the Articles of
Incorporation or by-laws of any of the Borrowers or any of their respective
Subsidiaries.
Section 7.04. Governmental Approvals. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made prior to the Effective Date and except for
the filing of UCC Financing Statements and continuation of statements), or
exemption by, any governmental or public body or authority, or any subdivision
thereof, is required to authorize, or is required in connection with, (i) the
execution, delivery and performance of any Credit Document to which any Borrower
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is a party or (ii) the legality, validity, binding effect or enforceability of
any such Credit Document.
Section 7.05. Financial Statements; Financial Condition; Undisclosed
Liabilities; etc.
(a) The consolidated balance sheets of the Parent and its Subsidiaries at
March 31, 1996 and December 31, 1995 the related consolidated statements, of
operations and cash flows of the Parent and its Subsidiaries for the fiscal year
or period, as the case may be, ended on such date and heretofore furnished to
the Agent present fairly, subject, in the case of such balance sheets as at
March 31, 1996, and such statements of operations and cash flows for the three
months then ended to year-end audit adjustments, the consolidated financial
condition of the Parent and its Subsidiaries at such dates and the consolidated
results of operations of the Parent and its Subsidiaries for the periods ended
on such dates. All such financial statements have been prepared in accordance
with generally accepted accounting principles and practices consistently
applied, subject, in the case of such balance sheets as at March 31, 1996 and
such statements of operations and cash flows for the three months then ended, to
year-end audit adjustments. Since March 31, 1996, there has been no material
adverse change in the business, operations, property, assets or condition
(financial or otherwise) of the Parent or of the Borrowers and their
Subsidiaries taken as a whole.
(b) The financial statements of each Borrower as filed with the department
of insurance in their respective states of incorporation for the years ended
December 31, 1993, December 31, 1994 and December 31, 1995, heretofore furnished
to the Agent present fairly for the period then ended, the financial condition
of each Borrower as of the respective dates of such statements. Such annual and
quarterly statements and financial statements were prepared in accordance with
the statutory accounting principles set forth in the applicable insurance law,
all of the assets described therein were the absolute property of the Borrower
in question at the dates set forth therein, free and clear of any liens or
claims thereon, except as therein stated, and each such annual statement is a
full and true statement of all the assets and liabilities and of the condition
and affairs of each Borrower as of December 31 of the year covered thereby and
of its income and deductions therefrom for the year ended on such date. Since
December 31, 1995, there has been no material adverse change in the business,
operations, property, assets or condition (financial or otherwise) of the
Borrowers and their Subsidiaries taken as a whole.
(c) Except as fully reflected in the financial statements delivered
pursuant to Section 7.05(a), Section 7.05(b) or in Schedule II hereto, there
were as of the Effective Date no liabilities or obligations with respect to each
Borrower or any of their respective Subsidiaries of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether or not due)
which, either individually or in aggregate, would be
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material to any such Borrower or to such Borrower and its Subsidiaries taken as
a whole. Except as set forth in Schedule II hereto, as of the Effective Date,
none of the Borrowers knows of any basis for the assertion against any Borrower
or any of their respective Subsidiaries of any liability or obligation of any
nature whatsoever that is not fully reflected in the financial statements
delivered pursuant to Section 7.05(a) and Section 7.05(b) which, either
individually or in the aggregate, could reasonably be expected to be material to
the Borrowers and their Subsidiaries taken as a whole.
Section 7.06. Litigation. There are no actions, suits or proceedings
pending or, to the best knowledge of the Borrowers, threatened (i) with respect
to any Credit Document or (ii) that are reasonably likely to materially and
adversely affect the business, operations, property, assets or condition
(financial or otherwise) of the Borrowers and their Subsidiaries taken as a
whole.
Section 7.07. True and Complete Disclosure. All factual information (taken
as a whole) heretofore or contemporaneously furnished by or on behalf of the
Borrowers, or any of them, in writing to the Banks (including without limitation
all information contained in the Credit Documents) for purposes of or in
connection with this Agreement or any transaction contemplated herein is, and
all other such factual information (taken as a whole) hereafter furnished by or
on behalf of the Borrowers, or any of them, in writing to the Banks will be,
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading at
such time in light of the circumstances under which such information was
provided.
Section 7.08. Use of Proceeds; Margin Regulations. All proceeds of each
Loan shall be used by the Borrowers only to establish and/or maintain Permitted
Reserves in the Pledged Reserves Account and/or to pay or reimburse itself for
the payment of Losses in respect of the Covered Portfolio and no part of the
proceeds of any Loan will be used by any Borrower to purchase or carry any
Margin Stock or to extend credit to others for the purpose of purchasing or
carrying any Margin Stock. Neither the making of any Loan nor the use of the
proceeds thereof will violate or be inconsistent with the provisions of
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System.
Section 7.09. Tax Returns and Payments. Each Borrower and their respective
Subsidiaries has filed all tax returns required to be filed by it and has paid
all income taxes payable by it which have become due pursuant to such tax
returns and all other taxes and assessments payable by it which have become due,
other than those not yet delinquent and except for those contested in good faith
and for which adequate reserves have been established. Each Borrower and their
respective Subsidiaries has paid, or has provided adequate reserves (in the good
faith judgment of the management of such Borrower) for the payment of, all
federal and state income taxes applicable for all prior fiscal years and for the
current fiscal year to the date hereof.
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Section 7.10. Compliance with ERISA. Each Plan is in substantial compliance
with applicable provisions of ERISA and the Code; no Reportable Event has
occurred with respect to any Plan; no Plan has an Unfunded Current Liability,
and no Plan has an accumulated or waived funding deficiency or has applied for
an extension of any amortization period within the meaning of Section 412 of the
Code; neither the Borrowers nor any Subsidiary nor ERISA Affiliate has incurred
any material liability to or on account of a Plan pursuant to Section 4062,
4063, 4064 or 4069 of ERISA which has not been satisfied in full or expects to
incur any liability under any of the foregoing sections with respect to any such
Plan; no condition exists which presents a material risk to any Borrower or any
of its Subsidiaries or any ERISA Affiliate of incurring a liability to or on
account of a Plan pursuant to the foregoing provisions of ERISA and the Code;
neither the Borrowers nor any of their ERISA Affiliates are or have ever been a
party to, or ever been required to make contributions to, or has terminated any
multi-employer plan (within the meaning of section 4001(a)(3) of ERISA); no Lien
imposed under the Code or ERISA on the assets of any Borrower or any of its
Subsidiaries or any ERISA Affiliate exists or is likely to arise on account of
any Plan; and the Borrowers and their respective Subsidiaries do not maintain or
contribute to any employee welfare benefit plan (as defined in Section 3(1) of
ERISA) which provides benefits to retired employees or other former employees
(other than as required by Section 601 of ERISA) or any employee pension benefit
plan (as defined in Section 3(2) of ERISA) the obligations with respect to which
could reasonably be expected to have a material adverse effect on the ability of
any Borrower to perform its obligations under this Agreement.
Section 7.11. Capitalization. All outstanding shares of capital stock of
each Borrower have been duly and validly issued, are fully paid and
non-assessable. No Borrower has any outstanding securities convertible into or
exchangeable for its capital stock or outstanding any rights to subscribe for or
to purchase, or any options for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments or claims
of any character relating to, its capital stock.
Section 7.12. Subsidiaries. On the Effective Date, the corporations listed
on Schedule III are the only Subsidiaries of any of the Borrowers. Schedule III
correctly sets forth, as of the Effective Date, the percentage ownership (direct
and indirect) of each Borrower in each class of capital stock of each of its
Subsidiaries and also identifies the direct owner thereof.
