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, 1999
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, 1999, there were outstanding 31,533,781 shares of Common Stock, par
value $0.01 per share, of the registrant (includes 1,391,972 shares of Common
Stock owned by a trust on behalf of the Company and excludes 742,520 shares of
Common Stock actually held in treasury).
<PAGE>
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Financial Security Assurance Holdings Ltd. and Subsidiaries
Consolidated Balance Sheets - June 30, 1999 and
December 31, 1998 3
Consolidated Statements of Income - Three and six months
ended June 30, 1999 and 1998 4
Consolidated Statement of Changes in Shareholders' Equity
- Six months ended June 30, 1999 5
Consolidated Statements of Cash Flows
- Six months ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
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 Securities Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
---- ----
<S> <C> <C>
Bonds at market value (amortized cost of $1,707,243 and $1,655,042) $ 1,697,581 $ 1,708,040
Equity investments at market value (cost of $62,005 and $64,292) 63,705 68,243
Short-term investments 112,498 98,554
----------- -----------
Total investments 1,873,784 1,874,837
Cash 8,426 3,490
Deferred acquisition costs 195,107 199,559
Prepaid reinsurance premiums 234,477 217,096
Reinsurance recoverable on unpaid losses 1,456 3,907
Receivable for securities sold 22,611 1,655
Other assets 175,537 143,662
----------- -----------
TOTAL ASSETS $ 2,511,398 $ 2,444,206
=========== ===========
LIABILITIES AND MINORITY INTEREST, REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY
Deferred premium revenue $ 755,463 $ 721,699
Losses and loss adjustment expenses 64,882 63,947
Deferred federal income taxes 68,969 87,254
Ceded reinsurance balances payable 18,471 31,502
Payable for securities purchased 161,477 105,859
Notes payable 230,000 230,000
Minority interest 21,429 20,388
Accrued expenses and other liabilities 107,278 117,421
----------- -----------
TOTAL LIABILITIES AND MINORITY INTEREST
REDEEMABLE PREFERRED STOCK 1,427,969 1,378,070
----------- -----------
Redeemable preferred stock (20,000,000 and 3,000,000 shares
authorized; 2,000,000 issued and outstanding; par
value of $.01 per share) 20 20
Additional paid-in capital - preferred 680 680
----------- -----------
700 700
----------- -----------
Common stock (200,000,000 and 50,000,000 shares authorized;
32,276,301 issued; par value of $.01 per share) 323 323
Additional paid-in capital - common 740,863 733,442
Accumulated other comprehensive income (loss) (net of deferred
income tax provision (benefit) of $(2,161) and $20,288) (4,014) 37,678
Accumulated earnings 373,973 325,150
Deferred equity compensation 41,268 43,946
Less treasury stock at cost (2,134,492 and 2,372,839 shares held) (69,684) (75,103)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 1,082,729 1,065,436
----------- -----------
TOTAL LIABILITIES AND MINORITY INTEREST,
REDEEM-ABLE PREFERRED STOCK AND SHAREHOLDERS'
EQUITY $ 2,511,398 $ 2,444,206
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements. 1998 numbers have
been revised. See Note 3 "Restatements and Reclassifications."
3
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net premiums written (net of premiums ceded
of $20,090, $27,121, $48,514 and $43,512) $ 51,835 $ 62,121 $ 101,745 $ 100,068
Increase in deferred premium revenue (9,061) (29,669) (17,677) (35,695)
--------- --------- --------- ---------
Premiums earned (net of premiums ceded of
$14,780, $12,581, $30,221 and $25,701) 42,774 32,452 84,068 64,373
Net investment income 22,736 19,255 44,760 37,938
Net realized gains (losses) (10,454) 3,939 (9,630) 6,672
Other income 94 126 152 356
--------- --------- --------- ---------
TOTAL REVENUES 55,150 55,772 119,350 109,339
--------- --------- --------- ---------
Expenses:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $(2,425), $(27),
$(2,231) and $(6,868)) 1,825 1,047 4,000 2,094
Interest expense 4,153 2,408 8,307 4,842
Policy acquisition costs 10,676 8,527 20,593 16,914
Other operating expenses 8,857 7,606 13,377 16,489
--------- --------- --------- ---------
TOTAL EXPENSES 25,511 19,588 46,277 40,339
--------- --------- --------- ---------
Minority interest and equity earnings (343) (928)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 29,296 36,184 72,145 69,000
Provision for income taxes 5,824 9,446 16,516 17,948
--------- --------- --------- ---------
NET INCOME 23,472 26,738 55,629 51,052
--------- --------- --------- ---------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Holding gains (losses) arising during period (35,254) 4,368 (48,340) 6,787
Less: reclassification adjustment for losses
(gains) included in net income 7,184 (2,561) 6,648 (4,337)
--------- --------- --------- ---------
Other comprehensive income (loss) (28,070) 1,807 (41,692) 2,450
--------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ (4,598) $ 28,545 $ 13,937 $ 53,502
========= ========= ========= =========
As based upon net income:
Basic earnings per common share $ 0.77 $ 0.92 $ 1.82 $ 1.76
========= ========= ========= =========
Diluted earnings per common share $ 0.73 $ 0.88 $ 1.74 $ 1.69
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements. Net income for the
periods ended June 30, 1998 has been revised.
See Note 3 "Restatements and Reclassifications."
4
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Accumulated Deferred
Paid-In Other Comp- Equity
Common Capital - rehensive Accumulated Compen- Treasury
Stock Common Income (Loss) Earnings sation Stock Total
----- ------ ------------- -------- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 $323 $733,442 $37,678 $325,150 $43,946 $ (75,103) $ 1,065,436
Net income 55,629 55,629
Net unrealized loss on investments (41,692) (41,692)
Dividends paid on common stock
($0.225 per share) (6,806) (6,806)
Deferred equity compensation 8,646 8,646
Deferred equity payout 1,534 (11,324) 1,644 (8,146)
Purchase of 42,025 shares of
common stock (2,008) (2,008)
Sale of 221,100 shares of treasury
stock 5,887 5,783 11,670
---- -------- ------- -------- ------- ----------- -----------
BALANCE, June 30, 1999 $323 $740,863 $(4,014) $373,973 $41,268 $ (69,684) $ 1,082,729
==== ======== ======= ======== ======= =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
1998 numbers have been revised.
See Note 3 "Restatements and Reclassifications."
5
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended June 30,
-------------------------
1999 1998
---- ----
Cash flows from operating activities:
Premiums received, net $ 78,387 $ 116,661
Policy acquisition and other operating expenses
paid, net (44,123) (43,352)
Loss and LAE recovered (paid), net (600) 15,672
Net investment income received 37,470 34,742
Recoverable advances received (paid) (10,350) 4,561
Federal income taxes paid (21,266) (30,038)
Interest paid (8,037) (4,820)
Other, net 338 993
----------- -----------
Net cash provided by operating activities 31,819 94,419
----------- -----------
Cash flows from investing activities:
Proceeds from sales of bonds 1,076,195 873,081
Purchases of bonds (1,097,665) (1,011,388)
Purchases of property and equipment (476) (605)
Net decrease (increase) in short-term securities (12,253) 66,759
Other investments, net 1,283 (12,314)
----------- -----------
Net cash used for investing activities (32,916) (84,467)
----------- -----------
Cash flows from financing activities:
Dividends paid (6,806) (6,184)
Treasury stock, net 12,888 (39)
Other (49) (202)
----------- -----------
Net cash provided by (used for) financing
activities 6,033 (6,425)
----------- -----------
Net increase in cash 4,936 3,527
Cash at beginning of period 3,490 12,475
----------- -----------
Cash at end of period $ 8,426 $ 16,002
=========== ===========
See notes to condensed consolidated financial statements.
1998 numbers have been revised. See Note 3
"Restatements and Reclassifications."
6
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 1999 and 1998
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, 1999, the Company was owned 12.0% by MediaOne Capital
Corporation (MediaOne), 13.7% by White Mountains Insurance Group, Inc. (White
Mountains), formerly Fund American Enterprises Holdings, Inc., 6.4% by The Tokio
Marine and Fire Insurance Co., Ltd. (Tokio Marine), 5.4% by XL Capital Ltd (XL)
and 62.5% by the public and employees. These percentages are calculated based
upon outstanding shares, which are reduced by treasury shares as presented in
these financial statements.
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 1998 Annual
Report to Shareholders filed on Form 10-K, as amended. 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, 1999 and for all periods presented have been made. The
December 31, 1998 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, 1999 and 1998 are not necessarily indicative of the operating results
for the full year.
3. RESTATEMENTS AND RECLASSIFICATIONS
During a review of the Company's shelf registration statement in April
1999, the Securities and Exchange Commission (SEC) staff advised the Company
that, in its opinion, the accounting the Company had used for the forward
purchase agreements for the benefit of employees and directors should be changed
(see Note 2 section entitled "Restatement and Reclassifications" of the
Company's consolidated financial statements filed on Form 10-K, as amended).
The effect of this change in accounting for the forward purchase
agreements as previously reported and as adjusted are shown below (in thousands,
except per share data):
Information as reported:
1998
-------------------------
First Six Second
Months Quarter
------ -------
Income before taxes $ 74,297 $ 38,203
Net income 54,495 28,049
Basic earnings per common share 1.88 0.97
Diluted earnings per common share 1.80 0.92
7
<PAGE>
Information as adjusted:
1998
-------------------------
First Six Second
Months Quarter
------ -------
Income before taxes $ 69,000 $ 36,184
Net income 51,052 26,738
Basic earnings per common share 1.76 0.92
Diluted earnings per common share 1.69 0.88
The effect on shareholders' equity was a decrease of $7,300,000 at
December 31, 1998.
In addition, the Company reclassified the redeemable preferred stock
outside of shareholders' equity, which decreased shareholders' equity as of
December 31, 1998 by $700,000.
8
<PAGE>
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
1999 and 1998 Second Quarter Results
The Company's 1999 second quarter net income was $23.5 million, compared with
$26.7 million for the same period in 1998, a decrease of 12.2%. Core net income
(operating net income less the after-tax effect of refundings and prepayments)
was $33.6 million, compared with $26.3 million for the same period in 1998, an
increase of 27.5%. Total core revenues in the second quarter of 1999 increased
$14.4 million, from $48.4 million in 1998 to $62.8 million in 1999, while total
core expenses increased only $5.6 million. Operating net income (net income less
the after-tax effect of net realized capital gains or losses and the cost of the
equity based compensation programs and other non-operating items) was $34.9
million for the second quarter of 1999 versus $28.0 million for the comparable
period in 1998, an increase of $6.9 million or 25.0%.
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. The discount rate
used to calculate the gross PV premiums written is 5.9% for 1999 and was 6.3%
for 1998. The discount rates represent the average pre-tax yield on the
Company's investment portfolio for the previous three years. 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 decreased 19.4%, from $89.2 million for the second
quarter of 1998 to $71.9 million for the second quarter of 1999. Gross PV
premiums written increased 9.1%, to $117.0 million in the second quarter of 1999
from $107.3 million in the second quarter of 1998. The decline in gross premiums
written is due to the decline in municipal originations, where premiums are
usually collected up front rather than in installments, whereas the increase in
gross PV premiums written was due to primarily the increase in asset-backed and
international transactions. In the second quarter of 1999, asset-backed gross PV
premiums written were $66.6 million, as compared with $31.7 million in 1998, an
increase of 110.1%, while international gross PV premiums were $22.4 million as
compared with $7.2 million, an increase of 211.1%. The increase in asset-backed
transactions was strong across all sectors while in the international sector the
Company insured several large European transactions during the quarter. For the
municipal business, gross PV premiums written in the second quarter decreased to
$28.0 million in 1999 from $68.4 million in 1998, a decrease of 59.1%. Second
quarter municipal PV premiums were lower than in the second quarter of 1998 due
to the decline in municipal volume, the comparative effect of FSA's insurance of
$1.4 billion of bonds for the Long Island Power Authority in the second quarter
of 1998, and a shift in sector concentration, with a higher percentage of
tax-supported issues and a significant reduction in health care activity.
In the second quarter of 1999, the Company insured par value of bonds totaling
$17.1 billion, approximately the same when compared to the second quarter of
1998. FSA's second quarter asset-backed component rose 19.3% to $7.3 billion and
the international sector rose 398.6% to $3.0 billion while its municipal sector
declined 34.2% to $6.8 billion.
Net premiums written were $51.8 million for the second quarter of 1999, a
decline of 16.6% when compared with 1998. Net premiums earned for the second
quarter of 1999 were $42.8 million, compared with $32.5 million in the second
quarter of 1998, an increase of 31.8%. Premiums earned from refundings and
prepayments were $2.8 million for the second quarter of 1999 and $3.5 million
for the same period of 1998, contributing $1.4 million and $1.6 million,
respectively, to after-tax earnings. Net premiums earned for the quarter grew
37.8% relative to the same period in 1998 when the effects of refundings and
prepayments are eliminated.
9
<PAGE>
Net investment income was $22.7 million for the second quarter of 1999 and $19.3
million for the comparable period in 1998, an increase of 18.1%. The Company's
effective tax rate on investment income was 17.8% for the second quarter of 1998
compared with 14.5% for the same period in 1999. In the second quarter of 1999,
the Company realized $10.5 million in net capital losses as compared with net
capital gains of $3.9 million for the same period in 1998. 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 second quarter
of 1999 was $1.8 million compared with $1.0 million in 1998, representing
additions to the Company's general loss reserve. The additions to the general
loss reserve represent management's estimate of the amount required to
adequately cover the net cost of claims. The Company will, on an ongoing basis,
monitor these reserves and may periodically adjust such reserves based on the
Company's actual loss experience, its future mix of business, and future
economic conditions. At June 30, 1999, the unallocated balance in the Company's
general loss reserve was $50.6 million.
Total policy acquisition and other operating expenses (excluding the cost of the
equity based compensation programs of $6.4 million for the second quarter of
1999 compared with $5.8 million for the same period of 1998) were $13.1 million
for the second quarter of 1999 compared with $10.3 million for the same period
in 1998, an increase of 27.3%. Excluding the effects of refundings, total policy
acquisition and other operating expenses were $12.4 million for the second
quarter of 1999 compared with $9.3 million for the same period in 1998, an
increase of 32.7%. The increase was the result of higher DAC amortization due to
a higher level of premiums earned and personnel costs.
Income before income taxes for the second quarter of 1999 was $29.3 million,
down from $36.2 million, or 19.0%, for the same period in 1998.
