UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30,
2004
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 number 1-10804
XL CAPITAL LTD
(Exact name of registrant as specified in its charter)
| CAYMAN ISLANDS | 98-0191089 | |||||
| (State or other Jurisdiction of | (I.R.S. Employer | |||||
| incorporation or organization) | Identification No.) |
XL House, One Bermudiana Road, Hamilton, Bermuda
HM 11
(address of principal executive offices and zip code)
(441) 292-8515
(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 [ ]
Indicate by check mark whether the r
egistrant
is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes
[X] No [ ]
As of August 2, 2004, there were 138,381,763 outstanding Class A Ordinary Shares, $0.01 par value per s hare, of the registrant.
XL CAPITAL LTD
INDEX TO FORM 10-Q
| PART I. FINANCIAL INFORMATION |
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| Item 1. | Financial Statements: | ||||||
|
Consolidated Balance Sheets as at
June 30, 2004 (Unaudited) and
December 31, 2003 |
3 | ||||||
|
Consolidated Statements of Income
for the Three Months Ended June 30,
2004 and 2003 (Unaudited) and the Six Months Ended June 30, 2004 and 2003 (Unaudited) |
5 | ||||||
|
Consolidated Statements of Comprehensive
Income for the Three Months
Ended June 30, 2004 and 2003 (Unaudited) and for the Six Months Ended June 30, 2004 and 2003 (Unaudited) |
6 | ||||||
|
Consolidated Statements of Shareholders’
Equity for the Six Months
Ended June 30, 2004 and 2003 (Unaudited) |
7 | ||||||
|
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 2004 and 2003 (Unaudited) |
8 | ||||||
| Notes to Unaudited Consolidated Financial Statements | 9 | ||||||
| Item 2. |
Management’s Discussion and
Analysis of Financial Condition and
Results of Operations |
25 | |||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 52 | |||||
| Item 4. | Controls and Procedures | 57 | |||||
| PART II. OTHER INFORMATION | |||||||
| Item 1. | Legal Proceedings | 58 | |||||
| Item 2. |
Changes in Securities,
Use of Proceeds and Issuer Purchases of
Equity Securities |
59 | |||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 60 | |||||
| Item 6. | Exhibits and Reports on Form 8-K | 60 | |||||
| Signatures | 62 |
2
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
XL CAPITAL LTD
See accompanying Notes to Unaudited
Consolidated Financial Statements
3
XL CAPITAL LTD
See accompanying Notes to Unaudited
Consolidated Financial Statements
4
XL CAPITAL LTD
See accompanying Notes to Unaudited
Consolidated Financial Statements
5
XL CAPITAL LTD
See accompanying Notes to Unaudited
Consolidated Financial Statements
6
XL CAPITAL LTD
See accompanying Notes to Unaudited
Consolidated Financial Statements
7
XL CAPITAL LTD
See accompanying Notes to Unaudited Consolidated Financial Statements
8
XL CAPITAL LTD
1. Basis
of Preparation and Consolidation
These unaudited consolidated financial
statements include the accounts of the Company and all of its subsidiaries and have
been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)
for interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, these unaudited financial statements reflect all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of financial
position and results of operations as at the end of and for the periods presented.
The results of operations for any interim period are not necessarily indicative
of the results for a full year. All significant intercompany accounts and transactions
have been eliminated. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ materially from
these estimates.
To facilitate period-to-period comparisons,
certain reclassifications have been made to prior period consolidated financial
statement amounts to conform to current period presentation. There was no effect
on net income from these changes in presentation.
Unless the context otherwise indicates,
references herein to the Company include XL Capital Ltd and its consolidated subsidiaries.
2. Significant Accounting
Policies
Effective January 1, 2003, the Company
has adopted the fair value recognition provisions of FAS 123, as amended by FAS
148, under the prospective method for options granted subsequent to January
1, 2003. Prior to 2003, the Company accounted for options under the disclosure-only
provisions of FAS 123 and no stock-based employee compensation cost was
included in net income as all options granted had an exercise price equal
to the market value of the Company’s
ordinary shares on the date of the grant. Awards under the Company’s stock
plans vest over periods ranging from three to four years. If the fair value
based method had been applied to all awards since the original effective date
of FAS 123, the cost related to employee stock based compensation included in
the determination of net income would have been higher. The following table
illustrates the net effect on net income and earnings per ordinary share if
the fair value method had been applied to all outstanding and unvested awards
in each period presented:
9
XL CAPITAL LTD
3. Recent
Accounting Pronouncements
In April 2004, the FASB issued Staff Position
No. FAS 129-1, “Disclosure Requirements under FASB Statement No. 129,
Disclosure
of Information about Capital Structure,
Relating to Contingently Convertible
Securities” (“FSP FAS 129-1”). The purpose of FSP FAS 129-1 is to
interpret how the disclosure provisions of Statement 129 apply to contingently convertible
securities and to their potentially dilutive effects on EPS. The Company has provided
the required disclosures related to its contingently convertible securities that
are required by the FSP FAS 129-1 in its December 31, 2003 financial statements.
In March 2004, the FASB ratified Emerging
Issues Task Force (“EITF”) Issue No. 03-16, “Accounting for Investments
in Limited Liability Companies” (the “Issue”). In EITF Abstracts,
Topic No. D-46, “Accounting for Limited Partnership Investments,” the
SEC staff clarified its view that investments of more than three to five percent
are considered to be more than minor and, therefore, should be accounted for using
the equity method. Limited liability companies (“LLCs”) have characteristics
of both corporations and partnerships, but are dissimilar from both in certain respects.
Due to those similarities and differences, diversity in practice exists with respect
to accounting for noncontrolling investments in LLCs. This Issue addresses whether
an LLC should be viewed as similar to a corporation or similar to a partnership
for purposes of determining whether a noncontrolling investment should be accounted
for using the cost method or the equity method of accounting. The EITF reached a
consensus that an investment in an LLC that maintains a “specific ownership
account” for each investor, similar to a partnership capital account structure
should be viewed as similar to an investment in a limited partnership for purposes
of determining whether a noncontrolling investment in an LLC should be accounted
for using the cost method or the equity method. This EITF applies to all investments
in LLCs and is effective for reporting periods beginning after June 15, 2004. The
adoption of the Issue is not expected to have a material effect on the Company’s
financial condition or results of operations.
In June 2004, the FASB issued Staff Position
No. FAS 97-1,
Situations in Which Paragraphs 17(b) and 20 of FASB Statement No.
97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration
Contracts and for Realized Gains and Losses From the Sale of Investments, Permit
or Require Accrual of an Unearned Revenue Liability
(“FSP FAS 97-1”).
FSP FAS 97-1 clarifies whether it is appropriate to recognize an unearned revenue
liability to compensate the insurer for services to be performed over future periods
when future profits are expected to decline from the current level, or only when
current profits are expected to be followed by future losses (consistent with SOP
03-1). The adoption of this FSP FAS 97-1 is not expected to have a material effect
on the Company’s financial condition or results of operations.
EITF Issue No. 02-14,
Whether an Investor
Should Apply the Equity Method of Accounting to Investments Other than Common Stock
if the Investor Has the Ability to Exercise Significant Influence Over the Operating
and Financial Policies of the Investee
(“EITF 02-14”), addresses the
issue as to whether the equity method of accounting applies when an investor does
not have an investment in voting common stock of an investee but exercises significant
influence through other means (such as convertible debt, preferred equity securities,
options, warrants and interests in unincorporated entities). In July 2004, the EITF
reached a consensus that investors should apply the equity method when they have
an investment in either common stock or “in-substance common stock.” The
consensus reached in EITF 02-14, is effective for reporting periods beginning after
September 15, 2004. The Company is currently reviewing its investments in affiliates
and other investments, however, the adoption of EITF 02-14 is not expected to have
a material effect on the Company’s financial condition or results of operations.
The FASB has issued an Exposure Draft,
Earnings per Share (an amendment of FASB No. 128)
(the “Exposure Draft”)
,
which would amend the computational guidance in FAS 128,
Earnings per Share
,
for calculating the number of incremental shares included in diluted shares when
applying the treasury stock method. Also, it eliminates the provisions that allow
an entity to presume that contracts with the option of settling in either cash or
stock will be settled in cash and would require that shares that will be issued
upon conversion of a mandatory convertible security be included in the weighted-average
number of ordinary shares outstanding used in computing basic earnings per share
from the date on which conversion becomes mandatory. If the Exposure Draft is adopted
as proposed, it will be effective for financial statements for both interim and
annual periods beginning after December 15, 2004. If the Exposure Draft is adopted
as proposed, after the effective date, all prior-period EPS data presented will
be adjusted retrospectively (including interim financial statements, summaries of
earnings, and selected financial data) to conform with the provisions of the Exposure
Draft.
10
XL CAPITAL LTD
3. Recent Accounting
Pronouncements (continued)
In July 2004, the EITF
reached a tentative conclusion regarding Issue No. 04-8,
Accounting Issues Related
to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings
per Share
(“EITF 04-8”)
,
that contingently convertible securities
should be included in diluted EPS in all periods regardless of whether the contingency
is met and regardless of whether the market price contingency is substantive. If
a consensus is reached regarding EITF 04-8 and ratified by the FASB, it will be
effective for reporting periods ending after December 15, 2004. Prior period earnings
per share amounts presented for comparative purposes will be restated to conform
to this consensus.
If adopted in their current form, the dilutive
effect of the Exposure Draft and EITF 04-8 will be reflected in the calculation
of earnings per share as they both relate to the accounting for the Company’s
Zero Coupon Convertible Debentures (“CARZ”) and Liquid Yield Option Notes
(“LYONs”) securities. The increase in diluted weighted average ordinary
shares outstanding related to CARZ and LYONs would be 6,011 shares and 2,685 shares,
respectively. This dilutive effect would be partially offset by the adding back
of the related interest expense to net income available to ordinary shareholders.
4. Segment
Information
The Company is organized into three operating
segments — insurance, reinsurance and financial products and services —
in addition to a corporate segment that includes the general investment and financing
operations of the Company.
General, life and annuity, and financial
operations are disclosed separately by segment. General operations include property
and casualty lines of business.
The Company evaluates the performance of
each segment based on underwriting results for general operations, net income from
life and annuity operations and contribution from financial operations. Other items
of revenue and expenditure of the Company are not evaluated at the segment level.
In addition, the Company does not allocate assets by segment for its general operations.
Investment assets related to the Company’s life and annuity and financial operations
are held in separately identified portfolios. Net investment income from these assets
is included in net income from life and annuity operations and contribution from
financial operations, respectively.
Certain lines of business within general
operations written by the Company have loss experience generally characterized as
low frequency and high severity. This may result in volatility in both the Company’s
results and operational cash flows.
11
XL CAPITAL LTD
4. Segment Information
(continued)
The following is an analysis of results
by segment together with a reconciliation to net income:
Quarter ended June 30, 2004:
See footnotes on following page.
12
XL CAPITAL LTD
4. Segment Information
(continued)
Quarter ended June 30, 2004 (continued):
13
XL CAPITAL LTD
4. Segment Information
(continued)
Quarter ended June 30, 2003:
See footnotes on following page.
14
XL CAPITAL LTD
4. Segment Information
(continued)
Quarter ended June 30, 2003 (continued):
15
XL CAPITAL LTD
4. Segment Information
(continued)
Six months ended June 30, 2004:
See footnotes on following page.
16
XL CAPITAL LTD
4. Segment Information
(continued)
Six months ended June 30, 2004 (continued)
:
17
XL CAPITAL LTD
4. Segment Information
(continued)
Six months ended June 30, 2003:
See footnotes on following page.
18
XL CAPITAL LTD
4. Segment Information
(continued)
Six months ended June 30, 2003
(continued):
19
XL CAPITAL LTD
4. Segment Information
(continued)
The following tables summarize the Company’s
net premiums earned by line of business:
Quarter ended June 30, 2004:
Quarter ended June 30, 2003:
20
XL CAPITAL LTD
4. Segment Information
(continued)
The following tables summarize the
Company’s net premiums earned by line of business:
Six months ended June 30, 2004:
Six months ended June 30, 2003:
21
XL CAPITAL LTD
5. Notes
Payable and Debt and Financing Arrangements
In March 2004 the Company issued 33 million
6.5% Equity Security Units (“Units”) in a public offering. The Company
received approximately $800.2 million in proceeds from the sale of the Units after
deducting underwriting discounts.
Each Unit has a stated amount of $25 and
consists of (a) a purchase contract pursuant to which the holder agreed to purchase,
for $25, a variable number of shares of the Company’s Class A Ordinary Shares
on May 15, 2007 and (b) a one-fortieth, or 2.5%, ownership interest in a senior
note issued by the Company due May 15, 2009 with a principal amount of $1,000. The
senior notes are pledged by the holders to secure their obligations under the purchase
contract. The number of shares issued under the purchase contract is contingently
adjustable based on, among other things, the share price of the Company on the stock
purchase date and the dividend rate of the Company. The Company will make quarterly
payments at the annual rate of 3.97% and 2.53% under the purchase contracts and
senior notes, respectively. The Company may defer the contract payments on the purchase
contract, but not the senior notes, until the stock purchase date. In May 2007,
the senior notes will be remarketed whereby the interest rate on the senior notes
will be reset in order to generate sufficient remarketing proceeds to satisfy the
Unit holder’s obligation under the purchase contract. If the senior notes are
not successfully remarketed, then the Company will exercise its rights as a secured
party and may retain or dispose of the senior notes to satisfy in full the Unit
holders’ obligation to purchase its ordinary shares under the purchase contracts.
In connection with this transaction, $88.6
million, which is the estimated fair value of the purchase contract, was charged
to “Additional paid in capital” and a corresponding liability was established.
Of the $26.9 million total costs associated with the issuance of the Units, $23.7
million was charged to “Additional paid in capital” with the remainder
deferred and amortized over the term of the senior debt. The number of ordinary
shares to be issued under each purchase contract depends on, among other things,
the average market price of the ordinary shares. The maximum number of ordinary
shares to be issued under the purchase contracts is approximately 11 million. The
Company accounts for the effect on the number of weighted average ordinary shares,
assuming dilution, using the treasury stock method. The purchase contract component
of the Units will have no effect on the number of weighted average ordinary shares,
assuming dilution, except when the average market price of the Company’s ordinary
shares is above the threshold appreciation price of $93.99 per share. Because the
average market price of the Company’s ordinary shares during the period the
Units were outstanding was below this price, the shares issuable under the purchase
contracts were excluded from the computation of net income per ordinary share assuming
dilution for the three and six month periods ended June 30, 2004.
The Company entered into three new bilateral
unsecured letter of credit facilities in 2004 to provide additional capacity to
support the Company’s U.S. non-admitted business. The Company terminated two
of these bilateral letter of credit facilities on June 30, 2004. The facilities
amounted to $50.0 million and $25.0 million, respectively, and had been unutilized
during the quarter. The remaining new facility is for $50.0 million, which was fully
utilized at June 30, 2004.
The Company replaced its principal $2.5
billion credit and letter of credit facility that expired on June 23, 2004 with
a new $1 billion facility that expires on June 22, 2005 and a new $2.0 billion facility
that expires on June 22, 2007. Both facilities are available to provide revolving
credit ($600.0 million in the aggregate) and letters of credit ($3.0 billion in
the aggregate) and are syndicated and unsecured. The $1.0 billion facility was unutilized
at June 30, 2004, and approximately $1.7 billion of the $2.0 billion facility was
utilized to provide letters of credit at June 30, 2004.
On May 18, 2004, the Company announced
that it was to make a one-time cash payment to holders of its zero-coupon convertible
debentures due May 2021 (“CARZ”) for not exercising their put rights.
No bonds were put to the Company and, consequently, the Company paid $15.0 million
($14.84 per bond) to the holders of record on May 26, 2004.
22
XL CAPITAL LTD
6. Exposures
Under Guaranties
The Company provides and reinsures financial
guaranties issued to support public and private borrowing arrangements. Financial
guaranties are conditional commitments that guarantee the performance of an obligor
to a third party, typically the timely repayment of principal and interest. The
Company’s potential liability in the event of non-payment by the issuer of
the insured obligation is represented by its proportionate share of the aggregate
outstanding principal and interest payable on such insured obligation. In synthetic
transactions, the Company guarantees payment obligations of counterparties under
credit default swaps. The Company does not record a carrying value for future installment
premiums on financial guaranties as they are recognized over the term of the contract.
The net outstanding exposure as at June
30, 2004 of financial guaranty aggregate insured portfolios was $57.3 billion, which
includes credit default swap exposures of $10.0 billion. The net liability for these
credit default swaps has a carrying value of $106.2 million.
7. Derivative Instruments
The Company enters into derivative instruments
for both risk management and trading purposes. The Company is exposed to potential
loss from various market risks and manages its market risks based on guidelines
established by management. These derivative instruments are carried at fair value
with the resulting gains and losses recognized in income in the period in which
they occur.
The following table summarizes the net
realized and unrealized gains (losses) on derivative instruments included in net
income for the three and six months ended June 30, 2004 and 2003, respectively:
(U.S. dollars in thousands)
8. XL Capital Finance (Europe)
plc
XL Capital Finance (Europe) plc (“XLFE”)
is a wholly owned finance subsidiary of the Company. In January 2002, XLFE issued
$600.0 million par value 6.5% Guaranteed Senior Notes due January 2012. These Notes
are fully and unconditionally guaranteed by the Company. The Company’s ability
to obtain funds from its subsidiaries is subject to certain contractual restrictions,
applicable laws and statutory requirements of the various countries in which the
Company operates, including Bermuda, the U.S. and the U.K., among others. Required
statutory capital and surplus for the principal operating subsidiaries of the Company
was $3.0 billion as of December 31, 2003.
23
XL CAPITAL LTD
9. Computation
of Earnings Per Ordinary Share and Ordinary Share Equivalent
(U.S. dollars and shares in thousands except per
share amounts)
24
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following is a discussion of the Company’s
financial condition and liquidity and results of operations. Certain aspects of
the Company’s business have loss experience characterized as low frequency
and high severity. This may result in volatility in both the Company’s and
an individual segment’s results of operations and financial condition.
This “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” contains forward-looking
statements which involve inherent risks and uncertainties. Statements that are not
historical facts, including statements about the Company’s beliefs and expectations,
are forward-looking statements. These statements are based upon current plans, estimates
and projections. Actual results may differ materially from those projected in such
forward-looking statements, and therefore undue reliance should not be placed on
them. See “Cautionary Note Regarding Forward-Looking Statements” below
for a list of factors that could cause actual results to differ materially from
those contained in any forward-looking statement.
This discussion and analysis should be
read in conjunction with the “Management’s Discussion and Analysis of
Financial Condition and Results of Operations”, and the audited Consolidated
Financial Statements and notes thereto, presented under Item 7 and Item 8, respectively,
of the Company’s Form 10-K for the year ended December 31, 2003.
Executive Overview
See Executive Overview in Item 7 of the
Company’s Form 10-K for the year ended December 31, 2003.
Results of Operations
The following table presents an analysis
of the Company’s net income available to ordinary shareholders and other financial
measures (described below) for the three months ended June 30, 2004 and 2003:
(U.S. dollars and shares in thousands, except per share
amounts)
25
The following table presents an analysis of the Company’s net
income available to ordinary shareholders and other financial measures (described
below) for the six months ended June 30, 2004 and 2003.
(U.S. dollars and shares in thousands, except per share
amounts)
The Company’s net income and other financial
measures as shown below for the three and six months ended June 30, 2004 have been
affected, among other things, by the following significant items:
1) A continued
competitive underwriting environment in most product lines.
2) Stable
reported losses with low levels of catastrophe losses in the year to date.
1. A competitive underwriting
environment.
Overall market conditions remained strong
although competition continued to increase in all segments in the second quarter
causing further moderation in pricing. Given the differing dynamics of the markets
in which the Company operates, moderation of pricing takes place at a different
pace in different markets. Property lines continue to see the rate decreases noted
in the first quarter. Rate decreases have also been experienced in professional
lines. Based on continued solid demand and the benefits of price increases and improved
terms achieved over the last several years’ renewals, the Company believes
that business in the insurance and reinsurance markets remains adequately priced.
Performance by segment is further discussed in the segment analysis below.
2. Stable reported losses
with low levels of catastrophe losses in the year to date.
The Company’s loss and loss expense
ratio (net losses and loss expenses incurred as a percent of net premiums earned)
on general operations was 59.7% and 60.3%, respectively, for the three and six months
ended June 30, 2004, compared with 63.2% and 62.1% for the same periods in 2003.
These decreases were primarily due to the lower level of catastrophic losses in
the period combined with the earning of price improvements over the last year, particularly
in the reinsurance segment. This is further discussed in the segment analysis below.
26
Financial Measures
The following are some of the financial
measures management considers important in evaluating the Company’s operating
performance:
(U.S. dollars in thousands, except ratios and per share
amounts)
Underwriting profit — general operations
One way the Company evaluates the performance
of its property and casualty insurance and reinsurance general operations is the
underwriting profit or loss. The Company does not measure performance based on the
amount of gross premiums written. Underwriting profit or loss is calculated from
premiums earned and fee income, less net losses incurred and expenses related to
the underwriting activities. Underwriting profits in the three and six months ended
June 30, 2004 are primarily reflective of the combined ratio discussed below.
Combined ratio — general operations
The combined ratio for general operations
is used by the Company, and many other property and casualty insurance and reinsurance
companies, as another measure of underwriting profitability. The combined ratio
is calculated from the net losses incurred and underwriting expenses as a ratio
of the net premiums earned for the Company’s general insurance and reinsurance
operations. A combined ratio of less than 100% indicates an underwriting profit
and over 100% reflects an underwriting loss. Decreases in the Company’s combined
ratio for the three and six months ended June 30, 2004 compared to the same periods
in the previous year were primarily a result of a lower loss and loss expense ratio.
The underwriting expense ratio has remained relatively stable. The decrease in loss
and loss expense ratio was primarily due to improved results in U.S. casualty lines
compared to 2003, combined with an absence of catastrophic events over the first
six months of the year.