Section 7.13. Compliance with Statutes, etc. Each Borrower and their
respective Subsidiaries is in compliance with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls), except such noncompliances as would not reasonably be expected to
have, in the aggregate, a material adverse effect on the business, operations,
property, assets or condition (financial or otherwise) of the Borrowers and
their Subsidiaries taken as a whole.
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Section 7.14. Investment Company Act. No Borrower and none of their
respective Subsidiaries is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
Section 7.15. Public Utility Holding Company Act. No Borrower and none of
their respective Subsidiaries is a "holding company," or a "subsidiary company"
of a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 7.16. Compliance with Insurance Law. Both FSA and FSAM are each
duly licensed to transact business as a financial guaranty insurance corporation
by the New York Insurance Department and FSAO is duly licensed to transact
business as a surety insurance company by the State of Oklahoma and (a) each
Borrower has all other requisite federal, state and other governmental licenses,
authorizations, permits, consents and approvals to conduct its insurance and
other business as presently conducted and proposed to be conducted in each other
jurisdiction in which it writes or issues policies of insurance (including
without limitation any form of financial guaranty insurance, fidelity and surety
insurance or credit insurance), surety bonds, guaranties, contracts of
reinsurance or other undertakings similar to the foregoing (collectively,
"Insurance Contracts") or in which it conducts business, except for failures, if
any, to have such licenses, authorizations, permits, consents and approvals
which singly or in the aggregate could not reasonably be expected to have a
material adverse effect on the business, assets, operations or financial
condition of the Borrowers and their Subsidiaries taken as a whole or the
ability of any Borrower to perform its obligations under this Agreement or any
of the other Credit Documents, (b) each Borrower has made all filings of each of
its forms of Insurance Contracts and of its rates and charges with all federal,
state and administrative or governmental bodies required for the use thereof and
has obtained all requisite approvals thereof, except for failures, if any, to
file or to obtain such approvals which singly or in the aggregate could not
reasonably be expected to have a material adverse effect on the business,
assets, operations or financial condition of each Borrower or the ability of
each Borrower to perform its obligations under this Agreement or any of the
other Credit Documents, (c) each Borrower has duly established and maintains all
reserves required under applicable federal, state and other laws, rules and
regulations, except for failures, if any, to maintain reserves which could not
reasonably be expected to have a material adverse effect on the business,
assets, operations or financial condition of each Borrower or the ability of
each Borrower to perform its obligations under this Agreement or any of the
other Credit Documents, (d) each Borrower has duly filed all annual statements,
financial statements and other information and reports required to have been
filed with federal, state and other administrative or governmental body, except
for failures, if any, to file which singly or in the aggregate could not
reasonably be expected to have a material adverse effect on the business,
assets, operations, property or condition (financial or otherwise) of the
Borrowers and their Subsidiaries taken as a whole or the ability of each
Borrower to perform its obligations under this Agreement or any of the Credit
Documents, and (e) each Borrower is in
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compliance (and has not received any notice from the Department or similar
administrative or governmental body or an authorized representative thereof
claiming that it is not in compliance) with the New York Insurance Law, Maryland
Insurance Law or Oklahoma Insurance Law, as applicable, and the regulations
thereunder and with all other applicable federal, state and other laws relating
to its insurance and other business, except with respect to failures, if any, to
comply which singly or in the aggregate could not reasonably be expected to have
a material adverse effect on the business, assets, operations, property or
condition (financial or otherwise) of the Borrowers and their Subsidiaries taken
as a whole or the ability of each Borrower to perform its obligations under this
Agreement or any of the other Credit Documents.
Section 7.17. Covered Portfolio. Substantially all of the Insured
Obligations in the Covered Portfolio on the Effective Date were insured by the
Borrowers under Insurance Contracts in accordance with the Borrowers'
underwriting criteria at the time in effect. The Borrowers have, in respect of
the Covered Portfolio, no reason to believe that their rights included among the
Collateral are not valid and binding against the obligors thereunder in
accordance with their respective terms, except insofar as enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the enforcement of creditors' rights generally and the availability of equitable
remedies, except for such Collateral which, in the aggregate, could not
reasonably be expected to have a material adverse effect on the right and
ability of the Collateral Agent, in accordance with the Security Agreement, to
realize upon the Collateral as a whole. Attached as Schedule IV hereto is a list
of all reinsurance agreements of the Borrowers with respect to the Covered
Portfolio, all of which are the legal, valid, binding and enforceable
obligations of the parties thereto in accordance with their terms, except
insofar as enforceability may be limited by bankruptcy, insolvency, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and the availability of equitable remedies.
ARTICLE VIII
AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that on and after the Effective Date and
until the Commitments have terminated and the Loans and the Notes, together with
interest, Fees and all other obligations incurred hereunder and thereunder, are
paid in full:
Section 8.01. Information Covenants. FSA will furnish to the Agent and,
upon the request of any Bank addressed to the Chief Financial Officer of FSA, to
such Bank:
(a) Quarterly Parent Financial Statements. Within 60 days after the
close of each of the first three quarterly accounting periods in each
fiscal year of the Parent, the consolidated balance sheets of the Parent
and its consolidated Subsidiaries as at the end of such quarterly period
and the related consolidated statements of operations and cash
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flows for such quarterly period and for the elapsed portion of the fiscal
year ended with the last day of such quarterly period, in each case setting
forth comparative figures for the related periods in the prior fiscal year,
all of which shall be certified by the chief financial officer of the
Parent, subject to year-end audit adjustments to the extent required by
Form 10-Q.
(b) Annual Parent Financial Statements. Within 120 days after the
close of each fiscal year of the Parent, the consolidated balance sheets of
the Parent and its consolidated Subsidiaries as at the end of such fiscal
year and the related consolidated statements of operations, stockholders'
equity and of cash flow for such fiscal year, in each case setting forth
comparative figures for the preceding fiscal year and certified, in the
case of the consolidated financial statements, by independent certified
public accountants of recognized national standing or as reasonably
acceptable to the Agent to the extent required by Form 10-K.
(c) Quarterly and Annual Borrower Financial Statements. Promptly, and
in any event within ten (10) Business Days after the filing thereof, a copy
of the annual statement for each calendar year and quarterly statements for
each calendar quarter as filed with the Department or other then comparable
agency of other applicable jurisdictions and the financial statements of
FSA and, upon request of the Agent, FSAM and FSAO for such calendar year or
quarter prepared in accordance with statutory accounting practices,
accompanied by any and all letters, reports and/or certifications prepared
by public accountants required to be filed with the Department or such
other comparable agency, certified by the chief financial officer of each
such Borrower as presenting fairly in accordance with statutory accounting
principles applied (except as specifically set forth therein) on a basis
consistent with prior periods, the information contained therein.