The Company's effective tax rate for the second quarter of 1999 was 19.9%
compared with 26.1% for the same period in 1998. This decrease is the primarily
the result of lower pre-tax income as the Company recognized capital losses in
the second quarter of 1999 versus capital gains for the same period in 1998.
The weighted average number of diluted shares of common stock outstanding
increased from 30,371,000 for the quarter ended June 30, 1998, to 31,954,000
during the second quarter of 1999. This increase was primarily due to 1.6
million shares the Company issued to XL Capital Ltd in November 1998. Diluted
earnings per share decreased from $0.88 for the second quarter of 1998 to $0.73
for the same period in 1999.
1999 and 1998 First Six Months Results
The Company's 1999 first half net income was $55.6 million, compared with $51.1
million for the same period in 1998, an increase of 9.0%. Core net income was
$64.3 million, compared with $51.0 million for the same period in 1998, an
increase of 26.2%. Total core revenues in the first half of 1999 increased $26.8
million, from $94.5 million in 1998 to $121.3 million in 1999, while total core
expenses increased only $10.1 million. Operating net income was $68.0 million
for the first half of 1999 versus $54.8 million for the comparable period in
1998, an increase of $13.2 million or 24.2%.
Gross premiums written increased 4.7%, to $150.3 million for the first half of
1999 from $143.6 million for the first half of 1998. Also, gross PV premiums
written increased 51.4%, to $239.1 million in 1999 from $158.0 million in the
first half of 1998. In the first half of 1999, asset-backed gross PV premiums
written were $104.3 million, as compared with $47.8 million in the first half of
1998, an increase of 118.2%. For the international sector, gross PV premiums
written in the first half increased to $63.1 million in 1999 from $10.8 million
in 1998, an increase of 484.3%. For the municipal business, gross PV premiums
written in the first half decreased from $99.4 million in 1998 to $71.7 million
in 1999, a decrease of 27.9%.
In the first half of 1999, the Company insured par value of bonds totaling $30.0
billion, a 14.6% increase over the same period in 1998. FSA's first half
asset-backed and international sectors rose 42.3% to $12.9 billion and 399.8% to
$4.7 billion, respectively, while its municipal sector fell 23.5% to $12.4
billion.
10
<PAGE>
Net premiums written were $101.7 million for the first half of 1999, an increase
of $1.7 million, or 1.7%, when compared with 1998. Net premiums earned for the
first half of 1999 were $84.1 million, compared with $64.4 million in the first
half of 1998, an increase of 30.6%. Premiums earned from refundings and
prepayments were $7.7 million for the first half of 1999 and $8.2 million for
the same period of 1998, contributing $3.7 million and $3.8 million,
respectively, to after-tax earnings. Net premiums earned for the first half grew
35.8% relative to the same period in 1998 when the effects of refundings and
prepayments are eliminated.
Net investment income was $44.8 million for the first half of 1999 and $37.9
million for the comparable period in 1998, an increase of 18.0%. The Company's
effective tax rate on investment income was 18.1% for the first half of 1998
compared with 14.9% in 1999. In the first half of 1999, the Company realized
$9.6 million in net capital losses as compared with $6.7 million of net capital
gains for the same period in 1998. 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
1999 was $4.0 million compared with $2.1 million for the same period in 1998,
representing additions to the Company's general loss reserve.
Total policy acquisition and other operating expenses (excluding the cost of the
equity based compensation programs of $8.5 million for the first half of 1999
compared with $12.4 million for the same period of 1998) were $25.5 million for
the first half of 1999 compared with $21.0 million for the same period in 1998,
an increase of 21.5%. Excluding the effects of refundings, total policy
acquisition and other operating expenses were $23.4 million for the first half
of 1999 compared with $18.7 million for the same period in 1998, an increase of
25.6%.
Income before income taxes for the first half of 1999 was $72.1 million, up from
$69.0 million, or 4.6%, for the same period in 1998.
The Company's effective tax rate for the first half of 1999 was 22.9% compared
with 26.0% for the same period in 1998. This decrease is the primarily the
result of lower pre-tax income as the Company recognized capital losses in the
first half of 1999 versus capital gains for the same period in 1998.
The weighted average number of diluted shares of common stock outstanding
increased to 31,900,000 during the first six months of 1999 from 30,297,000, for
the six months ended June 30, 1998. Diluted earnings per share increased to
$1.74 for the first six months of 1999 from $1.69 for the same period in 1998.
Liquidity and Capital Resources
The Company's consolidated invested assets and cash equivalents at June 30,
1999, net of unsettled security transactions, was $1,734.9 million, compared
with the December 31, 1998 balance of $1,770.6 million. These balances include
the change in the market value of the investment portfolio, which had an
unrealized loss position of $8.0 million at June 30, 1999 and $56.9 million in
unrealized gains at December 31, 1998.
At June 30, 1999, the Company had, at the holding company level, an investment
portfolio of $47.5 million available to fund the liquidity needs of its
activities outside of its insurance operations. Because the majority of the
Company's operations are conducted through FSA, the long-term ability of the
Company to service its debt and to declare and pay dividends will largely depend
upon the receipt of dividends or surplus note payments from FSA 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 paid no
dividends in 1998. Based upon FSA's statutory statements for the quarter ended
June 30, 1999, and considering dividends that 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 $67.9 million. In
addition, the Company holds $120 million of convertible surplus notes of FSA.
Payments of principal and interest on such notes may be made with the approval
of the New York Insurance Department.
11
<PAGE>
Dividends paid by the Company to its shareholders increased to $6.8 million in
the first half of 1999 from $6.2 million in 1998 and to $0.2250 per common share
in 1999 from $0.2150 in 1998. In addition to paying dividends, the Company uses
funds to make debt service payments and to repurchase shares of the Company's
common stock to fund employee benefit plans.
The Company has outstanding $100.0 million of 6.950% Senior Quarterly Income
Debt Securities due November 1, 2098 and callable on or after November 1, 2003,
and $130.0 million of 7.375% Senior Quarterly Income Debt Securities due
September 30, 2097 and callable on or after September 18, 2002.
In May 1996, the Company entered into forward agreements with two financial
institutions (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 obligation either (i) to purchase the Forward Shares from the
Counterparties for a price equal to $26.50 per share plus carrying costs or (ii)
to 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 made the economic benefit and risk of 750,000 of these
shares available for subscription by certain of the Company's employees and
directors. When an individual participant exercises Forward Shares under the
subscription program, the Company settles with the participant but does not
necessarily close out the corresponding Forward Share position with the
Counterparties. At June 30, 1999, 562,200 Forward Shares remained in the
program. Of these, 33,078 shares were held for the benefit of the Company as a
result of the repurchase of Forward Shares from employees and directors, and
529,122 shares continued to be held for the benefit of employees and directors.
For each dollar change in the Company's share price, net income will be effected
by approximately $0.3 million, or $0.01 per share.
FSA's primary uses of funds are to pay operating expenses and to pay dividends
or make surplus note payments to its parent. FSA's funds are also required to
satisfy claims, if any, under insurance policies in the event of default by an
issuer of an insured obligation and the unavailability or exhaustion of other
payment sources in the transaction, such as the cash flow or collateral
underlying the obligations. FSA seeks to structure asset-backed transactions to
address liquidity risks by matching insured payments with available cash flow or
other payment sources. The insurance policies issued by FSA provide, in general,
that payments of principal, interest and other amounts insured by FSA may not be
accelerated by the holder of the obligation but are paid by FSA in accordance
with the obligation's original payment schedule or, at FSA's option, on an
accelerated basis. These policy provisions prohibiting acceleration of certain
claims are mandatory under Article 69 of the New York Insurance Law and serve to
reduce FSA's liquidity requirements.
The Company believes that FSA's expected operating liquidity needs, both on a
short- and long-term basis, can be funded from its operating cash flow. In
addition, FSA has a number of sources of liquidity that are available to pay
claims on a short- and long-term basis: cash flow from written premiums, FSA's
investment portfolio and earnings thereon, reinsurance arrangements with
third-party reinsurers, liquidity lines of credit with banks, and capital market
transactions.
FSA has a credit arrangement, aggregating $150.0 million, that is provided by
commercial banks and intended for general application to transactions insured by
FSA and its insurance company subsidiaries. At June 30, 1999, there were no
borrowings under this arrangement, which expires on April 28, 2000, unless
extended. In addition, there are credit arrangements assigned to specific
insured transactions. In August 1994, FSA entered into a facility agreement with
Canadian Global Funding Corporation and Hambros Bank Limited. Under the
agreement, FSA can arrange financing for transactions subject to certain
conditions. The amount of this facility was $186.9 million, of which $136.3
million was unutilized at June 30, 1999.
FSA has a standby line of credit commitment in the amount of $240.0 million with
a group of international Aaa/AAA-rated banks to provide loans to FSA after it
has incurred, during the term of the facility, cumulative municipal losses (net
of any recoveries) in excess of the greater of $230.0 million or 5.75% of
average annual debt service of the covered portfolio. The obligation to repay
loans made under this agreement is a limited recourse obligation payable solely
from, and collateralized by, a pledge of recoveries realized on defaulted
insured obligations in the covered portfolio, including certain installment
premiums and other collateral. This commitment has a term beginning on April 30,
1999 and expiring on April 30, 2006 and contains an annual renewal provision
subject to approval by the banks. No amounts have been utilized under this
commitment as of June 30, 1999.
The Company has no plans for material capital expenditures within the next
twelve months.
12
<PAGE>
Year 2000 Readiness Disclosure
The Company established its Year 2000 (Y2K) committee in 1997. The committee has
investigated potential effects on FSA of the Y2K problem arising from the
inability of some computers to properly recognize dates in the year 2000 and
later. The Company has examined its hardware, software, network, and customer
and vendor interdependencies in FSA's information systems and has found no
material problems with any mission-critical FSA systems. It has conducted
appropriate tests on its larger hardware and networking components, personal
computers and material systems software, and all such systems are considered to
be Y2K compliant. As of June 30, 1999, the Company has completed verification of
Y2K compliance with outside vendors from which the Company purchases software.
The cost of the Company's Y2K compliance has been immaterial.
FSA's financial guaranty policies do not contain an exclusion for Y2K problems.
Each guaranty policy is customized for its individual transaction, so the actual
policy and other transaction documents should be consulted regarding questions
about the effect of Y2K problems of specific parties on specific policies. For
example, if an issuer fails to make an insured payment due to a Y2K problem,
FSA's insurance policy generally would cover such failure. On the other hand, if
the issuer made the payment and the trustee failed to distribute it to
bondholders due to a Y2K problem, FSA's insurance policy generally would not
cover such failure. To investigate whether certain entities connected with
transactions it insures have Y2K problems that could affect insured payments,
FSA has surveyed the servicers and trustees for FSA-insured asset-backed
transactions and has also surveyed certain companies that operate in a trustee,
paying agent or securities depository capacity for a large component of FSA's
public finance book of business. Responses to date have generally indicated
active Y2K testing and remediation programs. FSA plans to continue to query the
companies during 1999 to measure their progress.
While none of the parties that the Company has surveyed have informed the
Company of any material issues regarding Y2K readiness, there can be no
assurance that each party will be Y2K compliant. Failure by an issuer or
servicer in an FSA-insured transaction to be Y2K compliant may result in
unanticipated claims upon FSA. While FSA generally would be entitled to
reimbursement for any such claims paid, the liquidity and credit exposure to FSA
from such claims could be material. As a result, management is assessing the
need to increase its available liquidity in its investment portfolio at year end
1999 in order to meet presently unanticipated demand for claims payments. FSA
provides additional information about its Y2K compliance program on its website
at www.fsa.com/y2k.
Forward-Looking Statements
This quarterly report contains forward-looking statements regarding, among other
things, the Company's plans and prospects. Important factors, including general
market conditions and the competitive environment, could cause actual results to
differ materially from those described in such forward-looking statements.
Certain of these factors are described in more detail under the heading
"Forward-Looking Statements" in Item 1 of the Company's Annual Report on Form
10-K, as amended, for the year ended December 31, 1998. Forward-looking
statements in this report are expressly qualified by all such factors. The
Company undertakes no obligation to revise or update any forward-looking
statements to reflect changes in events or expectations or otherwise.
13
<PAGE>
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 13,
1999. At the 1999 Annual Meeting, there were present by proxy or in person
28,301,302 shares of Common Stock and 2,000,000 shares of the Company's
outstanding Preferred Stock, representing approximately 90.4% of the 31,533,781
shares (including the 2,000,000 shares of Preferred Stock) outstanding and
eligible to vote. There were four proposals for consideration. The results of
the vote were as follows:
Proposal 1 -- Election of Directors
For the election of Directors of the Company to hold office until the next
Annual Meeting of Shareholders or until their respective successors are elected
and qualified:
Votes Cast For Votes Withheld
-------------- --------------
Robert P. Cochran 30,290,483 10,819
Robert N. Downey 30,290,618 10,684
Anthony M. Frank 30,288,624 12,678
Fudeji Hama 30,289,596 11,706
K. Thomas Kemp 30,289,518 11,784
David O. Maxwell 30,289,787 11,515
Sean W. McCarthy 30,289,018 12,284
James M. Osterhoff 30,290,563 10,739
James H. Ozanne 30,290,053 11,249
Richard A. Post 30,289,471 11,831
Roger K. Taylor 30,289,918 11,384
Howard M. Zelikow 30,290,593 10,709
Proposal 2 -- Approval of 1993 Equity Participation Plan, as Amended, and
Performance Goals
To approve the Company's 1993 Equity Participation Plan, as amended, and the
performance goals applicable to awards of performance shares thereunder:
FOR: 24,419,589 AGAINST: 5,870,884 ABSTAIN: 10,829
Proposal 3 -- Approval of Amendment to Restated Certificate of Incorporation, as
Amended
To approve an amendment to the Company's Restated Certificate of Incorporation,
as amended, to increase the number of authorized shares thereunder:
FOR: 23,722,514 AGAINST: 5,544,942 ABSTAIN: 10,356
Proposal 4 -- Ratification of Selection of PricewaterhouseCoopers LLP as
Independent Auditors
To ratify and approve the selection by the Company's Board of Directors of
PricewaterhouseCoopers LLP as independent auditors for the Company for the
fiscal year ending December 31, 1999:
FOR: 30,291,126 AGAINST: 5,157 ABSTAIN: 5,019
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 Restated Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 to Pre-Effective Amendment No. 2 to the registrant's
Registration Statement on Form S-3 (Reg. Nos. 333-74165 and
333-34181), and incorporated herein by reference).
