<PAGE>
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, 1997
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, 1997, there were outstanding 31,016,527 shares of Common Stock,
par value $0.01 per share, of the registrant (includes 1,127,883 shares of
Common Stock owned by a trust on behalf of the Company and excludes 1,325,774
shares of Common Stock actually held in treasury).
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INDEX
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PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Financial Security Assurance Holdings Ltd. and Subsidiaries
Consolidated Balance Sheets - June 30, 1997 and
December 31, 1996 3
Consolidated Statements of Income - Six months ended
June 30, 1997 and 1996 4
Consolidated Statement of Changes in Shareholders' Equity
- Six months ended June 30, 1997 5
Consolidated Statements of Cash Flows
- Six months ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION, AS APPLICABLE
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
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FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, DECEMBER 31,
1997 1996
ASSETS ---- ----
Bonds, at market value (amortized cost of
$1,103,154 and $1,058,417) $1,121,397 $1,072,439
Equity investments at market value (cost
of $10,010 and $8,336) 11,354 8,336
Short-term investments 133,284 73,641
---------- ----------
Total investments 1,266,035 1,154,416
Cash 21,474 8,146
Deferred acquisition costs 150,581 146,233
Prepaid reinsurance premiums 169,112 151,224
Reinsurance recoverable on unpaid losses 29,799 29,875
Receivable for securities sold 4,525
Other assets 53,078 47,848
---------- ----------
TOTAL ASSETS $1,694,604 $1,537,742
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred premium revenue $ 570,363 $ 511,196
Losses and loss adjustment expenses 74,013 72,079
Deferred federal income taxes 44,187 41,167
Ceded reinsurance balances payable 19,589 12,599
Payable for securities purchased 52,235 14,390
Notes payable 30,000 30,000
Accrued expenses and other liabilities 63,018 55,051
---------- ----------
TOTAL LIABILITIES 853,405 736,482
---------- ----------
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 694,650 695,118
Unrealized gain on investments (net of deferred
income tax provision of $6,856 and $4,908) 12,732 9,114
Accumulated earnings 182,429 142,721
Deferred equity compensation 14,302 12,069
Less treasury stock at cost (2,453,657 and
2,303,407 shares held) (63,937) (58,785)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 841,199 801,260
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,694,604 $1,537,742
---------- ----------
---------- ----------
See notes to condensed consolidated financial statements.
3
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FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Net premiums written (net of premiums ceded
of $23,500, $14,035, $37,427 and $32,476) $67,495 $30,726 $94,679 $64,865
Increase in deferred premium revenue (39,934) (10,976) (42,344) (22,381)
------- ------- ------- -------
Premiums earned (net of premiums ceded of
$10,401, $8,188, $19,266 and $21,167) 27,561 19,750 52,335 42,484
Net investment income 17,121 15,986 33,482 31,668
Net realized gains (losses) 1,831 (22) 1,333 1,512
Other income 2,809 43 3,257 105
------- ------- ------- -------
TOTAL REVENUES 49,322 35,757 90,407 75,769
------- ------- ------- -------
Expenses:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $442, $571, $884
and $1,131) 2,156 1,530 4,441 3,155
Interest expense 542 542 1,083 1,083
Policy acquisition costs 7,140 4,965 13,349 12,620
Other operating expenses 4,426 3,509 9,210 7,466
------- ------- ------- -------
TOTAL EXPENSES 14,264 10,546 28,083 24,324
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 35,058 25,211 62,324 51,445
Provision for income taxes 9,825 6,463 16,841 13,153
------- ------- ------- -------
NET INCOME $25,233 $18,748 $45,483 $38,292
------- ------- ------- -------
------- ------- ------- -------
Weighted average common shares outstanding 29,887 30,758 29,932 31,074
------- ------- ------- -------
------- ------- ------- -------
Earnings per common share $ 0.84 $ 0.61 $ 1.52 $ 1.23
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See notes to condensed consolidated financial statements.
4
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FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Additional Additional Unrealized Deferred
Paid-In Paid-In Gain Equity
Preferred Common Capital- Capital- (Loss) on 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, 1996 $20 $323 $680 $695,118 $ 9,114 $142,721 $12,069 $(58,785) $801,260
Net income 45,483 45,483
Net unrealized gain on
investments 3,618 3,618
Dividends paid on common
stock ($0.19 per share) (5,775) (5,775)
Deferred equity compensation 5,253 5,253
Deferred equity payout (468) (3,020) 56 (3,432)
Repurchase of common stock (5,208) (5,208)
--- ---- ---- -------- ------- -------- ------- -------- --------
BALANCE, June 30, 1997 $20 $323 $680 $694,650 $12,732 $182,429 $14,302 $(63,937) $841,199
--- ---- ---- -------- ------- -------- ------- -------- --------
--- ---- ---- -------- ------- -------- ------- -------- --------
</TABLE>
See notes to condensed consolidated financial statements.
5
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FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
---- ----
Cash flows from operating activities:
Premiums received, net $ 98,426 $ 70,424
Policy acquisition and other operating expenses
paid, net (32,773) (26,069)
Loss and LAE paid, net (2,332) (9,603)
Net investment income received 31,299 30,627
Recoverable advances received (paid) (443) 7,628
Federal income taxes recovered (paid) 292 (14,732)
Interest paid (1,058) (1,058)
Other, net 3 (851)
--------- ---------
Net cash provided by operating activities 93,414 56,366
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds 471,648 479,363
Purchases of bonds (483,183) (467,682)
Other, net 2,586
Purchases of property and equipment (1,687) (1,225)
Net increase in short-term securities (57,868) (21,582)
--------- ---------
Net cash used for investing activities (68,504) (11,126)
--------- ---------
Cash flows from financing activities:
Stock-based compensation purchases (654)
Dividends paid (5,775) (4,925)
Treasury stock (5,153) (34,001)
--------- ---------
Net cash used for financing activities (11,582) (38,926)
--------- ---------
Net increase (decrease) in cash 13,328 6,314
Cash at beginning of period 8,146 1,118
--------- ---------
Cash at end of period $ 21,474 $ 7,432
--------- ---------
--------- ---------
See notes to condensed consolidated financial statements.