(d) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Section 8.01(a), (b) and (c), a
certificate of the Chief Financial Officer of FSA (i) listing the Insured
Obligations in the Covered Portfolio (and if the Loss Threshold Incurrence
Date has occurred identifying the Insurance Contracts with respect thereto)
and calculating in reasonable detail as of the date of such financial
statements (A) the Average Annual Debt Service on the Covered Portfolio,
(B) if such date is prior to the Loss Threshold Incurrence Date, the
Borrowers' Cumulative Losses (stating separately any Permitted Reserves
included therein) for the current Commitment Period, and (C) if such date
is on or after the occurrence of the Loss Threshold Incurrence Date, (1)
the date of the occurrence thereof, (2) evidence of the occurrence thereof,
(3) the amount of Permitted Reserves as of the date of such financial
statements, (4) the aggregate amount of Pledged Recoveries received by or
for the account of any Borrower during the current Commitment Period on or
prior to the date of such financial statements, (ii) to the effect that, to
the best of his knowledge, no Default or Event of Default has occurred and
is continuing or, if any Default or Event of Default has occurred and is
continuing,
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specifying the nature and extent thereof, (iii) listing any changes in the
underwriting criteria of the Borrowers approved by their underwriting
committees of the board of directors of Parent since the delivery of the
last certificate described in this paragraph, and (iv) listing the Losses
referred to in Section 8.01(e)(v).
(e) Notice of Default or Litigation. Promptly, and in any event within
five (5) Business Days after an Authorized Officer obtains knowledge
thereof, written notice of (i) the occurrence of any event which
constitutes a Default or Event of Default, (ii) any litigation or
governmental proceeding (including, without limitation, any investigation
by or before the Department) pending (x) against any Borrower or any of its
Subsidiaries which could reasonably be expected to have a materially
adverse effect upon the business, operations, property, assets or condition
(financial or otherwise) of such Borrower or any of its Subsidiaries or (y)
with respect to any Credit Document, (iii) any other event which could
reasonably be expected to have a materially adverse effect upon the
business, operations, property, assets or condition (financial or
otherwise) of any Borrower or any of its Subsidiaries, (iv) upon request
any rating report received by any Borrower published by Moody's, S&P or, if
either Moody's or S&P no longer rates the claims-paying ability of any
Borrower any other nationally recognized rating agency which, with the
consent of such Borrower, rates the creditworthiness of obligations insured
by such Borrower, (v) on a quarterly basis so long as Cumulative Losses
during the Commitment Period is less than $25,000,000 each Loss, including
without limitation, identification of the Insured Obligation with respect
to which such Loss occurred, (vi) each default by the issuer of any Insured
Obligation in the Covered Portfolio or other obligor with respect thereto
which could form the basis of a claim exceeding $25,000,000 under an
Insurance Contract and (vii) each default by any party to a reinsurance
agreement or similar arrangement with any Borrower which covers any
material amount of Insured Obligations in the Covered Portfolio.
(f) Other Reports and Filings. Promptly, copies of all financial
information, proxy materials and other information and reports, if any,
(without exhibits) which the Parent and/or Borrower shall file with the
United States Securities and Exchange Commission or any governmental
agencies substituted therefor (the "SEC").
(g) Other Information. From time to time, such other information or
documents (financial or otherwise) as any Bank may reasonably request.
Section 8.02. Books, Records and Inspections. Each Borrower will, and will
cause each of their respective Subsidiaries to, keep proper books of record and
account in which full, true and correct entries in conformity with generally
accepted and/or statutory accounting principles, as applicable, and all
requirements of law shall be made of all dealings and transactions in relation
to its business and activities. Each Borrower will, and will cause each of their
respective Subsidiaries to, permit officers and designated representatives of
the Agent to visit and inspect, under guidance of their respective officers, any
of their respective properties,
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and to examine their respective books of record and account and discuss their
affairs, finances and accounts, and be advised as to the same by, their
officers, all at such reasonable times and intervals and to such reasonable
extent as any Bank may request.
Section 8.03. Maintenance of Property, Insurance. Each Borrower will, and
will cause each of their respective Subsidiaries to, (i) keep all property
useful and necessary in its business in good working order and condition, (ii)
maintain with financially sound and reputable insurance companies insurance on
all its property in at least such amounts and against at least such risks as is
consistent and in accordance with industry practice and (iii) furnish to the
Agent, upon its reasonable request, full information as to the insurance
carried.
Section 8.04. Corporate Franchises. Each Borrower will, and will cause each
of their respective Subsidiaries to, do or cause to be done, all things
necessary to preserve and keep in full force and effect its existence and its
material rights, franchises, licenses and patents; provided, however, that
nothing in this Section 8.04 shall prevent the withdrawal, lapse or termination
by any of them of any right, franchise, license or patent or its qualification
as a foreign corporation in any jurisdiction or shall prevent any of them from
taking any other action where such withdrawal, lapse, termination or action
could not reasonably be expected to have a material adverse effect on the
business, operations, property, assets or condition (financial or otherwise) of
the Borrowers and their Subsidiaries taken as a whole.
Section 8.05. Compliance with Statutes, etc. Each Borrower will, and will
cause each of their respective Subsidiaries to, comply with all applicable
statutes, regulations and orders of, and all applicable restrictions imposed by,
all governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls), except such noncompliances as could not reasonably be expected to
have, in the aggregate, a material adverse effect on the business, operations,
property, assets or condition (financial or otherwise) of the Borrowers and
their Subsidiaries taken as a whole.
Section 8.06. ERISA. Promptly after an Authorized Officer of any Borrower
has received notice or otherwise has knowledge thereof, it will deliver to the
Agent written notice describing in reasonable detail the occurrence of any of
the following: that a Reportable Event has occurred; that an accumulated funding
deficiency has been incurred or an application may be or has been made to the
Secretary of the Treasury for a waiver or modification of the minimum funding
standard (including any required installment payments) or an extension of any
amortization period under Section 412 of the Code with respect to a Plan; that a
Plan has an Unfunded Current Liability giving rise to a Lien under ERISA; or
that the Borrowers, any of their Subsidiaries or ERISA Affiliates will or may
incur any liability (including any contingent or secondary liability) to or on
account of the termination of or withdrawal from a Plan under Section 4062, 4063
or 4064 of ERISA. Upon written request of the Agent, the Borrowers will
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deliver to each of the Banks a complete copy of the annual report (Form 5500) of
each Plan required to be filed with the Internal Revenue Service.
Section 8.07. Performance of Obligations. Each Borrower will, and will
cause each of their respective Subsidiaries to, perform all its obligations
under the terms of each mortgage, indenture, security agreement and other debt
instrument by which it is bound, except such non-performances as could not
reasonably be expected to have in the aggregate a material adverse effect on the
business, operations, property, assets or condition (financial or otherwise) of
the Borrowers and their Subsidiaries taken as a whole.
Section 8.08. Use of Proceeds. The Borrowers will use the proceeds of the
Loans only to pay or reimburse itself for the payment of Losses (including
establishing and/or maintaining Permitted Reserves in the Pledged Reserves
Account) in respect of the Covered Portfolio.
Section 8.09. Conduct of Business. Each Borrower will and will cause each
of their respective Subsidiaries to continue to engage in business of the same
general type as conducted by it on the Effective Date.
Section 8.10. Underwriting Criteria. The Borrowers shall maintain their
criteria for underwriting Insurance Contracts as in effect on the Effective Date
with such changes therein as the Underwriting Committee of the Board of
Directors of the Parent shall from time to time approve. All Insured Obligations
included within the Covered Portfolio shall comply with such criteria as in
effect at the time insured or committed to be insured.
Section 8.11. Collection of Pledged Recoveries and Pledged Premiums. Each
Borrower shall at all times use its commercially reasonable efforts to collect
and otherwise realize upon all Pledged Recoveries and Pledged Premiums in
compliance with applicable law and in a commercially reasonable manner.