10 Second Amended and Restated Credit Agreement dated as of April 30,
1999 among Financial Security Assurance Inc., FSA Insurance Company,
the Banks party thereto from time to time and Bayerische Landesbank
Girozentrale, New York Branch, as Agent.
27 Financial Data Schedules.
99 Financial statements of Financial Security Assurance Inc. for the
quarterly period ended June 30, 1999.
(b) Reports on Form 8-K
None
15
<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 11, 1999 Jeffrey S. Joseph
Managing Director & Controller
(Chief Accounting Officer)
16
<PAGE>
Exhibit Index
Exhibit No. Exhibit
- ----------- -------
3 Restated Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 to Pre-Effective Amendment No. 2 to the registrant's
Registration Statement on Form S-3 (Reg. Nos. 333-74165 and
333-34181), and incorporated herein by reference).
10 Second Amended and Restated Credit Agreement dated as of April 30,
1999 among Financial Security Assurance Inc., FSA Insurance Company,
the Banks party thereto from time to time and Bayerische Landesbank
Girozentrale, New York Branch, as Agent.
27 Financial Data Schedules.
99 Financial statements of Financial Security Assurance Inc. for the
quarterly period ended June 30, 1999.
Exhibit 10
================================================================================
$240,000,000
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
among
FINANCIAL SECURITY ASSURANCE INC.,
FSA INSURANCE COMPANY,
VARIOUS BANKS,
and
BAYERISCHE LANDESBANK GIROZENTRALE,
Acting Through Its New York Branch
Individually and as Agent
Dated as of April 30, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND PRINCIPLES OF CONSTRUCTION
Section 1.01 Defined Terms ...................................... 2
Section 1.02 Principles of Construction ......................... 11
ARTICLE II
AMOUNT AND TERMS OF CREDIT
Section 2.01 The Loans .......................................... 12
Section 2.02 Amount of Each Borrowing ........................... 12
Section 2.03 Notice of Borrowing ................................ 12
Section 2.04 Disbursement of Funds; Defaulting Bank's
Obligations ........................................ 13
Section 2.05 Notes .............................................. 14
Section 2.06 Interest ........................................... 14
Section 2.07 Capital Adequacy ................................... 14
ARTICLE III
FEES; TERMINATION AND INCREASE OF COMMITMENT
Section 3.01 Fees ............................................... 15
Section 3.02 Voluntary Termination of Unutilized Commitments .... 16
Section 3.03 Mandatory Termination of Commitments ............... 16
Section 3.04 Expiry Date ........................................ 18
Section 3.05 Increase of Commitments ............................ 19
ARTICLE IV
PREPAYMENTS; PAYMENTS
Section 4.01 Voluntary Prepayments .............................. 20
Section 4.02 Mandatory Prepayments .............................. 20
Section 4.03 Method and Place of Payment ........................ 21
Section 4.04 Net Payments ....................................... 21
Section 4.05 Limitations on Sources of Payment .................. 23
<PAGE>
ARTICLE V
CONDITIONS PRECEDENT TO EFFECTIVENESS
Section 5.01 Execution of Agreement; Notes ...................... 24
Section 5.02 No Default; Representations and Warranties ......... 24
Section 5.03 Opinions of Counsel ................................ 24
Section 5.04 Corporate Documents; Proceedings ................... 24
Section 5.05 Security Agreement ................................. 25
Section 5.06 Covered Portfolio, Etc ............................. 25
Section 5.07 Adverse Change, Rating, etc ........................ 25
Section 5.08 Litigation ......................................... 26
Section 5.09 Fees, Etc .......................................... 26
ARTICLE VI
CONDITIONS PRECEDENT TO ALL CREDIT EVENTS
Section 6.01 Loss Threshold Incurrence Date ..................... 26
Section 6.02 Cumulative Losses .................................. 26
Section 6.03 Principal Amount ................................... 27
Section 6.04 Notice of Borrowing ................................ 27
ARTICLE VII
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
Section 7.01 Corporate Status ................................... 27
Section 7.02 Corporate Power and Authority ...................... 27
Section 7.03 No Violation ....................................... 27
Section 7.04 Governmental Approvals ............................. 28
Section 7.05. Financial Statements; Financial Condition;
Undisclosed Liabilities; Etc. ...................... 28
Section 7.06 Litigation ......................................... 29
Section 7.07 True and Complete Disclosure ....................... 29
Section 7.08 Use of Proceeds; Margin Regulations ................ 29
Section 7.09 Tax Returns and Payments ........................... 29
Section 7.10 Compliance with ERISA .............................. 30
Section 7.11 Capitalization ..................................... 30
Section 7.12 Subsidiaries ....................................... 30
Section 7.13 Compliance with Statutes, Etc ...................... 30
Section 7.14 Investment Company Act ............................. 30
Section 7.15 Public Utility Holding Company Act ................. 31
Section 7.16 Compliance with Insurance Law ...................... 31
Section 7.17 Covered Portfolio .................................. 32
Section 7.18 Year 2000 Compliance ............................... 32
ii
<PAGE>
ARTICLE VIII
AFFIRMATIVE COVENANTS
Section 8.01 Information Covenants .............................. 32
Section 8.02 Books, Records and Inspections ..................... 34
Section 8.03 Maintenance of Property, Insurance ................. 35
Section 8.04 Corporate Franchises ............................... 35
Section 8.05 Compliance with Statutes, Etc ...................... 35
Section 8.06 ERISA .............................................. 35
Section 8.07 Performance of Obligations ......................... 35
Section 8.08 Use of Proceeds .................................... 36
Section 8.09 Conduct of Business ................................ 36
Section 8.10 Underwriting Criteria .............................. 36
Section 8.11 Collection of Pledged Recoveries and Pledged Premiums 36
Section 8.12 Pledged Reserve Release Notice ..................... 36
Section 8.13 Registry ........................................... 36
ARTICLE IX
NEGATIVE COVENANTS
Section 9.01 Liens .............................................. 37
Section 9.02 Consolidation, Merger, Sale of Assets, etc ......... 38
ARTICLE X
EVENTS OF DEFAULT
Section 10.01 Payments ........................................... 39
Section 10.02 Representations, etc ............................... 39
Section 10.03 Covenants .......................................... 39
Section 10.04 Default Under Other Agreements ..................... 39
Section 10.05 Bankruptcy, Etc .................................... 40
Section 10.06 ERISA .............................................. 40
Section 10.07 Security Agreement ................................. 41
Section 10.08 Judgments .......................................... 41
Section 10.09 Change of Control .................................. 41
ARTICLE XI
THE AGENT
Section 11.01 Appointment ........................................ 41
Section 11.02 Nature of Duties ................................... 42
Section 11.03 Lack of Reliance on the Agent ...................... 42
Section 11.04 Certain Rights of the Agent ........................ 42
iii
<PAGE>
Section 11.05 Reliance ........................................... 42
Section 11.06 Indemnification .................................... 43
Section 11.07 The Agent in Its Individual Capacity ............... 43
Section 11.08 Resignation by the Agent ........................... 43
ARTICLE XII
MISCELLANEOUS
Section 12.01 Payment of Expenses. Etc ........................... 44
Section 12.02 Right of Setoff .................................... 44
Section 12.03 Notices ............................................ 45
Section 12.04 Benefit of Agreement ............................... 45
Section 12.05 No Waiver; Remedies Cumulative ..................... 47
Section 12.06 Calculations; Computations ......................... 47
Section 12.07 Governing Law; Submission to Jurisdiction; Venue ... 47
Section 12.08 Obligation to Make Payments in Dollars ............. 48
Section 12.09 Counterparts ....................................... 48
Section 12.10 Effectiveness ...................................... 48
Section 12.11 Headings Descriptive ............................... 49
Section 12.12 Amendment or Waiver ................................ 49
Section 12.13 Survival ........................................... 49
Section 12.14 Exclusions from Covered Portfolio .................. 49
SCHEDULE I COMMITMENTS
SCHEDULE II UNDISCLOSED LIABILITIES
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>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of April 30,
1999, among FINANCIAL SECURITY ASSURANCE INC. ("FSA") and FSA INSURANCE COMPANY
("FSAIC") (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, Bayerische Landesbank Girozentrale, in its capacity as Bank and
as Agent, Financial Security Assurance Inc., Financial Security Assurance of
Maryland Inc., Financial Security Assurance of Oklahoma, Inc., Landesbank
Hessen-Thuringen Girozentrale and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch have
entered into that First Amended and Restated Credit Agreement dated as of April
30, 1997 (the "First Amended and Restated Credit Agreement"), thereby amending
and restating the 1996 Credit Agreement, and that First Amendment to First
Amended and Restated Credit Agreement dated as of April 30, 1998 (the "First
Amendment" which together with the First Amended and Restated Credit Agreement
is herein referred to as the "1997 Credit Agreement");
WHEREAS, FSAIC replaced Financial Security Assurance of Maryland Inc.,
under the 1997 Credit Agreement pursuant to Section 12.15 of the 1997 Credit
Agreement and that Joinder Agreement dated as of January 7, 1998;
WHEREAS, pursuant to the definition of "Borrower" in the 1997 Credit
Agreement, FSA, by that written notice dated November 30, 1998, caused FSAO to
cease being a Borrower under the 1997 Credit Agreement;
WHEREAS, the parties wish to amend and restate the 1997 Credit Agreement
in its entirety pursuant to the terms hereof in order to admit additional
commercial banks as Banks hereunder and to make such additional changes as
provided herein; and
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 1997
Credit Agreement in its entirety pursuant to the terms hereof and otherwise
agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS AND PRINCIPLES OF CONSTRUCTION
Section 1.01. Defined Terms. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Affiliate" shall mean, with respect to any Person, any other Person
(other than an individual) directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such Person; provided, however,
that an Affiliate of a Borrower shall include any Person that directly or
indirectly owns more than 5% of such Borrower and any officer or director of
such Borrower or any such Person. A Person shall be deemed to control another
Person if such Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such other Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agent" shall mean Bayerische Landesbank Girozentrale, a public law
financial institution organized and existing under the laws of Germany, acting
through its New York Branch, in its capacity as Agent for the Banks hereunder,
and shall include any successor to the Agent appointed pursuant to Section
11.08.
"Agreement" shall mean this Second 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" shall mean, as of a specified date with
respect to an Insured Obligation, 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 year) from the date of determination to the latest
maturity date of such Insured Obligation, and with respect to the Covered
Portfolio as of such date as specified, shall mean the sum of the Average Annual
Debt Service as of such date of all Insured Obligations contained in the Covered
Portfolio. In the event that an Insured Obligation bears interest at a variable
rate, the interest thereon for purposes of the determination of Average Annual
Debt Service shall be calculated at the rate employed by the Borrowers to
compute average annual debt service with respect to such Insured Obligation in
accordance with its customary business practices.
"Bank" shall mean each of the commercial banks listed on Part A of
Schedule I hereto on the Effective Date, as well as any institution which
becomes a Bank hereunder pursuant to
<PAGE>
Section 3.04, Section 3.05 or Section 12.04(b) and "Banks" shall mean all such
Banks collectively.
"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) 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 FSAIC.
"Borrower's Rating" shall mean, with respect to each Borrower, such
Borrower's insurer financial strength rating in the case of S&P and insurance
financial strength rating in the case of Moody's.
"Borrowing" shall mean the borrowing of Loans on a given date.
"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be in New York City a legal holiday or a day on which banking
institutions are authorized or required by law or other government action to
close.
"Change of Control" shall mean and include the occurrence of any of the
following events: any Person, entity or "group" (within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934) other than MediaOne
Group, Inc., Fund American Enterprises Holdings, Inc. (to be renamed "White
Mountains Insurance Group, Inc."), The Tokio Marine and Fire Insurance Co.,
Ltd., XL Capital 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 Part A of Schedule I hereto directly below the column entitled
"Commitment," as the same
<PAGE>
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 3.04, 3.05 or 12.04.
"Commitment Date" shall have the meaning provided in Section 3.05(a).
"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 Commitment" shall mean for each Part C Bank the amount set
forth opposite such Part C Bank's name in Part C of Schedule I hereto directly
below the column entitled "Contingent Commitment", as the same may be (a)
reduced from time to time pursuant to Section 3.02 and/or 3.03 and (b) adjusted
from time to time as a result of assignments to or from such Part C Bank
pursuant to Section 3.04, 3.05 or 12.04.
"Contingent Obligation" shall mean, as to any Person, any obligation of
such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the holder of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the holder
of such primary obligation against loss in respect thereof; provided, however,
that the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Covered Portfolio" shall mean and include each Insured Obligation as of
the Effective Date and each Insured Obligation issued thereafter and prior to
the Loss Threshold Incurrence Date other than any Insured Obligation which is
excluded from the Covered Portfolio pursuant to Section 12.14.
"Credit Documents" shall mean this Agreement, each Note and the Security
Agreement.
"Credit Event" shall mean the making of any Loan.
"Cumulative Losses" for a specified period shall mean the aggregate Losses
of the Borrowers determined cumulatively during such period without regard to
Pledged Recoveries.
<PAGE>
"Declining Bank" shall have the meaning provided in Section 3.04(b).
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulted Loan" shall mean, with respect to any Bank at any time, the
Loan or portion of any Loan required to be made by such Bank to the Borrowers
pursuant to Section 2.01, at or prior to such time, that has not been made by
such Bank as of such time.
"Defaulting Bank" shall mean, at any time, any Bank that, at such time,
owes a Defaulted Loan or any amount described in Section 2.04(d).
"Department" shall mean the Insurance Department of the States of New York
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.
"Eligible Transferee" shall mean and include a commercial bank, financial
institution or other "accredited investor" (as defined in Regulation D of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder) which, if such entity is to become a Part C Bank, is assigned, or
the parent of which is assigned, an unsecured senior debt rating (or shadow
rating as reflected in a letter from the applicable rating agencies) by each of
Moody's and S&P of Aaa and AAA, respectively, and which, in any case, shall be
mutually acceptable to (i) the Agent, (ii) if such Eligible Transferee will be a
Part B Bank, the Part C Banks, and, (iii) so long as no Default or Event of
Default has occurred and is continuing hereunder, or if a Default or Event of
Default is continuing and the Eligible Transferee is not assigned an unsecured
senior debt rating (or shadow rating as reflected in a letter from the
applicable rating agencies) by each of Moody's and S&P, of Aaa and AAA,
respectively, the Borrowers.