Net investment income — general operations
Net investment income from the Company’s
general operations is an important measure which affects the Company’s overall
profitability. The largest liability of the Company relates to its unpaid loss reserves,
and the Company’s investment portfolio provides liquidity for claims settlements
of these reserves as they become due. A significant part of the portfolio is in
fixed income securities. Net investment income is affected by overall market interest
rates and also the size of the portfolio. The average investment portfolio outstanding
during the quarter ended June 30, 2004 has increased as compared to the same period
in 2003 due to positive cash flows combined with capital raising activities. Total
investments as at June 30, 2004 were $25.7 billion as compared to $20.3 billion
as at June 30, 2003. Interest rates have risen in 2004 which has also contributed
to the increase in investment income.
27
Book value per ordinary share
Management also views the Company’s
book value per ordinary share as an additional measure of the Company’s performance.
Book value per share is calculated by dividing ordinary shareholders’ equity
by the number of outstanding ordinary shares at any period end. Book value per ordinary
share is affected primarily by the Company’s net income and also by any changes
in the net unrealized gains and losses on its investment portfolio. Book value per
ordinary share has increased by $0.66 in the first half of 2004. While the Company’s
continued growth and profitability has created $835.9 million in net income for
the first half of the year, the net unrealized gains associated with the Company’s
fixed income investment portfolio decreased as interest rates have risen.
Annualized return on average ordinary shareholders’
equity
Annualized return on average ordinary shareholder’s
equity (“ROE”) is a widely used measure of a company’s profitability.
It is calculated by dividing the net income for any period by the average of the
opening and closing ordinary shareholders’ equity. The Company establishes
target ROE’s for its total operations, segments and lines of business. If the
Company’s ROE return targets are not met with respect to any line of business
over time, the Company seeks to reevaluate these lines. In addition, the Company’s
compensation of its senior officers is significantly dependant on the achievement
of the Company’s performance goals to enhance shareholder value, including
ROE. The improvement in this financial measure was due to the key operating factors
noted above combined with a 6.2% increase in return related specifically to the
net realized gains on investments and derivatives recognized in the period.
Other Key Focuses of Management
See the discussion of the Other Key Focuses
of Management in Item 7 of the Company’s Form 10-K for the year ended December
31, 2003.
Critical Accounting Policies and Estimates
See the discussion of the Company’s
Critical Accounting Policies and Estimates in Item 7 of the Company’s Form
10-K for the year ended December 31, 2003.
Variable Interest Entities and Other Off-Balance
Sheet Arrangements
See the discussion of the Company’s
variable interest entities and other off-balance sheet arrangements in Item 7 of
the Company’s Form 10-K for the year ended December 31, 2003.
Segment Results for the three months ended June 30,
2004 compared to the three months ended June 30, 2003
Insurance
General insurance business written includes
risk management and specialty lines. Risk management products are comprised of global
property and casualty insurance programs for large multinational companies, including
umbrella liability, integrated risk and primary master property and liability coverages.
Specialty lines products include directors’ and officers’ liability insurance,
environmental liability insurance, political risk insurance, professional liability,
property catastrophe, aviation and satellite insurance, employment practices liability
insurance, surety, marine, specie, bloodstock and certain other insurance coverages
including program business.
A large part of the Company’s casualty
insurance business written has loss experience that is low frequency and high severity.
As a result, large losses, though infrequent, can have a significant impact on the
Company’s results of operations, financial condition and liquidity. The Company
attempts to mitigate this risk by using strict underwriting guidelines and various
reinsurance arrangements.
28
The following table summarizes the underwriting results for this
segment:
(U.S. dollars in thousands)
Gross and net premiums written increased by 22.6%
and 36.4%, respectively, in the quarter ended June 30, 2004 compared with the quarter
ended June 30, 2003. This increase was primarily due to new business written across
most lines, first quarter premiums in excess of our estimated amounts recorded in
the second quarter and favorable foreign exchange movements. While pricing remained
attractive in the quarter, there continued to be moderate rate reductions in property
and professional lines and growing rate pressures on most casualty lines. The most
significant growth due to new business was seen in professional business, in which
gross premiums written increased by $102.0 million over the same period in the prior
year. Of the gains seen in the professional lines, new product offerings, in the
areas of small and midsize law firms as well as architects and engineers, represented
$56.0 million in new premiums in the quarter. In addition, new insurance initiatives
in the property catastrophe lines contributed $28.0 million in new gross written
premiums. Net premiums written have grown by a larger percentage than gross premiums
written primarily as a result of ceded reinsurance commutations related to professional
lines in the second quarter of 2004.
Net premiums earned increased by 27.8%
in the quarter ended June 30, 2004 compared with the quarter ended June 30, 2003.
The increase was due to the earning of additional net premiums written in the current
and prior year combined with the factors affecting net premiums written. The ceded
reinsurance commutations increased net premium earned by $63.4 million in the second
quarter of 2004. Growth in net premiums earned was partially offset by several non-renewed
portfolios (specialty workers’ compensation, certain Lloyd’s international
programs, and accident & health) as the earned premium effect of the non-renewed
business lags the written premium impact. The weakening of the U.S. dollar against
the U.K. sterling and the Euro as compared to the same period in 2003 accounted
for approximately $34.0 million of the increase in net premiums earned for the three
months ended June 30, 2004.
Fee income and other is mainly generated
by the Company’s risk engineering services.
Exchange losses in the quarter ended June
30, 2004 were primarily due to the weakening of the U.K. sterling and the Euro against
the U.S. dollar in those entities whose functional currency is the Euro or U.K.
Sterling and which are exposed to net U.S. dollar liabilities.
29
The following table presents the ratios for this segment:
The loss and loss expense ratio includes net losses
incurred for both the current year and any adverse or favorable prior year development
of loss and loss reserves held at the beginning of the year. The loss ratio for
the three months ended June 30, 2004 remained relatively consistent compared with
the three months ended June 30, 2003. The current quarter losses included approximately
$29.0 million in net prior period reserve strengthening while the same period in
2003 included several large individual losses.
The decrease in the underwriting expense
ratio in the three months ended June 30, 2004 compared to the same period in 2003
was due to a decrease in the acquisition expense ratio of 2.4 points (14.1% as compared
to 16.5%) while the operating expense ratio remained consistent. The reduction in
the acquisition expense ratio was due primarily to a change in the mix of business
earned during the quarter compared to the same quarter in the prior year as well
as the effects of the professional lines ceded reinsurance commutation described above.
Reinsurance
Reinsurance — General Operations
General reinsurance business written includes
casualty, property, accident and health and other specialty reinsurance on a global
basis. The Company’s reinsurance property business generally has loss experience
characterized as low frequency and high severity that can have a negative impact
on the Company’s results of operations, financial condition and liquidity.
The Company endeavors to manage its exposures to catastrophic events by limiting
the amount of its exposure in each geographic zone worldwide and requiring that
its property catastrophe contracts provide for aggregate limits and varying attachment
points.
The following table summarizes the underwriting
results for the general operations of this segment:
Gross and net premiums written increased 2.5%
and 2.8%, respectively, in the second quarter of 2004 as compared to the second
quarter of 2003. The growth in gross written premiums was seen primarily in the
U.S. casualty business and the property catastrophe business. These increases reflect
increases in volume of new and renewal business combined with underlying rate improvements
on the U.S. and London casualty portfolio offset by rate decreases generally across
property and U.S. casualty lines compared to the same period last year. Favorable
foreign exchange movements also contributed approximately $11.0 million to the growth
in gross written premiums. Net written premiums reflected the above gross changes
in gross premiums written.
30
Net premiums earned in the second quarter of 2004 increased 19.8%
as compared to the second quarter of 2003, due primarily to the earning of net written
premium growth in the last year. Casualty reinsurance net premiums earned were $320.4
million in the second quarter of 2004 as compared to $234.9 million in the same
period in 2003.
Fee income and other relates primarily
to fees earned on structured risk contracts which are earned based on individual
underlying contractual terms and conditions.
The following table presents the ratios
for this segment:
The loss and loss expense ratio includes net losses
incurred for both the current year and any adverse or favorable prior year development
of loss reserves held at the beginning of the year. The decrease in the loss and
loss expense ratio in the quarter ended June 30, 2004 compared to the same quarter
in 2003 primarily reflected lower than expected development in the quarter relating
to several large losses in recent underwriting years, including a release of $12.0
million related to the September 11 event, and price improvements on earned premiums
compared to prior periods.
The increase in the underwriting expense
ratio in the second quarter of 2004 as compared with the second quarter of 2003
was primarily due to an increase in the acquisition expense ratio to 24.2% as compared
to 23.6% in the second quarter of 2003. This increase was mainly due to increased
profit commissions paid or due to reinsurers which resulted from favorable loss
development in the period. The operating expense ratio increased from 6.1% for the
second quarter of 2003 to 6.8% in the same quarter in 2004. The increase in operating
expenses compared to the second quarter of 2003 was primarily due to the increased
allocation of certain corporate expenses and the effects of foreign exchange movements.
Exchange losses in the three months ended
June 30, 2004 were mainly attributable to an overall strengthening in the value
of the U.S. dollar against U.K. Sterling and the Euro in those operations with U.S.
dollars as their functional currency and net UK sterling and Euro assets.
31
Reinsurance — Life and Annuity Operations
Life and annuity business written by the
reinsurance operations is primarily European life reinsurance. This includes term
assurances, group life, critical illness cover, immediate annuities and disability
income business. Due to the nature of these contracts, premium volume may vary significantly
from period to period.
The following summarizes net income from
life and annuity operations:
Gross and net premiums written as well as net
premiums earned and claims and policy benefits increased significantly in the second
quarter of 2004 as compared to the second quarter of 2003. These increases were
primarily a result of a large immediate annuity portfolio contract written in the
current quarter, representing $898.0 million in net premiums written and earned.
In addition, the Company wrote several new premium term assurance contracts
in the fourth quarter of 2003, which generated further written premiums in
the current quarter. The increase in percentage of net premiums written to gross
premiums written was primarily due to the termination of a retrocession agreement
with an insurance affiliate in the third quarter of 2003.
Claims and policy benefits also increased
significantly as a result of the annuity payout liabilities assumed under the contract
noted above. Changes in claims and policy benefits also include the movement in
policy benefit reserves related to other contracts where investment assets were
acquired with the assumption of the policy benefit reserves at the inception of
the contract.
Acquisition costs decreased in the second
quarter of 2004 as compared to the second quarter of 2003 due to a timing difference
arising from late renewal of a contract in 2003. Operating expenses increased in
the second quarter of 2004 compared to the second quarter of 2003 reflecting the
build out of existing operations and start-up costs of new life operations in the
U.S.
Net investment income is included in the
calculation of net income from life and annuity operations as it relates to income
earned on portfolios of separately identified and managed life investment assets
and other allocated assets. Several new large annuity contracts have been written
since the second quarter of 2003, which significantly increased the invested assets
relating to these operations.
Financial Products and Services
Financial Products and Services — Financial
Operations
Financial Products and Services —
Financial Operations business written includes insurance, reinsurance and derivative
solutions for complex financial risks including financial guaranty insurance and
reinsurance and weather and energy risk management products. Many of these transactions
are unique and tailored to the specific needs of the insured or user.
32
Financial guaranty insurance and reinsurance generally guarantees
payments of interest and principal on an issuer’s obligations when due. Obligations
guaranteed or enhanced by the Company range in duration and premiums are received
either on an installment basis or upfront. Guaranties written in derivative form provide coverage for losses upon the occurrence of specified credit events
set forth in the swap documentation.
The Company’s weather and energy risk
management products are customized solutions designed to assist corporate customers,
primarily energy companies and utilities, to manage their financial exposure to
variations in underlying weather conditions and related energy markets. The Company
may use the capital markets to hedge portions of these risks written.
The following table summarizes the contribution
for this segment:
Gross and net premiums written primarily relate
to the financial guaranty line of business and reflect premiums received and accrued
for in the period and do not include the present value of future cash receipts expected
from installment premium policies written in the period. Decreases in gross and
net premiums written of 29.6% and 31.2%, respectively, in the second quarter of
2004 as compared to the same period in 2003 were primarily due to the combination
of conscious underwriting discipline during generally weaker market conditions in
the quarter and the absence in the current quarter of several large upfront premium
contracts written in the second quarter of 2003. Market conditions are being driven
by credit spread compression, higher interest rates, increased competition and reduced
public financing.
The slight decline in net premiums earned in the
second quarter of 2004 as compared to the same period in 2003 was primarily due
to the earning of short term contract enhancements in the second quarter of 2003.
Excluding this, financial guarantee premiums earned increased by $4.0 million over
the same quarter last year. Premiums earned do not include premiums on contracts
written in derivative form, which are included in “Net realized and unrealized
gains (losses) on credit default swaps”.
As with the Company’s property and
casualty insurance and reinsurance operations, net losses and loss expenses include
current year net losses incurred and adverse or favorable development of prior year
net loss and loss expenses reserves. Net losses and loss expenses in the quarter
ended June 30, 2004 decreased compared to the same period in 2003. This decrease
was primarily a result of the release of prior period unallocated reserves for financial
guaranty exposures as the underlying in force policies get closer to maturity.
33
In the three months ended June 30, 2004, acquisition costs as a percentage
of net premiums earned remained consistent with the same period in the prior year.
Operating expenses increased in the second
quarter of 2004 as compared to the second quarter of 2003 due to expansion of all
activities in the segment over the last year as well as an increase in the allocation of certain corporate expenses.
Net investment income related to the financial
guaranty business increased in 2004 due to the larger investment portfolio created
by growth in premium receipts and a $100.0 million capital infusion to this segment
in the fourth quarter of 2003.
The net realized and unrealized positions
on weather and energy risk management derivative instruments resulted in a small
gain in the quarter ended June 30, 2004 as compared to much larger gains in the
same quarter in 2003. In the period since June 30, 2003 the positions and activity
in the gas area has been significantly reduced, those in the weather area have been
increased slightly, and new contingent risk products were introduced.
Equity in net income of financial affiliates
decreased in the second quarter of 2004 as compared to the second quarter of 2003
due primarily to the Company’s investment in Primus Guaranty, Ltd (“Primus”).
Primus specializes in providing credit risk protection through credit derivatives.
Primus had a negative mark-to-market adjustment in the quarter ended June 30, 2004.
The decrease in minority interest in the
second quarter of 2004 and the second quarter of 2003 was due to a decrease in the
profits in the current quarter of XL Financial Assurance Ltd., of which 15% is held
by a minority shareholder.
The Company’s credit derivative transactions
relate primarily to financial guaranty coverage that is written in swap form and
pertains to tranches of collateralized debt obligations and asset backed securities. The net realized and unrealized gains in
the quarter ended June 30, 2004 related to the fair value adjustment for transactions
written in a derivative form as well as the premiums earned associated with these
transactions. These gains were mainly unrealized and related to the improvement
of credit quality for certain credit pools and the general tightening of spreads
in the period, although also included in this fair value change is $11.4 million
of earnings on premium received in the quarter. In the second quarter of 2003 the
opposite conditions existed and the fair value change was negative. The Company
continues to monitor its credit exposures and cash flows and adjust the fair value
of these derivatives as required.
Financial Products and Services — Life and Annuity
Operations
The Company commenced writing life business
in this segment in the fourth quarter of 2002. The Company writes municipal reinvestment
contracts, funding agreements and institutional life products.
The Company commenced writing municipal
reinvestment contracts in 2002 and funding agreements in 2003 whereby the Company
receives deposits at contractual interest rates. The Company has investment risk
related to its ability to generate sufficient investment income to enable the total
invested assets to cover the payment of the estimated ultimate liability.
34
The following summarizes net income from life operations:
In December 2002, certain blocks of U.S.-based
mortality reinsurance business written were novated to the Company from an insurance
affiliate. Gross and net premiums earned, claims and policy
benefit reserves and acquisition costs are all related to this novated block of
business. During the quarter ended September 30, 2003, the Company exercised its
right and terminated a retrocession agreement relating to certain of these exposures which
led to the significant increase in premiums earned and related claims as compared to
the quarter ended June 30, 2003. In the quarter ended June 30, 2004 approximately $3.0 million in additional
claims and policy benefit reserves were recorded related to
this block of business.
Net investment income and interest expense
relate to municipal reinvestment contracts and funding agreements transactions.
The increase in investment income and the related interest expense were due to the
initiation of funding agreements in the second quarter of 2003 combined with increases
in the average balances outstanding related to the book of municipal reinvestment
contracts. The balances outstanding for funding agreements and municipal reinvestment
contracts have increased from $0.3 billion and $1.0 billion, respectively, as at
June 30, 2003 to
Investment Activities
The following table illustrates the change
in net investment income from general operations, equity in net income of investment
affiliates, net realized gains and losses on investments and net realized and unrealized
gains and losses on investment derivatives from general operations for the quarters
ended June 30, 2004 and 2003:
35
Net investment income related to general operations increased in
the second quarter of 2004 as compared to the second quarter of 2003 due primarily
to a higher investment base. The growth in the investment base reflected the Company’s
cash flow from operations. The market yield to maturity on the total fixed income
portfolio was 4.1% at June 30, 2004 as compared to 3.7% at June 30, 2003.
Equity in net income of investment affiliates
decreased in the second quarter of 2004 compared to the second quarter of 2003.
In the second quarter of 2004 the Company experienced very strong performance in
the financial results of the investment managers where the Company has a minority
stake. However, the Company’s returns from its fund investment affiliates were
marginally positive for the quarter as a result of difficult investment conditions
in the majority of capital markets.
The Company manages portfolios consisting
of structured portfolios (i.e., assets supporting deposit liabilities and future
policy benefit reserves) and Asset/Liability portfolios, where, due to the unique
nature of the underlying liabilities, customized liability-based benchmarks are
used to measure performance. The Company also manages Risk Asset portfolios, which
constitute approximately 10% of the Company’s invested assets. These are compared
to applicable public indices. The following is a summary of the investment performance
for the quarters ended June 30, 2004 and June 30, 2003, respectively:
36
Net Realized Gains and Losses and other than temporary declines
in the value of investments
Net realized gains on investments in the
second quarter of 2004 included net realized gains of $12.5 million from sales of
investments and net realized losses of approximately $3.7 million related to the
write-down of certain of the Company’s fixed income and equity investments
where the Company determined that there was an other than temporary decline in the
value of those investments.
Net realized gains on investments in the
second quarter of 2003 included net realized gains of $132.3 million from sales
of investments and net realized losses of approximately $38.6 million related to
the write-down of certain of the Company’s fixed income and equity investments
where the Company determined that there was an other than temporary decline in the
value of those investments.
The Company’s process for identifying
declines in the fair value of investments that are other than temporary involves
consideration of several factors. These factors include: (i) the time period during
which there has been a significant decline in value; (ii) an analysis of the liquidity,
business prospects and overall financial condition of the issuer; (iii) the significance
of the decline; (iv) an analysis of the collateral structure and other credit support,
as applicable, of the securities in question; and (v) the Company’s intent
and ability to hold the investment for a sufficient period of time for the value
to recover. Where the Company’s analysis of the above factors results in the
Company’s conclusion that declines in fair values are other than temporary,
the cost of the security is written down to fair value and the previously unrealized
loss is therefore realized.
Net Unrealized Gains and Losses on Investments
At June 30, 2004, the Company had net unrealized
gains on fixed income securities of $19.6 million and net unrealized gains on equities
of $86.1 million. Of these amounts, gross unrealized losses on fixed income securities
and equities were $281.8 million and $9.2 million, respectively. The information
presented below for the gross unrealized losses on the Company’s investments
at June 30, 2004 shows the potential effect upon the Company’s future earnings
and financial position should management later conclude that some of the current
declines in the fair value of these investments are other than temporary declines.
Interest rates have risen over the first two quarters of the year which has reduced
the market values of most fixed income investments.
At June 30, 2004, approximately 7,200 fixed
income securities out of a total of approximately 14,800 securities were in an unrealized
loss position. The largest unrealized loss in the fixed income portfolio was $10.5
million. The number of fixed income securities in an unrealized loss position increased
from 2,100 individual securities with total unrealized losses of $53.0 million at
March 31, 2004. This increase was a result of an increase in prevailing market rates
during the quarter. Approximately 300 equity securities out of a total of approximately
1,800 securities were in an unrealized loss position at June 30, 2004 with the largest
individual loss being $1.0 million.
37
The following is an analysis of how long each of those securities
with an unrealized loss at June 30, 2004 had been in a continual unrealized loss
position:
(U.S. dollars in thousands)
At June 30, 2004, the following was the maturity
profile of the fixed income securities that were in a gross unrealized loss position:
The Company operates a risk asset portfolio that
includes high yield (below investment grade) fixed income securities. These represented
approximately 4.0% of the total fixed income portfolio market value at June 30,
2004. The change in fair value of these securities has a higher volatility than
investment grade securities. Of the total gross unrealized losses in the Company’s
fixed income portfolio at June 30, 2004, $12.2 million related to securities that
were below investment grade or not rated. The following is an analysis of how long
each of these below investment grade and unrated securities had been in a continual
unrealized loss position at the date indicated:
38
Other Revenues and Expenses
The following table sets forth other revenues
and expenses for the three months ended June 30, 2004 and 2003:
Corporate operating expenses in the second quarter
ended June 30, 2004 increased compared to the three months ended June 30, 2003 due
to the continued build out of the Company’s global infrastructure in developing
its network of shared service organizations to support operations in certain locations,
costs related to compliance with the Sarbanes-Oxley Act and costs related to the
Company’s global branding campaign.
The increase in interest expense was primarily
due to additional interest expense related to the 2.53% Senior Notes issued in March
2004 which was partially offset by the commutation of certain finite reinsurance contracts.
For more information on the Company’s financing structure, see “Financial
Condition and Liquidity.”
The increase in the Company’s income
taxes arose principally from an improvement in the profitability of the Company’s
U.S. and European operations.
Segment Results for the six months ended June 30,
2004 compared to the six months ended June 30, 2003
Insurance
The following table summarizes the underwriting
results for this segment:
Gross and net premiums written increased by 19.3%
and 26.8%, respectively, in the half year ended June 30, 2004 compared with the
half year ended June 30, 2003. These increases are primarily due to new business
written across most lines and favorable foreign exchange movements. The most significant
growth due to new business was seen in casualty, professional and marine lines of
business combined with several new product offerings in the professional liability
and property catastrophe lines. The new insurance initiatives added, in total, approximately
$150.0 million to gross written premium. The weakening of the U.S. dollar against
the U.K. sterling and the Euro as compared
39
to the second half of 2003 accounted for approximately $140.0 million
of the increase in gross premiums written in the six months ended June 30, 2004.