Section 8.12. Pledged Reserve Release Notice. Each Borrower hereby
acknowledges and agrees that if, at any time, it shall cease to maintain all or
any portion of Permitted Reserves in respect of which Pledged Reserves Account
Funds have been deposited in the Pledged Reserves Account, such Borrower as
promptly as possible (and in any event within three Business Days) after it
shall cease to maintain such Permitted Reserves shall give written notice
thereof (each such notice, a "Pledged Reserve Release Notice") to the Agent and
the Collateral Agent which notice shall provide the amount of such Pledged
Reserves Account Funds that have been released.
Section 8.13. Registry. Each Borrower hereby covenants that it shall
maintain a register substantially in the form of Exhibit H on which it will
record the Commitment from time to time of each of the Banks, the Loans made by
each of the Banks and each repayment in respect of the principal amount of the
Loans of each Bank. Failure to make any such recordation, or any error
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in such recordation, shall not affect the Borrowers' obligations in respect of
such Loans. Upon the request of a Borrower, the Agent hereby agrees to use its
reasonable efforts to provide to such Borrower such information not otherwise
available to such Borrower, as such Borrower shall reasonably request from time
to time in order to enable it to fulfill its obligations pursuant to this
Section 8.13 and such Borrower shall have no obligation to make any such
recordation until it receives such requested information from the Agent. Without
limiting the Borrowers' obligations hereunder, such Borrower shall indemnify any
Bank described in Section 4.04(b)(iii) for losses related to the withholding of
taxes, including any interest and penalties thereon arising as a result of such
Borrower's failure to comply with this Section 8.13.
ARTICLE IX
NEGATIVE COVENANTS
Each Borrower covenants and agrees that on and after the Effective Date and
until the Commitments have terminated and the Loans and the Notes, together with
interest, Fees and all other obligations incurred hereunder and thereunder, are
paid in full:
Section 9.01. Liens. Each Borrower will not, and will not permit any of
their respective Subsidiaries to, create, incur, assume or suffer to exist any
Lien upon or with respect to any Pledged Recoveries, Pledged Premiums, Pledged
Reserves Account Funds or other Collateral, provided that the provisions of this
Section 9.01 shall not prevent the creation,incurrence, assumption or existence
of the following (Liens described below are herein referred to as "Permitted
Liens"):
(a) the Lien in favor of the Banks under the Security Agreement or
otherwise permitted thereunder;
(b) inchoate Liens for taxes, assessments or governmental charges or
levies not yet due or Liens for taxes, assessments or governmental charges
or levies being contested in good faith and by appropriate proceedings for
which adequate reserves have been established in accordance with generally
accepted accounting principles;
(c) Liens in respect of property or assets of any Borrower or any of
their respective Subsidiaries imposed by law, which were incurred in the
ordinary course of business and do not secure Indebtedness for borrowed
money, such as carriers', warehousemen's, materialmen's and mechanics'
liens and other similar Liens arising in the ordinary course of business,
which relate to Indebtedness which has not been paid when due and payable
in accordance with its terms and which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing
the forfeiture or sale of the property or assets subject to any such Lien;
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(d) Liens securing liquidity support credit facilities entered into by
FSA or any of its Subsidiaries from time to time in order solely to provide
liquidity support for a specified transaction or transactions in which
obligations are insured by FSA under an Insurance Contract, provided that
such Liens in respect of each such transaction are limited to the interests
of FSA in the collateral provided to FSA in connection with such
transaction;
(e) Liens in respect of statutory preference or priorities granted to
certain claims under applicable insurance law;
(f) Liens established in favor of the beneficiaries of reinsurance
agreements other than Wholly-Owned Subsidiaries of the Parent to the extent
such Liens are established in the ordinary course of business or are
otherwise within the parameters of industry practice; and
(g) Liens represented by a financing statement to the extent such
financing statement does not represent notice of a valid security interest
and the Borrowers use their best efforts to file or cause to be filed a
termination statement in respect thereof.
Section 9.02. Consolidation, Merger, Sale of Assets, etc. FSA and so long
as they are Borrowers, FSAM and FSAO, will not, and will not permit any of their
respective Subsidiaries to, wind up, liquidate or dissolve its affairs or enter
into any transaction of merger or consolidation, or convey, sell, lease or
otherwise dispose of (or agree to do any of the foregoing at any future time)
all or any substantial part of its property or assets (other than assets in its
investment portfolio), or purchase or otherwise acquire (in one or a series of
related transactions) all or substantially all of the property or assets (other
than assets in its investment portfolio) (other than purchases or other
acquisitions of inventory, materials and equipment in the ordinary course of
business) of any Person, or permit any of such Subsidiaries so to do any of the
foregoing, except that:
(a) each Borrower and its Subsidiaries may in the ordinary course of
business sell or lease assets including the sale of any Subsidiary the sale
of which will not have a material adverse effect on the business,
operations, property, assets or condition of the Borrowers and the
Subsidiaries taken as a whole;
(b) any Subsidiary may wind up its affairs or liquidate or dissolve
into, and may consolidate or merge with or into, the related Borrower or
any other Subsidiary of such Borrower;
(c) the assets or stock of any Subsidiary of a Borrower may be
purchased or otherwise acquired by such Borrower or any other Subsidiary of
such Borrower;
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(d) any Borrower or any of their respective Subsidiaries may purchase
or otherwise acquire all or substantially all of the properties or assets
of any Person or acquire such Person by merger so long as (i) no Default or
Event of Default has occurred and is continuing or would occur after giving
effect thereto, (ii) the consolidated net worth (determined in accordance
with U.S. generally accepted accounting principles) of the effected
Borrower and its Subsidiaries taken as a whole immediately after giving
effect to such purchase, acquisition or merger is at least equal to 95% of
its consolidated net worth immediately prior to such purchase, acquisition
or merger and (iii) such purchase, acquisition or merger shall not result
in any downgrading of the Borrower's Rating assigned to such Borrower by
Moody's or S&P from that in effect immediately prior to such purchase,
acquisition or merger and (iv) FSA shall deliver to the Agent a certificate
of the Chief Financial Officer of FSA stating that such purchase, merger or
acquisition complied with the conditions contained in this paragraph (d);
(e) any Borrower and any of its Subsidiaries may convey, sell or
otherwise dispose of any of their respective properties or assets so long
as, immediately prior to the time of such disposition, the value of such
properties or assets being disposed of does not exceed 10% of the aggregate
value of the assets of the Borrowers and their Subsidiaries taken as a
whole as such assets are carried on the consolidated balance sheet of the
Borrowers and their Subsidiaries at such time;
(f) any Borrower or any of its Subsidiaries may merge into another
entity so long as (i) such merger is solely for the purpose of changing
domicile, (ii) the surviving corporation assumes all obligations of such
Borrower or Subsidiary under the Credit Documents and (iii) no Default or
Event of Default has occurred and is continuing or would occur after giving
effect thereto;
(g) any Subsidiary of a Borrower may take any action not otherwise
permitted hereunder so long as no Default or Event of Default has occurred
and is continuing to the extent such action is not in any manner adverse to
the security interest created pursuant to the Security Agreement or
otherwise materially adverse to the Borrowers and their Subsidiaries taken
as a whole or the Banks; and
(h) intercompany transfers shall be permitted in accordance with
applicable insurance law.