"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(a).
"Extending Bank" shall have the meaning provided in Section 3.04(b).
<PAGE>
"Extension Request" shall have the meaning set forth in Section 3.04(a).
"Federal Funds Rate" shall mean for any period, a fluctuating per annum
interest rate (rounded upwards, if necessary, to the nearest 1/100th of 1%)
equal for each day during such period to the weighted average of the rates on
overnight Federal Funds transactions with members of the Federal Reserve System
arranged by Federal Funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Agent from three Federal Funds brokers of recognized standing
selected by the Agent.
"Fees" shall mean all amounts payable by the Borrowers to the Banks
pursuant to or referred to in Section 3.01.
"FSA" shall have the meaning provided in the first paragraph of this
Agreement.
"FSAIC" 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.
"Increase Date" shall have the meaning provided in Section 3.05(a).
"Increase Request" shall have the meaning provided in Section 3.05(a).
"Increasing Bank" shall have the meaning provided in Section 3.05(a).
"Increasing Extending Bank" shall have the meaning provided in Section
3.04(b).
"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.
<PAGE>
"Insurance Contracts" shall have the meaning set forth in Section 7.16.
"Insured Obligation" shall mean any "municipal obligation bonds," "special
revenue bonds," "industrial development bonds" and "utility first mortgage
obligations" which a Borrower is permitted to insure under the provisions of
Section 6904(b)(1)(A), (B), (C) or (I) of the New York Insurance Law (without
regard to clause (J) thereof), as in effect on the date hereof, issued by the
United States of America, a state thereof or the District of Columbia, a
municipality or governmental unit or other political subdivision of the
foregoing or any public agency or instrumentality thereof, to the extent that
the payment of principal thereof, together with interest thereon, or other
amounts due in respect thereof, is insured, reinsured or otherwise guaranteed by
any Borrower under an Insurance Contract.
"Lending Office" shall mean the office of the Agent located at 560
Lexington Avenue, New York, NY 10022 or such other office, Subsidiary or
Affiliate of the Agent as the Agent may from time to time specify as such to the
Borrowers.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), preference, priority or
other security agreement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any other
similar recording or notice statute, and any lease having substantially the same
effect as any of the foregoing).
"Loan" shall have the meaning provided in Section 2.01.
"Loss" shall mean at any time the aggregate sum of (a) 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 (b) Permitted Reserves at such time minus (c) amounts paid at
such time or reasonably expected by the Borrowers 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 (a) 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 (a)
$230 million and (b) 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; provided, however, that if any Bank shall be a
Defaulting Bank at such time, there shall be excluded from
<PAGE>
the determination of Majority Banks at such time (a) the aggregate principal
amount of the Loans owing to such Bank and outstanding at such time and (b) the
Commitment of such Bank at such time; and, provided further, that if at the time
Majority Banks is determined a Defaulting Bank exists and such Defaulting Bank
is a Part B Bank a portion of each Part C Bank's (which is not then a Defaulting
Bank) Commitment shall be increased by an amount equal to the lesser of (a) such
Part C Bank's Contingent Commitment and (b) the portion of such Part C Bank's
Contingent Commitment equal to the aggregate Commitments of all Defaulting Banks
multiplied by a fraction the numerator of which is equal to such Part C Bank's
Contingent Commitment and denominator of which is the aggregate amount of the
Contingent Commitments of all Part C Banks.
"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, Facsimile No. (212) 310-9868, or such other office as the
Agent may hereafter designate in writing as such to the Borrowers.
"Obligations" shall mean all amounts owing to the Agent, Collateral Agent
or any Bank pursuant to the terms of this Agreement or any other Credit
Document.
"Parent" shall mean Financial Security Assurance Holdings Ltd., a New York
corporation.
"Part B Bank" shall mean each Bank listed on Part B of Schedule I hereto.
"Part C Bank" shall mean each Bank listed on Part C of Schedule I hereto.
"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.
<PAGE>
"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 (a) 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 (b) the aggregate amount of such
Installment Premiums referred to in clause (a) 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 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 (a) such Insurance Contract, any reimbursement agreement, guaranty,
letter of credit, mortgage, security agreement, pledge agreement or other
contract, agreement or arrangement, (b) any account or account receivable, (c)
any compromise, settlement or similar arrangement, (d) any voluntary payment or
gift, (e) 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, (f)
any contractual, statutory, common law or other right of subrogation, (g) any
realization upon any mortgage, security interest or other Lien, (h) 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 (i) 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
<PAGE>
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.
"Replacement Bank" shall have the meaning provided in Section 3.04(b).
"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.
"Subsidiary" shall mean, as to any Person, (a) 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 (b) 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.
<PAGE>
"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 pursuant to Section 2.01(a) prior to such time plus
(b) Loans previously made by such Bank pursuant to Section 2.01(a) 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.
"Unutilized Contingent Commitment" shall mean, for any Part C Bank, at any
time, the Contingent Commitment of such Bank at such time less (a) the aggregate
principal amount of all Loans made by such Bank pursuant to Section 2.01(b)
prior to such time, plus (b) Loans previously made by such Part C Bank pursuant
to Section 2.01(b) 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, (a) any
corporation 100% of whose capital stock (except in the case of Financial
Security Assurance International Ltd., which shall be a Wholly Owned Subsidiary
of FSAIC or FSA so long as FSAIC or a Wholly Owned Subsidiary of FSA owns 100%
of its outstanding common shares) is at the time owned by such Person and/or one
or more Wholly-Owned Subsidiaries of such Person and (b) 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.
ARTICLE II
AMOUNT AND TERMS OF CREDIT
Section 2.01. The Loans.
(a) Subject to and upon the terms and conditions set forth herein,
including, without limitation, the provisions of Article VI, 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 (i) the Unutilized
<PAGE>
Commitment of such Bank at such time and (ii) 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.
(b) In the event that (i) the Borrowers request a Borrowing under
Section 2.01(a) and (ii) any Part B Bank shall fail to make on the date
specified in the Notice of Borrowing for such requested Borrowing any Loan
or any portion of a Loan required to be made by such Bank under Section
2.01(a) hereof representing such Bank's pro rata portion (determined as
described in Section 2.01(a)(i) and (ii)) of the amount of such requested
Borrowing, then each Part C Bank severally agrees to make a Loan to the
Borrowers on such date in an amount equal to the lesser of (i) such Part C
Bank's Unutilized Contingent Commitment and (ii) the amount of such Part B
Bank's Defaulted Loan multiplied by a fraction, the numerator of which is
such Part C Bank's Contingent Commitment and the denominator of which is
the sum of all Part C Banks' Contingent Commitments.
(c) 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.
(d) No Bank shall have any liability for the failure of any other
Bank to make Loans hereunder except as expressly provided in Section
2.01(b).
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; Defaulting Bank's Obligations..
(a) No later than 11:00 a.m. (New York time) on the later of the
date specified in each Notice of Borrowing and the date which is two
Business Days after the Agent's receipt of such Notice of Borrowing, as
described in Section 2.03, (i) each Bank will make available at the
Payment Office of the Agent its pro rata portion (in accordance with the
Commitment of such Bank and the aggregate Commitment of all Banks as in
effect on such date) of the amount of each Borrowing requested to be made
on such date, in Dollars and in immediately available funds and (ii) the
Agent will make available to
<PAGE>
the Borrowers the aggregate of the amounts so made available by the Banks
on such day at its Payment Office.
(b) In the event that any Part B Bank shall fail to make available
at the Payment Office of the Agent its pro rata portion (in accordance
with the Commitment of such Part B Bank and the aggregate Commitments of
all of the Banks as in effect on such date) of the amount of the Borrowing
requested to be made in any Notice of Borrowing, at or prior to 11:00 a.m.
(New York time) on the date specified in such Notice of Borrowing, the
Agent shall immediately (but in no event later than 11:15 a.m. (New York
time) notify each Part C Bank that such Part B Bank has so defaulted and
no later than 1:00 p.m. (New York time) on such date, (i) each Part C Bank
will (subject to Section 2.01(b)) make available at the Payment Office of
the Agent its pro rata portion (in accordance with the Contingent
Commitment of such Part C Bank and the aggregate Contingent Commitments of
all of the Part C Banks as in effect on such date) of such Part B Bank's
Defaulted Loan, in Dollars and in immediately available funds and (ii) the
Agent will make available to the Borrowers the aggregate of the amounts so
made available by the Part C Banks on such day at its Payment Office. If
the notice from the Agent to any Part C Bank described above in this
Section 2.04(b) occurs after 11:15 a.m. (New York time) such Part C Bank
shall use its best efforts to advance the amount required pursuant this
Section on the day such notice occurs and shall, in any event, so advance
such amount by 1:00 p.m. on the next succeeding Business Day.
(c) The Agent shall have no obligation to make available any amount
under Section 2.04(a) or (b) on behalf of any Bank, Part B Bank or Part C
Bank (other than itself in such capacity) until such time as any such Bank
shall have made amounts available for such purpose to the Agent.
(d) In the event that any Part C Bank has made available funds with
respect to any Part B Bank's Defaulted Loan, such Part B Bank agrees to
repay such Part C Bank forthwith upon demand together with interest on the
amount advanced for each day from the date such amounts were advanced by
the Part C Bank until the date such amount is repaid to the Part C Bank,
at the Federal Funds Rate for three (3) Business Days and thereafter at
the Base Rate plus 2%. To the extent that the Part C Bank receives
payments of any Defaulted Loan from or on behalf of the Borrowers, or an
Eligible Transferee as contemplated in Section 3.03(c), the obligation of
the Defaulting Bank, to the extent of such payment, shall be satisfied,
with any deficiency to be paid by such Defaulting Bank as provided in this
Section 2.04(d). Upon payment by the Part B Bank, which is the Defaulting
Bank, to the Part C Bank of all amounts owed to the Part C Bank with
respect to a Defaulted Loan, such Part B Bank shall be the owner of such
Loan and shall be entitled to all rights and benefits hereunder with
respect thereto.
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
<PAGE>
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 (plus, if such Bank is a Part C Bank, such
Bank's Contingent Commitment) and be payable in the principal amount of the
Loans evidenced thereby, (c) mature, with respect to each Loan evidenced
thereby, on the Expiry Date, (d) bear interest as provided in the appropriate
clause of Section 2.06 and (e) be entitled to the benefits of this Agreement and
be secured by the Security Agreement. Each Bank will note on its internal
records the amount of each Loan made by it and each payment in respect thereof
and will prior to any transfer of its Note endorse on the reverse side thereof
the outstanding principal amount of Loans evidenced thereby. Failure to make any
such notation shall not affect the Borrowers' obligations in respect of such
Loans.
Section 2.06. Interest.
(a) The Borrowers agree, jointly and severally, to pay to the Agent
for the account of the Banks interest in respect of the unpaid principal
amount of each Loan from the date the proceeds thereof are made available
to the Borrowers until the maturity thereof (whether by acceleration or
otherwise) at a rate per annum which shall be equal to the Base Rate in
effect from time to time plus 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 (i) the occurrence of an Event of Default and (ii)
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 and/or Contingent
Commitments or (ii) impose any other condition in connection with the
maintenance of the Commitments and/or Contingent 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
and/or Contingent Commitments or (ii) voluntarily impose any other condition in
connection
<PAGE>
with any of the Commitments and/or Contingent 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 and/or
Contingent Commitments or to reduce any amount (or the effective return on any
amount) received or receivable by any of the Banks or any Participant in
connection with this Agreement (which increase in cost or reduction in yield
shall be the result of any such Bank's or any such Participant's reasonable
allocation, in a nondiscriminatory manner among borrowers having obligations to
such Bank or such Participant similar to those of the Borrowers, of the
aggregate of such cost increases or yield reductions resulting from such event),
then, upon written demand by the such Bank, the Borrowers, jointly and
severally, agree to promptly pay to such Bank, from time to time as specified by
such Bank, additional amounts which shall be sufficient to compensate such Bank
for all such increased costs or reductions in yield accruing from and after the
date of such demand. Such Bank shall submit to the Borrowers, at or prior to the
making of each such demand, a certificate setting forth in reasonable detail
such increased costs or yield reductions incurred by such Bank or any
Participant as a result of any of the foregoing, which certificate shall be
conclusive, absent manifest error, as to the amount thereof.
ARTICLE III
FEES; TERMINATION AND INCREASE OF COMMITMENT
Section 3.01. Fees.
(a) The Borrowers jointly and severally agree to pay to the Agent
for distribution to the Banks pro rata in accordance with their respective
Unutilized Commitments a commitment fee (such commitment fee, together
with the commitment fee payable pursuant to Section 3.01(b), being 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 0.50% 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 or 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 A1 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.
Notwithstanding the foregoing, any Commitment Fee accrued with respect to
the Unutilized Commitment of a Defaulting Bank during the period prior to
the time such Bank became a Defaulting Bank and unpaid at such time shall
not be payable by the Borrowers so long as such Bank shall be a Defaulting
Bank except to the extent that such Commitment Fee shall otherwise have
been due and payable by the Borrowers prior to such time. No Commitment
Fee shall accrue on the Unutilized Commitment of a Defaulting Bank so long
as such Bank shall be a Defaulting Bank.
(b) The Borrowers jointly and severally agree to pay each Part C
Bank a Commitment Fee for the period from the Effective Date until the
Expiry Date (or such
<PAGE>
earlier date as the Contingent Commitment of such Part C Bank shall have
been terminated) computed as agreed in writing from time to time by the
Borrowers and such Part C Bank.
(c) Accrued Commitment Fees shall be due and payable quarterly in
arrears on the first Business Day of each May, August, November and
February of each year and on the Expiry Date or upon such earlier date as
the Commitments or the Contingents Commitments, as the case may be, shall
be terminated.
(d) The Borrowers jointly and severally agree to pay to the Agent
such fees in connection with the Credit Documents as may be agreed to in
writing from time to time between the Borrowers and the Agent.
(e) Notwithstanding the foregoing, the Commitment Fees payable by
the Borrowers to the Agent for the account of the Banks on August 2, 1999
for the period from April 30, 1999 to such date shall be limited to
$83,000.00, such Commitment Fees to be distributed by the Agent to the
Banks pursuant to written agreement among them outside this Agreement.