6
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FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Holdings Ltd. (the Company) is an insurance
holding company domiciled 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, 1997, the Company was owned 40.6% by U S
WEST Capital Corporation (U S WEST), 11.6% by Fund American Enterprises
Holdings, Inc. (Fund American), 6.5% by The Tokio Marine and Fire Insurance
Co., Ltd. (Tokio Marine) and 41.3% 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 1996 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, 1997 and for all periods presented have been made. The
December 31, 1996 condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. The results of operations for the
periods ended June 30, 1997 and 1996 are not necessarily indicative of the
operating results for the full year.
Certain amounts in the 1996 financial statements have been reclassed to
conform to the 1997 presentation.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("EPS") ("FAS No. 128"). FAS No. 128 specifies the computation presentation
and disclosure requirements for EPS and is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods.
Earlier application is not permitted.
FAS No. 128 is designed to improve the EPS information provided in
financial statements by simplifying the existing computational guidelines,
revising the disclosure requirements, and increasing the comparability of EPS
data on an international basis. Some of the changes made to simplify the EPS
computations include: (a) eliminating the presentation of primary EPS and
replacing it with basic EPS, (b) eliminating the modified treasury stock
method and the three percent materiality provision, and (c) revising the
contingent share provisions and the supplemental EPS data requirements. FAS
No. 128 requires dual presentation of basic and diluted EPS on the face of
the income statements for all entities with complex capital structures
regardless of whether basic and diluted EPS are the same; it also requires a
reconciliation of the numerator and denominator used in computing basic and
diluted EPS.
The impact of FAS No. 128 on the Company has not yet been determined.
In June 1997, the Financial Accounting Standards Board issued FAS No.
130, Reporting Comprehensive Income. FAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. Comprehensive income is defined as the change in stockholders'
equity during a period from transactions and other events and circumstances
from non-owner sources and includes net income and all changes in
stockholders' equity except those resulting from investments by owners and
distributions to owners.
7
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FAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by the nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital in the equity section of a
statement of financial position.
FAS No. 130 is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required.
Also in June 1997, the Financial Accounting Standards Board issued FAS
No. 131, Disclosure about Segments of an Enterprise and Related Information.
FAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual and interim
financial statements and requires presentation of a measure of profit or
loss, certain specific revenue and expense items and segment assets. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers, superseding most of FAS No. 14,
Financial Reporting for Segments of a Business Enterprise.
FAS No. 131 requires that a public business enterprise report financial
and descriptive information about its reportable operating segments.
Generally, financial information is required to be reported on the basis that
is used internally for evaluating segment performance and deciding how to
allocate resources to segments. The enterprise must report information about
revenues derived, countries in which it earns revenues and holds assets and
major customers regardless of whether that information is used in making
operating decisions. However, FAS No. 131 does not require an enterprise to
report information that is not prepared for internal use if reporting would
be impracticable.
FAS No. 131 is effective for financial statements for periods beginning
after December 15, 1997. FAS No. 131 need not be applied to interim
financial statements in the initial year of its application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements of the interim periods in the second year of
application.
8
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FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1997 AND 1996 SECOND QUARTER RESULTS
The Company's 1997 second quarter net income was $25.2 million, compared with
$18.7 million for the same period in 1996, an increase of 34.6%. Core net
income (operating net income less the after-tax effect of refundings and
prepayments) was $22.0 million, compared with $19.3 million for the same
period in 1996, an increase of 14.1%. Total core revenues in the second
quarter of 1997 increased $6.0 million, from $35.6 million in 1996 to $41.6
million in 1997, while total core expenses increased only $1.9 million.
Operating net income (net income less the after-tax effect of net realized
capital gains or losses and the cost of the performance share program and
other non-operating items) was $23.6 million for the second quarter of 1997
versus $19.4 million for the comparable period in 1996, an increase of $4.2
million or 21.5%.
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 103.3%, to $91.0 million for the second
quarter of 1997 from $44.8 million for the second quarter of 1996. Also,
gross PV premiums written increased 56.1%, to $87.2 million in 1997 from
$55.9 million in the second quarter of 1996. A substantial portion of the
increases in gross premiums written and gross PV premiums written came from
several large, high-premium European transactions closed in the second
quarter of 1997. In the second quarter of 1997, asset-backed gross PV
premiums written were $38.9 million, as compared with $28.8 million in 1996,
an increase of 35.2%. For the municipal business, gross PV premiums written
in the second quarter increased from $27.1 million in 1996 to $48.3 million
in 1997, an increase of 78.3%.
In the second quarter of 1997, the Company insured par value of bonds
totaling $9.5 billion, a 27.6% increase over the same period in 1996. FSA's
second quarter asset-backed component rose 3.3% to $4.6 billion while its
municipal sector rose 63.5% to $4.9 billion.
Net premiums written were $67.5 million for the second quarter of 1997, an
increase of $36.8 million or 119.7% when compared with 1996. Net premiums
earned for the second quarter of 1997 were $27.6 million, compared with $19.8
million in the second quarter of 1996, an increase of 39.5%. Premiums earned
from refundings and prepayments were $3.3 million for the second quarter of
1997 and $0.1 million for the same period of 1996, contributing $1.5 million
and $0.1 million, respectively, to after-tax earnings. Net premiums earned
for the quarter grew 23.9% relative to the same period in 1996 when the
effects of refundings and prepayments are eliminated.