ARTICLE X
EVENTS OF DEFAULT
Upon the occurrence of any of the following specified events (each an
"Event of Default"):
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Section 10.01. Payments. The Borrowers shall (i) default in the payment
when due of any principal of any Loan or any Note or (ii) default, and such
default shall continue unremedied for two or more Business Days, in the payment
when due of any interest on any Loan or any Note or default, and such default
shall continue unremedied for three (3) or more Business Days after notice from
the Agent, in the payment of any Fees or any other amounts owing hereunder or
under any Note; or
Section 10.02. Representations, etc. Any representation, warranty or
statement made by or on behalf of the Borrowers or any of them herein or in any
other Credit Document or in any certificate delivered pursuant hereto or thereto
shall prove to be untrue in any material respect on the date as of which made or
deemed made; or
Section 10.03. Covenants. Any Borrower shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 8.08, 8.09, 8.10, 8.11, 8.12 or 9 or (ii) default in the due performance
or observance by it of any term, covenant or agreement (other than those
referred to in Sections 10.01 and 10.02 and clause (i) of this Section 10.03)
contained in this Agreement and such default shall continue unremedied for a
period of 30 days after written notice to any Borrower by the Agent or any Bank;
or
Section 10.04. Default Under Other Agreements. Any Borrower or any of their
respective Subsidiaries shall (i) default in the payment of any indebtedness
owed to any Bank giving rise to an event of default under the documentation
evidencing such indebtedness, (ii) default in any payment of any Indebtedness
(other than the Notes) for borrowed money in excess of $15,000,000 beyond the
period of grace, if any, provided in the instrument or agreement under which
such Indebtedness was created or (iii) default in the observance or performance
of any agreement or condition relating to any such Indebtedness for borrowed
money beyond the grace period as provided therein (other than the Notes) or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of any
such default or other event or condition is to cause, or to permit the holder or
holders of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause any such Indebtedness to become due prior to its stated
maturity; or any Indebtedness for borrowed money of any Borrower or any of their
respective Subsidiaries shall be declared to be due and payable, or required to
be prepaid other than by a regularly scheduled required or optional prepayment,
prior to the stated maturity thereof; or
Section 10.05. Bankruptcy, etc. Any Borrower or any of their respective
Subsidiaries shall commence a voluntary case concerning itself under Title 11 of
the United States Code entitled "Bankruptcy," as now or hereafter in effect, or
any successor thereto (the "Bankruptcy Code"); or an involuntary case is
commenced against any Borrower or any of their respective Subsidiaries, and the
petition is not controverted within 10 days, or is not dismissed within 60 days,
after commencement of the case; or a custodian (as defined in the Bankruptcy
Code) is
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appointed for, or takes charge of, all or substantially all of the property of
any Borrower or any of their respective Subsidiaries, or any Borrower or any of
their respective Subsidiaries commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to any Borrower or any of their respective
Subsidiaries, or there is commenced against any Borrower or any of their
respective Subsidiaries any such proceeding which remains undismissed or
unstayed for a period of 60 days, any Borrower or any of their respective
Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or
other order approving any such case or proceeding is entered; or any Borrower or
any of their respective Subsidiaries suffers any appointment of any custodian or
the like for it or any substantial part of its property to continue undischarged
or unstayed for a period of 60 days; or any Borrower or any of their respective
Subsidiaries makes a general assignment for the benefit of creditors; or any
corporate action is taken by any Borrower or any of their respective
Subsidiaries for the purpose of effecting any of the foregoing; or
Section 10.06. ERISA. Any Plan shall fail to maintain the minimum funding
standard required for any plan year or part thereof or a waiver of such standard
or extension of any amortization period is sought or granted under Section 412
of the Code; any Plan shall have an Unfunded Current Liability; any Borrower or
any of their respective Subsidiaries or ERISA Affiliates has incurred or is
likely to incur a liability to or on account of a Plan under Section 4062, 4063,
4064 or 4069 of ERISA, or any Borrower or any of their respective Subsidiaries
has incurred or is likely to incur liabilities pursuant to one or more employee
welfare benefit plans (as defined in Section 3(1) of ERISA) which provide
benefits to retired employees (other than as required by Section 601 of ERISA);
there shall result from any such event or events the imposition of a Lien upon
the assets of any Borrower or any of their respective Subsidiaries, the granting
of a security interest, or a liability or a material risk of incurring a
liability, which Lien, security interest or liability, in the opinion of the
Banks, will have a material adverse effect upon the business, operations,
property, assets or condition (financial or otherwise) of the Borrowers and
their Subsidiaries taken as a whole; or
Section 10.07. Security Agreement.
(a) The Security Agreement or any provision thereof shall cease to be in
full force and effect, or shall cease in any material respect to give the
Collateral Agent for the benefit of the Banks, the Liens, rights, powers and
privileges purported to be created thereby; or
(b) any Borrower shall otherwise default in any material respect in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to the Security Agreement and such default in the
event of a default of payment obligations under Sections 2.02(a) and (b) of the
Pledge and Security Agreement shall continue unremedied for a period of three
(3) Business Days
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after written notice thereof to any Borrower by the Agent or any Bank, and in
the event of any other default shall continue unremedied for a period of thirty
(30) days after written notice thereof to any Borrower by the Agent or any Bank.
Section 10.08. Judgments. One or more judgments or decrees shall be entered
against the Borrowers or any of its Subsidiaries involving in the aggregate for
any Borrower and its Subsidiaries a liability (not paid or fully covered by
insurance) of $15,000,000 or more at any one time, and all such judgments or
decrees shall not have been vacated, discharged or stayed or bonded pending
appeal within 60 days after the entry thereof; or
Section 10.09. Change of Control. A Change of Control shall occur;
then, and in any such event, and at any time thereafter, if any Event of
Default shall then be continuing, the Agent may or shall upon direction from the
Majority Banks, by written notice to the Borrowers, take the following actions
to the extent permitted below (provided, that, if an Event of Default specified
in Section 10.05 shall occur with respect to any Borrower, the result which
would occur upon the giving of written notice to any Borrower as specified below
shall occur automatically without the giving of any such notice): if any Event
of Default has occurred and is continuing, the Agent may, in addition to any and
all other remedies available at law or in equity, declare the principal of and
any accrued interest in respect of all Loans and the Notes and all obligations
owing hereunder and thereunder to be, whereupon the same shall become, forthwith
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrowers.
ARTICLE XI
THE AGENT
Section 11.01. Appointment. The Banks hereby designate Bayerische
Landesbank Girozentrale, acting through its New York Branch as Agent (for
purposes of this Section 11, the term "Agent" shall also include Bayerische
Landesbank Girozentrale, acting through its New York Branch in its capacity as
Collateral Agent pursuant to the Security Documents) to act as specified herein
and in the other Credit Documents. Each Bank hereby irrevocably authorizes, and
each holder of any Note by the acceptance of such Note shall be deemed
irrevocably to authorize, the Agent to take such action on its behalf under the
provisions of this Agreement, the other Credit Documents and any other
instruments and agreements referred to herein or therein and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to or required of the Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto. The Agent may perform any of
its duties hereunder by or through its officers, directors, agents or employees.
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Section 11.02. Nature of Duties. The Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement and the
Security Agreement. Neither the Agent nor any of its officers, directors, agents
or employees shall be liable for any action taken or omitted by it or them
hereunder or under any other Credit Document or in connection herewith or
therewith, unless caused by its or their gross negligence or willful misconduct.
The duties of the Agent shall be mechanical and administrative in nature; the
Agent shall not have by reason of this Agreement or any other Credit Document a
fiduciary relationship in respect of any Bank or the holder of any Note; and
nothing in this Agreement or any other Credit Document, expressed or implied, is
intended to or shall be so construed as to impose upon the Agent any obligations
in respect of this Agreement or any other Credit Document except as expressly
set forth herein or therein.