Section 3.02. Voluntary Termination of Unutilized Commitments. Upon at
least five Business Days prior notice to the Agent at its Notice Office, the
Borrowers shall have the right to terminate the Unutilized Commitments or
Unutilized Contingent Commitments or both in whole or in part, in minimum
amounts of $5,000,000 (or, if greater, in integral multiples of $1,000,000) for
the Unutilized Commitments and Unutilized Contingent Commitments, provided that
the Borrowers shall concurrently satisfy their obligations under Section 3.01.
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 pursuant to Section 2.01(a) by the amount of such
Loan, without regard to prepayments or repayments. Except as otherwise
provided in Section 2.01, the Contingent Commitment of each Part C Bank
shall be mandatorily and permanently reduced on each date a Loan is made
by such Part C Bank pursuant to Section 2.01(b) by the amount of such
Loan, without regard to prepayments or repayments.
(b) Notwithstanding anything herein to the contrary, the Borrowers
shall have the right to unilaterally terminate the Commitment and/or
Contingent Commitment of any Bank if, at any time after the Effective
Date, if such Bank shall be a party hereto on the Effective Date, or at
any time after 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 pursuant to Section 3.04 or
12.04, or at any time after the Increase Date on which it becomes a party
hereto if such Bank shall become a party hereto after the Effective Date
pursuant to Section 3.05, the unsecured senior debt rating (or shadow
rating as reflected in a letter) of such Bank or its parent shall be
downgraded by Moody's or S&P, such termination to be effective two (2)
Business Days after providing to such Bank a notice of termination. The
Borrowers
<PAGE>
shall, concurrent with such termination, satisfy their obligations owed to
the affected Bank under Section 3.01.
(c) Notwithstanding anything herein to the contrary, the Borrowers
shall have the right to unilaterally terminate the Commitment and/or
Contingent Commitment of any Bank if such Bank becomes a Defaulting Bank,
such termination to be effective upon the payment to the Agent of the
amount described in the next succeeding sentence. The Borrowers shall,
concurrent with such termination, pay to the Agent the amounts owed to the
Defaulting Bank pursuant to Section 3.01. The Agent shall distribute any
amount so received from the Borrowers (i) first, to the Part C Banks, as
payment owed to the Part C Banks by the Defaulting Bank pursuant to
Section 2.04(d) and (ii) second, to the Defaulting Bank, any excess. If an
Eligible Transferee is to be admitted to this Agreement in replacement of
a Defaulting Bank which is a Part B Bank and such Eligible Transferee
agrees to not only assume the Defaulting Bank's Commitment and/or
Contingent Commitment but also agrees to purchase all of the Defaulting
Bank's Loans, such Eligible Transferee shall pay to the Part C Banks which
have funded all or part of the Loans which were to be made by such
Defaulting Bank an amount equal to the remaining unpaid amount of
principal so advanced by such Part C Banks plus any accrued and unpaid
interest thereon computed in accordance with Section 2.06 and the
Borrowers shall pay to the Agent the amount owed to the Defaulting Bank
pursuant to Section 3.01. After making such payment the Eligible
Transferee shall be the Bank owning such Loans. The amounts paid by such
Eligible Transferee to the Part C Bank shall be applied to reduce the
obligations of the Defaulting Bank under Section 2.04(d), amounts
remaining unpaid under such Section shall continue to be owing by such
Defaulting Bank in accordance with such Section.
(d) Upon termination of a Bank's Commitment and/or Contingent
Commitment pursuant to Section 3.03(b) or 3.03(c) the Borrowers may
request that the remaining Banks increase their Commitments and/or
Contingent Commitments as described in Section 3.05(a) or designate one or
more Eligible Transferees to assume the Commitment and/or Contingent
Commitment of the Bank being terminated. In the event the Borrowers'
designate one or more Eligible Transferees which agree to provide the
Commitment and/or Contingent Commitment of the terminated Bank such
Eligible Transferee(s) may become party to this Agreement by executing and
delivering a counterpart of this Agreement.
(e) In addition to any other mandatory Commitment and Contingent
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, and the Contingent Commitment of such Bank if such Bank is a Part C
Bank, shall terminate in its entirety on such Expiry Date in effect on the
date such Bank does not agree to extend the Expiry Date.
(f) In addition to any other mandatory Commitment and Contingent
Commitment reductions pursuant to this Section 3.03, the Commitment, and
the Contingent Commitment of such Bank if such Bank is a Part C Bank, of
each Bank shall terminate in its entirety on the Expiry Date.
<PAGE>
Section 3.04. Expiry Date.
(a) The Commitments and the Contingent Commitments shall expire on
April 30, 2006 (the "Expiry Date"); provided, however, that before (but
not earlier than 90 days nor later than 60 days before) each April 30,
commencing April 30, 2000, 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 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, and, if such Bank is a Part C Bank, the Contingent
Commitment of such Bank, shall terminate upon the Expiry Date in effect on
the date such Bank does not so agree. No Bank shall be obligated to grant
any extension pursuant to this Section 3.04(a) 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, and, if applicable, Contingent
Commitment.
(b) If less than all of the Banks consent to an Extension Request
(each Bank that has not so consented being a "Declining Bank", and each
other Bank being an "Extending Bank"), the Borrowers shall have the right
to require any Declining Bank to assign in full its rights and obligations
under this Agreement (i) to any one or more Extending Banks designated by
the Borrowers that have offered in their returned counterpart of the
Extension Request to increase their respective Commitments (and, if any
such Extending Bank is a Part C Bank, its Contingent Commitment) in an
aggregate amount at least equal to the amount of such Declining Bank's
Commitment (and, if such Declining Bank is a Part C Bank, its Contingent
Commitments), (such Bank being an "Increasing Extending Bank") or (ii) to
any one or more Eligible Transferees designated by the Borrowers that
agree to assume all of such rights and obligations (each such Eligible
Transferee being a "Replacement Bank"), provided that (A) such Declining
Bank shall have received payment of all amounts owing under its Note and
to it under this Agreement on the effective date of such assignment, (B)
such assignment shall otherwise have occurred in compliance with Section
12.04 including, without limitation, clauses (iii) and (iv) of subsection
(b) thereof and (C) the effective date of such assignment shall be the
date specified by the Borrowers and agreed to by the Replacement Bank or
Increasing Extending Bank, as the case may be, which date shall be
<PAGE>
on or prior to the applicable Expiry Date. Each Bank that is Defaulting
Bank shall, so long as such Bank is Defaulting Bank, constitute a
Declining Bank.
Section 3.05. Increase of Commitments.
(a) The Borrowers may, from time to time, request the Banks to
increase their Commitments and/or Contingent Commitments (i) at any time a
Bank's ratings are reduced as described in Section 3.03(b), in order to
replace the Commitment and/or Contingent Commitment of the affected Bank,
such increase not to exceed the Commitment and/or Contingent Commitment of
the affected Bank, (ii) at any time there shall be a Defaulting Bank, in
order to replace the Commitment and/or Contingent Commitment of the
Defaulting Bank, such increase not to exceed the Commitment and/or
Contingent Commitment of the Defaulting Bank and (iii) at any time during
the 90 day period preceding each anniversary of the date of this
Agreement. In order to request such an increase the Borrowers shall make a
written request (an "Increase Request") to the Agent at its Notice Office
(who shall forward a copy to each of the Banks) that (i) the Commitments
of the Banks be increased by an aggregate amount specified and (ii) the
Contingent Commitments of the Part C Banks be increased by an aggregate
amount specified. Such Increase Request shall include a certification by a
senior officer of each Borrower that no Default or Event of Default has
occurred and is continuing and all representations and warranties
contained herein and in the other Credit Documents are true and correct in
all material respects on and as of the date of the Increase 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). The Borrowers shall indicate in the Increase
Request the date on which they want the requested increases to become
effective which shall be (A) prior to the Expiry Date and (B) at least 45
days after the Agent's receipt of such Increase Request. Each Increase
Notice shall specify the date by which Banks who wish to increase their
Commitment or Contingent Commitments, as the case may be, must indicate
their willingness to increase their Commitment or Contingent Commitment,
as the case may be, the amount of such increase and the date on or after
which such Bank will agree to such Increase (the "Commitment Date"), which
date shall be no sooner than 45 days after the Agent's receipt of the
Increase Request. No Bank shall be obligated to increase its Commitment
and/or Contingent Commitment pursuant to this Section 3.05 and any such
increase shall be in the sole discretion of each Bank; provided that any
failure to notify the Agent or the Borrowers shall be deemed to be a
disapproval by such Bank of the Borrowers' Increase Request. If any Banks
notify the Agent that they are willing to increase the amount of their
respective Commitments and/or Contingent Commitment, as the case may be,
the Agent shall allocate the increases requested by the Borrowers among
the Banks which have so notified the Agent subject to the maximum increase
agreed to by each Bank. The date on which any such increase in the
Commitments or Contingent Commitments becomes effective shall be the
"Increase Date."
(b) Promptly following each Commitment Date, the Agent shall notify
the Borrowers as to the amount, if any, by which the Banks are willing to
participate in the requested increase. If the aggregate amount by which
the Banks are willing to increase their Commitment and/or Contingent
Commitment, as the case may be, on any such Commitment Date is less than
the requested amount, then any one or more Eligible
<PAGE>
Transferees designated by the Borrowers that agree to provide Commitments
and/or Contingent Commitments for the shortfall may become party to this
Agreement by executing and delivering a counterpart of this Agreement.
(c) On each Increase Date, each Eligible Transferee that accepts an
offer to participate in a requested Commitment increase in accordance with
Section 3.05(b) shall become a Bank party to this Agreement as of such
Increase Date and the Commitment and/or Contingent Commitment of each Bank
agreeing to participate in such increase shall be increased as of such
Increase Date by the amount set forth in its notice delivered to the Agent
in accordance with Section 3.05(a) (or by the amount allocated to such
Bank pursuant to the last sentence of Section 3.05(a)).
(d) Notwithstanding the foregoing, any increase in the Commitment of
a Part B Bank shall be subject to the prior written approval of each Part
C Bank.
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.
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 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 at First Union Bank
International, New York, Federal ABA No.: 026-005-092, Account Name: Bayerische
Landesbank Girozentrale, New York Branch, Account No.: 2000-1935-3009-0,
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, except as otherwise provided in this
Section, be promptly distributed to each Bank in the same proportion that each
Bank's Commitment bears to the aggregate of all Banks' Commitments. Fees payable
to any Defaulting Bank described in the last sentence of Section 3.01(a) which
is a Part B Bank shall be applied to the payment of the obligations owed by such
Bank to the Part C Banks with any excess to be paid to such Part B Bank.
Payments of principal and interest made by the Borrowers on any Loan which was
made by or should have been made by a Part B Bank which is a Defaulting
<PAGE>
Bank shall be applied to the repayment of the principal of and interest
(calculated as described in Section 2.06) on Loans advanced by the Part C Banks
by reason of such Defaulting Bank's default until such default is cured with any
excess to be paid to such Part B Bank. Amounts so distributed to the Part C
Banks shall be made in the same proportion that each Part C Bank's Contingent
Commitment bears to the aggregate Contingent Commitments of all Part C Banks to
the extent such Bank has met its Obligations under Section 2.01(b). To the
extent amounts paid by the Part B Bank which is a Defaulting Bank (or which
would have been paid to such Bank if it were not Defaulting Bank) repays all
amounts owed to a Part C Bank with respect to Defaulted Loans related to such
Part B Bank, such Part B Bank shall be the owner of such Loan and shall be
entitled to all rights and benefits hereunder with respect thereto.
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
<PAGE>
Code and which constitutes a Bank hereunder on the Effective Date, to
provide to the Borrowers and the Agent on or prior to the Effective Date
two original signed copies of Service Form 4224 or Form 1001 certifying to
such Bank's entitlement to an exemption from United States withholding tax
with respect to payments to be made under this Agreement and under any
Note, (ii) in the case of any such Bank that is a "bank" within the
meaning of Section 881(c)(3)(A) of the Code, that, to the extent legally
entitled to do so, (A) 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) or a Replacement Bank
under Section 3.04(b), upon the date of such assignment or transfer to
such Bank, and (B) 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 (A) a certificate substantially in the form of
Exhibit G hereto (any such certificate, a "Section 4.04(b)(iii)
Certificate") and (B) 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), (A) 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
(B) 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.
<PAGE>
(c) If the Borrowers pay an additional amount pursuant to Section
4.04 and a Bank receives any refund of tax or credit against its tax
liabilities as a result of such payment by the Borrowers, such Bank shall
pay to the Borrowers an amount that such Bank determines, in its
reasonable judgment, is equal to the net tax benefit obtained by such Bank
as a result of such payment by the Borrowers. Any such payment required
pursuant to the immediately preceding sentence shall be accompanied by a
schedule that sets forth the Bank's basis for its calculation of such net
tax benefit. Whether or not a Bank claims any refund or credit shall be in
the sole discretion of each Bank. Nothing in this Section 4.04(c) shall
require a Bank to disclose or detail its calculation of the amount of any
tax benefit or any other amount to the Borrowers or any other Person
(including, without limitation, any tax return) other than the provision
of the schedule referred to above.
(d) Payments by the Borrowers under this Section 4.04 shall only be
due to the extent that payment is demanded by the Banks from other
borrowers having similar obligations.
Section 4.05. Limitations on Sources of Payment. Notwithstanding any other
provision of this Agreement or of any other Credit Document, the obligations of
the Borrowers to make payments of principal and interest on the Loans and the
Notes are limited recourse obligations of the Borrowers payable solely from the
Pledged Recoveries, the Pledged Premiums, the Pledged Reserves Account Funds and
the other Collateral described in the Security Agreement, and none of the Agent,
the Collateral Agent, any Bank or any other Person shall be entitled to procure
any money judgment against or to levy or foreclose upon or attach any other
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 hereunder or under the 1997 Credit
Agreement (as defined therein) and all representations and warranties contained
herein and in the other Credit Documents shall
<PAGE>
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 and
(ii) from Kutak Rock and in-house German counsel to the Agent, and from
counsel (including, if applicable, foreign counsel) to each Bank each in
form and substance satisfactory to it.
(b) Moody's, S&P and the Borrowers shall have received an opinion
addressed to each of them and dated the Effective Date from counsel to
each Bank in form and substance satisfactory to each of them.
Section 5.04. Corporate Documents; Proceedings.
(a) The Agent shall have received a certificate, dated the Effective
Date, signed by an Authorized Officer of each Borrower, and attested to by
the Secretary or any Assistant Secretary of each Borrower, each in the
form of Exhibit D with appropriate insertions, together with copies of the
articles of incorporation and by-laws of each Borrower and the resolutions
of each Borrower referred to in each such certificate.