Net investment income was $17.1 million for the second quarter of 1997 and
$16.0 million for the comparable period in 1996, an increase of 7.1%. The
Company's effective tax rate on investment income was 19.6% for the second
quarter of 1996 compared with 20.1% in 1997. In the second quarter of 1997,
the Company realized $1.8 million in net capital gains as compared with a
nominal capital loss for the same period in 1996. Capital gains and losses
are a by-product of the normal investment management process and will vary
substantially from period to period.
9
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The provision for losses and loss adjustment expenses during the second quarter
of 1997 was $2.2 million compared with $1.5 million in 1996, 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. In the second quarter of 1997, $3.3 million was reclassified from
the general reserve to case reserves for certain home improvement loan
securitizations. At June 30, 1997, the unallocated balance in the Company's
general loss reserve was $30.5 million.
Total policy acquisition and other operating expenses (excluding the cost of
the performance share program of $1.8 million for the second quarter of 1997
compared with $1.0 million for the same period of 1996) were $9.7 million for
the second quarter of 1997 compared with $7.5 million for the same period in
1996, an increase of 29.4%. Excluding the effects of refundings, total policy
acquisition and other operating expenses were $8.8 million for the second
quarter of 1997 compared with $7.5 million for the same period in 1996, an
increase of 17.6%. The increase was the result of higher DAC amortization due
to a higher level of premiums earned, personnel costs and bank facility fees.
During the second quarter of 1997, the Company realized a $2.6 million net gain
from the sale of a subsidiary, less certain previously capitalized expenses.
The subsidiary was sold because its insurance licenses were no longer required.
Income before income taxes for the second quarter of 1997 was $35.1 million, up
from $25.2 million, or 39.1%, for the same period in 1996.
The Company's effective tax rate for the second quarter of 1997 was 28.0%
compared with 25.6% for the same period in 1996.
The weighted average number of shares of common stock outstanding decreased to
29,887,000 for the quarter ended June 30, 1997, from 30,758,000 during the
second quarter of 1996. This decrease was due to shares the Company repurchased
to fund obligations of employee benefit plans as discussed in previous filings.
Earnings per share increased to $0.84 for the second quarter of 1997 from $0.61
for the same period in 1996.
1997 AND 1996 FIRST SIX MONTHS RESULTS
The Company's 1997 first half net income was $45.5 million, compared with $38.3
million for the same period in 1996, an increase of 18.8%. Core net income was
$42.6 million, compared with $37.6 million for the same period in 1996, an
increase of 13.2%. Total core revenues in the first half of 1997 increased
$11.1 million, from $80.9 million in 1996 to $69.8 million in 1997, while total
core expenses increased only $3.7 million. Operating net income was $45.2
million for the first half of 1997 versus $38.7 million for the comparable
period in 1996, an increase of $6.5 million or 16.9%.
Gross premiums written increased 35.7%, to $132.1 million for the first half
of 1997 from $97.3 million for the first half of 1996. Also, gross PV
premiums written increased 10.6%, to $129.7 million in 1997 from $117.3
million in the first half of 1996. In the first half of 1997, asset-backed
gross PV premiums written were $60.2 million, as compared with $70.4 million
in 1996, a decrease of 14.5% attributable to large, high premium transactions
in the first quarter of 1996. For the municipal business, gross PV premiums
written in the first half increased to $69.5 million in 1997 from $46.9
million in 1996, an increase of 48.2%.
In the first half of 1997, the Company insured par value of bonds totaling
$16.3 billion, a 27.0% increase over the same period in 1996. FSA's first
half asset-backed component rose 17.9% to $8.9 billion while its municipal
sector rose 40.0% to $7.4 billion.
Net premiums written were $94.7 million for the first half of 1997, an
increase of $29.8 million or 46.0% when compared with 1996. Net premiums
earned for the first half of 1997 were $52.3 million, compared with $42.5
million in the first half of 1996, an increase of 23.2%. Premiums earned
from refundings and prepayments were $5.6 million for the first half of 1997
and $4.5 million for the same period of 1996, contributing $2.6 million and
10
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$1.0 million, respectively, to after-tax earnings. Net premiums earned for
the first half grew 23.0% relative to the same period in 1996 when the
effects of refundings and prepayments are eliminated.
Net investment income was $33.5 million for the first half of 1997 and $31.7
million for the comparable period in 1996, an increase of 5.7%. The
Company's effective tax rate on investment income was 19.1% for the first
half of 1996 compared with 19.5% in 1997. In the first half of 1997, the
Company realized $1.3 million in net capital gains as compared with $1.5
million for the same period in 1996. Capital gains and losses are a
by-product of the normal investment management process and will vary
substantially from period to period.
The provision for losses and loss adjustment expenses during the first half
of 1997 was $4.4 million compared with $3.2 million in 1996, representing
additions to the Company's general loss reserve.
Total policy acquisition and other operating expenses (excluding the cost of
the performance share program of $3.5 million for the first half of 1997
compared with $2.1 million for the same period of 1996) were $19.1 million
for the first half of 1997 compared with $18.0 million for the same period in
1996, an increase of 6.0%. Excluding the effects of refundings, total policy
acquisition and other operating expenses were $17.5 million for the first
half of 1997 compared with $15.1 million for the same period in 1996, an
increase of 15.9%.
Income before income taxes for the first half of 1997 was $62.3 million, up
from $51.4 million, or 21.2%, for the same period in 1996.
The Company's effective tax rate for the first half of 1997 was 27.0%
compared with 25.6% for the same period in 1996.