Partially offsetting the growth in net and gross premiums written in 2004 were moderate
rate reductions in certain property lines and growing rate pressures on most casualty
lines. Net premiums written have grown by a larger percentage than gross premiums
written as a result of a ceded reinsurance commutations related to professional
lines.
Net premiums earned increased by 14.1%
in the six months ended June 30, 2004 compared with the six months ended June 30,
2003. The increase was due to the earning of additional net premiums written in
the current and prior year combined with an increase in net retentions as a result
of a ceded reinsurance commutation noted above. Growth in net premiums earned was
partially offset by several non-renewed portfolios (specialty workers’ compensation,
certain Lloyd’s international programs, and accident & health) as the earned
premium impact of the non-renewed business lags the written premium impact.
Exchange losses in the six months ended
June 30, 2004 were primarily due to the strengthening of the U.S. dollar in the
first half of 2004 against the Euro and other major currencies in those entities
whose functional currency is other than U.S. dollars and which are exposed to net
U.S. dollar liabilities.
The decrease in the underwriting profit
in the first half of 2004 as compared with the very strong performance in the first
half of 2003 was also reflective of the combined ratios as shown below.
The following table presents the ratios
for this segment:
The loss and loss expense ratio includes net losses
incurred for both the current year and any adverse or favorable prior year development
of loss and loss reserves held at the beginning of the year. The loss ratio for
the six months ended June 30, 2004 increased compared with the six months ended
June 30, 2003 largely due to minor prior period reserve strengthening in the first
half of 2004.
The underwriting expense ratio in the half
year ended June 30, 2004 compared to the same period in 2003 was flat as an increase
in the operating expense ratio of 1.5 points (13.1% as compared to 11.6%) was offset
by a reduction in the acquisition expense ratio of 1.5 points (13.8% as compared
to 15.3%). The increase in the operating expense ratio was due primarily to the
increased costs associated with supporting new business growth in the segment operations
globally and in particular the start up operations, the impact of foreign exchange
movements and an allocation of certain corporate expenses to the segment. The reduction
in the acquisition expense ratio was due primarily to a change in the mix of business
earned during the first half of the year compared to the same period in the prior
year.
40
Reinsurance
Reinsurance — General Operations
The following table summarizes the underwriting
results for the general operations of this segment:
(U.S. dollars in thousands)
Gross and net premiums written increased 8.5%
and 13.7%, respectively, in the first half of 2004 as compared to the first half
of 2003. The growth in gross written premiums was seen primarily in the U.S. casualty
business and the property lines of business. These increases reflect increases in
volume of new and renewal business combined with underlying rate improvements in
the range of 10%-15% on the U.S. and London casualty portfolio and rate decreases
generally in the range of up to 15% across U.S. property lines. Some international
property rates also saw reductions but to a lesser extent. Rate decreases also occurred
in the marine, aviation and satellite lines. Favorable foreign exchange movements
also contributed to the growth in gross written premiums. Net written premiums reflect
the above gross changes, together with higher retentions, including approximately
$49.0 million of quota share premiums from Le Mans Re previously ceded but now retained
within the group.
Net premiums earned in the first half of
2004 increased 22.4% as compared to the first half of 2003, due primarily to the
earning of net written premium growth in the last year. Casualty reinsurance net
premiums earned were $606.0 million in the first half of 2004 as compared to $455.0
million in the same period in 2003.
Fee income and other relates primarily
to fees earned on deposit liability contracts which are earned based on individual
underlying contractual terms and conditions. The decrease in fee income was in line
with management expectations given those terms and conditions.
The following table presents the ratios
for this segment:
The loss and loss expense ratio includes net losses
incurred for both the current year and any adverse or favorable prior year development
of loss reserves held at the beginning of the year.
There were no significant catastrophic
loss events affecting the Company in the first half of 2004 or 2003. The decrease
in the loss and loss expense ratio in the half year ended June 30, 2004 compared
to the same period in 2003 primarily reflected lower than expected incurred loss
development in the first half of the year relating to recent underwriting years,
including a release of $12 million related to the September 11 event, and price
improvements on earned premiums from prior periods.
41
The increase in the underwriting expense ratio in the first half
of 2004 as compared with the first half of 2003 was primarily due to an increase
in the acquisition expense ratio to 22.6% as compared to 21.4% in the first half
of 2003. This increase was mainly due to increased profit commissions which resulted
from favorable loss development in the period. The operating expense ratio remained
relatively consistent increasing to 6.6% for the first half of 2004 from 6.2% in
the same period in 2003.
Exchange gains in the six months ended
June 30, 2004 were mainly attributable to an overall weakening in the value of the
U.S. dollar against the UK Sterling and the Euro in those operations with U.S. dollars
as their functional currency and net U.K. sterling and Euro assets.
Reinsurance — Life and Annuity Operations
The following summarizes net income from
life operations:
(U.S. dollars in thousands)
Gross and net premiums written as well as net
premiums earned and claims and policy benefits increased significantly in the first
half of 2004 as compared to the first half of 2003 primarily as a result of a large
immediate annuity portfolio contract bound in the second quarter, representing $898.0
million in net premium earned. In addition, the Company wrote several new regular
premium term assurance contracts in the fourth quarter of 2003, which were generating
further written premiums in the current and subsequent quarters. The increase in
percentage of net premiums written to gross premiums written was primarily due to
the termination of a retrocession agreement with an insurance affiliate in the third
quarter of 2003.
Claims and policy benefits also increased
significantly as a result of the annuity payout liabilities accepted under the contract
noted above. Changes in claims and policy benefits also included the movement in
policy benefit reserves related to other contracts where investment assets were
acquired with the assumption of the policy benefit reserves at the inception of
the contract.
Acquisition costs decreased in the first
half of 2004 as compared to the first half of 2003 due to a timing difference arising
from late renewal of a contract in France. Operating expenses increased in the first
half of 2004 compared to the first half of 2003 reflecting the build out of existing
operations and start-up costs of new Life operations in the U.S. Net investment
income increased in the first half of 2004 compared to the first half of 2003 reflecting
the increase in life business invested assets primarily arising from new large annuity
contracts written since June 30, 2003.
Financial Products and Services
Financial Products and Services – Financial
Operations
The following table summarizes the underwriting results
for this segment:
42
(U.S. dollars in thousands)
Gross and net premiums written primarily relate
to the financial guaranty line of business and reflect premiums received and accrued
for in the period and do not include the present value of future cash receipts expected
from installment premium policies written in the period. Decreases in gross and
net premiums written of 12.8% and 16.4%, respectively, in the first half of 2004
as compared to the same period in 2003 were primarily due to the combination of
conscious underwriting discipline during generally weaker market conditions in the
quarter and the absence in the current quarter of several large upfront premium
contracts written in the second quarter of 2003. Market conditions are being driven
by credit spread compression, higher interest rates, increased competition and reduced
public financing.
Net premiums earned in the first half of
2004 as compared to the same period in 2003 showed growth in contrast to the decrease
in net premiums written over the same period. This is because these premiums earn
out over the life of the underlying exposures, which are typically longer than the
risk periods related to the Company’s insurance and reinsurance general operations.
The increase was partially offset by the earning of a large benefit relating to
short term contract enhancements in the first half of 2003. Premiums earned do not
include premiums on contracts written in derivative form, which are included in
“Net realized and unrealized gains (losses) on credit default swaps”.
As with the Company’s property and
casualty insurance and reinsurance operations, net losses and loss expenses include
current year net losses incurred and adverse or favorable development of prior year
net loss and loss expenses reserves. Net losses and loss expenses in the six months
ended June 30, 2004 decreased significantly compared to the same period in 2003.
This decrease was primarily a result of the release of prior period reserves related
to financial guaranty exposures as the underlying in force policies get closer to
maturity.
In the six months ended June 30, 2004,
acquisition costs as a percentage of net premiums earned decreased as compared to
the first half of 2003. This was due to a change in the average term over which
the acquisition costs were being expensed which more accurately reflected the life
of the exposures.
Operating expenses increased in the first
half of 2004 as compared to the first half of 2003 due to the investment in segment
infrastructure over the last year as well as an increase in the allocation of certain corporate expenses.
Net investment income related to the financial
guaranty business increased in 2004 due to the larger investment portfolio created
by growth in premium receipts and a $100.0 million capital infusion in the fourth
quarter of 2003.
43
The net realized and unrealized positions on weather and energy risk
management derivative instruments resulted in a loss in the half year ended June
30, 2004 as compared to a significant gain in the same period in 2003. During the
first half of 2004 the winter weather and gas portfolios experienced losses due to higher
than expected temperature volatility. During the first half of 2003, $9.1 million
in gains were recognized on derivative contracts related to natural gas exposures
that were not repeated in 2004. In the period since June 30, 2003 the positions and
activity in the gas area has been significantly reduced, those in the weather area
have been increased slightly, and new contingent risk products were introduced.
Equity in net income of financial affiliates
decreased in the first half of 2004 as compared to the second half of 2003 due primarily
to the Company’s investment in Primus. Primus specializes in providing credit
risk protection through credit derivatives. Primus had a negative mark-to-market
adjustment in the period.
The increase in minority interest in 2004
compared to 2003 is due to an increase in the profitability of XL Financial Assurance
Ltd., of which 15% is held by a minority shareholder.
The Company’s credit derivative transactions
relate primarily to financial guaranty coverage that is written in swap form and
pertains to tranches of collateralized debt obligations and asset backed securities. The net realized and unrealized gains in
the six months ended June 30, 2004 related to the fair value adjustment for transactions
written in derivative form as well as the premiums earned associated with these
transactions. These gains were mainly unrealized and related to the improvement
of credit quality for certain credit pools. In the first half of 2003 the opposite
conditions existed and the fair value change was negative. The Company continues
to monitor its credit exposures and adjust the fair value of these derivatives as
required.
Financial Products and Services — Life and Annuity
Operations
The following summarizes net income from life operations:
(U.S. dollars in thousands)
Gross and net premiums written and earned relate
to the blocks of U.S.-based mortality reinsurance business. Claims and policy benefits
from this book of business are in line with management’s expectations.
In December 2002, certain blocks of U.S.-based
mortality reinsurance business written were novated to the Company from an insurance
affiliate. Gross and net premiums earned, claims and policy
benefit reserves and acquisition costs are all related to this novated block of
business. During the quarter ended September 30, 2003, the Company exercised its
right and terminated a retrocession agreement of certain of these exposures which
led to the significant increase in net premiums written in the first half of 2004
compared to the same period in 2003. In the quarter ended June 30, 2004 approximately $3.0 million in additional
claims and policy benefit reserves were recorded related to
this block of business.
Net investment income and interest expense
relate to municipal reinvestment contracts and funding agreements
44
transactions. The increase in investment income and the related interest
expense was due to the initiation of the funding agreements in the second quarter
of 2003 combined with increases in the average balances outstanding related to the
book of municipal reinvestment contracts. The balances outstanding for funding agreements
and municipal reinvestment contracts have increased from $0.3 and $1.0 billion,
respectively, as at June 30, 2003 to $0.9 million and $1.9 billion, respectively,
as at June 30, 2004.
Investment Activities
The following table illustrates the change
in net investment income from general operations, equity in net income of investment
affiliates, net realized gains and losses on investments and net realized and unrealized
gains and losses on investment derivatives from general operations for the six months
ended June 30, 2004 and 2003:
(U.S. dollars in thousands)
Net investment income related to general operations
increased in the first six months of 2004 as compared to the first six months of
2003 due primarily to a higher investment base. The growth in the investment base
reflects the Company’s cash flow from operations. The market yield to maturity
on the total fixed income portfolio was 4.1% at June 30, 2004 as compared to 3.7%
at June 30, 2003.
Equity in net income of investment affiliates
increased in the first six months of 2004 compared to the first six months of 2003
mainly due to strong performance in both the alternative portfolio and financial
results of the investment managers where the Company has a minority stake.
45
The Company manages portfolios consisting of structured portfolios
(i.e., assets supporting deposit liabilities and future policy benefit reserves)
and Asset/Liability portfolios where, due to the unique nature of the underlying
liabilities, customized liability-based benchmarks are used to measure performance.
The Company also manages Risk Asset portfolios, which constitute approximately 10%
of the Company’s invested assets. These are compared to applicable public indices.
The following is a summary of the investment performance for the six months ended
June 30, 2004 and June 30, 2003, respectively:
Net Realized Gains and Losses and other than
temporary declines in the value of investments
Net realized gains on investments in the
first six months of 2004 included net realized gains of $128.2 million from sales
of investments and net realized losses of approximately $4.1 million related to
the write-down of certain of the Company’s fixed income and equity investments
where the Company determined that there was an other than temporary decline in the
value of those investments.
Net realized gains on investments in the
first six months of 2003 included net realized gains of $202.7 million from sales
of investments and net realized losses of approximately $113.7 million related to
the write-down of certain of the Company’s fixed income and equity investments
where the Company determined that there was an other than temporary decline in the
value of those investments.
The Company’s process for identifying
declines in the fair value of investments that are other than temporary involves
consideration of several factors. These factors include: (i) the time period during
which there has been a
46
significant decline in value; (ii) an analysis of the liquidity,
business prospects and overall financial condition of the issuer; (iii) the significance
of the decline; (iv) an analysis of the collateral structure and other credit support,
as applicable, of the securities in question; and (v) the Company’s intent
and ability to hold the investment for a sufficient period of time for the value
to recover. Where the Company’s analysis of the above factors results in the
Company’s conclusion that declines in fair values are other than temporary,
the cost of the security is written down to fair value and the previously unrealized
loss is therefore realized.
Net realized and unrealized gains on investment
derivatives in the first six months of 2004 resulted from the Company’s investment
strategy to economically hedge against interest and foreign exchange risk within
the investment portfolio.
Other Revenues and Expenses
The following table sets forth other revenues
and expenses for the six months ended June 30, 2004 and 2003:
(U.S. dollars in thousands)
The equity in net loss of insurance affiliates
for the six months ended June 30, 2003 includes an other than temporary decline
of $40.9 million in the value of the Company’s investment in Annuity and Life
Re. The investment was written down to its fair value of $2.1 million at March 31,
2003.
Corporate operating expenses in the six
months ended June 30, 2004 increased compared to the six months ended June 30, 2003
due to the continued build-out of the Company’s global infrastructure in developing
its network of shared service organizations to support operations in certain locations,
costs related to compliance with the Sarbanes-Oxley Act, and new costs related to the Company’s global branding campaign.
The decrease in interest expense primarily
reflected a lower accretion charge on the deposit liabilities due to the commutation
of certain finite reinsurance contracts offset by additional interest expense related
to the 2.53% Senior Notes issued in March 2004. For more information on the Company’s
financing structure, see “Financial Condition and Liquidity.”
The increase in the Company’s income
taxes arose principally from an increase in the profitability of certain of the
Company’s U.S. and European operations during the first half of 2004.
Financial Condition, Liquidity and
Capital Resources
As a holding company, the Company’s
assets consist primarily of its investments in subsidiaries, and the Company’s
future cash flows depend on the availability of dividends or other statutorily permissible
payments from its subsidiaries. The ability to pay such dividends is limited by
the applicable laws and regulations of the various countries the Company operates
in, including, among others, Bermuda, the United States, Ireland, Switzerland and
the United Kingdom, and those of the Society of Lloyd’s and certain contractual
provisions. No assurance can be given that the Company or its subsidiaries will
be permitted to pay dividends in the future.
The Company and its subsidiaries provide
no guarantees or other commitments (express or implied) of financial support to
the Company’s subsidiaries or affiliates, except for express written financial
support provided by XL Insurance (Bermuda) Ltd in connection with the Company’s
financial guaranty subsidiaries and where other express written guaranty or other
financial support arrangements are in place.
The Company’s ability to underwrite
business is dependent upon the quality of its claims paying and financial strength
ratings as evaluated by independent rating agencies. As a result, in the event that
the Company is downgraded,
47
its ability to write business would be adversely affected in financial
guaranty and long-tailed insurance and reinsurance lines of business. In the normal
course of business, the Company evaluates its capital needs to support the volume
of business written in order to maintain its claims paying and financial strength
ratings. In January 2004 several of the internationally recognized rating agencies
amended their financial strength ratings of the Company’s principal insurance
and reinsurance subsidiaries and pools following the announcement by the Company
of an increase in the prior period loss reserves in the fourth quarter of 2003.
The Company regularly provides financial information to rating agencies to both
maintain and enhance existing ratings.
The following are the current financial
strength and claims paying ratings from internationally recognized rating agencies
in relation to the Company’s principal insurance and reinsurance subsidiaries
and pools:
The following are the financial strength ratings
from internationally recognized rating agencies in relation to the Company’s
principal financial guaranty insurance and reinsurance subsidiaries:
There can be no assurance that any such ratings
will be retained for any period of time or that they will not be qualified, suspended,
revised downward or withdrawn entirely by such agencies.
In addition, XL Capital Ltd. currently
has the following long term debt ratings: “a–” (Outlook Negative)
from A.M. Best, “A” (Negative) from Standard and Poor’s, “A2”
(Stable) from Moody’s and “A” (Stable) from Fitch.
Financial Condition
At June 30, 2004 total investments available
for sale and cash, net of unsettled investment trades, were $26.0 billion compared
to $23.1 billion at December 31, 2003. This increase in investment assets related
primarily to proceeds of notes payable and the issuance of equity units of $800.2
million, cash flow generated from operating activities for the quarter of $2.0 billion,
and the receipt of deposit liabilities of $682.3 million. Of the Company’s
total investments available for sale, including fixed maturities, short-term investments
and equity securities, at June 30, 2004, approximately 99% was managed by several
outside investment management firms. Approximately 95.5% of fixed maturity and short-term
investments are investment grade, with 67.5% rated “Aa” or “AA”
or better by a nationally recognized rating agency. Using the Standard & Poor’s
rating scale, the average quality of the fixed income portfolio was “AA”.
As a significant portion of the Company’s
net premium written incepts in the first half of the year, certain assets and liabilities
have increased at June 30, 2004 compared to December 31, 2003. This includes deferred
acquisition costs, unearned premiums, premiums receivable and prepaid reinsurance
premiums. For the six months ended June 30, 2004, currency translation adjustment
losses were $17.8 million. This is shown as part of accumulated other comprehensive
income and primarily related to unrealized losses on foreign currency exchange rate
movement in those operations where the functional currency is not the U.S. dollar.
The Company establishes reserves to provide
for estimated claims, the general expenses of administering the claims adjustment
process and for losses incurred but not reported. These reserves are calculated
using actuarial and other reserving techniques to project the estimated ultimate
net liability for losses and loss expenses. The Company’s reserving practices,
and the establishment of any particular reserve, reflect management’s judgment
concerning sound financial practice and do not represent any admission of liability
with respect to any claims made against the Company. No assurance can be given that
actual claims made and payments related thereto will not be in excess of the amounts
reserved.
48
Included in unpaid loss and loss expenses recoverable at June 30,
2004 is an unsecured, net recoverable from Winterthur Swiss Insurance Company (the
“Seller”) of $925 million, related to certain contractual arrangements
from the Company’s acquisition of Winterthur International in July 2001. This
amount is subject to ongoing adjustment as described below, and the Seller is currently
rated “A” (negative credit watch) by S&P. The sale and purchase agreement,
as amended, including the amendments filed as Exhibits 10.15 and 10.16 to this Report
(“SPA”), provides the Company with post-closing protection determined
as of June 30, 2004 with respect to, among other things, adverse development of
net loss and unearned premium reserves relating to the acquired Winterthur International
business. This protection is based upon net loss experience and development over
a three-year, post-closing seasoning period based on actual loss development experience,
collectible reinsurance and certain other factors set forth in the SPA. The SPA
includes a process for determining the adjustment amount due from the Seller, which
process contemplates negotiation between the parties and, if no agreement is reached,
a binding determination by an independent actuary in London who must select one
of the two numbers submitted by the parties based on which of these is closest to
the amount determined by the independent actuary. In addition, the Seller provides
protection to the Company with respect to reinsurance recoverables related to the
Winterthur International acquisition in the aggregate amount of $2.3 billion as
of June 30, 2004; certain reinsurers responsible for some portions thereof have
raised issues as to whether amounts claimed are due and the resolution of those
discussions is also currently ongoing. The Company expects that the process will
likely result in a material increase in the net recoverable from the Seller, the
ultimate amount of which presently is not determinable. The Company may recognize
a loss in future periods if the amount finally agreed or determined to be due to
the Company from the Seller is less than the adverse development of net loss and
unearned premium reserves and any unrecovered amounts included within reinsurance
recoverables related to the Winterthur International acquisition or to the extent
that any amount proves to be uncollectible from the Seller for any reason.
Inflation can, among other things, potentially
result in larger claims. The Company’s underwriting philosophy is to adjust
premiums in response to inflation.
Liquidity and Capital Resources
As at June 30, 2004, the Company had bank,
letter of credit and loan facilities available from a variety of sources including
commercial banks totaling $7.6 billion, of which $2.7 billion in debt was outstanding.
In addition, $2.8 billion of letters of credit were outstanding as of June 30, 2004,
8% of which were collateralized by the Company’s investment portfolio, principally
supporting U.S. non-admitted business and the Company’s Lloyd’s capital
requirements.
In May 2004, the Company paid $15.0 million
to the holders of record as at close of business on May 26, 2004, of its Zero Coupon
Convertible Debentures (“CARZ”) originally issued in May 2001. No bondholders
put bonds to the Company and, consequently, all bonds remain outstanding. The next
put date for these securities is May 23, 2006. The LYONs may be “put”
at their accreted value or converted by the bondholders at various times prior to
the 2021 redemption date. The next “put” date is September 7, 2004. The
Company may also choose to “call” the debt at its accreted value from
that same date. To the extent that holders of the LYONs tender any debentures for
repurchase by the Company on September 7, 2004, the Company has elected to pay all
of the purchase price for such debentures in cash. The Company believes that it
has the appropriate liquid resources in place to make such a payment should the
holders elect to exercise this option.
In March, 2004 the Company issued 33 million
6.5% Equity Security Units (“Units”) in a public offering. The Company
received approximately $800.2 million in proceeds from the sale of the Units after
deducting underwriting discounts. The Company intends to use the net proceeds from
the sale of the Units for general corporate purposes.