Section 11.03. Lack of Reliance on the Agent. Independently and without
reliance upon the Agent, each Bank and the holder of each Note, to the extent it
deems appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Borrowers in
connection with the making and the continuance of the Loans and the taking or
not taking of any action in connection herewith and (ii) its own appraisal of
the creditworthiness of the Borrowers and, except as expressly provided in this
Agreement, the Agent shall not have any duty or responsibility, either initially
or on a continuing basis, to provide any Bank with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter. The Agent shall not be
responsible to any Bank or the holder of any Note for any recitals, statements,
information, representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith or for the
execution, effectiveness, genuineness, validity, enforceability, perfection,
collectability, priority or sufficiency of this Agreement or any other Credit
Document or the financial condition of the Borrowers or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement or any other Credit Document, or the
financial condition of the Borrowers or the existence or possible existence of
any Default or Event of Default.
Section 11.04. Certain Rights of the Agent. If the Agent shall request
instructions from the Banks with respect to any act or action (including failure
to act) in connection with this Agreement or any other Credit Document, the
Agent shall be entitled to refrain from such act or taking such action unless
and until the Agent shall have received instructions from the Majority Banks;
and the Agent shall not incur liability to any Person by reason of so
refraining. Without limiting the foregoing, no Bank or the holder of any Note
shall have any right of action whatsoever against the Agent as a result of the
Agent acting or refraining from acting hereunder or under any other Credit
Document in accordance with the instructions of the Majority Banks.
Section 11.05. Reliance. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed,
39
<PAGE>
sent or made by any Person that the Agent believed to be the proper Person, and,
with respect to all legal matters pertaining to this Agreement and any other
Credit Document and its duties hereunder and thereunder, upon advice of counsel
selected by the Agent.
Section 11.06. Indemnification. To the extent the Agent is not reimbursed
and indemnified by the Borrowers, each Bank will reimburse and indemnify the
Agent for and against any and all liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, costs, expenses or disbursements of
whatsoever kind or nature which may be imposed on, asserted against or incurred
by the Agent in performing its duties hereunder or under any other Credit
Document, in any way relating to or arising out of this Agreement or any other
Credit Document; provided that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Agent's gross negligence or
willful misconduct.
Section 11.07. The Agent in Its Individual Capacity. With respect to its
obligation to make Loans under this Agreement, the Agent shall have the rights
and powers specified herein for a "Bank" and may exercise the same rights and
powers as though it was not performing the duties specified herein; and the term
"Banks," "holders of Notes" or any similar terms shall, unless the context
clearly otherwise indicates, include the Agent in its individual capacity. The
Agent may accept deposits from, lend money to, and generally engage in any kind
of banking, trust or other business with any Borrower or any Affiliate of any
Borrower as if they were not performing the duties specified herein, and may
accept fees and other consideration from any Borrower for services in connection
with this Agreement and otherwise without having to account for the same to the
Banks.
Section 11.08. Resignation by the Agent.
(a) The Agent may resign from the performance of all its functions and
duties hereunder and/or under the other Credit Documents at any time by giving
15 Business Days' prior written notice to the Borrowers and the Banks. In the
case of the resignation by the Agent, such resignation shall take effect upon
the appointment of a successor Agent pursuant to clause (b) or (c) below or as
otherwise provided below.
(b) Upon any such notice of resignation by the Agent, the Banks shall
appoint a successor Agent hereunder or thereunder who shall be a commercial bank
or trust company reasonably acceptable to the Borrowers (it being understood and
agreed that any Bank is deemed to be acceptable to the Borrowers).
(c) If a successor Agent shall not have been so appointed within such 15
Business Day period, the Agent, with the consent of the Borrowers, shall then
appoint a successor Agent who shall serve as Agent hereunder or thereunder until
such time, if any, as the Banks appoint a successor Agent as provided above.
40
<PAGE>
(d) If no successor Agent has been appointed pursuant to clause (b) or (c)
above by the 20th Business Day after the date such notice of resignation was
given by the Agent, the Agent may appoint any other Bank which agrees to such
appointment to act as successor Agent and if no Bank so agrees by the 30th
Business Day after the date such notice was given by the Agent, the Agent's
resignation shall become effective on such 30th Business Day and the Banks shall
thereafter perform all the duties of the Agent hereunder and/or under any other
Credit Document until such time, if any, as the Banks appoint a successor Agent
as provided above.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Payment of Expenses. etc. The Borrowers, jointly and
severally, agree to : (i) whether or not the transactions herein contemplated
are consummated, pay all reasonable out-of-pocket costs and expenses (x) of the
Agent (including, without limitation, the reasonable fees and disbursements of
Kutak Rock, counsel for the Agent) in connection with the preparation, execution
and delivery of this Agreement and the other Credit Documents and the documents
and instruments referred to herein and therein and any amendment, waiver or
consent relating hereto or thereto and (y) of the Agent and the Banks in
connection with the enforcement of this Agreement and the other Credit Documents
and the documents and instruments referred to herein and therein (including,
without limitation, the reasonable fees and disbursements of counsel for the
Agent and the Banks); (ii) pay and hold each Bank harmless from and against any
and all present and future stamp and other similar taxes with respect to the
foregoing matters and save such Bank harmless from and against any and all
liabilities with respect to or resulting from any delay or omission (other than
to the extent attributable to such Bank) to pay such taxes; and (iii) except as
otherwise provided in Section 4.05, indemnify each Bank, its officers,
directors, employees, representatives and agents from and hold each of them
harmless against any and all liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, suits, and reasonable costs, expenses and
disbursements incurred by any of them as a result of, or arising out of, or in
any way related to, or by reason of, any investigation, litigation or other
proceeding (whether or not such Bank is a party thereto) related to the entering
into and/or performance of this Agreement or any other Credit Document or the
use of the proceeds of any Loans hereunder or the consummation of any
transactions contemplated herein or in any other Credit Document, including,
without limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such liabilities, obligations, losses, etc., to the extent
incurred by reason of the gross negligence or willful misconduct of the Person
to be indemnified).
Section 12.02. Right of Setoff. Except as otherwise provided in Section
4.05, in addition to any rights now or hereafter granted under applicable law or
otherwise, and not by way
41
<PAGE>
of limitation of any such rights and to the extent permitted by applicable law,
upon the occurrence of an Event of Default, each Bank is hereby authorized at
any time or from time to time, without presentment, demand, protest or other
notice of any kind to the Borrowers or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and apply any and
all deposits (general or special), and any other Indebtedness at any time held
or owing by such Bank (including without limitation by branches and agencies of
such Bank wherever located) to or for the credit or the account of any Borrower
against and on account of the Obligations and liabilities of the Borrowers to
such Bank under this Agreement or under any of the other Credit Documents, and
all other claims of any nature or description arising out of or connected with
this Agreement or any other Credit Document, irrespective of whether or not the
Bank shall have made any demand hereunder and although said Obligations,
liabilities or claims, or any of them, shall be contingent or unmatured,
provided however that (i) except to the extent provided in the next succeeding
clause (ii), no Bank is authorized hereunder to take any of the foregoing
actions, nor shall any Bank exercise any other right of setoff or bankers' lien
or any other right now or hereafter granted under applicable law with respect to
the Pledged Reserves Account or any portion of the Pledged Reserves Account
Funds or any Collateral contained in the Pledged Reserves Account (each of the
Agent, the Collateral Agent and each Bank hereby waiving, to the extent
permitted by applicable law, any such right) and (ii) from and after receipt by
the Agent or the Collateral Agent of any Pledged Reserve Release Notice, the
Agent, the Collateral Agent or any Bank is authorized to and may exercise, to
the extent permitted by applicable law, any of such foregoing actions or such
rights only with respect to the amount of Pledged Reserves Account Funds
described in such Pledged Reserve Release Notice and the other Collateral
contained in the Pledged Reserves Account in an amount equal to the interest and
other earnings on such Pledged Reserves Account Funds.