The weighted average number of shares of common stock outstanding decreased
from 31,074,000 during the first six months of 1996 to 29,932,000, for the
six months ended June 30, 1997. Earnings per share increased to $1.52 for
the first six months of 1997 from $1.23 for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated invested assets and cash equivalents at June 30,
1997, net of unsettled security transactions, was $1,218.3 million, compared
with the December 31, 1996 balance of $1,139.9 million. These balances
include the change in the market value of the investment portfolio, which had
an unrealized gain position of $14.0 million at December 31, 1996, compared
with an unrealized gain position of $19.6 million at June 30, 1997.
A subsidiary of the Company has $30.0 million of outstanding long-term debt.
The Company has no plans for material 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 no dividends for the six months ended June
30, 1997. Based upon FSA's statutory statements for the quarter ended June
30, 1997 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 $46.3 million. In
addition, the New York Superintendent has approved the repurchase by FSA of
up to $75.0 million of its shares from the Company through December 31, 1998,
pursuant to which FSA has repurchased $7.0 million of its shares during the
six months ended June 30, 1997, and a total of $34.0 million between the
initiation of the program and June 30, 1997. Share repurchases pursuant to
such program may not exceed cumulative statutory net income beginning January
1, 1997.
11
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In May 1996, the Company repurchased 1,000,000 shares of its common stock
from US WEST for a purchase price of $26.50 per share. At the same time, the
Company also entered into forward agreements with National Westminster Bank
Plc and Canadian Imperial Bank of Commerce (the Counterparties) in respect of
1,750,000 shares (the Forward Shares) of the Company's common stock. Under
the forward agreements, the Company has the right either to (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. The Company is making the economic benefit
of 647,200 of these shares available for subscription by certain employees
and its board of directors. If the Company were to settle these Forward
Shares at the Company's June 30, 1997 market price of $38.9375, it would
receive approximately 312,000 shares, net of the portion allocable to
employees and directors.
12
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PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The Company's Annual Meeting of Shareholders was held on Thursday, May 8, 1997.
At the 1997 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, 1997. The number of votes cast with
respect to each director nominee were as follows:
NOMINEE NUMBER OF SHARES VOTED FOR NUMBER OF SHARES WITHHELD
------- -------------------------- -------------------------
John J. Byrne 31,165,193 66,208
Robert P. Cochran 31,165,193 66,208
Michael Djordjevich 31,165,193 66,208
Robert N. Downey 31,165,193 66,208
Anthony M. Frank 31,154,552 76,849
Toshiki Kaneda 31,165,193 66,208
K. Thomas Kemp 31,164,551 66,850
David O. Maxwell 31,155,195 76,206
James M. Osterhoff 31,165,193 66,208
James H. Ozanne 31,165,193 66,208
Staats M. Pellett, Jr. 31,155,195 76,206
Richard A. Post 31,165,122 66,279
Roger K. Taylor 31,165,193 66,208
Allan L. Waters 31,165,193 66,208
Howard M. Zelikow 31,165,193 66,208
The selection of Coopers & Lybrand L.L.P. was ratified by 31,209,114 shares;
11,969 shares were voted against ratification and holders of 10,319 shares
abstained from voting on this matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
(1) Financial statements of Financial Security Assurance Inc. for the
quarterly period ended June 30, 1997.
(2) First Amended and Restated Credit Agreement dated as of April 30,
1997, 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
None
13
<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 13, 1997 ----------------------------------------------
Jeffrey S. Joseph
Managing Director & Controller (Chief Accounting
Officer)
14
<PAGE>
Exhibit Index
EXHIBIT NO. EXHIBIT
1. Financial statements of Financial Security Assurance Inc. for the
quarterly period ended June 30, 1997
2. First Amended and Restated Credit Agreement dated as of April 30, 1997,
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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<CIK> 0000913357
<NAME> FINANCIAL SECURITY ASSURANCE HOLDINGS, LTD.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 1,121,397
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 11,354
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,132,751
<CASH> 154,758
<RECOVER-REINSURE> 29,799
<DEFERRED-ACQUISITION> 150,581
<TOTAL-ASSETS> 1,694,604
<POLICY-LOSSES> 74,013
<UNEARNED-PREMIUMS> 570,363
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 30,000
0
700
<COMMON> 694,973
<OTHER-SE> 145,526
<TOTAL-LIABILITY-AND-EQUITY> 1,694,604
52,335
<INVESTMENT-INCOME> 33,482
<INVESTMENT-GAINS> 1,333
<OTHER-INCOME> 3,251
<BENEFITS> 4,441
<UNDERWRITING-AMORTIZATION> 13,349
<UNDERWRITING-OTHER> 10,293
<INCOME-PRETAX> 62,324
<INCOME-TAX> 16,841
<INCOME-CONTINUING> 45,483
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45,483
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.52
<RESERVE-OPEN> 72,079
<PROVISION-CURRENT> 4,441
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 2,507
<RESERVE-CLOSE> 74,013
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE>
EXHIBIT 1
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
June 30, 1997
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
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,
1997 1996
ASSETS ---- ----
Bonds at market value (amortized cost of
$1,099,965 and $1,054,678) $1,118,214 $1,068,677
Equity investments at market value (cost
of $2,492 and $1,000) 2,514 1,000
Short-term investments 113,979 55,699
---------- ----------
Total investments 1,234,707 1,125,376
Cash 20,682 7,517
Deferred acquisition costs 150,581 146,233
Prepaid reinsurance premiums 169,112 151,224
Reinsurance recoverable on unpaid losses 29,799 29,875
Other assets 77,712 69,705
---------- ----------
TOTAL ASSETS $1,682,593 $1,529,930
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY
Deferred premium revenue $ 570,363 $ 511,196
Losses and loss adjustment expenses 74,013 72,079
Deferred federal income taxes 44,396 41,682
Ceded reinsurance balances payable 19,589 12,599
Payable for securities purchased 52,065 14,142
Accrued expenses and other liabilities 60,958 62,900
---------- ----------
TOTAL LIABILITIES 821,384 714,598
---------- ----------
Common stock (637 and 660 shares authorized,
issued and outstanding; par value of
$23,560 and $22,727 per share) 15,000 15,000
Additional paid-in capital 650,370 654,470
Unrealized gain on investments (net of
deferred income tax provision of $6,395
and $4,899) 11,876 9,099
Accumulated earnings 183,963 136,763
TOTAL SHAREHOLDER'S EQUITY 861,209 815,332
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,682,593 $1,529,930
---------- ----------
---------- ----------
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,
1997 1996
---------- ----------
REVENUES:
Net premiums written (net of
premiums ceded of $37,427 and $32,476) $94,679 $64,865
Increase in deferred premium revenue (42,344) (22,381)
--------- ---------
Premiums earned (net of premiums ceded of
$19,266 and $21,167) 52,335 42,484
Net investment income 32,886 30,103
Net realized gains 1,384 1,457
Other income 4,537 163
TOTAL REVENUES 91,142 74,207
--------- ---------
EXPENSES:
Losses and loss adjustment expenses
(net of reinsurance recoveries of
$884 and $1,131) 4,441 3,155
Policy acquisition costs 13,349 12,620
Other operating expenses 8,387 6,674
--------- ---------
TOTAL EXPENSES 26,177 22,449
--------- ---------
INCOME BEFORE INCOME TAXES 64,965 51,758
Provision for income taxes 17,766 13,293
--------- ---------
NET INCOME $47,199 $38,465
--------- ---------
--------- ---------
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,
-------------------------
1997 1996
---- ----
Cash flows from operating activities:
Premiums received, net $ 98,426 $ 70,424
Policy acquisition and other operating
expenses paid, net (33,988) (36,102)
Recoverable advances received (paid) (443) 7,628
Loss and LAE paid, net (2,332) (9,603)
Net investment income received 29,487 28,790
Federal income taxes paid (6,152) (15,240)
Other, net 1,370 1,807
--------- ---------
Net cash provided by operating activities 86,368 47,704
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds 470,721 458,659
Purchases of bonds (482,437) (457,287)
Sale of subsidiary 4,086
Purchases of property and equipment (1,638) (1,225)
Net increase in short-term securities (56,935) (24,436)
--------- ---------
Net cash used for investing activities (66,203) (24,289)
--------- ---------
Cash flows from financing activities:
Stock repurchase (7,000)
Dividends paid (18,000)
--------- ---------
Net cash used for financing activities (7,000) (18,000)
--------- ---------
Net increase in cash 13,165 5,415
Cash at beginning of period 7,517 555