Each Unit has a stated amount of $25 and
consists of (a) a purchase contract pursuant to which the holder agreed to purchase,
for $25, a variable number of shares of the Company’s Class A Ordinary Shares
(“ordinary shares”) on May 15, 2007 and (b) a one-fortieth, or 2.5%, ownership
interest in a senior note issued by the Company due May 15, 2009 with a principal
amount of $1,000. The senior notes are pledged by the holders to secure their obligations
under the purchase contract. The number of shares issued under the purchase contract
is contingently adjustable based on, among other things the share price of the Company
on the stock purchase date and the dividend rate of the Company. The Company will
make quarterly payments at the annual rate of 3.97% and 2.53% under the purchase
contracts and senior notes, respectively. The Company may defer the contract payments
on the purchase contract, but not the senior notes, until the stock purchase date.
In May 2007, the senior notes will be remarketed whereby the interest
49
rate on the senior notes will be reset in order to generate sufficient
remarketing proceeds to satisfy the Unit holders’ obligation under the purchase
contract. If the senior notes are not successfully remarketed, then the Company
will exercise its rights as a secured party and may retain or dispose of the senior
notes to satisfy in full the holder’s obligation to purchase its ordinary shares
under the purchase contracts.
The Company entered into three new bilateral
unsecured letter of credit facilities in 2004 to provide additional capacity to
support the Company’s U.S. non-admitted business. The new facilities totaled
$125.0 million of which $50.0 million was utilized at June 30, 2004. Two of these
facilities totaling $75.0 million were subsequently cancelled effective June 30,
2004.
The Company replaced its principal $2.5
billion credit and letter of credit facility which expired on June 23, 2004, with
a new $1.0 billion facility which expires on June 22, 2005, and a new $2.0 billion
facility which expires on June 22, 2007. Both facilities are available to provide
revolving credit ($600.0 million in the aggregate) and letters of credit ($3.0 billion
in the aggregate) and are syndicated and unsecured. The $1.0 billion facility was
unutilized at June 30, 2004, and approximately $1.7 billion of the $2.0 billion
facility was utilized to provide letters of credit at June 30, 2004.
The following tables present the Company’s
indebtedness under outstanding securities and lenders’ commitments as at June
30, 2004:
(U.S. dollars in thousands)
The total pre-tax interest expense on the borrowings
described above was $28.8 million and $21.8 million for the three months ended June
30, 2004 and 2003, respectively.
The following table presents, as at June
30, 2004, the Company’s letter of credit facilities available and in use and
when those facilities are due to expire:
(U.S. dollars in thousands)
The Company has several letter of credit facilities
provided on a syndicated and bilateral basis from commercial banks. These facilities
are principally utilized to support non-admitted insurance and reinsurance operations
in the United States and capital requirements at Lloyd’s. In addition to letters
of credit, the Company has established insurance
50
trusts in the U.S. that provide cedents with statutory relief under
state insurance regulations in the U.S. It is anticipated that the commercial facilities
will be renewed on expiry but such renewals are subject to the availability of credit
from banks utilized by the Company. In the event that such credit support is insufficient,
the Company could be required to provide alternative security to cedents. This could
take the form of additional insurance trusts supported by the Company’s investment
portfolio or funds withheld using the Company’s cash resources. The value of
letters of credit required is driven by, among other things, loss development of
existing reserves, the payment pattern of such reserves, the expansion of business
written by the Company and the loss experience of such business.
For information regarding cross-default
and certain other provisions in the Company’s debt and convertible securities
documents, see Item 7 of the Company’s Form 10-K for the year ended December
31, 2003.
The Company has had several share repurchase
programs in the past as part of its capital management strategy. On January 9, 2000,
the Board of Directors authorized a program for the repurchase of shares up to $500.0
million. Under this plan, the Company has purchased 6.6 million shares at an aggregate
cost of $364.6 million or an average cost of $55.24 per share. The Company has $135.4
million remaining in its share repurchase authorization. During the six months ended
June 30, 2004, no shares were repurchased in the open market. The Company has repurchased
shares from employees and directors in relation to withholding tax on restricted
stock. See Part II Item 2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform
Act of 1995 (“PSLRA”) provides a “safe harbor” for forward-looking
statements. Any prospectus, prospectus supplement, the Company’s Annual Report
to ordinary shareholders, any proxy statement, any other Form 10-K, Form 10-Q or
Form 8-K of the Company or any other written or oral statements made by or on behalf
of the Company may include forward looking statements which reflect the Company’s
current views with respect to future events and financial performance. Such statements
include forward-looking statements both with respect to the Company in general,
and to the insurance, reinsurance and financial products and services sectors in
particular (both as to underwriting and investment matters). Statements which include
the words “expect”, “intend”, “plan”, “believe”,
“project”, “anticipate”, “will”, and similar statements
of a future or forward-looking nature identify forward-looking statements for purposes
of the PSLRA or otherwise.
All forward-looking statements address
matters that involve risks and uncertainties. Accordingly, there are or will be
important factors that could cause actual results to differ materially from those
indicated in such statements. The Company believes that these factors include, but
are not limited to, the following: (i) the timely and full recoverability of reinsurance
placed by the Company with third parties, or other amounts due to the Company, including,
without limitation, amounts due to the Company from the Seller in connection with
the Company’s acquisition of the Winterthur International operations; (ii)
the projected amount of ceded reinsurance recoverables and the ratings and creditworthiness
of reinsurers may change; (iii) the timing of claims payments being faster or the
receipt of reinsurance recoverables being slower than anticipated by the Company;
(iv) ineffectiveness or obsolescence of the Company’s business strategy due
to changes in current or future market conditions; (v) increased competition on
the basis of pricing, capacity, coverage terms or other factors; (vi) greater frequency
or severity of claims and loss activity, including as a result of natural or man-made
catastrophic events, than the Company’s underwriting, reserving or investment
practices anticipate based on historical experience or industry data; (vii) developments
in the world’s financial and capital markets which adversely affect the performance
of the Company’s investments and the Company’s access to such markets;
(viii) the potential impact on the Company from government-mandated insurance coverage
for acts of terrorism; (ix) the potential impact of variable interest entities or
other off-balance sheet arrangements on the Company; (x) developments in bankruptcy
proceedings or other developments related to bankruptcies of companies insofar as
they affect property and casualty insurance and reinsurance coverages or claims
that the Company may have as a counterparty; (xi) availability of borrowings and
letters of credit under the Company’s credit facilities; (xii) changes in regulation
or tax laws applicable to the Company or its subsidiaries, brokers or customers;
(xiii) acceptance of the Company’s products and services, including new products
and services; (xiv) changes in the availability, cost or quality of reinsurance;
(xv) changes in the distribution or placement of risks due to increased consolidation
of insurance and reinsurance brokers; (xvi) loss of key personnel; (xvii) the effects
of mergers, acquisitions and divestitures; (xviii) changes in rating agency policies
or practices; (xix) changes in accounting policies or practices or the application
thereof; (xx) legislative or regulatory developments; (xxi) changes in general economic
conditions, including inflation, foreign currency exchange rates and other factors;
(xxii) the effects of business disruption or economic contraction due to war, terrorism
or other hostilities; and (xxiii) the other factors set forth in the Company’s
other documents on file with the SEC. The foregoing review of important factors
should not be construed
51
as exhaustive and should be read in conjunction with the other cautionary
statements that are included herein or elsewhere. The Company undertakes no obligation
to update publicly or revise any forward-looking statement, whether as a result
of new information, future developments or otherwise.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Except as described below, there have been
no material changes in the Company’s market risk exposures, or how those exposures
are managed, since December 31, 2003. The following discussion should be read in
conjunction with “Quantitative and Qualitative Disclosures About Market Risk”
presented under Item 7A of the Company’s Form 10-K for the year ended December
31, 2003.
The Company enters into derivatives and
other financial instruments primarily for risk management purposes. The Company’s
derivative transactions can expose the Company to credit default swap risk, weather
and energy risk, investment market risk, interest rate risk and foreign currency
exchange rate risk. The Company attempts to manage these risks based on guidelines
established by senior management. Derivative instruments are carried at fair value
with resulting changes in fair value recognized in income in the period in which
they occur.
Value-at-risk (“VaR”) is one
of the tools used by management to estimate potential losses in fair values using
historical rates, market movements and credit spreads to estimate the volatility
and correlation of these factors to calculate the potential loss that could occur
over a defined period of time given a certain probability.
This risk management discussion and the
estimated amounts generated from the sensitivity and VaR analyses presented in this
document are forward-looking statements of market risk assuming certain adverse
market conditions occur. Actual results in the future may differ materially from
these estimated results due to, among other things, actual developments in the global
financial markets. The results of analysis used by the Company to assess and mitigate
risk should not be considered projections of future events of losses. See generally
“Cautionary Note Regarding Forward-Looking Statements.”
Credit Default Swaps
The Company has written certain financial
guaranty transactions in derivative or swap form. The Company does not actively
trade these transactions and generally issues and holds these contracts to maturity.
Changes in fair value can result from changes in market credit spreads, supply and
demand for similar type instruments, changes in future loss and/or recovery estimates,
interest rates and credit rating upgrades or downgrades. The Company therefore is
at risk for changes in fair value due to changes in any of the above factors.
Weather and Energy Market Risk
The Company offers weather and energy risk
management products in insurance or derivative form to end-users, while managing
the risks in the over-the-counter and exchange traded derivatives markets in a weather
and energy derivatives trading portfolio.
Fair values for the Company’s natural
gas derivative contracts are determined through the use of quoted market prices.
As quoted market prices are not widely available in the weather derivative market,
management uses available market data and internal pricing models based upon consistent
statistical methodologies to estimate fair values. Estimating fair value of instruments
which do not have quoted market prices requires management judgment in determining
amounts which could reasonably be expected to be received from, or paid to, a third
party in settlement of the contracts. The amounts could be materially different
from the amounts that might be realized in an actual sale transaction. Fair values
are subject to change in the near-term and reflect management’s best estimate
based on various factors including, but not limited to, realized and forecasted
weather conditions, changes in commodity prices, changes in interest rates and other
market factors.
52
The following table summarizes the movement in the fair value of
weather and energy contracts outstanding during the six months ended June 30, 2004:
(U.S. dollars in thousands)
The change in the fair value of contracts outstanding
at June 30, 2004 as compared to the beginning of the year is primarily due to the
expiration of natural gas positions, which were not replaced due to management’s
decision to reduce the size of its natural gas portfolio.
The following table summarizes the maturity
of contracts outstanding as of June 30, 2004:
(U.S. dollars in thousands)
The Company manages its weather and energy portfolio
through the employment of a variety of strategies. These include geographical and
directional diversification of risk exposures and direct hedging within the capital
and reinsurance markets. Risk management is undertaken on a product portfolio-wide
basis, to maintain a portfolio that the Company believes is well diversified and
which remains within the aggregate risk tolerance established by the Company’s
senior management.
The Company’s aggregate average, low
and high seasonal VaR amounts for its weather risk management portfolio, calculated
at a 99% confidence level, during the period ended June 30, 2004 were $163.2 million,
$126.5 million and $214.0 million, respectively. The corresponding levels for the
weather risk management portfolio during the period ended June 30, 2003 were $151.8
million, $131.8 million and $175.6 million, respectively. The Company calculates
its aggregate VaR by summing the VaR amounts for each of its seasonal portfolios.
The Company’s aggregation methodology yields a conservative aggregate portfolio
VaR, given that current weather events and patterns have an immaterial effect on
expectations for future seasons and the Company could therefore greatly reduce or
eliminate its VaR on future seasons by selling its positions prior to the beginning
of a season. At present, the Company’s VaR calculation does not exceed $80.0
million in any one season or $95.0 million prior to the start of the winter season in the then current year.
For the natural gas portfolio, VaR is calculated
using a one-day holding period. Management has established a daily VaR limit for
this portfolio of $0.3 million. The Company’s average, low and high daily VaR
amounts calculated at a 99% confidence level, during the period ended June 30, 2004
were $0.1 million, nil and $0.2 million, respectively. The corresponding amounts
during the period ended June 30, 2003 were $2.4 million, $1.8 million and $2.9 million,
respectively.
53
For electricity generation outage insurance products, VaR is calculated
using an annual holding period. Management has established an annual VaR limit of
$25 million for this book of business. The Company’s average, low and high
annual VaR amounts, calculated at a 99% confidence level, during the period ended
June 30, 2004 were $4.2 million, $2.6 million, and $7.6 million, respectively. The
corresponding amounts during the period ended June 30, 2003 were $3.2 million, $1.3
million, and $5.3 million, respectively.
Investment Market Risk
The Company’s investment portfolio
consists of exposures to fixed income securities, equities, alternative investments,
derivatives, business and other investments and cash. These securities and investments
are denominated in both U.S. dollar and foreign currencies.
Through the structure of the Company’s
investment portfolio, the Company’s book value is directly affected by changes
in the valuations of the securities and investments held in the investment portfolio.
These valuation changes reflect changes in fixed income security prices (
e.g
.
slope and curvature of the yield curves, volatility of interest rates, credit spreads
and mortgage prepayment speeds), equity prices (
e.g
. changes in prices and
volatilities of individual securities, equity baskets and equity indices) and foreign
currency exchange rates (
e.g
. changes in spot prices, forward prices and
volatilities of currency rates). Market risk therefore arises due to the uncertainty
surrounding the future valuations of these different assets, the factors that impact
their values and the impact that this could have on the Company’s book value.
The Company generally seeks to manage the
risks of the investment portfolio through a combination of asset class, country,
industry and security level diversification and investment manager allocations.
Further, individual security and issuer exposures are generally controlled and monitored
at the investment portfolio level, via specific investment constraints outlined
in investment guidelines and agreed with the appropriate external investment professionals.
Additional constraints may be agreed with the external investment professionals
that may address exposures to eligible securities, prohibited investments/transactions,
credit quality and general concentration limits.
The Company’s direct use of investment
derivatives includes futures, forwards, swaps and option contracts that derive their
value from underlying assets, indices, references rates or a combination of these
factors. When investment guidelines allow for the use of derivatives, these can
generally only be used for the purposes of managing interest rate risk, foreign
exchange risk and credit risk, provided the use of such instruments is incorporated
in the overall portfolio duration, spread, convexity and other relevant portfolio
metrics. The direct use of derivatives is not permitted to economically leverage
the portfolio outside of the stated guidelines. Derivatives may also be used to
add value to the investment portfolio where market inefficiencies are perceived
to exist, to utilize cash holdings to purchase equity indexed derivatives and to
adjust the duration of a portfolio of fixed income securities to match the duration
of related deposit liabilities.
Investment Value-At-Risk
In the third quarter of 2003, the Company
introduced a new, more widely used risk management system to generate the investment
VaR and to stress test the investment portfolio. Although the overall methodology
is consistent between the two systems, there are certain differences between these
systems relating to security pricing models, time series, time periods and proxies
used for individual instruments. Accordingly, the VaR for the investment portfolio
and the stress tests on the investment portfolio are not directly comparable to
periods prior to the fourth quarter of 2003.
The VaR of the total investment portfolio
at June 30, 2004, based on a 95% confidence level with a one month holding period,
was approximately $564.1 million. The VaR of all investment related derivatives
as at June 30, 2004 was approximately $11.3 million. The Company’s investment
portfolio VaR as at June 30, 2004 is not necessarily indicative of future VaR levels.
To complement the VaR analysis which is
based on normal market environments, the Company considers the impact on the investment
portfolio in several different historical stress periods to analyze the effect of
unusual market conditions. The Company establishes certain historical stress test
scenarios which are applied to the actual investment portfolio. As these stress
tests and estimated gains and losses are based on historical events, they will not
necessarily reflect future stress events or gains and losses from such events. The
results of the stress test scenarios are reviewed on a regular basis to ensure they
reflect current shareholders equity, market conditions and the Company’s total
risk profile. Given the investment portfolio allocations as at June 30, 2004, the
Company would expect to lose approximately
54
5.6% of the portfolio if the most damaging event stress tested was
repeated, all other things held equal. Given the investment portfolio allocations
as at June 30, 2004, the Company would expect to gain approximately 18.4% on the
portfolio if the most favorable event stress tested was repeated, all other things
held equal. The Company assumes that no action is taken during the stress period
to either liquidate or rebalance the portfolio and believes that this fairly reflects
the potential decreased liquidity that is often associated with stressed market
environments.
Fixed Income Portfolio
The Company’s fixed income portfolio
is exposed to credit and interest rate risk through its portfolio of debt securities.
The fixed income portfolio includes fixed maturities, short-term investments, cash
and cash equivalents and net payable for investments purchased.
As at June 30, 2004, the value of the Company’s
fixed income portfolio, including cash and cash equivalents and net payable for
investments purchased, was approximately $25.4 billion as compared to approximately
$20.0 billion at June 30, 2003. As at June 30, 2004, the fixed income portfolio
consisted of approximately 89.1% of the total investment portfolio (including cash
and cash equivalents, and net payable for investments purchased) as compared to
approximately 87.8% as at June 30, 2003.
The table below shows the Company’s
fixed income portfolio by credit rating in percentage terms of the Company’s
total fixed income portfolio (including fixed maturities, short-term investments,
cash and cash equivalents and net payable for investments purchased) as at June
30, 2004.
At June 30, 2004 the average credit quality
of the Company’s total fixed income portfolio was “AA”.
As at June 30, 2004, the top 10 corporate
holdings represented approximately 8.2% of the total fixed income portfolio and
approximately 33.8% of all corporate holdings. The top 10 corporate holdings listed
below utilizes a conservative approach to aggregation as it includes unsecured as
well as securitized, credit enhanced and collateralized securities issued by parent
companies and their affiliates.
The Company’s fixed income portfolio is exposed
to interest rate risk. Interest rate risk is the price sensitivity of a fixed income
security to changes in interest rates. The hypothetical case of an immediate 100
basis point adverse parallel shift in global bond curves as at June 30, 2004 would
decrease the fair value of the Company’s fixed income portfolio by approximately
4.5% or $1.1 billion as compared to approximately 5.0% or $0.8 billion as at June
30,
55
2003. Based on historical observations, it is unlikely that all global
yield curves would shift in the same direction, by the same amount and at the same
time.
Equity Portfolio
As at June 30, 2004, the Company’s
equity portfolio was $651.0 million as compared to $550.0 million as at June 30, 2003.
As at June 30, 2004, the Company’s allocation to equity securities was approximately
2.3% of the total investment portfolio (including cash and cash equivalents, accrued
investment income and net payable for investments purchased) as compared to approximately
2.4% as at June 30, 2003.
As at June 30, 2004, approximately 56.8%
of the equity portfolio was invested in U.S. companies as compared to approximately
35.0% as at June 30, 2003. As at June 30, 2004, the top ten equity holdings represented
approximately 7.8% of the Company’s total equity portfolio as compared to approximately
7.6% as at June 30, 2003.
The Company’s equity portfolio is
exposed to price risk. Equity price risk is the potential loss arising from decreases
in the market value of equities. An immediate hypothetical 10% change in the value
of each equity position would affect the fair value of the portfolio by approximately
$65.1 million as at June 30, 2004 as compared to $55.0 million as at June 30, 2003.
Alternative Investment Portfolio
The Company’s alternative investment
portfolio (included in investments in affiliates or other investments) had approximately
100 separate investments in different funds at June 30, 2004 with a total portfolio
of $1.6 billion representing approximately 5.5% of the total investment portfolio
(including cash and cash equivalents, accrued investment income and net payable
for investments purchased) as compared to June 30, 2003 where the Company had approximately
100 separate fund investments with a total exposure of $1.4 billion representing
approximately 6.0% of the total investment portfolio.
As at June 30, 2004, the alternative investment
style allocation was 24.0% in arbitrage strategies, 42.0% in directional/tactical
strategies, 25.0% in event driven strategies and 9.0% in multi-strategy strategies.
Private Investment Portfolio
As at June 30, 2004, the Company’s
exposure to private investments was approximately $195.8 million compared to $191.2
million as at June 30, 2003. As at June 30, 2004, the Company’s exposure to
private investments consisted of approximately 0.7% of the total investment portfolio
(including cash and cash equivalents, accrued investment income and net payable
for investments purchased), as compared to 0.8% as at June 30, 2003.
Bond and Stock Index Futures Exposure
As at June 30, 2004, bond and stock index
futures outstanding were $41.6 million with underlying investments having a market
value of $265.3 million. A 10% appreciation or depreciation of these derivative
instruments would have resulted in realized gains and realized losses of $4.1 million
respectively. The Company reduces its exposure to these futures through offsetting
transactions, including options and forwards.
Foreign Currency Exchange Risk
The Company uses foreign exchange contracts
to manage its exposure to the effects of fluctuating foreign currencies on the value
of its foreign currency fixed maturities and certain of its foreign currency equity
investments. These contracts are not designated as specific hedges for financial
reporting purposes and, therefore, realized and unrealized gains and losses on these
contracts are recorded in income in the period in which they occur. These contracts
generally have maturities of three months or less. At June 30, 2004 and 2003, forward
foreign exchange contracts with notional principal amounts totaling $271.0 million
and $62.0 million, respectively, were outstanding. The fair value of these contracts
as at June 30, 2004 and 2003 was $266.0 million and $59.4 million, respectively,
with an unrealized gain of $5.0 million in 2004 and an unrealized gain of $2.6 million
in 2003. For the six months ended June 30, 2004 and 2003, realized losses of $3.0
million and realized gains of $1.6 million, respectively, and unrealized gains of
$1.3 million and of $3.8 million, respectively, were recorded in net realized and
unrealized gains and losses on derivative instruments.
56
The Company attempts to manage the exchange volatility arising on
certain costs denominated in foreign currencies. Throughout the year, forward contracts
are entered into to acquire foreign currencies at an agreed rate in the future.
At June 30, 2004, the Company had forward contracts outstanding for the purchase
of the equivalent of $207.2 million in Euros and the equivalent of $99.8 million
in GBP at fixed rates. The unrealized loss on these contracts at June 30, 2004 was
$5.9 million and $1.4 million, respectively.
ITEM 4.
CONTROLS AND PROCEDURES
The Company carried out an evaluation,
under the supervision and with the participation of the Company’s management,
including the Chief Executive Officer and Chief Financial Officer, of the effectiveness
of disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 promulgated
under the Securities Exchange Act of 1934 as of the end of the period covered by
this report. Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the disclosure controls and procedures are effective to provide
reasonable assurance that all material information relating to the Company required
to be filed in this report has been made known to them in a timely fashion. There
have been no changes in internal control over financial reporting that occurred
during the most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, internal control over financial reporting.