Section 12.03. Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to any Borrower or
Bank, at its address listed opposite its name on the signature page hereto; and
if to the Agent at its Notice Office; or, as to any Bank or the Agent, at such
other address as shall be designated by such party in a written notice to the
other parties hereto and, as to each other party, at such other address as shall
be designated by such party in a written notice to the Borrowers and the Agent.
All such notices and communications shall not be effective until received by the
Agent or the Borrowers.
Section 12.04. Benefit of Agreement.
(a) This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto;
provided, however, that no Borrower may assign or transfer any of its rights or
obligations hereunder without the prior written consent of the Banks and,
provided further, that, any Bank may assign its rights and obligations hereunder
or under the other Credit
42
<PAGE>
Documents as provided in this Section 12.04. Any Bank may participate portions
of its obligations hereunder and of the obligations of the Borrowers hereunder
and under the Credit Documents to other financial institutions. Notwithstanding
such participation, such Bank shall not be relieved of its obligations
hereunder.
(b) Any Bank (or any Bank together with one or more other Banks) may assign
all or a portion of its Commitment and related outstanding rights and
Obligations hereunder to one or more commercial banks, each of which assignees
shall become a party to this Agreement as a Bank by execution of an Assignment
and Assumption Agreement and delivery of such Assignment and Assumption
Agreement to the Borrowers and the Agent, provided that (i) new Notes will be
issued to such new Bank in the stated amount of its assumed Commitment and to
the assigning Bank in the stated amount of the Commitment if any, retained by it
upon the request of such new Bank or assigning Bank and the surrender of the
Note previously issued to the assigning Bank (or the execution and delivery to
the Borrowers of an indemnity satisfactory to the Borrowers), such new Notes to
be in conformity with the requirements of Section 2.05 to the extent needed to
reflect the revised Commitments, (ii) except in the case of an assignment to an
Affiliate of Bayerische Landesbank Girozentrale with an unsecured debt rating of
Aaa by Moody's and AAA by S&P, the Borrowers must give their prior written
consent to such assignment which shall not be unreasonably withheld, conditioned
or delayed, (iii) such assignment shall not result in a downgrading of the
Borrower's Rating assigned to the Borrowers by Moody's or S&P from that in
effect immediately prior to such assignment, (iv) the assigning Bank shall
provide notice of any such assignment to the Agent and the Borrowers and the
Borrowers shall provide notice of same to Moody's and S&P; (v) the new Bank
shall deliver a legal opinion addressed to each of the Borrowers, Moody's and
S&P dated the effective date of the applicable assignment to the effect that
this Agreement constitutes its legal, valid and binding obligation enforceable
in accordance with its terms, except to the extent that the enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws generally affecting creditor's rights and by
equitable principles (regardless of whether enforcement is sought in equity or
at law) as the same may be applied in the event of bankruptcy or similar
proceedings with respect to such new Bank and as otherwise required by Moody's
and S&P and (vi) the Borrowers shall record the Commitment of the assignee in
the register maintained pursuant to Section 8.13. To the extent of any
assignment pursuant to this Section 12.04(b), the assigning Bank shall be
relieved of its obligations hereunder with respect to its assigned Commitment.
At the time of each assignment pursuant to this Section 12.04(b) to a Person
which is not already a Bank hereunder and which is not a United States person
(as such term is defined in Section 7701(a)(30) of the Code) for Federal income
tax purposes, the respective assignee Bank shall, to the extent legally entitled
to do so, provide to the Borrowers in the case of a Bank described in clause
(ii) or (iv) of Section 4.04(b), the forms described in such clause (ii) or
(iv), as the case may be. To the extent that an assignment of all or any portion
of a Bank's Commitment and related outstanding Obligations pursuant to this
43
<PAGE>
Section 12.04(b) would at the time of such assignment, result in increased costs
under Sections 2.07 or 4.04 from those being charged by the respective assigning
Bank prior to such assignment, then the Borrowers shall not be obligated to pay
such increased costs (although the Borrowers shall be obligated to pay any other
increased costs of the type described above resulting from changes in applicable
law, or government rules, regulations, orders or requests after the date of the
respective assignment).
(c) Upon the execution and delivery of an Assignment and Assumption
Agreement in accordance with, and subject to the restrictions of subsection (b)
above, the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder and under the other Credit Documents have been
assigned to it pursuant to such Assignment and Assumption Agreement, have the
rights and obligations of a "Bank" hereunder and thereunder.
(d) Any Bank claiming any amounts payable pursuant to Section 4.04 shall
use reasonable efforts (consistent with legal and regulatory restrictions and
subject to overall policy considerations of such Bank) to designate another
lending office for its Commitment or Loans or take such other action to minimize
such amounts, as may be reasonably requested by the Borrowers, provided that
such designation is made or such other action is taken on such terms that such
Bank and its lending office suffer no economic, legal or regulatory
disadvantage.
(e) Nothing in this Agreement shall prevent or prohibit any Bank from
pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of
borrowings made by such Bank from such Federal Reserve Bank.
(f) Each Bank shall promptly notify the Borrowers of any change in the
location of its applicable lending office. In the event any Bank changes its
applicable lending office, such change shall be treated as an assignment to a
new Bank for purposes of Section 4.04(b) and so much of Section 12.04(b) as
relates to Section 4.04.
Section 12.05. No Waiver; Remedies Cumulative. No failure or delay on the
part of any Bank or the holder of any Note in exercising any right, power or
privilege hereunder or under any other Credit Document and no course of dealing
between any Borrower and any Bank or the holder of any Note shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. Except as otherwise expressly provided herein or in any
other Credit Document, the rights, powers and remedies herein or in any other
Credit Document expressly provided are cumulative and not exclusive of any
rights, powers or remedies which any Bank would otherwise have. No notice to or
demand on the Borrowers in any case shall entitle any Borrower to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the
44
<PAGE>
rights of any Bank or the holder of any Note to any other or further action in
any circumstances without notice or demand.
Section 12.06. Calculations; Computations.
(a) The financial statements to be furnished to the Banks pursuant to
Section 8.01(a) and (b) shall be made and prepared in accordance with generally
accepted accounting principles in the United States and the financial statements
to be furnished to the Banks pursuant to Section 8.01(c) shall be made and
prepared in accordance with statutory accounting principles, in each case
consistently applied throughout the periods involved (except as set forth in the
notes thereto or as otherwise disclosed in writing by the Borrowers to the
Banks).
(b) All computations of interest, Commitment Fees and Fees hereunder shall
be made on the basis of a year of 360 days for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest, Commitment Fees or Fees are payable.
Section 12.07. Governing Law; Submission to Jurisdiction; Venue.