(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 an Amended and Restated 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 amendments to financing statements
(Form UCC-3) 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) 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
<PAGE>
(c) evidence that all other actions necessary or, in the opinion of
the Collateral Agent, desirable to perfect and protect the security
interests purported to be created by the Security Agreement have been
taken.
Section 5.06. Covered Portfolio, Etc. The Agent shall have received a
certificate, dated the Effective Date, signed by an Authorized Officer of FSA,
setting forth in reasonable detail as of March 31, 1999, (a) each Insured
Obligation in the Covered Portfolio and each reinsurance agreement or similar
arrangement which covers any material amount of such Insured Obligations, (b)
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, (c) each default by any party to any such reinsurance
agreement or similar arrangement, (d) each claim paid by a Borrower under any
Insurance Contract with respect to such Insured Obligations, (e) the Borrowers'
reasonable estimate as of March 31, 1999 of the Average Annual Debt Service on
the Covered Portfolio, (f) the Borrowers' Cumulative Losses (stating separately
any Permitted Reserves included therein) for the period from January 1, 1996
through March 31, 1999, and (g) the Borrowers' reasonable estimate as of March
31, 1999 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.
<PAGE>
Section 5.09. Fees, Etc. The Borrowers shall have paid to the Agent and to
the Banks all costs, fees (including those described in Section 3.01) and
expenses (including, without limitation, legal fees and expenses) payable to the
Agent and/or the Banks to the extent then due.
All of the certificates, legal opinions and other documents and papers
referred to in this Article V, unless otherwise specified, shall have been
delivered to the Agent at its Notice Office.
ARTICLE VI
CONDITIONS PRECEDENT TO ALL CREDIT EVENTS
The Obligation of the Banks to make Loans is subject, at the time of each
such Credit Event (except as hereinafter indicated), to the satisfaction of the
following conditions:
Section 6.01. Loss Threshold Incurrence Date. At or prior to the time of
each such Credit Event, the Loss Threshold Incurrence Date shall have occurred.
Section 6.02. Cumulative Losses. After giving effect to such Credit Event,
the aggregate principal amount of all Loans (other than those borrowed to
establish or maintain Permitted Reserves which have been repaid and which were
not used to pay Losses) made hereunder without regard to payments or prepayments
shall not exceed Cumulative Losses in excess of the Loss Threshold Amount.
Section 6.03. Principal Amount. The principal amount of the requested Loan
shall not exceed the sum of the Unutilized Commitments 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 (a) is
a duly organized and validly existing corporation in good standing under the
laws of the jurisdiction of its incorporation, (b) has the power and authority
to own its property and assets and to transact the business in which it is
engaged and (c) 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
<PAGE>
good standing would not have a material adverse effect on the business,
operations, property, assets, condition (financial or otherwise) or prospects of
the Borrowers and their Subsidiaries taken as a whole.
Section 7.02. Corporate Power and Authority. Each Borrower has the
corporate power to execute, deliver and perform the terms and provisions of each
of the Credit Documents to which it is party and has taken all necessary
corporate action to authorize the execution, delivery and performance by it of
each of such Credit Documents. Each Borrower has, or in the case of the Credit
Documents other than this Agreement, by the Effective Date will have, duly
executed and delivered each of the Credit Documents to which it is party, and
each of such Credit Documents constitutes or, in the case of each such other
Credit Document when executed and delivered, will constitute, its legal, valid
and binding obligation enforceable in accordance with its terms.
Section 7.03. No Violation. Neither the execution, delivery or performance
by the 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 (a) will contravene any provision of any law, statute,
rule or regulation or any order, writ, injunction or decree of any court or
governmental instrumentality, (b) 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 (c) 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, (a) the execution, delivery and performance of any Credit Document to
which any Borrower is a party or (b) 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 December 31, 1998, the related consolidated statements of
operations and cash flows of the Parent and its Subsidiaries for the
fiscal year ended on such date and heretofore furnished to the Agent
present fairly the consolidated financial condition of the Parent and its
Subsidiaries at such date and the consolidated results of operations of
the Parent and its Subsidiaries for the periods ended on such date. All
such financial statements have been prepared in accordance with generally
accepted accounting principles and
<PAGE>
practices consistently applied. Since December 31, 1998, 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, 1996, December 31, 1997 and December 31,
1998, heretofore furnished to the Agent present fairly for the period then
ended, the financial condition of each Borrower as of the respective dates
of such statements. Such annual 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, 1998, 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 (a) with respect
to any Credit Document or (b) 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.
<PAGE>
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 T, U or X of the Board of Governors of the Federal Reserve System.
Section 7.09. Tax Returns and Payments. Each Borrower and their respective
Subsidiaries has filed all tax returns required to be filed by it and has paid
all income taxes payable by it which have become due pursuant to such tax
returns and all other taxes and assessments payable by it which have become due,
other than those not yet delinquent and except for those contested in good faith
and for which adequate reserves have been established. Each Borrower and their
respective Subsidiaries has paid, or has provided adequate reserves (in the good
faith judgment of the management of such Borrower) for the payment of, all
federal and state income taxes applicable for all prior fiscal years and for the
current fiscal year to the date hereof.
Section 7.10. Compliance with ERISA. Each Plan is in substantial
compliance with applicable provisions of ERISA and the Code; no Reportable Event
has occurred with respect to any Plan; no Plan has an Unfunded Current
Liability, and no Plan has an accumulated or waived funding deficiency or has
applied for an extension of any amortization period within the meaning of
Section 412 of the Code; neither the Borrowers nor any Subsidiary nor ERISA
Affiliate has incurred any material liability to or on account of a Plan
pursuant to Section 4062, 4063, 4064 or 4069 of ERISA which has not been
satisfied in full or expects to incur any liability under any of the foregoing
sections with respect to any such Plan; no condition exists which presents a
material risk to any Borrower or any of its Subsidiaries or any ERISA Affiliate
of incurring a liability to or on account of a Plan pursuant to the foregoing
provisions of ERISA and the Code; neither the Borrowers nor any of their ERISA
Affiliates are or have ever been a party to, or ever been required to make
contributions to, or has terminated any multi-employer plan (within the meaning
of Section 4001(a)(3) of ERISA); no Lien imposed under the Code or ERISA on the
assets of any Borrower or any of its Subsidiaries or any ERISA Affiliate exists
or is likely to arise on account of any Plan; and the Borrowers and their
respective Subsidiaries do not maintain or contribute to any employee welfare
benefit plan (as defined in Section 3(1) of ERISA) which provides benefits to
retired employees or other former employees (other than as required by Section
601 of ERISA) or any employee pension benefit plan (as defined in Section 3(2)
of ERISA) the obligations with respect to which could reasonably be expected to
have a material adverse effect on the ability of any Borrower to perform its
obligations under this Agreement.
Section 7.11. Capitalization. All outstanding shares of capital stock of
each Borrower have been duly and validly issued, are fully paid and
non-assessable. No Borrower has any outstanding securities convertible into or
exchangeable for its capital stock or outstanding any rights to subscribe for or
to purchase, or any options for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments or claims
of any character relating to, its capital stock.
<PAGE>
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 noncompliance's 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.
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. FSA is duly licensed to
transact business as a financial guaranty insurance corporation by the New York
Insurance Department and FSAIC 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
<PAGE>
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 or Oklahoma Insurance Law, as applicable, and the regulations
thereunder and with all other applicable federal, state and other laws relating
to its insurance and other business, except with respect to failures, if any, to
comply which singly or in the aggregate could not reasonably be expected to have
a material adverse effect on the business, assets, operations, property or
condition (financial or otherwise) of the Borrowers and their Subsidiaries taken
as a whole or the ability of each Borrower to perform its obligations under this
Agreement or any of the other Credit Documents.
Section 7.17. Covered Portfolio. Substantially all of the Insured
Obligations in the Covered Portfolio on the Effective Date were insured by the
Borrowers under Insurance Contracts in accordance with the Borrowers'
underwriting criteria at the time in effect. The Borrowers have, in respect of
the Covered Portfolio, no reason to believe that their rights included among the
Collateral are not valid and binding against the obligors thereunder in
accordance with their respective terms, except insofar as enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the enforcement of creditors' rights generally and the availability of equitable
remedies, except for such Collateral which, in the aggregate, could not
reasonably be expected to have a material adverse effect on the right and
ability of the Collateral Agent, in accordance with the Security Agreement, to
realize upon the Collateral as a whole. Attached as Schedule IV hereto is a list
of all reinsurance agreements of the Borrowers with respect to the Covered
Portfolio, all of which are the legal, valid, binding and enforceable
obligations of the parties thereto in accordance with their terms, except
insofar as enforceability may be limited by bankruptcy, insolvency, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and the availability of equitable remedies.
Section 7.18. Year 2000 Compliance. The computer programs and technical
systems used by each Borrower and its respective Subsidiaries, and similar
intellectual property described in this Section 7.18 will function and operate
in accordance with specifications for such programs, systems and intellectual
property and as described in this Section prior to, during and after the
calendar year 2000 in all respects necessary for the normal and orderly
operation of each of the Borrowers' respective business. Such programs, systems
and intellectual property will provide the required output without experiencing
abnormal ending dates and/or invalid or incorrect years and shall incorporate
century recognition date data, calculations that use same century and
multi-century formulas and date values that reflect the correct century in all
transactions. In addition, all such intellectual property will process, manage
and manipulate data involving dates, including single century and multi-century
formulas, and will not cause an abnormally ending scenario within the
application or generate incorrect values or invalid results involving such
dates; and will provide that all date-related user interface functionalities and
data fields on each of the Borrowers' internal systems include the indication of
century. Each Borrower hereby represents and warrants that it shall
independently verify through user
<PAGE>
acceptance testing (or other testing) that its computer programs and technical
systems used by it and its Subsidiaries function and operate correctly within
the parameters contemplated by this Section 7.18.
ARTICLE VIII
AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that on and after the Effective Date
and until the Commitments and Contingent 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 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, FSAIC for such calendar
year or quarter prepared in accordance with statutory accounting
practices, accompanied by any and all letters, reports and/or
certifications prepared by public accountants required to be filed with
the Department or such other comparable agency, certified by the chief
financial officer of each such Borrower as presenting fairly in accordance
with statutory accounting principles applied (except as specifically set
forth therein) on a basis consistent with prior periods, the information
contained therein.
<PAGE>
(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 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 (A) 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 (B) 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").
<PAGE>
(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, (a) keep all property
useful and necessary in its business in good working order and condition, (b)
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 (c) 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 noncompliance's 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
<PAGE>
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 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 and Contingent 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
<PAGE>
Borrower, as such Borrower shall reasonably request from time to time in order
to enable it to fulfill its obligations pursuant to this Section 8.13 and such
Borrower shall have no obligation to make any such recordation until it receives
such requested information from the Agent. Without limiting the Borrowers'
obligations hereunder, such Borrower shall indemnify any Bank described in
Section 4.04(b)(iii) for losses related to the withholding of taxes, including
any interest and penalties thereon arising as a result of such Borrower's
failure to comply with this Section 8.13.
ARTICLE IX
NEGATIVE COVENANTS
Each Borrower covenants and agrees that on and after the Effective Date
and until the Commitments and the Contingent 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;
<PAGE>
(e) Liens in respect of statutory preference or priorities granted
to certain claims under applicable insurance law;
(f) Liens established in favor of the beneficiaries of reinsurance
agreements other than Wholly-Owned Subsidiaries of the Parent to the
extent such Liens are established in the ordinary course of business or
are otherwise within the parameters of industry practice; and
(g) Liens represented by a financing statement to the extent such
financing statement does not represent notice of a valid security interest
and the Borrowers use their best efforts to file or cause to be filed a
termination statement in respect thereof.
Section 9.02. Consolidation, Merger, Sale of Assets, etc. FSA and so long
as it is a Borrower, FSAIC, 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);
<PAGE>
(e) any Borrower and any of its Subsidiaries may convey, sell or
otherwise dispose of any of their respective properties or assets so long
as, immediately prior to the time of such disposition, the value of such
properties or assets being disposed of does not exceed 10% of the
aggregate value of the assets of the Borrowers and their Subsidiaries
taken as a whole as such assets are carried on the consolidated balance
sheet of the Borrowers and their Subsidiaries at such time;
(f) any Borrower or any of its Subsidiaries may merge into another
entity so long as (i) such merger is solely for the purpose of changing
domicile, (ii) the surviving corporation assumes all obligations of such
Borrower or Subsidiary under the Credit Documents and (iii) no Default or
Event of Default has occurred and is continuing or would occur after
giving effect thereto;
(g) any Subsidiary of a Borrower may take any action not otherwise
permitted hereunder so long as no Default or Event of Default has occurred
and is continuing to the extent such action is not in any manner adverse
to the security interest created pursuant to the Security Agreement or
otherwise materially adverse to the Borrowers and their Subsidiaries taken
as a whole or the Banks; and
(h) intercompany transfers shall be permitted in accordance with
applicable insurance law.
ARTICLE X
EVENTS OF DEFAULT
Upon the occurrence of any of the following specified events (each an
"Event of Default"):
Section 10.01. Payments. The Borrowers shall (a) default in the payment
when due of any principal of any Loan or any Note or (b) 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 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 (a) 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 (b) 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 (a) 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
<PAGE>
Section 10.04. Default Under Other Agreements. Any Borrower or any of
their respective Subsidiaries shall (a) default in the payment of any
indebtedness owed to any Bank giving rise to an event of default under the
documentation evidencing such indebtedness, (b) 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 (c) default in the observance or
performance of any agreement or condition relating to any such Indebtedness for
borrowed money beyond the grace period as provided therein (other than the
Notes) or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of any such default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause any such Indebtedness to become due prior to its
stated maturity; or any Indebtedness for borrowed money of any Borrower or any
of their respective Subsidiaries shall be declared to be due and payable, or
required to be prepaid other than by a regularly scheduled required or optional
prepayment, prior to the stated maturity thereof; or
Section 10.05. Bankruptcy, Etc. Any Borrower or any of their respective
Subsidiaries shall commence a voluntary case concerning itself under Title 11 of
the United States Code entitled "Bankruptcy," as now or hereafter in effect, or
any successor thereto (the "Bankruptcy Code"); or an involuntary case is
commenced against any Borrower or any of their respective Subsidiaries, and the
petition is not controverted within 10 days, or is not dismissed within 60 days,
after commencement of the case; or a custodian (as defined in the Bankruptcy
Code) is 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
<PAGE>
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 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 30 days
after written notice thereof to any Borrower by the Agent or any Bank; or
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,
<PAGE>
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.