The Company’s management, including
the Chief Executive Officer and Chief Financial Officer, does not expect that the
Company’s disclosure controls or its internal controls will prevent all errors
and all fraud. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. As a result of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake. As
a result of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected. Accordingly, the Company’s
disclosure controls and procedures are designed to provide reasonable, not absolute,
assurance that the disclosure controls and procedures are met.
57
CONSOLIDATED BALANCE
SHEETS
(U.S. dollars in thousands)
(Unaudited)
June 30,
December 31,
2004
2003
ASSETS
Investments:
Fixed
maturities, at fair value (amortized cost: 2004, $21,514,661;
2003,
$18,990,670)
21,534,257
$
19,494,356
Equity
securities, at fair value (cost: 2004, $564,773; 2003, $473,112)
650,918
583,450
Short-term
investments, at fair value (amortized cost: 2004, $1,409,897;
2003,
$696,798)
1,414,821
697,450
Total
investments available for sale
23,599,996
20,7
75,256
Investments
in affiliates
1,898,462
1,903,341
Other
investments
251,415
142,567
Total
investments
25,749,873
22,821,164
Cash and cash equivalents
2,744,878
2,403,121
Accrued investment
income
299,995
294,615
Deferred acquisition costs
987,032
777,882
Prepaid reinsurance
premiums
1,021,729
977,595
Premiums receivable
4,637,369
3,487,322
Reinsurance
balances receivable
1,302,475
1,359,486
Unpaid losses and loss expenses
recoverable
5,826,619
5,779,997
Goodwill and
other intangible assets
1,841,997
1,845,507
Deferred tax assets, net
307,574
310,077
Other assets
740,494
707,449
Total
assets
45,460,035
$
40,764,215
LIABILITIES
AND SHAREHOLDERS’ EQUITY
Liabilities:
Unpaid
losses and loss expenses
17,076,770
$
16,558,788
Deposit
liabilities
4,769,276
4,050,334
Future
policy benefit reserves
4,104,763
3,233,845
Unearned
premiums
5,963,401
4,729,989
Notes
payable and debt
2,743,368
1,905,483
Reinsurance
balances payable
1,628,225
1,525,739
Net
payable for investments purchased
312,680
96,571
Other
liabilities
1,728,933
1,666,397
Minority
interest
56,047
60,154
Total
liabilities
38,383,463
$
33,827,300
CONSOLIDATED BALANCE SHEETS
(U.S.
dollars in thousands, except share amounts)
(Unaudited)
June 30,
December 31,
2004
2003
Commitments
and Contingencies
Shareholders’
Equity:
Series
A preference ordinary shares, 9,200,000 authorized,
par
value $0.01, issued and outstanding: 2004, 9,200,000;
2003,
9,200,000
$
92
$
92
Series
B preference ordinary shares, 11,500,000 authorized,
par
value $0.01, issued and outstanding: 2004, 11,500,000;
2003,
11,500,000
115
115
Series
C preference ordinary shares, 20,000,000 authorized,
par
value $0.01 Issued and outstanding 2004 and 2003, nil
—
—
Class
A ordinary shares, 999,990,000 authorized, par value $0.01,
issued
and outstanding: 2004, 138,380,904; 2003, 137,343,232
1,383
1,373
Additional
paid in capital
3,901,680
3,949,421
Accumulated
other comprehensive income
29,019
490,195
Deferred
compensation
(77,009)
(46,124)
Retained
earnings
3,221,292
2,541,843
Total
shareholders’ equity
$
7,076,572
$
6,936,915
Total
liabilities and shareholders’ equity
$
45,460,035
$
40,764,215
CONSOLIDATED STATEMENTS OF INCOME
(U.S.
dollars and shares in thousands, except per share amounts)
(Unaudited)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2004
2003
2004
2003
Revenues:
Net
premiums earned
$
2,858,297
$
1,575,809
$
4,582,742
$
3,127,440
Net
investment income
235,177
190,551
463,523
382,455
Net
realized gains on investments
8,763
93,687
124,100
89,024
Net
realized and unrealized gains (losses) on
derivative
instruments
42,140
(12,257)
53,737
2,236
Equity
in net income of investment affiliates
26,733
34,306
97,109
61,104
Fee
income and other
8,152
9,792
15,059
22,069
Total
revenues
$
3,179,262
$
1,891,888
$
5,336,270
$
3,684,328
Expenses:
Net
losses and loss expenses incurred
$
1,099,910
$
937,575
$
2,063,854
$
1,822,829
Claims
and policy benefits
1,006,509
83,225
1,140,572
202,783
Acquisition
costs
347,408
298,550
624,678
538,862
Operating
expenses
247,716
193,908
493,016
384,427
Exchange
losses (gains)
15,913
(23,352)
5,189
(26,054)
Interest
expense
54,961
46,282
95,018
92,422
Amortization
of intangible assets
3,257
375
6,514
750
Total
expenses
$
2,775,674
$
1,536,563
$
4,428,841
$
3,016,019
Income
before minority interest, income tax
and
equity in net (income) loss of insurance
and
financial affiliates
$
403,588
$
355,325
$
907,429
$
668,309
Minority
interest
2,284
3,166
6,944
5,028
Income
tax
31,176
11,009
66,533
31,039
Equity
in net (income) loss of insurance and
financial
affiliates
(3,556)
(16,522)
(1,981)
24,565
Net
income
373,684
357,672
835,933
607,677
Preference share dividends
(10,080)
(10,013)
(20,160)
(20,161)
Net
income available to ordinary shareholders
$
363,604
$
347,659
$
815,773
$
587,516
Weighted
average ordinary shares and ordinary share
equivalents
outstanding — basic
137,655
136,791
137,568
136,527
Weighted
average ordinary shares and ordinary share
equivalents
outstanding — diluted
138,741
138,634
138,648
138,084
Earnings
per ordinary share and ordinary share
equivalent
— basic
$
2.64
$
2.54
$
5.93
$
4.30
Earnings
per ordinary share and ordinary share
equivalent
— diluted
$
2.62
$
2.51
$
5.88
$
4.25
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(U.S.
dollars in thousands)
(Unaudited)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2004
2003
2004
2003
Net
income
$
373,684
$
357,672
$
835,933
$
607,677
Change in net
unrealized appreciation of investments,
net
of tax
(585,146)
343,748
(469,941)
408,974
Foreign currency translation
adjustments, net
(17,817)
95,225
8,765
91,046
Comprehensive
(loss) income
$
(229,279)
$
796,645
$
374,757
$
1,107,697
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY
(U.S. dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
2004
2003
Series
A and B Preference Ordinary Shares:
Balance
— beginning of year
$
207
$
207
Issue
of shares
—
—
Balance
— end of period
$
207
$
207
Class
A Ordinary Shares:
Balance
— beginning of year
$
1,373
$
1,360
Issue
of shares
5
5
Exercise
of stock options
5
6
Repurchase
of shares
—
—
Balance
— end of period
$
1,383
$
1,371
Additional
Paid in Capital:
Balance
— beginning of year
$
3,949,421
$
3,979,979
Issue
of shares
43,445
33,011
Stock
option expense
6,000
2,088
Repurchase
of shares
(1,631)
—
Exercise
of stock options
16,746
29,573
Equity
units/debt value
(112,301)
—
Balance
— end of period
$
3,901,680
$
4,044,651
Accumulated
Other Comprehensive Income:
Balance
— beginning of year
$
490,195
$
184,814
Net
change in unrealized gains on investment portfolio, net of tax
(476,724)
411,433
Net
change in unrealized gains on investment portfolio of affiliates
6,783
(2,459)
Currency
translation adjustments
8,765
91,046
Balance
— end of period
$
29,019
$
684,834
Deferred
Compensation:
Balance
— beginning of year
$
(46,124)
$
(31,282)
Issue
of restricted shares
(43,103)
(33,078)
Amortization
12,218
8,229
Balance
— end of period
$
(77,009)
$
(56,131)
Retained
Earnings:
Balance
— beginning of year
$
2,541,843
$
2,434,511
Net
income
835,933
607,677
Dividends
on Series A and B preference ordinary shares
(20,160)
(20,161)
Dividends
on Class A ordinary shares
(135,278)
(131,398)
Repurchase
of ordinary shares
(1,046)
(241)
Balance
— end of period
$
3,221,292
$
2,890,388
Total
Shareholders’ Equity
$
7,076,572
$
7,565,320
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S.
dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
2004
2003
Cash
flows provided by operating activities:
Net
income
$
835,933
$
607,677
Adjustments to reconcile
net income (loss) to net cash provided by (used in)
operating
activities:
Net
realized gains on investments
(124,100)
(89,024)
Net
realized and unrealized gains on derivative instruments
(53,737)
(2,236)
Amortization
of premiums on fixed maturities
43,147
10,325
Equity
in net income of investment, insurance and financial affiliates
(99,090)
(36,539)
Amortization
of deferred compensation
12,218
8,229
Accretion
of convertible debt
12,882
12,522
Accretion
of deposit liabilities
44,835
48,654
Unpaid
losses and loss expenses
517,982
1,545,473
Future
policy benefit reserves
870,918
175,689
Unearned
premiums
1,233,412
1,170,964
Premiums
receivable
(1,150,047)
(928,680)
Unpaid
losses and loss expenses recoverable
(46,622)
(618,593)
Prepaid
reinsurance premiums
(44,134)
(192,272)
Reinsurance
balances receivable
57,011
19,148
Deferred
acquisition costs
(209,150)
(139,556)
Reinsurance
balances payable
102,486
(246,401)
Deferred
tax asset
2,503
25,193
Other
assets
(61,316)
107,563
Other
15,312
47,767
Total
adjustments
1,124,510
918,226
Net
cash provided by operating activities
$
1,960,443
$
1,525,903
Cash
flows used in investing activities:
Proceeds
from sale of fixed maturities and short-term investments
$
13,800,883
$
14,044,006
Proceeds
from redemption of fixed maturities and short-term investments
2,482,888
8,918,014
Proceeds
from sale of equity securities
252,333
772,434
Purchases
of fixed maturities and short-term investments
(19,210,284)
(25,919,805)
Purchases
of equity securities
(284,308)
(416,356)
Investments
in affiliates, net of dividends received
(1,322)
(21,861)
Other
investments
(1,632)
(2,880)
Net
cash used in investing activities
$
(2,961,442)
$
(2,626,448)
Cash
flows provided by financing activities:
Proceeds
from exercise of stock options
16,751
29,579
Repurchase
of shares
(2,676)
(240)
Dividends
paid
(155,438)
(151,559)
Proceeds
from notes payable and issuance of equity units
800,195
—
Deposit
liabilities
682,338
672,633
Net
cash provided by financing activities
1,341,170
550,413
Effects of exchange rate changes
on foreign currency cash
1,586
(556)
Increase
(decrease) in cash and cash equivalents
341,757
(550,688)
Cash and cash equivalents
— beginning of period
2,403,121
3,557,815
Cash
and cash equivalents — end of period
$
2,744,878
$
3,007,127
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(U.S.
dollars in thousands, except per share amounts)
(Unaudited)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2004
2003
2004
2003
Net
income available to ordinary
shareholders
— as reported
$
363,604
$
347,659
$
815,773
$
587,516
Add: Stock
based employee compensation expense
included
in reported net income, net of related tax
3,601
1,288
6,000
2,088
Deduct: Total stock based employee
compensation
expense determined under fair
value based method
for all awards, net of
related tax effects
(10,665)
(14,397)
(21,757)
(25,687)
Pro
forma net income available to
ordinary shareholders
$
356,540
$
334,550
$
800,016
$
563,917
Earnings
per ordinary share:
Basic
— as reported
$
2.64
$
2.54
$
5.93
$
4.30
Basic
— pro forma
$
2.59
$
2.45
$
5.82
$
4.13
Diluted
— as reported
$
2.62
$
2.51
$
5.88
$
4.25
Diluted
— pro forma
$
2.57
$
2.41
$
5.77
$
4.08
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(U.S. dollars in thousands)
(Unaudited)
Financial
Products and
Insurance
Reinsurance
Services
Total
General
Operations:
Net
premiums earned
$
1,112,349
$
717,876
$
—
$
1,830,225
Fee
income and other
5,565
2,194
—
7,759
Net
losses and loss expenses
709,617
382,959
—
1,092,576
Acquisition
costs
156,655
173,605
—
330,260
Operating
expenses (1)
131,432
49,068
—
180,500
Exchange
losses
10,442
5,576
—
16,018
Underwriting
profit
$
109,768
$
108,862
$
—
$
218,630
Life
and Annuity Operations:
Life
premiums earned
$
—
$
969,097
$
24,951
$
994,048
Fee
income and other
—
47
68
115
Claims
and policy benefits
—
986,068
20,441
1,006,509
Acquisition
costs
—
4,156
7,287
11,443
Operating
expenses (1)
—
3,716
2,295
6,011
Exchange
(gains) losses
—
(105)
—
(105)
Net
investment income
—
44,139
20,168
64,307
Interest
expense
—
(21)
10,416
10,395
Net
income from life and annuity operations
$ —
$
19,469
$
4,748
$
24,217
Financial
Operations:
Net
premiums earned
$
34,024
$
34,024
Fee
income and other
278
278
Net
losses and loss expenses
7,334
7,334
Acquisition
costs
5,705
5,705
Operating
expenses (1)
16,408
16,408
Underwriting
profit
$
4,855
$
4,855
Investment
income — financial guarantee
$
8,872
$
8,872
Net
realized and unrealized gains on
credit
derivatives
26,289
26,289
Net
realized and unrealized gains on weather and
energy
derivatives
48
48
Operating
expenses — weather and energy (1)
6,005
6,005
Equity
in net income of financial affiliates
1,387
1,387
Minority
interest
2,427
2,427
Contribution
from financial operations
$
33,019
$
33,019
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(U.S. dollars in thousands, except ratios)
(Unaudited)
Financial
Products and
Insurance
Reinsurance
Services
Total
Net
investment income — general operations
$
161,998
Net
realized and unrealized gains on investments
and
derivative instruments (3)
24,566
Equity
in net income of investment and
insurance
affiliates
28,902
Interest
expense (2)
44,566
Amortization
of intangible assets
3,257
Corporate
operating expenses
38,792
Minority
interest
(143)
Income
tax
31,176
Net
Income
$
373,684
General
Operations:
Loss
and loss expense ratio (4)
63.8%
53.3%
59.7%
Underwriting
expense ratio (4)
25.9%
31.1%
27.9%
Combined
ratio (4)
89.7%
84.4%
87.6%
(1)
Operating expenses exclude corporate
operating expenses, shown separately.
(2)
Interest expense excludes interest
expense related to life and annuity operations, shown separately.
(3)
This includes net realized gains
on investments of $8.8 million and net realized and unrealized gains on investment
derivatives of $15.8 million, but does not include unrealized appreciation or depreciation
on investments, which are included in “accumulated other comprehensive income
(loss)”.
(4)
Ratios are based on net premiums
earned from general operations. The underwriting expense ratio excludes exchange
gains and losses.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(U.S. dollars in thousands)
(Unaudited)
Financial
Products and
Insurance
Reinsurance
Services
Total
General
Operations:
Net
premiums earned
$
870,079
$
599,441
$
—
$
1,469,520
Fee
income and other
1,569
6,343
—
7,912
Net
losses and loss expenses
551,923
376,832
—
928,755
Acquisition
costs
143,829
141,566
—
285,395
Operating
expenses (1)
104,697
36,694
—
141,391
Exchange
gains
(6,949)
(13,083)
—
(20,032)
Underwriting
profit
$
78,148
$
63,775
$
—
$
141,923
Life
and Annuity Operations:
Life
premiums earned
$
—
$
56,605
$
13,877
$
70,482
Fee
income and other
—
—
29
29
Claims
and policy benefits
—
73,064
10,161
83,225
Acquisition
costs
—
6,916
403
7,319
Operating
expenses (1)
—
1,956
1,658
3,614
Exchange
(gains) losses
—
(3,320)
—
(3,320)
Net
investment income
—
33,596
6,638
40,234
Interest
expense
—
—
2,791
2,791
Net
income from life and annuity operations
$
—
$
11,585
$
5,531
$
17,116
Financial
Operations:
Net
premiums earned
$
35,807
$
35,807
Fee
income and other
1,851
1,851
Net
losses and loss expenses
8,820
8,820
Acquisition
costs
5,836
5,836
Operating
expenses (1)
9,019
9,019
Underwriting
profit
$
13,983
$
13,983
Investment
income — financial guarantee
$
5,229
$
5,229
Net
realized and unrealized losses on
credit
derivatives
(21,363)
(21,363)
Net
realized and unrealized gains on weather and
energy
derivatives
5,223
5,223
Operating
expenses — weather and energy (1)
5,239
5,239
Equity
in net income of financial affiliates
16,658
16,658
Minority
interest
3,228
3,228
Contribution
from financial operations
$
11,263
$
11,263
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(U.S. dollars in thousands, except ratios)
(Unaudited)
Financial
Products and
Insurance
Reinsurance
Services
Total
Net
investment income — general operations
$
145,088
Net
realized and unrealized gains on investments
and
derivative instruments (3)
97,570
Equity
in net income of investment and
insurance
affiliates
34,170
Interest
expense (2)
43,491
Amortization
of intangible assets
375
Corporate
operating expenses
34,645
Minority
interest
(62)
Income
tax
11,009
Net
Income
$
357,672
General
Operations:
Loss
and loss expense ratio (4)
63.4%
62.9%
63.2%
Underwriting
expense ratio (4)
28.6%
29.7%
29.0%
Combined
ratio (4)
92.0%
92.6%
92.2%
(1)
Operating expenses exclude corporate
operating expenses, shown separately.
(2)
Interest expense excludes interest
expense related to life and annuity operations, shown separately.
(3)
This includes net realized gains
on investments of $93.7 million and net realized and unrealized gains on investment
derivatives of $3.9 million, but does not include unrealized appreciation or depreciation
on investments, which are included in “accumulated other comprehensive income
(loss)”.
(4)
Ratios are based on net premiums
earned from general operations. The underwriting expense ratio excludes exchange
gains and losses.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(U.S. dollars in thousands)
(Unaudited)
Financial
Products and
Insurance
Reinsurance
Services
Total
General
Operations:
Net
premiums earned
$
1,997,673
$
1,407,477
$
—
$
3,405,150
Fee
income and other
7,896
6,104
—
14,000
Net
losses and loss expenses
1,254,543
799,781
—
2,054,324
Acquisition
costs
276,378
317,833
—
594,211
Operating
expenses (1)
260,421
92,823
—
353,244
Exchange
losses (gains)
12,022
(5,887)
—
6,135
Underwriting
profit
$
202,205
$
209,031
$
—
$
411,236
Life
and Annuity Operations:
Life
premiums earned
$
—
$
1,064,336
$
46,644
$
1,110,980
Fee
income and other
—
93
137
230
Claims
and policy benefits
—
1,102,244
38,328
1,140,572
Acquisition
costs
—
11,839
9,995
21,834
Operating
expenses (1)
—
6,680
5,552
12,232
Exchange
(gains) losses
—
(946)
—
(946)
Net
investment income
—
89,550
38,459
128,009
Interest
expense (2)
—
117
20,674
20,791
Net
income from life and annuity operations
$ —
$ 34,045
$
10,691
$
44,736
Financial
Operations:
Net
premiums earned
$
66,612
$
66,612
Fee
income and other
829
829
Net
losses and loss expenses
9,530
9,530
Acquisition
costs
8,633
8,633
Operating
expenses (1)
33,202
33,202
Underwriting
profit
$
16,076
$
16,076
Investment
income — financial guarantee
$
17,005
$
17,005
Net
realized and unrealized gains on
credit
derivatives
39,649
39,649
Net
realized and unrealized losses on weather and
energy
derivatives
(4,616)
(4,616)
Operating
expenses — weather and energy (1)
13,941
13,941
Equity
in net losses of financial affiliates
(1,203)
(1,203)
Minority
interest
7,087
7,087
Contribution
from financial operations
$
45,883
$
45,883
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(U.S. dollars in thousands, except ratios)
(Unaudited)
Financial
Products and
Insurance
Reinsurance
Services
Total
Net
investment income — general operations
$
318,509
Net
realized and unrealized gains on investments
and
derivative instruments (3)
142,804
Equity
in net income of investment and
insurance
affiliates
100,293
Interest
expense (2)
74,227
Amortization
of intangible assets
6,514
Corporate
operating expenses
80,397
Minority
interest
(143)
Income
tax
66,533
Net
Income
$
835,933
General
Operations:
Loss
and loss expense ratio (4)
62.8%
56.8%
60.3%
Underwriting
expense ratio (4)
26.9%
29.2%
27.9%
Combined
ratio (4)
89.7%
86.0%
88.2%
(1)
Operating expenses exclude corporate
operating expenses, shown separately.
(2)
Interest expense excludes interest
expense related to life and annuity operations, shown separately.
(3)
This includes net realized gains
on investments of $124.1 million and net realized and unrealized gains on investment
derivatives of $18.7 million, but does not include unrealized appreciation or depreciation
on investments, which are included in “accumulated other comprehensive income
(loss)”.