(a) This Agreement and the other Credit Documents and the rights and
obligations of the parties hereunder and thereunder shall be construed in
accordance with and be governed by the law of the State of New York. Any legal
action or proceeding against any Borrower with respect to this Agreement or any
other Credit Document may be brought in the courts of the State of New York or
of the United States for the Southern District of New York, and, by execution
and delivery of this Agreement, any Borrower hereby irrevocably accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The Borrowers irrevocably consent to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Borrowers at their addresses set forth opposite its
signature below, such service to become effective 30 days after such mailing.
Except as otherwise provided in Section 4.05, nothing herein shall affect the
right of the Agent or any Bank under this Agreement to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against any Borrower in any other jurisdiction.
(b) Each Borrower hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (a) above and hereby
further irrevocably waives
45
<PAGE>
and agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
Section 12.08. Obligation to Make Payments in Dollars. Subject to the
provisions of Section 4.05, the obligation of the Borrowers to make payment in
Dollars of the principal of and interest on the Notes and any other amounts due
hereunder or under any other Credit Document to the Payment Office of the Agent
as provided in Section 4.03 shall not be discharged or satisfied by any tender,
or any recovery pursuant to any judgment, which is expressed in or converted
into any currency other than Dollars, except to the extent such tender or
recovery shall result in the actual receipt by the Agent at its Payment Office
of the full amount of Dollars expressed to be payable in respect of the
principal of and interest on the Notes and all other amounts due hereunder or
under any other Credit Document. Subject to the provisions of Section 4.05, the
obligation of the Borrowers to make payments in Dollars as aforesaid shall be
enforceable as an alternative or additional cause of action for the purpose of
recovery in Dollars of the amount, if any, by which such actual receipt shall
fall short of the full amount of Dollars expressed to be payable in respect of
the principal of and interest on the Notes and any other amounts due under any
other Credit Document, and shall not be affected by judgment being obtained for
any other sums due under this Agreement or under any other Credit Document.
Section 12.09. Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the
Borrowers and the Agent.
Section 12.10. Effectiveness. This Agreement shall become effective on the
date (the "Effective Date") on which the Borrowers and the Banks shall have
signed a copy hereof (whether the same or different copies) and shall have
delivered the same to the Agent at its Notice Office and the conditions set
forth in Article 5 shall have been satisfied or waived by the Banks, as
evidenced by a written notice by the Agent to the Borrowers confirming that the
Agreement has become effective and setting forth the Effective Date.
Section 12.11. Headings Descriptive. The headings of the several sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement.
Section 12.12. Amendment or Waiver. Neither this Agreement nor any other
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the Majority Banks and the Agent; provided, however, that
no such change, waiver, discharge or termination shall, without the consent of
each Bank, (i) extend the final maturity of any Loan or Note other than in
accordance with Section 3.04 or reduce the rate or extend the time of payment of
interest or Fees thereon,
46
<PAGE>
or reduce the principal amount thereof, or increase the Commitment of any Bank
over the amount thereof then in effect (it being understood that a waiver of any
Default or Event of Default shall not constitute a change in the terms of any
Commitment of any Bank), (ii) release any material portion of the Collateral
under any Security Document except as shall be otherwise provided in any Credit
Document, (iii) amend, modify or waive any provision of this Section 12.12, (iv)
reduce the percentage specified in the definition of Majority Banks, (v) consent
to the assignment or transfer by the Borrowers of any of its rights and
obligations under any Credit Document or (vi) amend the definition of Loss
Threshold Incurrence Date other than to increase the dollar amount or the
percentage specified therein.
Section 12.13. Survival. All indemnities set forth herein including,
without limitation, in Sections 2.07, 4.04 and 12.01 shall survive the execution
and delivery of this Agreement and the Notes and the making and repayment of the
Loans.
Section 12.14. Exclusions from Covered Portfolio. Insured Obligations
described below in this Section shall be excluded from the Covered Portfolio.
(a) Any Insured Obligations which any Bank (or any Participant to whom such
Bank has transferred, granted or assigned any participation in its rights and
obligations hereunder and under the other Credit Documents) is, or upon the
occurrence of any contingency would be, obligated to purchase under the terms of
a line of credit, standby bond purchase agreement, letter of credit, liquidity
agreement or similar agreement or arrangement and which is identified in a
written notice specifying this Section 12.14(a) from the Agent to the Borrowers
prior to the Effective Date or promptly following the date such Bank incurs such
Obligation, such Insured Obligation shall, effective upon delivery of such
notice by the Agent to the Borrowers, be excluded from the Covered Portfolio;
(b) Insured Obligations excluded from the Covered Portfolio by the
Borrowers and identified in a written notice from the Borrowers to the Agent
specifying this Section 12.14; and
(c) Insured Obligations issued after both the occurrence of the Loss
Threshold Incurrence Date and (ii) receipt by the Borrowers of written notice
from the Agent identifying such Insured Obligations.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto hereby execute this Agreement as of
the date and year first above written.
47
<PAGE>
BORROWERS:
Address: FINANCIAL SECURITY ASSURANCE INC.
350 Park Avenue
New York, NY 10022 By /s/ J. Harrison
Attention: Chief Financial -------------------------
Officer Name John A. Harrison
with a copy to General Counsel Title Managing Director
Address:
FINANCIAL SECURITY ASSURANCE OF
MARYLAND INC.
350 Park Avenue
New York, NY 10022
Attention: Chief Financial By /s/ J. Harrison
Officer ----------------------------
with a copy to General Counsel Name John A. Harrison
Title Managing Director
Address: FINANCIAL SECURITY ASSURANCE OF
OKLAHOMA, INC.
350 Park Avenue
New York, NY 10022
Attention: Chief Financial By /s/ J. Harrison
Officer -----------------------------
with a copy to General Counsel Name John A. Harrison
Title Managing Director
[Signatures continued on following page]
48
<PAGE>
[Signature page to Credit Agreement]
AGENT AND BANK:
Address: BAYERISCHE LANDESBANK
GIROZENTRALE
560 Lexington Avenue
New York, NY 10022
Attention: Mr. Scott M. Allison By /s/ W. Freudenberger
Vice President and -----------------------------
Manager Public Finance Name W. Freudenberger
Title Executive Vice
President and General Manager
By /s/ P. Obermann
------------------------------
Name P. Obermann
Title Senior Vice President,
Manager of Lending Division
49
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from Financial
Security Assurance Holdings, Ltd
</LEGEND>
<CIK> 0000913357
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Jun-30-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<DEBT-HELD-FOR-SALE> 1,132,858
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 6,581
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,139,439
<CASH> 7,432
<RECOVER-REINSURE> 35,624
<DEFERRED-ACQUISITION> 133,950
<TOTAL-ASSETS> 1,516,296
<POLICY-LOSSES> 79,501
<UNEARNED-PREMIUMS> 496,061
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 30,000
0
700
<COMMON> 695,475
<OTHER-SE> (63,825)
<TOTAL-LIABILITY-AND-EQUITY> 1,516,296
42,484
<INVESTMENT-INCOME> 31,668
<INVESTMENT-GAINS> 1,512
<OTHER-INCOME> 105
<BENEFITS> 3,155
<UNDERWRITING-AMORTIZATION> 12,620
<UNDERWRITING-OTHER> 7,466
<INCOME-PRETAX> 51,455
<INCOME-TAX> 13,153
<INCOME-CONTINUING> 38,292
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,292
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
<RESERVE-OPEN> 111,759
<PROVISION-CURRENT> 3,155
<PROVISION-PRIOR> 0
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<PAYMENTS-PRIOR> 35,413
<RESERVE-CLOSE> 79,501
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</TABLE>