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 (a) 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 (b) 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.
<PAGE>
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 facsimile 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 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
<PAGE>
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: (a) whether or not the transactions herein contemplated are
consummated, pay all reasonable out-of-pocket costs and expenses (i) 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 (ii) 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); (b) 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 (c) except as
otherwise provided in Section 4.05, indemnify each Bank, its officers,
directors, employees, representatives and agents from and hold each of them
harmless against any and all liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, suits, and reasonable costs, expenses and
disbursements incurred by any of them as a result of, or arising out of, or in
any way related to, or by reason of, any investigation, litigation or other
proceeding (whether or not such Bank is a party thereto) related to the entering
into and/or performance of this Agreement or any other Credit Document or the
use of the proceeds of any Loans hereunder or the consummation of any
transactions contemplated herein or in any other Credit Document, including,
without limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such liabilities, obligations, losses, etc., to the extent
incurred by reason of the gross negligence or willful misconduct of the Person
to be indemnified).
Section 12.02. Right of Setoff. Except as otherwise provided in Section
4.05, in addition to any rights now or hereafter granted under applicable law or
otherwise, and not by way 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
<PAGE>
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 (a) except to the extent provided in the next
succeeding clause (b), 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 (c) 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, faxed, cabled or delivered: if to any Borrower or Bank, at
its address listed opposite its name on the signature page hereto; and if to the
Agent at its Notice Office; or, as to any Bank or the Agent, at such other
address as shall be designated by such party in a written notice to the other
parties hereto and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrowers and the Agent. All
such notices and communications shall not be effective until received by the
Agent or the Borrowers.
Section 12.04. Benefit of Agreement.
(a) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto; provided, however, that no Borrower may assign or transfer any of
its rights or obligations hereunder without the prior written consent of
the Banks and, provided further, that, any Bank may assign its rights and
obligations hereunder or under the other Credit 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 (or, if such Bank is a Part C
Bank, all or any part of its Contingent Commitment) and related
outstanding rights and Obligations hereunder to one or more Eligible
Transferees, each of which assignees shall become a party to this
Agreement as a Bank and, if applicable, a Part C 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 (plus, if such Bank is to be a
<PAGE>
Part C Bank, such Bank's Contingent Commitment) and to the assigning Bank
in the stated amount of the Commitment (plus, if such Bank is to be a Part
C Bank, such Bank's Contingent 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 and, if applicable,
Contingent Commitments; (ii) 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; (iii) 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; (iv) 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 (v) the Borrowers shall record the Commitment or
Contingent Commitment, as applicable, 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 or
Contingent Commitment, as applicable. 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 or Contingent Commitment, as applicable, 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 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 (and, if such Bank is
a Part C Bank, Contingent Commitment) or Loans or
<PAGE>
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).
(b) All computations of interest 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 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
<PAGE>
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 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.
<PAGE>
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 (other than any Bank that is at the time of the proposed extension,
release, amendment, reduction or consent a Defaulting Bank, provided, that in
the case of clauses (a) and (b) below for which the consent of Defaulting Banks
which shall have one or more Loans outstanding which are not Defaulted Loans as
well as all other Banks shall be required) (a) extend the final maturity of any
Loan or Note other than in accordance with Section 3.04 or 3.05 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 or Contingent 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 or Contingent Commitment of any Bank), (b) release any
material portion of the Collateral under any Security Document except as shall
be otherwise provided in any Credit Document, (c) amend, modify or waive any
provision of this Section 12.12, (d) reduce the percentage specified in the
definition of Majority Banks, (e) consent to the assignment or transfer by the
Borrowers of any of its rights and obligations under any Credit Document or (f)
amend the definition of Loss Threshold Incurrence Date or the Loss Threshold
Amount 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
<PAGE>
(c) Insured Obligations issued after both (i) the occurrence of the
Loss Threshold Incurrence Date and (ii) receipt by the Borrowers of
written notice from the Agent identifying such Insured Obligations.
[Remainder of page intentionally left blank]
<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 By__________________________________
New York, NY 10022 Name________________________________
Attention: Chief Financial Officer Title_______________________________
with a copy to General Counsel
Address: FSA INSURANCE COMPANY
350 Park Avenue By__________________________________
New York, NY 10022 Name________________________________
Attention: Chief Financial Officer Title_______________________________
with a copy to General Counsel
[Signatures continued on following page]
<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
First Vice President and By ___________________________________
Manager Public Finance Scott M. Allison
Telephone: (212) 310-9869 First Vice President and
Facsimile: (212) 310-9868 Manager Public Finance
By____________________________________
Alexander Kohnert
First Vice President
[Signatures continued on following page]
<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
First Vice President and By__________________________________
Manager Public Finance Scott M. Allison
Telephone: (212) 310-9869 First Vice President and
Facsimile: (212) 310-9868 Manager Public Finance
Wire Transfer Instructions:
By__________________________________
First Union Bank International Alexander Kohnert
ABA # 026-005-092 First Vice President
Acct. Name: Bayerische Landesbank
Girozentrale, New York
Branch
Acct. #: 2000-1935-3009-0
Ref.: FSA Line of Credit
[Signatures continued on following page]
<PAGE>
[Signature page to Credit Agreement]
Address: LANDESBANK HESSEN-THURINGEN
GIROZENTRALE, Acting Through
For Credit Issues: Its New York Branch
24th Floor
420 Fifth Avenue By__________________________________
New York, NY 10018 Lisa S. Pent
Attention: Lisa S. Pent Senior Vice President
Senior Vice President and Manager
and Manager
Telephone: (212) 703-5261
Facsimile: (212) 703-5256 By__________________________________
John A. Sarno
Vice President and Portfolio
For Administrative Issues: Manager
24th Floor
420 Fifth Avenue
New York, NY 10018
Attention: Ms. Gudrun Dronca
Telephone: (212) 703-5244
Facsimile: (212) 703-5256
Wire Transfer Instructions:
Citibank, New York
ABA #: 021-000-089
Account Name: HELABA, New York
Account #: 36146001
Reference: FSA
Attn.: Gudrun Dronca
[Signatures continued on following page]
<PAGE>
[Signature page to Credit Agreement]
Address: COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
c/o Rabo Support Services "RABOBANK NEDERLAND", New York
10 Exchange Place Branch
Jersey City, NJ 07302
Telephone: (201) 499-5200
Facsimile: (201) 499-5326 By__________________________________
Name________________________________
with a copy to: Title_______________________________
Rabobank Nederland
245 Park Avenue By__________________________________
New York, NY 10167 Name________________________________
Attention: Credit Department Title_______________________________
Telephone: (212) 916-7919
Facsimile: (212) 916-7837
Wire Transfer Instructions:
The Bank of New York
ABA #: 021-000-018
Acct. Name: Rabobank Nederland
Acct. #: 802-602-533
Reference: FSA
Attn.: Credit Department
[Signatures continued on following page]
<PAGE>
[Signature page to Credit Agreement]
Address: DEUTSCHE BANK AG, NEW YORK BRANCH
Deutsche Bank AG
New York Branch By__________________________________
31 West 52nd Street Name________________________________
New York, NY 10019 Title_______________________________
Attention: Ms. Tykie Tobin
Managing Director
Telephone: (212) 469-8666 By__________________________________
Facsimile: (212) 836-8366 or 8346 Name________________________________
Title_______________________________
Wire Transfer Instructions:
Deutsche Bank NY
ABA #: 026-003-780
Acct. #: FRB, NY
Ref.: FSA
Attn.: Cheryl Madelbaum
[Signatures continued on following page]
<PAGE>
[Signature page to Credit Agreement]
Address: WESTDEUTSCHE LANDESBANK GIROZENTRALE,
NEW YORK BRANCH
Westdeutsche Landesbank Girozentrale
New York Branch
1211 Avenue of the Americas By___________________________________
New York, NY 10036 Lillian Tung Lum
Attention: Lillian Tung Lum Director
Telephone: (212) 852-6046
Facsimile: (212) 852-6156
By___________________________________
Wire Transfer Instructions: Name_________________________________
Title________________________________
Chase Manhattan Bank
ABA #: 021-000-021
Acct. #: 920-106-0663
Ref.: FSA
Attn.: Cheryl Wilson
[Signatures continued on following page]
<PAGE>
[Signature page to Credit Agreement]
Address: KBC BANK N.V.
KBC Bank N.V.
New York Branch By__________________________________
125 West 55th Street Name________________________________
New York, NY 10019 Title_______________________________
Attention: Patrick Owens
Telephone: (212) 541-0702
Facsimile: (212) 541-0793 By__________________________________
Name________________________________
Title_______________________________
Wire Transfer Instructions:
The Bank of New York
ABA # 021-000-018
Acct. Name: KBC Bank N.V.
NY Branch
Acct. #: 802-301-5618
Ref: FSA
Attn.: Loan Administration
[Signatures continued on following page]
<PAGE>
[Signature page to Credit Agreement]
Address: FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
First Union National Bank of
North Carolina
1339 Chestnut Street By__________________________________
Philadelphia PA 19107 Name________________________________
Attention: Deirdre McAlees Title_______________________________
Telephone: (212) 973-7560
Facsimile: (212) 786-4114
By__________________________________
Name________________________________
Wire Transfer Instructions: Title_______________________________
First Union National Bank
ABA # 053-000-219
Acct. Name: GL
Acct. # 465-906-000-1801
Ref: FSA
Attn.: Lisa Mowery
[Signatures continued on following page]
<PAGE>
[Signature page to Credit Agreement]
Address: NORDDEUTSCHE LANDESBANK GIROZENTRALE,
New York Branch
Norddeutsche Landesbank Girozentrale
1270 Avenue of the Americas
New York, NY 10020 By___________________________________
Attention: Ms. Stephanie Finnen Name_________________________________
Telephone: (212) 332-8606 Title________________________________
Facsimile: (212) 332-8660
By___________________________________
Wire Transfer Instructions: Name_________________________________
Title________________________________
Chase Manhattan Bank, New York
ABA #: 021-000-021
Acct. Name: Nord LB NY Branch
Acct. #: 001-135-2382
Ref.: FSA
Attn.: Holger Reinicke
Telephone: (212) 332-8644
<PAGE>
SCHEDULE I
COMMITMENTS
PART A
Name Commitment
Bayerische Landesbank Girozentrale,
New York Branch $ 35,000,000
Landesbank Hessen-Thuringen
Girozentrale, New York Branch 30,000,000
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch 25,000,000
Deutsche Bank AG,
New York Branch 35,000,000
Westdeutsche Landesbank Girozentrale,
New York Branch 35,000,000
KBC Bank N.V 25,000,000
First Union National Bank of North Carolina 35,000,000
Norddeutsche Landesbank Girozentrale, New York Branch 20,000,000
------------
Total $240,000,000
============
PART B
Part B Banks
Deutsche Bank AG, New York Branch
WestDeutsche Landesbank Girozentrale, New York Branch
KBC Bank N.V.
First Union National Bank of North Carolina
Norddeutsche Landesbank Girozentrale
<PAGE>
PART C
Part C Banks and Contingent Commitments
Name Contingent Commitment
Bayerische Landesbank Girozentrale $37,000,000
Cooperatieve Centrale $30,000,000
Raiffeisen-Boerenleenbank B.A., -----------
"Rabobank Nederland", New York Branch
Total $67,000,000
===========
<PAGE>
SCHEDULE II
UNDISCLOSED LIABILITIES
None
<PAGE>
SCHEDULE III
SUBSIDIARIES
Owner(s) of
Jurisdiction of Equity Percentage
Name of Subsidiary Incorporation Interests Therein Ownership
FSA Insurance Company Oklahoma FSA 100%
Financial Security Bermuda FSAIC 100%
Assurance International Ltd. (Common
Shares Only)
Assurance of Oklahoma, Inc. Oklahoma FSAIC 100%
Financial Security England FSAIC 100%
Assurance (U.K.) Limited
<PAGE>
SCHEDULE IV
LIST OF REINSURANCE AGREEMENTS
[Provided by FSA]
<PAGE>
EXHIBIT A
NOTICE OF BORROWING
[DATE]
Bayerische Landesbank Girozentrale,
New York Branch, as Agent
560 Lexington Avenue
New York, NY 10022
Attention: Scott M. Allison
Ladies and Gentlemen:
The undersigned, Financial Security Assurance Inc., as representative of
itself and the other entity named as Borrower in the Second Amended and Restated
Credit Agreement, dated as of April 30, 1999 (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:
(a) The Business Day of the Proposed Borrowing is ________,
_________.(1)
(b) The aggregate principal amount of the Proposed Borrowing is
$______________.
[[c) Schedule 1 hereto contains a description of the Loss which the
proceeds of the Loan will be applied to pay, including (i) identification
of the Insured Obligation which has given rise to such Loss, (ii) the
amount of such Loss, (iii) the amount of the Permitted Reserves, if any,
being established with respect to such Loss and (iv) the amount of Pledged
Premiums, if any, hereafter payable to any Borrower in respect of such
Insured Obligation.](2)
[(c) Schedule 1 hereto contains a description of the Permitted
Reserve which the proceeds of the Loan will be applied to establish,
including (i) an identification of the Insured Obligation which is in
default or is anticipated to be in default, (ii) the amount of such
default, and (iii) the amount of Pledged Premiums, if any, hereafter
payable to any Borrower in respect of such Insured Obligation.](3)
- ----------
(1) Shall be a Business Day at least two Business Days after the date hereof.
(2) Include one version of subparagraph (c).
(3) Include one version of subparagraph (c).
<PAGE>
(d) The Borrowers hereby represent and warrant the following:
(i) the Loss Threshold Incurrence Date has occurred;
(ii) 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
(iii) 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, 1999
FOR VALUE RECEIVED, FINANCIAL SECURITY ASSURANCE INC. and FSA INSURANCE
COMPANY (the "Borrowers") hereby jointly and severally promise to pay to the
order of [BANK], (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] constituting the Bank's Commitment under
the Agreement (defined below)[plus [AMOUNT] constituting the Bank's Contingent
Commitment under the Agreement] 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 Second Amended And
Restated Credit Agreement, dated as of April 30, 1999, 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.
<PAGE>
THIS NOTE IS TRANSFERABLE ONLY IN ACCORDANCE WITH THE PROVISIONS OF THE
AGREEMENT.