(4)
Ratios are based on net premiums
earned from general operations. The underwriting expense ratio excludes exchange
gains and losses.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(U.S. dollars in thousands)
(Unaudited)
Financial
Products and
Insurance
Reinsurance
Services
Total
General
Operations:
Net
premiums earned
$
1,751,306
$
1,150,101
$
—
$
2,901,407
Fee
income and other
3,717
17,793
—
21,510
Net
losses and loss expenses
1,073,208
727,338
—
1,800,546
Acquisition
costs
268,279
246,215
—
514,494
Operating
expenses (1)
202,793
71,254
—
274,047
Exchange
losses (gains)
768
(23,208)
—
(22,440)
Underwriting
profit
$
209,975
$
146,295
$
—
$
356,270
Life
and Annuity Operations:
Life
premiums earned
$
—
$
139,842
$
23,411
$
163,253
Fee
income and other
—
—
50
50
Claims
and policy benefits
—
183,536
19,247
202,783
Acquisition
costs
—
13,869
1,460
15,329
Operating
expenses (1)
—
4,221
4,091
8,312
Exchange
(gains) losses
—
(3,614)
—
(3,614)
Net
investment income
—
65,144
12,549
77,693
Interest
expense
—
—
4,927
4,927
Net
income from life and annuity operations
$
—
$
6,974
$
6,285
$
13,259
Financial
Operations:
Net
premiums earned
$
62,780
$
62,780
Fee
income and other
509
509
Net
losses and loss expenses
22,283
22,283
Acquisition
costs
9,039
9,039
Operating
expenses (1)
22,306
22,306
Underwriting
profit
$
9,661
$
9,661
Investment
income — financial guarantee
$
10,673
$
10,673
Net
realized and unrealized losses on
credit
derivatives
(21,930)
(21,930)
Net
realized and unrealized gains on weather and
energy
derivatives
15,633
15,633
Operating
expenses — weather and energy (1)
10,810
10,810
Equity
in net income of financial affiliates
17,176
17,176
Minority
interest
5,298
5,298
Contribution
from financial operations
$
15,105
$
15,105
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(U.S. dollars in thousands, except ratios)
(Unaudited)
Financial
Products and
Insurance
Reinsurance
Services
Total
Net
investment income — general operations
$
294,089
Net
realized and unrealized gains on investments
and
derivative instruments (3)
97,557
Equity
in net income of investment and
insurance
affiliates
19,364
Interest
expense (2)
87,495
Amortization
of intangible assets
750
Corporate
operating expenses
68,953
Minority
interest
(270)
Income
tax
31,039
Net
Income
$
607,677
General
Operations:
Loss
and loss expense ratio (4)
61.3%
63.2%
62.1%
Underwriting
expense ratio (4)
26.9%
27.6%
27.1%
Combined
ratio (4)
88.2%
90.8%
89.2%
(1)
Operating expenses exclude corporate
operating expenses, shown separately.
(2)
Interest expense excludes interest
expense related to life and annuity operations, shown separately.
(3)
This includes net realized gains
on investments of $89.0 million, net realized and unrealized gains on investment
derivatives of $8.5 million, but does not include unrealized appreciation or depreciation
on investments, which are included in “accumulated other comprehensive income
(loss)”.
(4)
Ratios are based on net premiums
earned from general operations. The underwriting expense ratio excludes exchange
gains and losses.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(U.S. dollars in thousands)
(Unaudited)
Financial
Products and
Insurance
Reinsurance
Services
General
Operations:
Professional
liability
$
373,685
$
—
$
—
Casualty
253,689
320,457
—
Property
catastrophe
15,401
80,997
—
Other
property
155,690
191,789
—
Marine,
energy, aviation and satellite
238,178
44,678
—
Accident
and health
6,674
9,751
—
Other
(1)
69,032
70,204
—
Total
general operations
$
1,112,349
$
717,876
$
—
Life and Annuity Operations
—
969,097
24,951
Financial
Operations
—
—
34,024
Total
$
1,112,349
$
1,686,973
$
58,975
(1)
Other, includes political risk, surety,
bonding, warranty and other lines.
(U.S. dollars in thousands)
(Unaudited)
Financial
Products and
Insurance
Reinsurance
Services
General
Operations:
Professional
liability
$
203,120
$
—
$
—
Casualty
261,074
234,940
—
Property
catastrophe
—
54,503
—
Other
property
104,778
194,306
—
Marine,
energy, aviation and satellite
240,216
44,695
—
Accident
and health
18,099
6,398
—
Other
(1)
42,792
64,599
—
Total
general operations
$
870,079
$
599,441
$
—
Life and Annuity Operations
—
56,605
13,877
Financial
Operations
—
—
35,807
Total
$
870,079
$
656,046
$
49,684
(1)
Other, includes political risk, surety,
bonding, warranty and other lines.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
(continued)
(U.S. dollars in thousands)
(Unaudited)
Financial
Products and
Insurance
Reinsurance
Services
General
Operations:
Professional
liability
$
647,272
$
—
$
—
Casualty
477,620
606,111
—
Property
catastrophe
26,974
145,985
—
Other
property
277,936
384,175
—
Marine,
energy, aviation and satellite
459,028
98,995
—
Accident
and health
8,087
20,144
—
Other
(1)
100,756
152,067
—
Total
general operations
$
1,997,673
$
1,407,477
$
—
Life and Annuity Operations
—
1,064,336
46,644
Financial
Operations
—
—
66,612
Total
$
1,997,673
$
2,471,813
$
113,256
(1)
Other, includes political risk, surety,
bonding, warranty and other lines.
(U.S. dollars in thousands)
(Unaudited)
Financial
Products and
Insurance
Reinsurance
Services
General
Operations:
Professional
liability
$
415,943
$
—
$
—
Casualty
485,817
454,618
—
Property
catastrophe
—
113,039
—
Other
property
262,750
370,590
—
Marine,
energy, aviation and satellite
418,551
94,561
—
Accident
and health
36,879
11,948
—
Other
(1)
131,366
105,345
—
Total
general operations
$
1,751,306
$
1,150,101
$
—
Life and Annuity Operations
—
139,842
23,411
Financial
Operations
—
0
62,780
Total
$
1,751,306
$
1,289,943
$
86,191
(1)
Other, includes political risk, surety,
bonding, warranty and other lines.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(Unaudited)
Three Months Ended
June 30,
(Unaudited)
Six Months Ended
June 30,
2004
2003
2004
2003
Credit
derivatives
$
26,289
$
(21,363)
$
39,649
$
(21,930)
Weather and
energy risk management derivatives
48
5,223
(4,616)
15,633
Investment derivatives
15,803
3,883
18,704
8,533
Net
realized and unrealized gains (losses)
on
derivatives
$
42,140
$
(12,257)
$
53,737
$
2,236
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(Unaudited)
Three Months Ended
June 30,
(Unaudited)
Six Months Ended
June 30,
2004
2003
2004
2003
Basic
earnings per ordinary share:
Net
income
$
373,684
$
357,672
$
835,933
$
607,677
Less:
preference share dividends
(10,080)
(10,013)
(20,160)
(20,161)
Net
income available to ordinary shareholders
$
363,604
$
347,659
$
815,773
$
587,516
Weighted
average ordinary shares outstanding
137,655
136,791
137,568
136,527
Basic
earnings per ordinary share
$
2.64
$
2.54
$
5.93
$
4.30
Diluted
earnings per ordinary share:
Net
income
$
373,684
$
357,672
$
835,933
$
607,677
Less:
preference share dividends
(10,080)
(10,013)
(20,160)
(20,161)
Net
income available to ordinary shareholders
$
363,604
$
347,659
$
815,773
$
587,516
Weighted
average ordinary shares
outstanding
— basic
137,655
136,791
137,568
136,527
Average
stock options outstanding (1)
1,086
1,843
1,080
1,557
Weighted
average ordinary shares
outstanding
— diluted
138,741
138,634
138,648
138,084
Diluted
earnings per ordinary share
$
2.62
$
2.51
$
5.88
$
4.25
Dividends
per ordinary share
$
0.49
$
0.48
$
0.98
$
0.96
(1)
Net of shares repurchased under the
treasury stock method.
(Unaudited)
Three Months Ended
June 30,
2004
2003
Net
income available to ordinary shareholders
$
363,604
$
347,659
Earnings
per ordinary share — basic
$
2.64
$
2.54
Earnings per ordinary share —
diluted (1)
2.62
2.51
Weighted average
number of ordinary shares and ordinary share
equivalents
— basic
137,655
136,791
Weighted average number of ordinary
shares and ordinary share
equivalents —
diluted (1)
138,741
138,634
(1)
Average stock options outstanding
have been excluded where anti-dilutive to earnings per ordinary share.
(Unaudited)
Six Months Ended
June
30,
2004
2003
Net
income available to ordinary shareholders
$
815,773
$
587,516
Earnings
per ordinary share — basic
$
5.93
$
4.30
Earnings per ordinary share —
diluted (1)
5.88
4.25
Weighted average
number of ordinary shares and ordinary share
equivalents
— basic
137,568
136,527
Weighted average number of ordinary
shares and ordinary share
equivalents —
diluted (1)
138,648
138,084
(1)
Average stock options outstanding
have been excluded where anti-dilutive to earnings per ordinary share.
(Unaudited)
Three Months Ended
June 30,
2004
2003
Underwriting
profit — general operations
$
218,630
$
141,923
Combined
ratio — general operations
87.6%
92.2%
Investment
income — general operations
$
161,998
$
145,088
(Unaudited)
Six Months Ended
June 30,
2004
2003
Underwriting
profit — general operations
$
411,236
$
356,270
Combined
ratio — general operations
88.2%
89.2%
Investment
income — general operations
$
318,509
$
294,089
Annualized
return on average ordinary shareholders’ equity
25.1%
17.9%
(Unaudited)
June 30,
2004
December 31,
2003
Book
value per ordinary share
$
47.40
$
46.74
(Unaudited)
Three Months Ended
June 30,
2004
2003
% Change
Gross
premiums written
$
1,518,691
$
1,238,260
22.6%
Net premiums
written
1,201,750
881,354
36.4%
Net premiums earned
1,112,349
870,079
27.8%
Fee income
and other
5,565
1,569
NM
Net losses and loss expenses
709,617
551,923
28.6%
Acquisition
costs
156,655
143,829
8.9%
Operating expenses
131,432
104,697
25.5%
Exchange losses
(gains)
10,442
(6,949)
NM
Underwriting
profit
$
109,768
$
78,148
40.5%
*
NM — Not Meaningful
(Unaudited)
Three Months Ended
June 30,
2004
2003
Loss
and loss expense ratio
63.8%
63.4%
Underwriting
expense ratio
25.9%
28.6%
Combined
ratio
89.7%
92.0%
(Unaudited)
Three Months Ended
June 30,
Loss
and loss expense ratio
53.3%
62.9%
Underwriting
expense ratio
31.1%
29.7%
Combined
ratio
84.4%
92.6%
*
NM — Not Meaningful
*
NM — Not Meaningful
*
NM — Not Meaningful
$0.9 billion and $1.9 billion, respectively, as at June 30,
2004.
(U.S. dollars in thousands)
(Unaudited)
Three Months Ended
June 30,
2004
2003
% Change
Net
investment income — general operations
$
161,998
$
145,088
11.6%
Equity in net
income of investment affiliates
26,733
34,306
(22.1)%
Net realized gains on investments
8,763
93,687
(90.6)%
Net realized
and unrealized gains on investment
derivative
instruments — general operations
15,803
3,883
*
NM — Not Meaningful
Three Months Ended
June 30,
2004
2003
Risk
Asset Portfolios — Fixed Income
(Note 1)
U.S.
High Yield
(1.0)%
8.4%
CS First Boston High Yield
Index
(0.2)%
9.7%
Relative
Performance
(0.8)%
(1.3)%
Risk
Asset Portfolios — Equities
U.S.
Large Cap Growth Equity
2.6%
14.1%
Russell 1000 Growth Index
1.9%
14.3%
Relative
Performance
0.7%
(0.2)%
U.S.
Large Cap Value Equity
(0.2)%
16.8%
Russell
1000 Value Index
0.8%
17.2%
Relative
Performance
(1.0)%
(0.4)%
U.S.
Small Cap Equity
0.7%
22.8%
Russell 2000 Index
0.4%
23.4%
Relative
Performance
0.3%
(0.6)%
Non-U.S.
Equity
(1.8)%
16.5%
MSCE ACWI
ex US Index
(Note 2)
(0.7)%
19.3%
Relative
Performance
(1.1)%
(2.8)%
Risk
Asset Portfolios — Alternative Investments
Alternative
Investments — (Note 3)
0.4%
2.9%
Standard
and Poor’s 500 Index —
(Note 3)
(1.7)%
13.9%
Relative
Performance
2.1%
(11.0)%
Note
1 — All U.S. and Sterling fixed income portfolios within Asset/Liability investment
portfolios are now managed relative to custom liability benchmarks.
Note 2 — The benchmark for
the Non-U.S. Equity portfolios changed from the MSCI EAFE to the MSCE ACWI ex US
Index in the quarter. Comparative figures reflect the previous index.
Note 3 —
Effective June 30, 2003, alternative investments are priced one month in arrears; however, cash flows are reflected in the current reporting period. For comparative purposes, effective June 2003, the Standard & Poor’s 500 Index returns are lagged one month.
Type of Securities
Length of time
in a continual
unrealized loss
position
(Unaudited)
Amount of unrealized
loss at June 30, 2004
Fixed
Income and
Short-Term
$
208,890
20,770
51,015
1,160
Total
$
Equities
$
Total
$
(U.S. dollars in thousands)
Maturity
profile in years of fixed
income securities
in a continual
unrealized loss position
(Unaudited)
Amount of unrealized loss at
June 30, 2004
Less
than 1 year remaining
$
1,669
1 or more years and less than
5 years remaining
59,463
5 or more years
and less than 10 years remaining
93,409
10 or more years and less than
20 years remaining
39,346
20 years or
more remaining
49,256
Mortgage backed securities
38,692
Total
$
281,835
(U.S. dollars in thousands)
(Unaudited)
Three Months Ended
June 30,
Equity
in net income (loss) of insurance affiliates
$
2,169
$
(136)
NM
Amortization
of intangible assets
3,257
375
NM
Corporate operating expenses
38,792
34,645
12.0%
Interest expense
44,566
43,491
2.5%
Income tax expense
31,176
11,009
183.2%
*
NM — Not Meaningful
(U.S. dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
2004
2003
% Change
Gross
premiums written
$
3,238,936
$
2,715,514
19.3%
Net premiums
written
2,497,673
1,969,759
26.8%
Net premiums earned
1,997,673
1,751,306
14.1%
Fee income
and other
7,896
3,717
112.4%
Net losses and loss expenses
1,254,543
1,073,208
16.9%
Acquisition
costs
276,378
268,279
3.0%
Operating expenses
260,421
202,793
28.4%
Exchange losses
12,022
768
NM
Underwriting
profit
$
202,205
$
209,975
(3.7)%
*
NM — Not Meaningful
(Unaudited)
Six Months Ended
June 30,
2004
2003
Loss
and loss expense ratio
62.8%
61.3%
Underwriting
expense ratio
26.9%
26.9%
Combined
ratio
89.7%
88.2%
2004
2003
% Change
Gross
premiums written
$
2,312,592
$
2,130,573
8.5%
Net premiums
written
2,025,816
1,781,729
13.7%
Net premiums earned
1,407,477
1,150,101
22.4%
Fee income
and other
6,104
17,793
(65.7)%
Net losses and loss expenses
799,781
727,338
10.0%
Acquisition
costs
317,833
246,215
29.1%
Operating expenses
92,823
71,254
30.3%
Exchange gains
(5,887)
(23,208)
NM
Underwriting
profit
$
209,031
$
146,295
42.9%
(Unaudited)
Six Months Ended
June 30,
2004
2003
Loss
and loss expense ratio
56.8%
63.2%
Underwriting
expense ratio
29.2%
27.6%
Combined
ratio
86.0%
90.8%
2004
2003
% Change
Gross
premiums written
$
1,062,495
$
150,333
NM
Net premiums
written
1,062,409
137,730
NM
Net premiums earned
1,064,336
139,842
NM
Fee income
and other
93
—
NM
Claims and policy benefits
1,102,244
183,536
NM
Acquisition
costs
11,839
13,869
(14.6)%
Operating expenses
6,680
4,221
58.3%
Exchange gains
(946)
(3,614)
(73.8)%
Net investment income
89,550
65,144
37.5%
Interest expense
117
—
NM
Net
income from life operations
$
34,045
$
6,974
NM
*
NM — Not Meaningful
2004
2003
% Change
Gross
premiums written
$
131,677
$
151,032
(12.8)%
Net premiums
written
124,184
148,462
(16.4)%
Net premiums earned
66,612
62,780
6.1%
Fee income
and other
829
509
62.9%
Net losses and loss expenses
9,530
22,283
(57.2)%
Acquisition
costs
8,633
9,039
(4.5)%
Operating expenses
33,202
22,306
48.8%
Underwriting
profit
$
16,076
$
9,661
66.4%
Net investment income —
financial guarantee
$
17,005
$
10,673
59.3%
Net realized
and unrealized (losses) gains on weather
and
energy derivatives
(4,616)
15,633
(129.5)%
Operating expenses — weather
and energy
13,941
10,810
29.0%
Equity in net
(loss) income of financial affiliates
(1,203)
17,176
NM
Minority interest
7,087
5,298
33.8%
Net realized
and unrealized gains (losses) on credit
default
swaps
39,649
(21,930)
NM
Net
contribution from financial operations
$
45,883
$
15,105
204%
*
NM — Not Meaningful
2004
2003
% Change
Gross
premiums written
$
46,425
$
36,880
25.9%
Net premiums
written
46,644
23,286
100.3%
Net premiums earned
46,644
23,411
99.1%
Fee income
and other
137
50
174.0%
Claims and policy benefits
38,328
19,247
99.1%
Acquisition
costs
9,995
1,460
NM
Operating expenses
5,552
4,091
35.7%
Net investment
income
38,459
12,549
NM
Interest expense
20,674
4,927
NM
Net
income from life and annuity operations
$
10,691
$
6,285
70.1%
*
NM — Not Meaningful
2004
2003
% Change
Net investment income — general operations
$
318,509
$
294,089
8.3%
Equity in net income of investment affiliates
97,109
61,104
58.9%
Net realized gains on investments
124,100
89,024
NM
Net realized and unrealized gains on
investment derivative instruments — general operations
18,704
8,533
NM
*
NM — Not Meaningful
(Unaudited)
Six Months Ended
June 30,
2004
2003
(Note 1)
U.S.
High Yield
0.7%
13.7%
CS First Boston High Yield
Index
2.5%
17.3%
Relative
Performance
(1.8)%
(3.6)%
Risk
Asset Portfolios — Equities
U.S.
Large Cap Growth Equity
2.3%
(12.8)%
Russell 1000 Growth Index
2.6%
(13.0)%
Relative
Performance
(0.3)%
0.2%
U.S.
Large Cap Value Equity
4.6%
12.4%
Russell
1000 Value Index
3.7%
11.4%
Relative
Performance
0.9%
1.0%
U.S.
Small Cap Equity
6.7%
19.2%
Russell 2000 Index
6.7%
17.8%
Relative
Performance
—
1.4%
Non-U.S.
Equity
4.2%
8.2%
MSCE ACWI
ex US Index
(Note 2)
3.6%
9.5%
Relative
Performance
0.6%
(1.3)%
Risk
Asset Portfolios — Alternative Investments
Alternative
Investments (Note 3)
4.4%
4.7%
Standard
and Poor’s 500 Index
(Note 3)
(0.1)%
10.4%
Relative
Performance
4.5%
(5.7)%
Note
1 — All U.S. and Sterling fixed income portfolios within Asset/Liability investment
portfolios are now managed relative to custom liability benchmarks.
Note 2 — The benchmark for
the Non-U.S. Equity portfolios changed from the MSCI EAFE to the MSCE ACWI ex US
Index in the quarter. Comparative figures reflect the previous index.
Note 3 — Effective June
30, 2003, alternative investments are priced one month in arrears; however, cash
flows are reflected in the current reporting period. For comparative purposes, effective
June 2003, the Standard & Poor’s 500 Index returns are lagged one month.
2004
2003
% Change
Equity
in net income (loss) of insurance affiliates
$
3,184
$
(41,741)
NM
Amortization
of intangible assets
6,514
750
NM
Corporate operating expenses
80,397
68,953
16.6%
Interest expense
74,227
87,495
(15.2)%
Income tax expense
66,533
31,039
114.4%
*
NM — Not Meaningful
Rating agency
Rating
Standard
& Poor’s
AA–
(Outlook Stable)
Fitch
AA
(Stable)
A.M.
Best
A+
(Outlook Negative)
Moody’s Investor
Services
Aa2
(except members of the XL America
Pool, XL Re Ltd and XL Life Insurance and Annuity Company, which are rated Aa3, outlook for both ratings is stable)
Rating
agency
Rating
Standard
& Poor’s
AAA
Fitch
AAA
Moody’s
Investor Services
Aaa
(Unaudited)
Year Of
Less Than
1 To 3
4 To 5
After 5
Notes Payable And Debt
Commitment
In Use
Expiry
1 Year
Years
Years
Years
Revolving credit facilities
$
600,000
$
—
2004
$
—
$
—
$
—
$
—
7.15% Senior Notes
99,990
99,990
2005
—
100,000
—
—
6.58% Guaranteed Senior Notes
255,000
255,000
2011
—
—
—
255,000
6.50% Guaranteed Senior Notes (1)
597,600
597,600
2012
—
—
—
600,000
Zero Coupon Convertible
Debentures (“CARZ”) (1)
650,670
650,670
2021
—
—
—
1,010,833
Liquid Yield Option Notes™
(“LYONS”) (1)
315,108
315,108
2021
—
—
—
514,622
2.53% Senior Notes (2)
825,000
825,000
2009
—
—
825,000
—
Total
$
3,343,368
$
2,743,368
$
—
$
100,000
$
825,000
$
2,380,455
(1)
“Commitment” and “In
Use” data represent June 30, 2004 accreted values. “Payments due by period”
represents ultimate redemption values. The convertibles may be “put” or
converted by the bondholders at various times prior to the 2021 redemption dates.
The next “put” date is May 23, 2006 for the CARZ and September 7, 2004
for the LYONs. The Company may also choose to “call” the debt from May
and September 2004 onwards for the CARZ and LYONS, respectively.
(2)
The 2.53% Senior Notes are a component
of the Units issued in March 2004. In addition to the Senior Notes coupon of 2.53%,
contract adjustment payments of 3.97% per annum are being paid on forward purchase
contracts for ordinary shares for a total distribution per annum on the Units of
6.50%. The forward purchase contracts mature on May 15, 2007, and the Senior Notes
will mature on May 15, 2009.
(Unaudited)
Year Of
Less Than
1 To 3
4 To 5
After 5
Other Commercial Commitments
1 Year
Years
Letter of Credit Facilities
$
4,264,153
$
2,843,563
2004-7
$
2,264,153
$
2,000,000
$
—
$
—
(Unaudited)
Six Months
Ended
June 30, 2004
Fair
value of contracts outstanding, beginning of the year
$
(11,490)
Option premiums
received, net of premiums realized (1)
19,436
Reclassification of settled contracts
to realized (2)
40,677
Other changes
in fair value (3)
(42,583)
Fair
value of contracts outstanding, end of period
$
6,040
(1)
The Company collected $17.4 million
of paid premiums and realized $36.8 million of premiums on expired transactions
for a net increase in the balance sheet derivative asset of $19.4 million.