--------- ---------
Cash at end of period $ 20,682 $ 5,970
--------- ---------
--------- ---------
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, 1997 AND 1996
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Inc. (the Company), an indirect 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, 1997 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, 1996
consolidated financial statements and notes thereto. The year-end condensed
balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
The results of operations for the periods ended June 30, 1997 and 1996 are
not necessarily indicative of the operating results for the full year.
Certain amounts in the 1996 financial statements have been reclassed to
conform to the 1997 presentation.
4
<PAGE>
Exhibit 2
EXECUTION COPY
--------------
- --------------------------------------------------------------------------------
$240,000,000
FIRST AMENDED AND RESTATED
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, 1997
-------------------------------
- --------------------------------------------------------------------------------
<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...................................... 10
Section 2.03. Notice of Borrowing........................................... 10
Section 2.04. Disbursement of Funds......................................... 10
Section 2.05. Notes......................................................... 10
Section 2.06. Interest...................................................... 11
Section 2.07. Capital Adequacy.............................................. 11
ARTICLE III
FEES; TERMINATION OF COMMITMENT
Section 3.01. Fees.......................................................... 12
Section 3.02. Voluntary Termination of Unutilized Commitments............... 12
Section 3.03. Mandatory Termination of Commitments.......................... 12
Section 3.04. Expiry Date................................................... 13
ARTICLE IV
PREPAYMENTS; PAYMENTS
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.................................................. 14
Section 4.05. Limitations on Sources of Payment............................. 15
<PAGE>
ARTICLE V
CONDITIONS PRECEDENT TO EFFECTIVENESS
Section 5.01. Execution of Agreement; Notes................................. 16
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............................................ 17
Section 5.06. Covered Portfolio, etc........................................ 17
Section 5.07. Adverse Change, Rating, etc................................... 17
Section 5.08. Litigation.................................................... 18
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.............................................. 19
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.............................................. 20
Section 7.06. Litigation.................................................... 20
Section 7.07. True and Complete Disclosure.................................. 21
Section 7.08. Use of Proceeds; Margin Regulations........................... 21
Section 7.09. Tax Returns and Payments...................................... 21
Section 7.10. Compliance with ERISA......................................... 21
Section 7.11. Capitalization................................................ 22
Section 7.12. Subsidiaries.................................................. 22
Section 7.13. Compliance with Statutes, etc................................. 22
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
ii
<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................................. 26
Section 8.06. ERISA......................................................... 26
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................................ 27
Section 8.13. Registry...................................................... 27
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............................... 30
Section 10.05. Bankruptcy, etc.............................................. 30
Section 10.06. ERISA........................................................ 30
Section 10.07. Security Agreement........................................... 31
Section 10.08. Judgments.................................................... 31
Section 10.09. Change of Control............................................ 31
ARTICLE XI
THE AGENT
Section 11.01. Appointment.................................................. 31
Section 11.02. Nature of Duties............................................. 32
Section 11.03. Lack of Reliance on the Agent................................ 32
Section 11.04. Certain Rights of the Agent.................................. 32
iii
<PAGE>
Section 11.05. Reliance..................................................... 32
Section 11.06. Indemnification.............................................. 33
Section 11.07. The Agent in Its Individual Capacity......................... 33
Section 11.08. Resignation by the Agent..................................... 33
ARTICLE XII
MISCELLANEOUS
Section 12.01. Payment of Expenses. etc..................................... 34
Section 12.02. Right of Setoff.............................................. 34
Section 12.03. Notices...................................................... 35
Section 12.04. Benefit of Agreement......................................... 35
Section 12.05. No Waiver; Remedies Cumulative............................... 36
Section 12.06. Calculations; Computations................................... 37
Section 12.07. Governing Law; Submission to Jurisdiction; Venue............. 37
Section 12.08. Obligation to Make Payments in Dollars....................... 37
Section 12.09. Counterparts................................................. 38
Section 12.10. Effectiveness................................................ 38
Section 12.11. Headings Descriptive......................................... 38
Section 12.12. Amendment or Waiver.......................................... 38
Section 12.13. Survival..................................................... 38
Section 12.14. Exclusions from Covered Portfolio............................ 38
Section 12.15. Substitution of FSA Insurance Company for FSAM............... 39
TESTIMONIUM...................................................................40
SIGNATURES....................................................................40
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
EXHIBIT E FORM OF SECURITY AGREEMENT
EXHIBIT F FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT G FORM 404(b)(iii) CERTIFICATE
EXHIBIT H NOTE REGISTER
iv
<PAGE>
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDED AND RESTATED CREDIT AGREEMENT, dated as of April 30,
1997, 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, Bayerische Landesbank Girozentrale, in its capacity as Bank and
as Agent, Financial Security Assurance Inc., Financial Security Assurance of
Maryland Inc. and Financial Security Assurance of Oklahoma, Inc. have
previously entered into that Credit Agreement dated as of April 30, 1996 (the
"1996 Credit Agreement");
WHEREAS, Landesbank Hessen-Thueringen Girozentrale and Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A. wish to become Banks;
WHEREAS, the parties wish to amend and restate the 1996 Credit Agreement
in its entirety pursuant to the terms hereof;
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, the parties hereby agree to amend and restate the 1996
Credit Agreement in its entirety pursuant to the terms hereof and otherwise
agree as follows:
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
<PAGE>
Agent for the Banks hereunder, and shall include any successor to the Agent
appointed pursuant to Section 11.08.
"AGREEMENT" shall mean this First Amended and Restated 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" OR "BANKS" shall mean Bayerische Landesbank Girozentrale acting
through its New York Branch, Landesbank Hessen-Thueringen Girozentrale, acting
through its New York Branch, Cooperatieve Centrale Raiffeisen-Boerenleenbank
B.A., 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.
"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.
2
<PAGE>
"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 pursuant to Section 3.04, shall mean the period
commencing on April 30 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
3
<PAGE>
(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.
"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
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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 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.
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"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.
"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)
$230 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.
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"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.
"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 multi-employer 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.