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____________________________________
FSA INSURANCE COMPANY
By_______________________________________
Name_____________________________________
Title____________________________________
<PAGE>
GRID
Unpaid
Principal Principal
Amount Paid or Amount Notation
Date of Loan Prepaid of Note Made by
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B-3
<PAGE>
EXHIBIT C
FORM OF OPINION OF COUNSEL TO BORROWERS
<PAGE>
EXHIBIT D
OFFICER'S CERTIFICATE
<PAGE>
EXHIBIT E
FORM OF SECURITY AGREEMENT
<PAGE>
EXHIBIT F
ASSIGNMENT AND ASSUMPTION AGREEMENT
Date__________________
Reference is made to the Second Amended and Restated Credit Agreement
described in Item 2 of Annex I hereto (as such Credit Agreement may hereafter be
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"). Unless defined in Annex I hereto, terms defined in the Credit
Agreement are used herein as therein defined. _______________ (the "Assignor")
and _______________ (the "Assignee") hereby agree as follows:
1. The Assignor hereby sells and assigns to the Assignee without recourse
and without representation or warranty (other than as expressly provided
herein), and the Assignee hereby purchases and assumes from the Assignor, that
interest in and to all of the Assignor's rights and obligations under the Credit
Agreement as of the date hereof which represents the percentage interest
specified in Item 4 of Annex I hereto (the "Assigned Share") of all of the
outstanding rights and obligations under the Credit Agreement relating to the
facilities listed in Item 4 of Annex I hereto, including, without limitation,
(a) in the case of any assignment of all or any portion of the Commitment (if
not theretofore terminated) (and Contingent Commitment, if any), all rights and
obligations with respect to the Assigned Share of such Commitment (and
Contingent Commitment, if any) and (b) in the case of any assignment of
outstanding Loans, all rights and obligations with respect to the Assigned Share
of such outstanding Loans. After giving effect to such sale and assignment, the
Assignee's Commitment and the amount of the outstanding Loans owing to the
Assignee will be as set forth in Item 4 of Annex I hereto.
2. The Assignor (a) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (b) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the other Credit Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement or the
other Credit Documents or any other instrument or document furnished pursuant
thereto; and (c) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrowers or any
of the Borrowers' Subsidiaries or the performance or observance by the Borrowers
or the Borrowers' Subsidiaries of any of their obligations under the Credit
Agreement or the other Credit Documents to which they are a party or any other
instrument or document furnished pursuant thereto.
3. The Assignee (a) confirms that it has received a copy of the Credit
Agreement and the other Credit Documents, together with copies of the financial
statements referred to therein and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter
into this Assignment and Assumption Agreement; (b) agrees that it will,
independently and without reliance upon the Assignor or any other Bank and based
on such
<PAGE>
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement; (c) confirms that it is an eligible transferee under Section 12.04(b)
of the Credit Agreement; (d) agrees that it will perform in accordance with
their terms all of the obligations which by the terms of the Credit Agreement
are required to be performed by it as a Bank; and (e) has delivered the opinion
required by Section 12.04(b) of the Credit Agreement[; and (f) to the extent
legally entitled to do so, attaches the forms described in the penultimate
sentence of Section 12.04(b) of the Credit Agreement(1)].
4. Following the execution of this Assignment and Assumption Agreement by
the Assignor and the Assignee, an executed original hereof (together with all
attachments) will be delivered to the Agent and the Borrowers. The effective
date of this Assignment and Assumption Agreement shall be the date set forth in
Annex I hereto (the "Settlement Date").
5. Upon the delivery of a fully executed original hereof to the Assignor
and the Borrowers, as of the Settlement Date, (a) the Assignee shall be a party
to the Credit Agreement and, to the extent provided in this Assignment and
Assumption Agreement, have the rights and obligations of a Bank thereunder and
under the other Credit Documents and (b) the Assignor shall, to the extent
provided in this Assignment and Assumption Agreement, relinquish its rights and
be released from its obligations under the Credit Agreement and the other Credit
Documents.
6. It is agreed that the Assignee shall be entitled to (a) all interest on
the Assigned Share of the Loans at the rates specified in Item 6 of Annex I and
(b) all Commitment Fees (if applicable) on the Assigned Share of the Commitment
at the rate specified in Item 7 of Annex I hereto; such interest and, if
applicable, Commitment Fees at the rate specified in Item 7 of Annex I hereto,
to be payable by the Borrowers directly to the Assignee. It is further agreed
that all payments of principal made on the Assigned Share of the Loans which
occur on and after the Settlement Date will be payable directly by the Borrowers
to the Assignee. Upon the Settlement Date, the Assignee shall pay to the
Assignor an amount specified by the Assignor in writing which represents the
Assigned Share of the principal amount of the respective Loans made by the
Assignor pursuant to the Credit Agreement which are outstanding on the
Settlement Date, net of any closing costs, and which are being assigned
hereunder. The Assignor and the Assignee shall make all appropriate adjustments
in payments under the Credit Agreement for periods prior to the Settlement Date
directly between themselves on the Settlement Date.
7. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
- ----------
(1) Include if the Assignee is organized under the laws of a jurisdiction
outside of the United States.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Assignment and Assumption Agreement, as of
the date first above written, such execution also being made on Annex I hereto.
Accepted this ______ day of [NAME OF ASSIGNOR], as Assignor
____________________, _______
By______________________________________
Name____________________________________
Title___________________________________
By______________________________________
Name____________________________________
Title___________________________________
Consented to as of the date hereof:
FINANCIAL SECURITY ASSURANCE INC.
By____________________________________
Name__________________________________
Title_________________________________
FSA INSURANCE COMPANY
By____________________________________
Name__________________________________
Title_________________________________
F-3
<PAGE>
ANNEX I
1. Borrowers: Financial Security Assurance Inc. and FSA Insurance Company
2. Name and Date of Credit Agreement:
Second Amended and Restated Credit Agreement, dated as of April 30, 1999
(the "Credit Agreement"), among the Borrowers, the Banks from time to time
party thereto and Bayerische Landesbank Girozentrale, acting through its
New York Branch, individually and as Agent, as amended, modified and
supplemented to the date hereof.
3. Date of Assignment Agreement:
4. Amounts (as of date of item #3 above):
Outstanding
Contingent Principal
Commitment Commitment of Loan
a. Aggregate Amount for all Banks $ _______ $ _______ $________
b. Assigned Share(1) _______% ________% ________%
c. Amount of Assigned Share $ _______ $ _______ $________
5. Settlement Date:
6. Rate of Interest to the Assignee: As set forth in Section 2.06 of the
Credit Agreement (unless otherwise
agreed to by the Assignor and the
Assignee)(2)
7. Commitment Fees: As set forth in Section 3.01(a) of the
Credit Agreement (unless otherwise
agreed to by the Assignor and the
Assignee)(3)
- ----------
(1) Percentage taken to 12 decimal places.
(2) Borrowers and the Agent shall direct the entire amount of the interest to
the Assignee at the rate set forth in Section 2.06 of the Credit
Agreement, with the Assignor and Assignee effecting the agreed upon
sharing of the interest through payments by the Assignee to the Assignor.
7 Borrower and the Agent shall direct the entire amount of the Commitment
Fees to the Assignee at the rate set forth in Section 3.01(a) of the
Credit Agreement, with the Assignor and the Assignee effecting the agreed
upon sharing of Commitment Fees through payment by the Assignee to the
Assignor.
<PAGE>
8. Notice:
Assignor:
_________________
_________________
_________________
Attention:
Telephone:
Facsimile:
Reference:
Assignee:
_________________
_________________
_________________
Attention:
Telephone:
Facsimile:
Reference:
Payment Instructions:
Assignor:
_________________
_________________
_________________
Attention:
Reference:
Assignee:
_________________
_________________
_________________
Attention:
Reference:
[Signatures continued on next page]
<PAGE>
[Signature page to Annex 1 of Assignment and Assumption Agreement]
Accepted and Agreed:
[NAME OF ASSIGNEE]
By______________________________
Name____________________________
Title___________________________
[NAME OF ASSIGNOR]
By______________________________
Name____________________________
Title___________________________
<PAGE>
EXHIBIT G
FORM 404(b)(iii) CERTIFICATE
<PAGE>
EXHIBIT H
NOTE REGISTER
Bank:
Commitment:
Amount of Amount of
Date Loan Repayment
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 1,810,079
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 63,705
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,873,784
<CASH> 8,426
<RECOVER-REINSURE> 1,456
<DEFERRED-ACQUISITION> 195,107
<TOTAL-ASSETS> 2,511,398
<POLICY-LOSSES> 64,882
<UNEARNED-PREMIUMS> 755,463
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 230,000
0
700
<COMMON> 740,863
<OTHER-SE> 341,543
<TOTAL-LIABILITY-AND-EQUITY> 2,511,398
84,068
<INVESTMENT-INCOME> 44,760
<INVESTMENT-GAINS> (9630)
<OTHER-INCOME> 152
<BENEFITS> 4,000
<UNDERWRITING-AMORTIZATION> 20,593
<UNDERWRITING-OTHER> 21,684
<INCOME-PRETAX> 72,145
<INCOME-TAX> 16,516
<INCOME-CONTINUING> 55,629
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,629
<EPS-BASIC> 0
<EPS-DILUTED> 1.74
<RESERVE-OPEN> 63,947
<PROVISION-CURRENT> 4,000
<PROVISION-PRIOR> 3,065
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 64,882
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
EXHIBIT 99
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
June 30, 1999
<PAGE>
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1999 and 1998
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 whether 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,
ASSETS 1999 1998
---- ----
Bonds at market value (amortized cost of
$1,687,507 and $1,631,094) $ 1,678,258 $ 1,683,928
Equity investments at market value (cost of
$31,963 and $34,250) 36,446 37,268
Short-term investments 109,181 92,241
----------- -----------
Total investments 1,823,885 1,813,437
Cash 7,796 2,729
Deferred acquisition costs 195,107 199,559
Prepaid reinsurance premiums 234,477 217,096
Reinsurance recoverable on unpaid losses 1,456 3,907
Receivable for securities sold 22,388 1,656
Other assets 167,548 144,105
----------- -----------
TOTAL ASSETS $ 2,452,657 $ 2,382,489
=========== ===========
LIABILITIES AND MINORITY INTEREST AND
SHAREHOLDER'S EQUITY
Deferred premium revenue $ 755,463 $ 721,699
Losses and loss adjustment expenses 64,882 63,947
Deferred federal income taxes 78,189 95,398
Ceded reinsurance balances payable 18,471 31,502
Payable for securities purchased 159,890 105,749
Long-term debt 120,000 120,000
Minority interest 21,429 20,388
Accrued expenses and other liabilities 96,381 119,215
----------- -----------
TOTAL LIABILITIES AND MINORITY INTEREST 1,314,705 1,277,898
----------- -----------
Common stock (500 shares authorized, issued and
outstanding; par value of $30,000 per share) 15,000 15,000
Additional paid-in capital 706,117 694,788
Accumulated other comprehensive income (loss)
(net of deferred income tax provision (benefit)
of $(1,043) and $19,904) (1,937) 36,964
Accumulated earnings 418,772 357,839
----------- -----------
TOTAL SHAREHOLDER'S EQUITY 1,137,952 1,104,591
----------- -----------
TOTAL LIABILITIES AND MINORITY INTEREST AND
SHAREHOLDER'S EQUITY $ 2,452,657 $ 2,382,489
=========== ===========
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,
-------------------------
1999 1998
---- ----
REVENUES:
Net premiums written (net of premiums ceded of
$48,514 and $43,512) $ 101,745 $ 100,068
Increase in deferred premium revenue (17,677) (35,695)
--------- ---------
Premiums earned (net of premiums ceded of
$30,221 and $25,701) 84,068 64,373
Net investment income 43,765 36,022
Net realized gains (losses) (5,465) 8,478
Other income 158 265
--------- ---------
TOTAL REVENUES 122,526 109,138
EXPENSES:
Losses and loss adjustment expenses (net of
reinsurance recoveries of $(2,231) and $(6,868)) 4,000 2,094
Policy acquisition costs 20,593 16,914
Other operating expenses 16,328 11,372
--------- ---------
TOTAL EXPENSES 40,921 30,380
--------- ---------
Minority interest and equity earnings (1,041)
---------
INCOME BEFORE INCOME TAXES 80,564 78,758
Provision for income taxes 19,631 21,363
--------- ---------
NET INCOME 60,933 57,395
--------- ---------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Holding gains (losses) arising during period (42,453) 3,683
Less: reclassification adjustment for losses
(gains) included in net income 3,552 (5,511)
--------- ---------
Other comprehensive loss (38,901) (1,828)
--------- ---------
COMPREHENSIVE INCOME $ 22,032 $ 55,567
========= =========
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,
-------------------------
1999 1998
---- ----
Cash flows from operating activities:
Premiums received, net $ 78,387 $ 116,661
Policy acquisition and other operating expenses
paid, net (32,202) (41,315)
Recoverable advances received (paid) (10,350) 4,561
Loss and LAE recovered (paid), net (600) 15,672
Net investment income received 40,116 31,989
Federal income taxes paid (25,440) (30,584)
Interest paid (5,168)
Other, net 1,596 (3,597)
----------- -----------
Net cash provided by operating activities 46,339 93,387
----------- -----------
Cash flows from investing activities:
Proceeds from sales of bonds 984,205 818,324
Purchases of bonds (1,009,756) (943,776)
Purchases of property and equipment (432) (550)
Net decrease (increase) in short-term securities (15,308) 43,743
Other investments, net 19
----------- -----------
Net cash used for investing activities (41,272) (82,259)
----------- -----------
Cash flows from financing activities:
Stock repurchase (8,500)
-----------
Net cash used for financing activities (8,500)
-----------
Net increase in cash 5,067 2,628
Cash at beginning of period 2,729 11,235
----------- -----------
Cash at end of period $ 7,796 $ 13,863
=========== ===========
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, 1999 AND 1998
1. ORGANIZATION AND OWNERSHIP
Financial Security Assurance Inc. (the Company), a wholly owned subsidiary
of Financial Security Assurance Holdings Ltd. (the Parent), is an insurance
company domiciled in the State of New York. The Company is primarily engaged in
the business of providing financial guaranty insurance on asset-backed 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, 1999 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, 1998 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, 1999 and 1998 are not necessarily indicative of the
operating results for the full year.
4