(2)
The Company paid $40.7 million to
settle derivative positions during the period resulting in a reclassification of
this amount from unrealized to realized and an increase in the derivative asset
on the balance sheet.
(3)
This represents the effects of changes
in commodity prices, the time value of options, and other valuation adjustments
of ($42.6) million on the Company’s derivative positions, primarily attributable
to hedges of the positions that realized $36.8 million of premiums.
(Unaudited)
Less Than
Greater Than
Total
Source Of
Fair Value
1 Year
1-3 Years
4-5 Years
5 Years
Fair Value
Prices
actively quoted
$
(1,502)
$
—
$
—
$
—
$
(1,502)
Prices based
on models and other
valuation methods
(1,910)
9,326
126
7,542
Total
fair value of contracts outstanding
$
(3,412)
$
9,326
$
126
$
—
$
6,040
AAA
AA
A
BBB
BB & BELOW
NR
Total
Top
10 Corporate Holdings (2)
Percentage of Total Fixed Income
Portfolio (1)
Citigroup
Inc
1.31%
JPMorgan Chase & Co (3)
1.29%
Bank of America
Corporation
1.11%
Morgan Stanley
0.83%
Bear, Stearns
& Co. Inc
0.65%
MBNA Corp
0.63%
General Electric
Company
0.60%
DaimlerChrysler AG
0.60%
Bank One Corp
(3)
0.58%
Washington Mutual Inc
0.56%
(1)
Including fixed maturities, short-term investments, cash and cash equivalents and net payable for investments purchased.
(2)
Corporate holdings include parent and affiliated companies that issue fixed income securities. In some cases a portion of the market value may be invested in bonds that are securitized or have sufficient credit enhancement that provides a long-term credit rating that is higher than the rating of the unsecured debt of the parent company.
(3)
Effective July 1, 2004 JPMorgan Chase & Co and Bank One Corp have merged.
XL CAPITAL LTD
ITEM 1. LEGAL PROCEEDINGS
On March 17, 2004, certain current and
former directors and officers of the Company were named as defendants in a putative
“shareholder derivative complaint” (Marilyn Clark, Derivatively on Behalf
of XL Capital Ltd v. Brian O’Hara et al.) filed in Connecticut Superior Court
by a California shareholder (the “Action”). The Company is named as a
nominal defendant. The complaint alleges several causes of action including breach
of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets
and unjust enrichment during the time period “from November 2001 to the present”
(the “Relevant Period”). The Action alleges that the Company maintained
inadequate loss reserves for its NAC Re subsidiary (now known as XL Reinsurance
America, Inc.) during the Relevant Period and that, as a consequence, the Company’s
earnings and assets were materially overstated. The relief sought against certain
of the defendants includes profits made on sales of the Company’s shares over
a two year period. Defendants have filed a motion to dismiss the complaint on various
grounds including lack of subject matter jurisdiction and that it has been filed
in an incorrect forum. If the complaint is not dismissed, the defendants intend
to vigorously defend the claims asserted against them. There has been no discovery
in the Action.
On June 21, 2004, a consolidated and amended
class action complaint (the “Amended Complaint”) was served on the Company
and certain of its present and former directors and officers as defendants in a
putative class action (Malin et al. v. XL Capital Ltd et al.) filed in United States
District Court, District of Connecticut (the “Malin Action”). The Malin
Action purports to be on behalf of purchasers of the Company’s common stock
between November 1, 2001 and October 16, 2003, and alleges claims under Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder (“Securities Laws”). The Amended Complaint alleges that the
defendants violated the Securities Laws by, among other things, failing to disclose
in various public and shareholder and investor reports and other communications
the alleged inadequacy of the Company’s loss reserves for its NAC Re subsidiary
(now known as XL Reinsurance America, Inc.) and that, as a consequence, the Company’s
earnings and assets were materially overstated. The time for the Company and the
individual defendants to respond to the Amended Complaint has not occurred and there
has been no discovery in the Malin Action. The Company and the defendant present
and former officers and directors intend to vigorously defend the claims asserted
against them.
On June 17, 2004, William Kronenberg, III,
Frank A. Piliero and David M. Rosenberg (together, the “Claimants”) commenced
an arbitration against the Company before the American Arbitration Association (“AAA”)
in New York, New York. The Claimants and the Company were parties to a stock purchase
agreement dated June 1, 1999, pursuant to which the Company acquired the outstanding
capital stock of ECS, Inc (the “Stock Purchase Agreement”). In their AAA
arbitration demand, the Claimants assert claims of fraud and deceitful conduct,
negligent misrepresentation, and breach of contract and a covenant of good faith
and fair dealing, all relating to the allegation that the Company failed to make
certain contingent payments allegedly due to Claimants under the Stock Purchase
Agreement. Claimants seek $85 million (the maximum amount payable under the contingent
payment provision at issue), plus punitive damages, interest, costs and attorneys’
fees. On July 30, 2004, the Company filed an Answering Statement and Motion to Stay
or Dismiss the AAA arbitration. On April 13, 2004, the Company commenced a separate
arbitration procedure, as provided in the Stock Purchase Agreement, but the Claimants
have refused to participate in such procedure. On July 15, 2004, the Company filed
a petition in the United States District Court for the Southern District of New
York, seeking an order of the Court compelling the Claimants to arbitrate the dispute
pursuant to those procedures and staying or dismissing the AAA arbitration. Oral
argument for the petition is scheduled for August 10, 2004. The Company intends
to vigorously defend against the Claimants’ claims.
On July 15, 2003, the Company and Messrs.
Esposito and O’Hara were named in a Consolidated Amended Class Action Complaint
(the “Amended Complaint”) filed by certain shareholders of Annuity and
Life Re (Holdings), Ltd. (“ANR”) against ANR and certain present and former
officers and directors of ANR in the United States District Court for the District
of Connecticut seeking unspecified money damages on behalf of purchasers of ANR
stock. Schnall v. Annuity and Life Re (Holdings), Ltd., Civil Action No. 02-CV-2133
(GLG) (the “Schnall Action”). The plaintiffs claim that the defendants
violated certain provisions of the United States securities laws by making (or being
responsible as alleged controlling persons for) various alleged material misstatements
and omissions in public filings and press releases of ANR. On July 19, 2004, an
agreement in principle was reached with plaintiffs to settle the Schnall Action.
The settlement is without any admission of liability or wrongdoing and would include
a nominal cash payment by the Company. The settlement is subject to certain approvals,
full documentation, notice to the class,
58
court approval and certain other steps required to consummate a class
action settlement.
The Company is also subject to litigation
and arbitration in the normal course of its business. These lawsuits and arbitrations
principally involve claims on policies and are typical for the Company and for the
property and casualty insurance and reinsurance industry in general. Such legal
proceedings are considered in connection with the Company’s loss and loss expense
reserves. Reserves in varying amounts may or may not be established in respect of
particular claims proceedings based on many factors, including the legal merits
thereof and other factors. In addition to claims litigation, the Company and its
subsidiaries are subject to lawsuits in the normal course of business that do not
arise from or directly relate to claims on insurance or reinsurance policies.
The Company believes that the ultimate
outcomes of all outstanding litigation and arbitration will not have a material
adverse effect on its consolidated financial condition, future operating results
and/or liquidity, although an adverse resolution of a number of these items could
have a material adverse effect on the Company’s results of operations in a
particular fiscal quarter or year.
ITEM 2.
CHANGES
IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
The following table provides information
about purchases by the Company during the quarter ended June 30, 2004 of equity
securities that are registered by the company pursuant to Section 12 of the Exchange
Act:
ISSUER PURCHASES OF EQUITY SECURITIES
59
ITEM 4.
SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual General Meeting of Class
A Shareholders held on April 30, 2004 at the Executive Offices of the Company, XL
House, One Bermudiana Road, Hamilton HM 11, Bermuda, the ordinary shareholders approved
the following:
1. The election of three Class III Directors to hold office
until 2007:
2. The appointment of PricewaterhouseCoopers LLP, New York, New
York, to act as the independent auditors of the Company for the fiscal year ending
December 31, 2004:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
60
(b) Reports on Form 8-K
Current Report on Form 8-K filed on May 19, 2004, under
Item 5 and Item 7 thereof.
61
PART II — OTHER INFORMATION
Total Number
Approximate Dollar
of Shares
Value of Shares
Purchased as
that May Yet Be
Part of
Purchased Under
Total Number
Average Price
Publicly
the Plans
of Shares
Paid
Announced Plans
or Programs
Period
Purchased (1)
per Share (2)
or Programs
(3)
April
1-30, 2004
34,879
$
76.71
—
$
135.4 million
May 1-31, 2004
—
—
—
$
135.4 million
June 1-30,
2004
—
—
—
$
135.4 million
Total
34,879
$
76.71
—
$
135.4 million
(1)
All of the shares included in each
period were purchased in connection with the vesting of restricted shares granted
under the Company’s restricted stock plan. All of these purchases were made
in connection with satisfying tax withholding obligations of those employees. These
shares were not purchased as part of the Company’s publicly announced share
repurchase program.
(2)
The price paid per share is the closing
price of the shares on the vesting date.
(3)
On January 9, 2000, the Board of
Directors previously authorized a $500.0 million share repurchase program. The Company
did not repurchase any equity securities under the program during the three or six
months ended June 30, 2004. As of June 30, 2004, the Company could repurchase up
to approximately $135.4 million of our equity securities under the Company’s
share repurchase program.
Votes in Favor
Votes Withheld
J.
Loudon
115,929,345
2,256,200
R.S.
Parker
116,615,861
1,569,684
A.
Senter
116,403,266
1,782,279
Votes
In Favor
Votes Against
Abstentions
10.1
Amendment, dated as of May 10, 2004, to (i) the Revolving Credit and Security Agreement, dated as of February 25, 2003, among XL Re Ltd, as the borrower, CAFCO, LLC, CRC Funding, LLC, CHARTA, LLC, CIESCO, LLC, Citibank, N.A. and Citicorp North America, Inc., as agent, and (ii) the Control Agreement, dated as of February 25, 2003, among XL Re Ltd, as the borrower, Citibank North America, Inc., as Agent and Mellon Bank, N.A., as the securities intermediary.
10.2
364-Day Credit Agreement, dated as
of June 23, 2004, between XL Capital Ltd, X.L. America, Inc., XL Insurance (Bermuda)
Ltd and XL Re Ltd, as Account Parties and Guarantors, the lenders party thereto,
and JPMorgan Chase Bank, as Administrative Agent.
10.3
Three-Year Credit Agreement, dated
as of June 23, 2004, between XL Capital Ltd, X.L. America, Inc., XL Insurance (Bermuda)
Ltd and XL Re Ltd, as Account Parties and Guarantors, the lenders party thereto,
and JPMorgan Chase Bank, as Administrative Agent.
10.4
Form of Non-Statutory Stock Option
Agreement (One-Time Vesting).
10.5
Form of Non-Statutory Stock Option
Agreement (Incremental Vesting).
10.6
Form of Incentive Stock Option Agreement.
10.7
Form of Restricted Stock Agreement.
10.8
Form of Non-Statutory Stock Option
Agreement (Renewal Form).
10.9
Form of Non-Statutory Stock Option
Agreement (Non-Employee Director Renewal Form).
10.10
Form of Directors Restricted Stock
Agreement.
10.11
Form of Performance Restricted Stock
Agreement.
10.12
Form of Performance Restricted Stock
Unit Agreement.
10.13
Form of Restricted Stock Unit Agreement.
10.14
Form of Director Stock Option Agreement.
10.15
Agreement, dated December 24, 2003,
between Winterthur Swiss Insurance Company and XL Insurance (Bermuda) Ltd (including
Schedule B thereto), relating to the Second Amended and Restated Agreement for the
Sale and Purchase of Winterthur International, dated February 15, 2001.
10.16
Amendment Agreement, dated July 27,
2004, between Winterthur Swiss Insurance Company and XL Insurance (Bermuda) Ltd,
relating to the Second Amended and Restated Agreement for the Sale and Purchase
of Winterthur International, dated February 15, 2001.
31
Rule 13a-14(a)/15d-14(a) Certifications.
32
Section 1350 Certification.
99.1
XL Capital Assurance Inc. condensed
consolidated financial statements (unaudited) for the three and six month periods
ended June 30, 2004 and 2003.
99.2
XL Financial Assurance Ltd. condensed
financial statements (unaudited) for the three and six month periods ended June
30, 2004 and 2003.
SIGNATURES
Pursuant to the requirements of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
62
XL CAPITAL LTD
(Registrant)
Dated: August 9, 2004
/s/ BRIAN M. O’HARA
Brian M. O’Hara
President and Chief Executive Officer
Dated: August 9, 2004
/s/ JERRY DE ST. PAER
Jerry de St. Paer
Executive Vice President and
Chief Financial Officer
Exhibit 10.1
AGREEMENT OF AMENDMENT
Dated as of May 10, 2004
Reference is made to (i) that certain Revolving Credit and
Security Agreement dated as of February 25, 2003 (as from time to time amended,
the "Credit Agreement") among XL Re Ltd (the "Borrower"), CAFCO, LLC ("CAFCO"),
CRC Funding, LLC ("CRC"), CHARTA, LLC ("CHARTA"), CIESCO, LLC ("CIESCO"),
Citibank, N.A. ("Citibank") and Citicorp North America, Inc., as agent (the
"Agent"), and (ii) that certain Control Agreement (as from time to time amended,
the "Control Agreement") dated as of February 25, 2003 (the "Original Effective
Date") among the Borrower, the Agent and Mellon Bank, N.A. (the "Securities
Intermediary"). Capitalized terms used and not defined herein shall have the
meanings assigned to such terms in the Credit Agreement.
WHEREAS, the Borrower, the Agent and the Securities Intermediary have discovered several errors in the Control Agreement and have agreed that such errors should be corrected, effective as of the Original Effective Date; and
WHEREAS, the parties desire to amend the Control Agreement in certain other respects, as more particularly set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows
1. Effective retroactively as of the Original Effective Date, clause (b) of Section 2 of the Control Agreement is amended in its entirety to read as follows:
"(b) All financial assets credited to a Collateral Account shall be registered in the name of the Securities Intermediary, endorsed to the Securities Intermediary or in blank or credited to another securities account maintained in the name of the Securities Intermediary and in no case will any financial asset credited to any Collateral Account be registered in the name of XLReB, payable to the order of XLReB or specially endorsed to XLReB except to the extent the foregoing have been specially endorsed to the Securities Intermediary or in blank."
2. Effective as of the Original Effective Date, clause
(a) of Section 3 of the Control Agreement is amended by adding the following at
the end thereof:
"Notwithstanding the foregoing, the parties agree that Control Collateral shall not include assets pledged as collateral for futures contracts entered into by XLReB,
which assets are custodied elsewhere but are reflected in the Collateral Account for recordkeeping purposes only (the "Subject Assets"). The Securities Intermediary's records with respect to the Collateral Account shall identify the Subject Assets as being reflected in the account for recordkeeping purposes only."
3. Effective as of the date hereof, Section 4 of the Control Agreement is amended by adding the following sentence after the first sentence thereof:
"Without limiting the foregoing, if requested in writing by the Agent and at all times following the Securities Intermediary's receipt of a Notice of Exclusive Control, the Securities Intermediary shall promptly deliver to the Agent copies of each of the "custom reports" which are prepared by the Securities Intermediary for purposes of assisting the Borrower in determining if the assets in the Collateral Accounts constitute Borrowing Base Eligible Assets.
4. Effective as of the date hereof, Section 5 of the Control Agreement is amended by adding the following sentence at the end thereof:
"For the avoidance of doubt, each of the parties acknowledges and agrees that nothing in this Agreement (i) shall be deemed to impose upon the Securities Intermediary any obligation to determine if any asset of the Borrower constitutes a Borrowing Base Eligible Asset, or (ii) shall impose upon the Securities Intermediary any liability for the failure of any asset of the Borrower which has been designated by the Borrower as a Borrowing Base Eligible Asset in any report prepared by the Borrower failing to, at any time, constitute a Borrowing Base Eligible Asset."
5. The Borrower represents and warrants to the Agent, Citibank, CAFCO, CRC, CHARTA and CIESCO that immediately after giving effect to this Agreement of Amendment (except to the extent that any such representations or warranties expressly relate to an earlier date), (i) the representations and warranties of the Borrower set forth in the Credit Agreement are true and correct in all material respects, and (ii) no Default or Event of Default shall be continuing.
6. This Agreement of Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.
7. THIS AGREEMENT OF AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
8. All references in any Program Document to the Control Agreement on and after the date hereof shall be deemed to refer to the Control Agreement as amended hereby, and the parties hereto agree that on and after the date hereof, the Control Agreement, as amended hereby, is in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed and delivered by their duly authorized officers as of the date first above written.
MELLON BANK, N.A.,
as Securities Intermediary
By: /s/ Donna F. Moses ----------------------------- Name: Donna F. Moses Title: First Vice President |
XL RE LTD,
as Borrower
By: /s/ James O'Shaughnessy
-----------------------------
Name: James O'Shaughnessy
Title: Senior Vice President &
Chief Financial Officer
|
CITICORP NORTH AMERICA, INC.,
as Agent
By: /s/ Arthur Bovino ---------------------------- Name: Arthur Bovino Title: Vice President |
Exhibit 10.2
EXECUTION COPY
364-DAY CREDIT AGREEMENT
dated as of
June 23, 2004
between
XL CAPITAL LTD,
X.L. AMERICA, INC., XL INSURANCE (BERMUDA)LTD and XL RE LTD,
as Account Parties and Guarantors,
The LENDERS Party Hereto
and
JPMORGAN CHASE BANK,
as Administrative Agent
$1,000,000,000
J.P. MORGAN SECURITIES INC.,
as Sole Lead Arranger and Sole Bookrunner
BARCLAYS BANK PLC,
CITIBANK, N.A.,
DEUTSCHE BANK AG, NEW YORK BRANCH,
KEYBANK NATIONAL ASSOCIATION,
and
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Co-Syndication Agents
TABLE OF CONTENTS
PAGE
ARTICLE I.........................................................................................................1
DEFINITIONS....................................................................................................1
SECTION 1.01. Defined Terms...............................................................................1
SECTION 1.02. Terms Generally............................................................................15
SECTION 1.03. Accounting Terms; GAAP and SAP.............................................................16
ARTICLE II.......................................................................................................16
THE CREDITS...................................................................................................16
SECTION 2.01. Syndicated Letters of Credit...............................................................16
SECTION 2.02. Issuance and Administration................................................................18
SECTION 2.03. Reimbursement of LC Disbursements, Etc.....................................................18
SECTION 2.04. Non-Syndicated Letters of Credit...........................................................21
SECTION 2.05. Participated Letters of Credit.............................................................27
SECTION 2.06. Alternative Currency Letters of Credit.....................................................32
SECTION 2.07. Loans and Borrowings.......................................................................33
SECTION 2.08. Requests for Borrowings....................................................................34
SECTION 2.09. Funding of Borrowings......................................................................35
SECTION 2.10. Interest Elections.........................................................................35
SECTION 2.11. Termination, Reduction and Increase of the Commitments.....................................36
SECTION 2.12. Repayment of Loans; Term-Out Option; Evidence of Debt......................................38
SECTION 2.13. Prepayment of Loans........................................................................40
SECTION 2.14. Fees ......................................................................................40
SECTION 2.15. Interest...................................................................................42
SECTION 2.16. Alternate Rate of Interest.................................................................42
SECTION 2.17. Increased Costs............................................................................43
SECTION 2.18. Break Funding Payments.....................................................................44
SECTION 2.19. Taxes......................................................................................45
SECTION 2.20. Payments Generally; Pro Rata Treatment; Sharing of Set-offs................................46
SECTION 2.21. Mitigation Obligations; Replacement of Lenders.............................................48
ARTICLE III......................................................................................................49
GUARANTEE.....................................................................................................49
SECTION 3.01. The Guarantee..............................................................................49
SECTION 3.02. Obligations Unconditional..................................................................49
SECTION 3.03. Reinstatement..............................................................................50
SECTION 3.04. Subrogation................................................................................51
SECTION 3.05. Remedies...................................................................................51
SECTION 3.06. Continuing Guarantee.......................................................................51
SECTION 3.07. Rights of Contribution.....................................................................51
SECTION 3.08. General Limitation on Guarantee Obligations................................................52
|
ARTICLE IV.......................................................................................................52
REPRESENTATIONS AND WARRANTIES................................................................................52
SECTION 4.01. Organization; Powers.......................................................................52
SECTION 4.02. Authorization; Enforceability..............................................................52
SECTION 4.03. Governmental Approvals; No Conflicts.......................................................52
SECTION 4.04. Financial Condition; No Material Adverse Change............................................53
SECTION 4.05. Properties.................................................................................53
SECTION 4.06. Litigation and Environmental Matters.......................................................53
SECTION 4.07. Compliance with Laws and Agreements........................................................54
SECTION 4.08. Investment and Holding Company Status......................................................54
SECTION 4.09. Taxes .....................................................................................54
SECTION 4.10. ERISA .....................................................................................54
SECTION 4.11. Disclosure.................................................................................55
SECTION 4.12. Use of Credit..............................................................................55
SECTION 4.13. Subsidiaries...............................................................................55
SECTION 4.14. Withholding Taxes..........................................................................55
SECTION 4.15. Stamp Taxes................................................................................55
SECTION 4.16. Legal Form.................................................................................56
ARTICLE V........................................................................................................56
CONDITIONS....................................................................................................56
SECTION 5.01. Effective Date.............................................................................56
SECTION 5.02. Each Credit Event..........................................................................58
ARTICLE VI.......................................................................................................58
AFFIRMATIVE COVENANTS.........................................................................................58
SECTION 6.01. Financial Statements and Other Information.................................................58
SECTION 6.02. Notices of Material Events.................................................................61
SECTION 6.03. Preservation of Existence and Franchises...................................................61
SECTION 6.04. Insurance..................................................................................61
SECTION 6.05. Maintenance of Properties..................................................................61
SECTION 6.06. Payment of Taxes and Other Potential Charges and Priority Claims; Payment of Other Current
Liabilities...........................................................................61
SECTION 6.07. Financial Accounting Practices.............................................................62
SECTION 6.08. Compliance with Applicable Laws............................................................62
SECTION 6.09. Use of Letters of Credit and Proceeds......................................................63
SECTION 6.10. Continuation of and Change in Businesses...................................................63
SECTION 6.11. Visitation.................................................................................63
ARTICLE VII......................................................................................................63
NEGATIVE COVENANTS............................................................................................63
SECTION 7.01. Mergers....................................................................................63
SECTION 7.02. Dispositions...............................................................................63
SECTION 7.03. Liens .....................................................................................64
SECTION 7.04. Transactions with Affiliates...............................................................66
SECTION 7.05. Ratio of Total Funded Debt to Total Capitalization.........................................66
SECTION 7.06. Consolidated Net Worth.....................................................................66
SECTION 7.07. Indebtedness...............................................................................66
|
SECTION 7.08. Financial Strength Ratings.................................................................67
SECTION 7.09. Private Act................................................................................67
ARTICLE VIII.....................................................................................................67
EVENTS OF DEFAULT.............................................................................................67
ARTICLE IX.......................................................................................................70
THE ADMINISTRATIVE AGENT......................................................................................70
ARTICLE X........................................................................................................72
MISCELLANEOUS.................................................................................................72
SECTION 10.01. Notices...................................................................................72
SECTION 10.02. Waivers; Amendments.......................................................................73
SECTION 10.03. Expenses; Indemnity; Damage Waiver........................................................74
SECTION 10.04. Successors and Assigns....................................................................75
SECTION 10.05. Survival..................................................................................79
SECTION 10.06. Counterparts; Integration; Effectiveness..................................................79
SECTION 10.07. Severability..............................................................................79
SECTION 10.08. Right of Setoff...........................................................................80
SECTION 10.09. Governing Law; Jurisdiction; Etc..........................................................80
SECTION 10.10. WAIVER OF JURY TRIAL......................................................................81
SECTION 10.11. Headings..................................................................................81
SECTION 10.12. Treatment of Certain Information; Confidentiality.........................................81
SECTION 10.13. Judgment Currency.........................................................................82
SECTION 10.14. USA PATRIOT Act...........................................................................83
|
364-DAY CREDIT AGREEMENT dated as of June 23, 2004, between XL CAPITAL LTD, a company incorporated under the laws of the Cayman Islands, British West Indies ("XL CAPITAL"), X.L. AMERICA, INC., a Delaware corporation ("XL AMERICA"), XL INSURANCE (BERMUDA) LTD, a Bermuda limited liability company ("XL INSURANCE") and XL RE LTD, a Bermuda limited liability company ("XL RE" and, together with XL Capital, XL America and XL Insurance, each an "ACCOUNT PARTY" and each a "GUARANTOR" and collectively, the "ACCOUNT PARTIES" and the "GUARANTORS"; the Account Parties and the Guarantors being collectively referred to as the "OBLIGORS"), the LENDERS party hereto, and JPMORGAN CHASE BANK, as Administrative Agent.