"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
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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 by a 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.
"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.
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"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% 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.
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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).
SECTION 2.04. DISBURSEMENT OF FUNDS. No later than 12:00 Noon (New York
time) on the later of the date specified in each Notice of Borrowing and the
date which is two (2) Business Days after the Agent's receipt of such Notice
of Borrowing, as described in Section 2.03, (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
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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 1.50%.
(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 3.50% (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), 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
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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.
(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 0.55%
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 0.60% 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 0.65% 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 the Borrowers and the Banks.
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.
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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.
(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
April 30, 2004 (the "Expiry Date"); provided, however, that before (but not
earlier than 120 days nor later than 90 days before) each April 30, commencing
April 30, 1998, 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 April 30, with such extension of the Expiry Date to be effective
from and after April 30 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.
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.
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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 Agent's account No. 544-7-07960 at The Chase Manhattan Bank, 270 Park
Avenue, New York, NY 10017, ABA #: 021000021, 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 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
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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 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
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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 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.
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(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.
(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 of 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
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March 31, 1997, (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 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, 1997 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, 1997, and (vii) the
Borrowers' reasonable estimate as of March 31, 1997 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.
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.
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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):
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
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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 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, 1997 and December 31, 1996 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, 1997, 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, 1997
and such statements of operations and cash flows for the three months then
ended, to year-end audit adjustments. Since March 31, 1997, 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, 1994, December 31, 1995 and December 31, 1996,
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
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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, 1996, 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
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,
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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.
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. Subject to Section 12.15, 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.
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.
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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 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
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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 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
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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, 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").
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(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, 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 deliver
to each of the Banks
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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 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)
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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;
(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
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(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. Subject to
Section 12.15, 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;
(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;
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(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"):
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
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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 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 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.
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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.
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.
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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, 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
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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.
(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,
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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 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.
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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 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 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
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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 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).
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(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 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
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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, 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
39
<PAGE>
(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.
SECTION 12.15. SUBSTITUTION OF FSA INSURANCE COMPANY FOR FSAM. At the
time of the execution and delivery of this Agreement the Parent intends to cause
all of the assets of FSAM other than its minimum paid in capital and licenses to
be transferred to FSA Insurance Company, an Oklahoma corporation ("FSAIC"), in
anticipation of the sale of FSAM to a third party. In addition, at the time of
the execution and delivery of this Agreement FSA is in the process of selling
Financial Security Assurance International Inc., an Indiana corporation, to a
third party. FSAIC is currently a wholly owned subsidiary of FSAM. Upon the
licensing of FSAIC and transfer of the assets of FSAM to FSAIC, FSAM will also
transfer 100% of the ownership of FSAIC to FSA. Upon completion of such
licensing and transfers, FSAM shall cease to be a Borrower hereunder. Promptly
following the completion of such licensing and transfer (a) FSA shall notify the
Agent in writing of such fact; and (b) FSAIC, FSA and FSAO shall and deliver to
the Agent (i) new Notes reflecting the addition of FSAIC as Borrower, (ii) a
joinder agreement joining FSAIC as Borrower hereunder, (iii) a revised Pledge
Agreement adding FSAIC as an Assignor thereunder and (iv) such financing
statements as are necessary, in the reasonable opinion of the Agent, to perfect
the security interests granted under the Pledge Agreement, as revised.
Following the completion of the foregoing FSAIC shall take the place of FSAM
hereunder (except for the references to FSAM in this Section) and all references
to FSAM herein shall be deemed references to FSAIC.
[Remainder of page intentionally left blank] IN WITNESS
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto hereby execute this Agreement as of
the date and year first above written.
BORROWERS:
Address: FINANCIAL SECURITY ASSURANCE INC.
350 Park Avenue
New York, NY 10022 By__________________________________
Attention: Chief Financial Officer Name ___________________________
with a copy to General Counsel; Title___________________________
Address: FINANCIAL SECURITY ASSURANCE OF
MARYLAND INC.
350 Park Avenue
New York, NY 10022
Attention: Chief Financial Officer By___________________________________
with a copy to General Counsel; Name ____________________________
Title ___________________________
Address: FINANCIAL SECURITY ASSURANCE OF
OKLAHOMA, INC.
350 Park Avenue
New York, NY 10022
Attention: Chief Financial Officer By__________________________________
with a copy to General Counsel Name ___________________________
Title __________________________
[Signatures continued on following page]
41
<PAGE>
[Signature page to Credit Agreement]
AGENT:
Address: BAYERISCHE LANDESBANK
GIROZENTRALE, Acting Through
560 Lexington Avenue Its New York Branch
New York, NY 10022
Attention: Mr. Scott M. Allison
Vice President and By
Manager Public Finance; ------------------------------------
Peter Obermann
Senior Vice President
Manager of the Lending Division
By
------------------------------------
Scott M. Allison
Vice President and
Manager Public Finance
[Signatures continued on following page]
42
<PAGE>
[Signature page to Credit Agreement]
BANKS:
Address: BAYERISCHE LANDESBANK
GIROZENTRALE, Acting Through
560 Lexington Avenue Its New York Branch
New York, NY 10022
Attention: Mr. Scott M. Allison By
Vice President and ------------------------------------
Manager Public Finance Peter Obermann
Senior Vice President
Manager of the Lending Division
By
------------------------------------
Scott M. Allison
Vice President and
Manager Public Finance
[Signatures continued on following page]
43
<PAGE>
[Signature page to Credit Agreement]
Address: LANDESBANK HESSEN-THUERINGEN
GIROZENTRALE, Acting Through
For Credit Issues: Its New York Branch
420 Fifth Avenue By
24th Floor --------------------------------------
New York, NY 10018 Lisa S. Pent
Attention: Lisa S. Pent Senior Vice President
Senior Vice President
For Administrative Issues: By
--------------------------------------
420 Fifth Avenue Richard Skiera
24th Floor Vice President
New York, NY 10018
Attention: Ms. Gudrun Dronca
Wire Transfer Instructions:
Bankers Trust Company New York
ABA #: 021-001-033
Account Name: Landesbank
Hessen-Thueringen GZ
Account #: 04405523
Reference: FSA;
[Signatures continued on following page]
44
<PAGE>
[Signature page to Credit Agreement]
Address: COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
Rabobank Nederland Acting Through Its New York Branch
245 Park Avenue
New York, NY 10167 By
Attention: Credit Department ----------------------------------
Name ____________________________
Wire Transfer Instructions: Title____________________________
The Bank of New York
ABA #: 021000018 By
A/C Name: Rabobank Nederland ----------------------------------
A/C #: 802602-533 Name ____________________________
Reference: FSA; Title____________________________
45
<PAGE>
SCHEDULE I
COMMITMENTS
Name Commitment
Bayerische Landesbank Girozentrale,
New York Branch $135,000,000
Landesbank Hessen-Thueringen
Girozentrale, New York Branch $ 56,000,000
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
New York Branch $ 49,000,000
<PAGE>
SCHEDULE II
UNDISCLOSED LIABILITIES
None
<PAGE>
SCHEDULE III
SUBSIDIARIES
Jurisdiction of
Name of Percentage Owner(s) of Equity
Subsidiary Incorporation Interests Therein Ownership
Financial Security Maryland FSA 100%
Assurance of
Maryland Inc.
Financial Security Indiana FSA 100%
Assurance
International Inc. (1)
Financial Security Oklahoma FSAM 100%
Assurance of
Oklahoma, Inc.
Financial Security England FSAO 100%
Assurance (U.K.)
Limited
FSA Insurance Oklahoma FSAM 100%
Company
- ---------------------------
(1) Financial Security Assurance Inc. has entered into a contract to sell
Financial Security Assurance International Inc.
<PAGE>
EXHIBIT A
NOTICE OF BORROWING
[DATE]
Bayerische Landesbank Girozentrale,
New York Branch, as Agent
560 Lexington Avenue
New York, New York 10022
Attention: Scott M. Allison
Ladies and Gentlemen:
The undersigned, Financial Security Assurance Inc., as representative of
itself and the other entities named as Borrowers in the First Amended and
Restated Credit Agreement, dated as of April 30, 1997 (as amended, modified and
supplemented from time to time, the "Credit Agreement," the terms defined
therein being used herein as therein defined), among the Borrowers, the Banks
from time to time party thereto, and you individually and as Agent for such
Banks, hereby gives you notice, irrevocably, pursuant to Section 2.03 of the
Credit Agreement, that the Borrowers hereby request a Borrowing under the Credit
Agreement, and in that connection set forth below the information relating to
such Borrowing (the "Proposed Borrowings) as required by Section 2.03 of the
Credit Agreement:
(i) The Business Day of the Proposed Borrowing is _______, 19__. (2)
(ii) The aggregate principal amount of the Proposed Borrowing is
$_______________.
[(iii) Schedule 1 hereto contains a description of the Loss which the
proceeds of the Loan will be applied to pay, including (a) identification
of the Insured Obligation which has given rise to such Loss, (b) the amount
of such Loss, (c) the amount of the Permitted Reserves, if any, being
established with respect to such Loss and (d) the amount of Pledged
Premiums, if any, hereafter payable to any Borrower in respect of such
Insured Obligation.](3)
(iii) Schedule 1 hereto contains a description of the Permitted
Reserve which the proceeds of the Loan will be applied to establish,
including (a) an identification of the Insured Obligation which is in
default or is anticipated to be in default, (b) the amount of such default,
and (c) the amount of Pledged Premiums, if any, hereafter payable to any
Borrower in respect of such Insured Obligation.](4)
- ----------------------
(2) Shall be a Business Day at least two (2) Business Days after the date
thereof
(3) Include one version of subparagraph (iii)
(4) Include one version of subparagraph(iii)
<PAGE>
(iv) The Borrowers hereby represent and warrant the following:
(1) the Loss Threshold Incurrence Date has occurred;
(2) after advancing the funds requested hereunder, the aggregate
principal amount of all Loans made under the Credit Agreement, without
regard to payments or prepayments (other than prepayments of Loans in
respect of Reserves not applied to pay Losses), do not exceed Cumulative
Losses minus the Loss Threshold Amount; and
(3) the principal amount of the Loan hereby requested does not exceed
the sum of the Unutilized Commitments.
Very truly yours,
FINANCIAL SECURITY ASSURANCE INC.
By_________________________________
Name ______________________________
Title _____________________________
A-2
<PAGE>
EXHIBIT B
NOTE
[AMOUNT] New York, New York
April 30, 1997
FOR VALUE RECEIVED, FINANCIAL SECURITY ASSURANCE INC., FINANCIAL SECURITY
ASSURANCE OF MARYLAND INC., and FINANCIAL SECURITY ASSURANCE OF OKLAHOMA, INC.
(the "Borrowers"), hereby jointly and severally promise to pay to the order of
[BANK], acting through its New York Branch (the Bank"), in lawful money of the
United States of America in immediately available funds, at the office of
Bayerische Landesbank Girozentrale, New York Branch, as Agent, located at 560
Lexington Avenue, New York, New York 10022, on the Expiry Date (as defined in
the Agreement referred to below) the principal sum of [AMOUNT] or, if less, the
then unpaid principal amount of all Loans (as defined in the Agreement) made by
the Bank pursuant to the Agreement.
The Borrowers, jointly and severally, promise also to pay interest on the
unpaid principal amount hereof in like money at said office at the rates and at
the times provided in Section 2.06 of the Agreement.
This Note is one of the Notes referred to in the First Amended And Restated
Credit Agreement, dated as of April 30, 1997, among the Borrowers and the Banks
from time to time party thereto (including the Bank), and Bayerische Landesbank
Girozentrale, acting through its New York Branch, as Agent (as amended, modified
and supplemented from time to time, the "Agreement"), and is entitled to the
benefits thereof. This Note is secured by the Security Agreement (as defined in
the Agreement). As provided in the Agreement, this Note is subject to voluntary
prepayment and mandatory repayment prior to the Expiry Date, in whole or in
part.
In case an Event of Default (as defined in the Agreement) shall occur and
be continuing, the principal of and accrued interest on this Note may be
declared to be due and payable in the manner and with the effect provided in the
Agreement.
Except as otherwise provided in the Agreement, the Borrowers hereby waive
presentment, demand, protest or notice of any kind in connection with this Note.
The Bank is authorized to record the date and amount of each Loan and each
payment, prepayment and conversion with respect thereto on the grid attached
hereto or on a continuation thereof which shall be attached hereto and made a
part hereof, and any such notation shall constitute prima facie evidence of the
accuracy of the information so recorded; provided that the failure to make any
such notations shall not affect the validity of the Borrowers' obligations
hereunder.
THE PAYMENT OBLIGATIONS OF THE BORROWERS UNDER THIS NOTE ARE LIMITED AS
PROVIDED IN SECTION 4.05 OF THE AGREEMENT.
THIS NOTE IS TRANSFERABLE ONLY IN ACCORDANCE WITH THE PROVISIONS OF THE
AGREEMENT.
B-1
<PAGE>
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW
OF THE STATE OF NEW YORK.
THIS NOTE HAS BEEN DULY EXECUTED UNDER SEAL BY THE DULY AUTHORIZED
REPRESENTATIVES OF THE BORROWERS AS OF THE DATE FIRST WRITTEN ABOVE.
FINANCIAL SECURITY ASSURANCE INC.
By__________________________________
Name _______________________________
Title ______________________________
FINANCIAL SECURITY ASSURANCE OF
MARYLAND INC.
By__________________________________
Name _______________________________
Title ______________________________
FINANCIAL SECURITY ASSURANCE OF
OKLAHOMA, INC.
By__________________________________
Name _______________________________
Title ______________________________
B-2
<PAGE>
GRID
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Unpaid
Principal Principal
Amount of Paid or Amount of Notation
Date Loan Prepaid Note Made by
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<PAGE>
EXHIBIT C-1
OPINION OF COUNSELEXHIBIT C-2
OPINION OF COUNSELEXHIBIT C-3
OPINION OF COUNSELEXHIBIT D
OFFICER'S CERTIFICATEEHXIBIT E
FORM OF SECURITY AGREEMENT
EXHIBIT F
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT G
FORM 404(b)(iii) CERTIFICATE