The Account Parties have requested that the Lenders issue letters of credit for their account and make loans to them in an aggregate face or principal amount not exceeding $1,000,000,000 at any one time outstanding, and the Lenders are prepared to issue such letters of credit and make such loans upon the terms and conditions hereof. Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans constituting such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.
"ACCOUNT PARTIES" means each of XL Capital, XL America, XL Insurance and XL Re.
"ACCOUNT PARTY JURISDICTION" means (a) Bermuda, (b) the Cayman Islands and (c) any other country (i) where any Account Party is licensed or qualified to do business or (ii) from or through which payments hereunder are made by any Account Party.
"ADJUSTED LIBO RATE" means, for the Interest Period for any Eurodollar Borrowing, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period MULTIPLIED BY (b) the Statutory Reserve Rate for such Interest Period.
"ADMINISTRATIVE AGENT" means JPMCB, in its capacity as administrative agent for the Lenders hereunder.
"ADMINISTRATIVE QUESTIONNAIRE" means an Administrative Questionnaire in a form supplied by the Administrative Agent.
"AFFILIATE" means, with respect to a specified Person, another Person that directly, or indirectly, Controls or is Controlled by or is under common Control with the Person specified.
364-DAY CREDIT AGREEMENT
"AGGREGATE CREDIT EXPOSURE" means the aggregate amount of the Credit Exposures of each of the Lenders.
"ALTERNATE BASE RATE" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day, and (b) the Federal Funds Effective Rate for such day PLUS 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, as the case may be.
"ALTERNATIVE CURRENCY" means any currency other than Dollars
(a) that is freely transferable and convertible into Dollars in the London
foreign exchange market and (b) for which no central bank or other governmental
authorization in the country of issue of such currency is required to permit use
of such currency by any Lender for issuing, renewing, extending or amending
letter of credits or funding or making drawings thereunder and/or to permit any
Account Party to pay the reimbursement obligations and interest thereon, each as
contemplated hereunder, unless such authorization has been obtained and is in
full force and effect.
"ALTERNATIVE CURRENCY LC EXPOSURE" means, at any time, the sum of (a) the Dollar Equivalent of the aggregate undrawn amount of all outstanding Alternative Currency Letters of Credit at such time PLUS (b) the Dollar Equivalent of the aggregate amount of all LC Disbursements under Alternative Currency Letters of Credit that have not been reimbursed by or on behalf of the Account Parties at such time. The Alternative Currency LC Exposure of any Lender shall at any time be such Lender's share of the total Alternative Currency LC Exposure at such time.
"ALTERNATIVE CURRENCY LETTER OF CREDIT" means a letter of
credit issued by a Lender in an Alternative Currency pursuant to Section 2.06.
"ALTERNATIVE CURRENCY LETTER OF CREDIT REPORT" has the meaning
set forth in Section 2.06(b).
"APPLICABLE FACILITY FEE RATE" means 0.06%.
"APPLICABLE LETTER OF CREDIT FEE RATE" means 0.34%.
"APPLICABLE MARGIN" means a rate per annum equal to, (a) for the period from and including the date hereof to but not including the Commitment Termination Date, 0.34% and (b) in the event that the Term-Out Option has been exercised and is in effect, for the period from and including the Commitment Termination Date to but not including the date of payment in full of the Loans, 0.59%.
"APPLICABLE ADDITIONAL MARGIN" means a rate per annum equal to 0.10% (a) for any period during which the aggregate outstanding principal amount of the Loans shall be greater than 50% of the RC Sublimit then in effect and (b) from and after the Term-Out Option has been exercised and is in effect.
364-DAY CREDIT AGREEMENT
"APPLICABLE PERCENTAGE" means, with respect to any Lender, the percentage of the Commitments of all the Lenders represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments.
"APPROVED FUND" means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
"ASSIGNMENT AND ASSUMPTION" means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.
"AVAILABILITY PERIOD" means the period from and including the Effective Date to and including the Commitment Termination Date.
"BOARD" means the Board of Governors of the Federal Reserve System of the United States of America.
"BORROWING" means, with respect to any Account Party, (a) all
ABR Loans of such Account Party made, converted or continued on the same date or
(b) all Eurodollar Loans of such Account Party that have the same Interest
Period.
"BORROWING REQUEST" means a request by an Account Party for a Borrowing in accordance with Section 2.08.
"BUSINESS DAY" means any day (a) that is not a Saturday, Sunday or other day on which commercial banks in New York City, London, the Cayman Islands, British West Indies or Bermuda are authorized or required by law to remain closed and (b) if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, a continuation or conversion of or into, or the Interest Period for, a Eurodollar Loan, or to a notice by an Account Party with respect to any such borrowing, payment, prepayment, continuation, conversion, or Interest Period, that is also a day on which dealings in Dollar deposits are carried out in the London interbank market.
"CAPITAL LEASE OBLIGATIONS" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
"CHANGE IN CONTROL" means the occurrence of any of the following events or conditions: (a) any Person, including any syndicate or group deemed to be a Person under
364-DAY CREDIT AGREEMENT
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires
beneficial ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions, of shares of capital
stock of XL Capital entitling such Person to exercise 40% or more of the total
voting power of all shares of capital stock of XL Capital that is entitled to
vote generally in elections of directors, other than an acquisition by XL
Capital, any of its Subsidiaries or any employee benefit plans of XL Capital; or
(b) XL Capital merges or consolidates with or into any other Person (other than
a Subsidiary), another Person (other than a Subsidiary) merges into XL Capital
or XL Capital conveys, sells, transfers or leases all or substantially all of
its assets to another Person (other than a Subsidiary), other than any
transaction: (i) that does not result in a reclassification, conversion,
exchange or cancellation of the outstanding shares of capital stock of XL
Capital (other than the cancellation of any outstanding shares of capital stock
of XL Capital held by the Person with whom it merges or consolidates) or (ii)
which is effected solely to change the jurisdiction of incorporation of XL
Capital and results in a reclassification, conversion or exchange of outstanding
shares of capital stock of XL Capital solely into shares of capital stock of the
surviving entity; or (c) a majority of the members of XL Capital's board of
directors are persons who are then serving on the board of directors without
having been elected by the board of directors or having been nominated for
election by its shareholders.
"CHANGE IN LAW" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.17(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended from time to time.
"COMMITMENT" means, with respect to any Lender, the commitment of such Lender (a) to issue Syndicated Letters of Credit and Non-Syndicated Letters of Credit and acquire participations in Participated Letters of Credit and (b) to make Loans, in each case expressed as an amount representing the maximum aggregate amount of such Lender's Credit Exposure hereunder, as such commitment may be (i) reduced or increased from time to time pursuant to Section 2.11 and (ii) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 10.04. The initial amount of each Lender's Commitment (including the RC Sublimit) is set forth on Schedule I or in the Assignment and Assumption or other agreement entered into under Section 2.11(c) pursuant to which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Lenders' Commitments is $1,000,000,000.
"COMMITMENT TERMINATION DATE" means June 22, 2005.
"CONFIRMING LENDER" means, with respect to any Lender, any other Person which is listed on the NAIC Approved Bank List that has agreed, by delivery of an agreement between such Lender and such other Person in substantially the form of Exhibit D or any other form satisfactory to the Administrative Agent, to honor the obligations of such Lender in respect of a
364-DAY CREDIT AGREEMENT
draft complying with the terms of a Syndicated Letter of Credit or a Non-Syndicated Letter of Credit, as the case may be, as if, and to the extent, such other Person were the "issuing lender" (in place of such Lender) named in such Syndicated Letter of Credit or Non-Syndicated Letter of Credit, as the case may be.
"CONSOLIDATED NET WORTH" means, at any time, the consolidated stockholders' equity of XL Capital and its Subsidiaries.
"CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "CONTROLLING" and "CONTROLLED" have meanings correlative thereto.
"CREDIT DOCUMENTS" means, collectively, this Agreement and the Letter of Credit Documents.
"CREDIT EXPOSURE" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Loans and its LC Exposure at such time.
"DEFAULT" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
"DOLLAR EQUIVALENT" means, as used in each Alternative Currency Letter of Credit Report and in respect of any Alternative Currency Letter of Credit, the amount of Dollars obtained by converting the Alternative Currency LC Exposure with respect to such Alternative Currency Letter of Credit, as specified in such Alternative Currency Letter of Credit Report, into Dollars at the spot rate for the purchase of Dollars with such currency as quoted by the Administrative Agent at approximately 11:00 a.m. (London time) on the second Business Day before the date of such Alternative Currency Letter of Credit Report (unless another rate or time is agreed to by XL Capital and the Administrative Agent).
"DOLLARS" or "$" refers to lawful money of the United States of America.
"EFFECTIVE DATE" means the date on which the conditions specified in Section 5.01 are satisfied (or waived in accordance with Section 10.02).
"ENVIRONMENTAL LAWS" means any Law, whether now existing or subsequently enacted or amended, relating to (a) pollution or protection of the environment, including natural resources, (b) exposure of Persons, including but not limited to employees, to Hazardous Materials, (c) protection of the public health or welfare from the effects of products, by-products, wastes, emissions, discharges or releases of Hazardous Materials or (d) regulation of the manufacture, use or introduction into commerce of Hazardous Materials, including their manufacture, formulation, packaging, labeling, distribution, transportation, handling, storage or disposal.
364-DAY CREDIT AGREEMENT
"ENVIRONMENTAL LIABILITY" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of an Account Party or any
Subsidiary resulting from or based upon (a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract or agreement pursuant to which liability is
assumed or imposed with respect to any of the foregoing.
"EQUITY RIGHTS" means, with respect to any Person, any subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including any shareholders' or voting trust agreements) for the issuance, sale, registration or voting of, or securities convertible into, any additional shares of capital stock of any class, or partnership or other ownership interests of any type in, such Person.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that, together with any Account Party, is treated as a single
employer under Section 414(b) or (c) of the Code, or, solely for purposes of
Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA EVENT" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by any Account Party or any of such
Account Party's ERISA Affiliates of any liability under Title IV of ERISA with
respect to the termination of any Plan; (e) the receipt by any Account Party or
any ERISA Affiliate from the PBGC or a plan administrator of any notice relating
to an intention to terminate any Plan or Plans or to appoint a trustee to
administer any Plan; (f) the incurrence by any Account Party or any of its ERISA
Affiliates of any liability with respect to the withdrawal or partial withdrawal
from any Plan or Multiemployer Plan; or (g) the receipt by any Account Party or
any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from
any Account Party or any ERISA Affiliate of any notice, concerning the
imposition of Withdrawal Liability or a determination that a Multiemployer Plan
is, or is expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA.
"EURODOLLAR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans constituting such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
"EVENT OF DEFAULT" has the meaning assigned to such term in Article VIII.
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"EXCESS FUNDING GUARANTOR" has the meaning assigned to such term in Section 3.07.
"EXCESS PAYMENT" has the meaning assigned to such term in
Section 3.07.
"EXCLUDED TAXES" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Account Party hereunder, (a) Taxes imposed on (or measured by) its net income, net profits or overall gross receipts (including, without limitation, branch profits or similar taxes) by the United States of America, or by any jurisdiction under the laws of which such recipient is organized or resident, in which such recipient has an office or with which such recipient has any other connection (other than a connection that is deemed to arise solely by reason of both (I) the transactions contemplated by this Agreement and (II) an Account Party being organized in, maintaining an office in, conducting business in, or having a connection with, such jurisdiction), (b) any Taxes not described in clause (a) above (other than Other Taxes) that are imposed as a result of a connection the Administrative Agent or any Lender, as the case may be, has with the relevant jurisdiction (other than a connection that is deemed to arise solely by reason of both (I) the transactions contemplated by this Agreement and (II) an Account Party being organized or resident in, maintaining an office in, conducting business in, or having a connection with, such jurisdiction) and (c) any Tax that is not imposed solely as a result of a Change in Law formally announced after the date hereof.
"EXISTING CREDIT AGREEMENT" means the 364-Day Credit Agreement dated as of June 25, 2003 between the Obligors, XL Europe Limited, the lenders party thereto, and JPMCB, as administrative agent for such lenders.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.
"FINANCIAL OFFICER" means, with respect to any Obligor, a principal financial officer of such Obligor.
"GAAP" means generally accepted accounting principles in the United States of America.
"GIC" means a guaranteed investment contract or funding agreement or other similar agreement issued by an Account Party or any of its Subsidiaries that guarantees to a counterparty a rate of return on the invested capital over the life of such contract or agreement.
"GOVERNMENTAL AUTHORITY" means the government of the United States of America, or of any other nation (including the European Union), or any political subdivision
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thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
"GRANTING LENDER" has the meaning assigned to such term in
Section 10.04.
"GUARANTEE" means, with respect to any Person, without duplication, any obligations of such Person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing or intended to guarantee any Indebtedness of any other Person in any manner, whether direct or indirect, and including any obligation, whether or not contingent, (i) to purchase any such Indebtedness or any property constituting security therefor for the purpose of assuring the holder of such Indebtedness, (ii) to advance or provide funds or other support for the payment or purchase of any such Indebtedness or to maintain working capital, solvency or other balance sheet condition of such other Person (including keepwell agreements, maintenance agreements, comfort letters or similar agreements or arrangements) for the benefit of any holder of Indebtedness of such other Person, (iii) to lease or purchase property, securities or services primarily for the purpose of assuring the holder of such Indebtedness, or (iv) to otherwise assure or hold harmless the holder of such Indebtedness against loss in respect thereof. The amount of any Guarantee hereunder shall (subject to any limitations set forth therein) be deemed to be an amount equal to the outstanding principal amount of the Indebtedness in respect of which such Guarantee is made. The terms "GUARANTEE" and "GUARANTEED" used as a verb shall have a correlative meaning.
"GUARANTEED OBLIGATIONS" has the meaning assigned to such term in Section 3.01.
"GUARANTORS" means each of XL Capital, XL America, XL Insurance and XL Re.
"HAZARDOUS MATERIALS" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
"HEDGING AGREEMENT" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement.
"INDEBTEDNESS" means, for any Person, without duplication (it being understood, for the avoidance of doubt, that insurance payment liabilities, as such, and liabilities arising in the ordinary course of such Person's business as an insurance or reinsurance company (including GICs and Stable Value Instruments and any Specified Transaction Agreement relating thereto) or corporate member of The Council of Lloyd's or as a provider of financial or investment services or contracts (including GICs and Stable Value Instruments and any Specified Transaction Agreement relating thereto) (in each case other than in connection with the provision of financing to such Person or any of such Person's Affiliates) shall not be deemed to constitute Indebtedness): (i) all indebtedness or liability for or on account of money borrowed by, or for or on account of deposits with or advances to (but not including accrued pension costs, deferred
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income taxes or accounts payable of) such Person; (ii) all obligations (including contingent liabilities) of such Person evidenced by bonds, debentures, notes, banker's acceptances or similar instruments; (iii) all indebtedness or liability for or on account of property or services purchased or acquired by such Person; (iv) any amount secured by a Lien on property owned by such Person (whether or not assumed) and Capital Lease Obligations of such Person (without regard to any limitation of the rights and remedies of the holder of such Lien or the lessor under such capital lease to repossession or sale of such property); (v) the maximum available amount of all standby letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed); and (vi) all Guarantees of such Person.
"INDEMNIFIED TAXES" means Taxes imposed on the Administrative Agent or any Lender on or with respect to any payment hereunder, other than Excluded Taxes and Other Taxes.
"INSURANCE SUBSIDIARY" means any Subsidiary which is subject to the regulation of, and is required to file statutory financial statements with, any governmental body, agency or official in any State or territory of the United States or the District of Columbia which regulates insurance companies or the doing of an insurance business therein.
"INTEREST ELECTION REQUEST" means a request by an Account Party to convert or continue a Borrowing in accordance with Section 2.10.
"INTEREST PAYMENT DATE" means (a) with respect to any ABR Loan, each Quarterly Date and (b) with respect to any Eurodollar Loan, the last day of each Interest Period therefor and, in the case of any Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at three-month intervals after the first day of such Interest Period.
"INTEREST PERIOD" means, for any Eurodollar Loan or Borrowing, the period commencing on the date of such Loan or Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as specified in the applicable Borrowing Request or Interest Election Request; PROVIDED that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, and (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Loan initially shall be the date on which such Loan is made and thereafter shall be the effective date of the most recent conversion or continuation of such Loan, and the date of a Borrowing comprising Loans that have been converted or continued shall be the effective date of the most recent conversion or continuation of such Loans.
"ISDA" has the meaning assigned to such term in Section 7.03(f).
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"ISSUING LENDER" means (a) with respect to any Participated
Letter of Credit, JPMCB, in its capacity as the issuer of such Participated
Letter of Credit hereunder, and its successors in such capacity as provided in
Section 2.05(j), (b) with respect to any Syndicated Letter of Credit, each
Lender, in its capacity as the issuer of such Syndicated Letter of Credit and
(c) with respect to any Non-Syndicated Letter of Credit, the Lender named
therein as the issuer thereof.
"JPMCB" means JPMorgan Chase Bank.
"LAW" means any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of any Governmental Authority.
"LC DISBURSEMENT" means (a) with respect to any Participated Letter of Credit or Non-Syndicated Letter of Credit, a payment made by the Issuing Lender thereof pursuant thereto and (b) with respect to any Syndicated Letter of Credit or Alternative Currency Letter of Credit, a payment made by a Lender pursuant thereto.
"LC EXPOSURE" means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time PLUS (b) the aggregate amount of all LC Disbursements under Letters of Credit that have not yet been reimbursed by or on behalf of the Account Parties at such time. The LC Exposure of any Lender at any time shall be the sum of (i) its Applicable Percentage of the total LC Exposure (excluding any Alternative Currency LC Exposure) PLUS (ii) the Alternative Currency LC Exposure (if any) of such Lender at such time.
"LENDERS" means the Persons listed on Schedule I and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption or an agreement pursuant to the terms of Section 2.11(c), other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.
"LETTER OF CREDIT DOCUMENTS" means, with respect to any Letter of Credit, collectively, any application therefor and any other agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for the rights and obligations of the parties concerned or at risk with respect to such Letter of Credit.
"LETTERS OF CREDIT" means each of the Syndicated Letters of Credit, the Non-Syndicated Letters of Credit, the Participated Letters of Credit and the Alternative Currency Letters of Credit.
"LIBO RATE" means, for the Interest Period for any Eurodollar Borrowing, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate
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for the offering of Dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the LIBO Rate for such Interest Period shall be the rate at which Dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.
"LIEN" means, with respect to any asset, any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, including but not limited to any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security.
"LOANS" means the loans made by the Lenders to the Account Parties pursuant to Section 2.07.
"MARGIN STOCK" means "margin stock" within the meaning of Regulations T, U and X of the Board.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on:
(a) the assets, business, financial condition or operations of an Account Party
and its Subsidiaries taken as a whole; or (b) the ability of an Account Party to
perform any of its payment or other material obligations under this Agreement.
"MATURITY DATE" means the Commitment Termination Date, as such date may be extended pursuant to the Term-Out Option.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NAIC" means the National Association of Insurance Commissioners.
"NAIC APPROVED BANK" means (a) any Person that is a bank listed on the most current "Bank List" of banks approved by the NAIC (the "NAIC APPROVED BANK LIST") or (b) any Lender as to which its Confirming Lender is a bank listed on the NAIC Approved Bank List.
"NAIC APPROVED BANK LIST" has the meaning assigned to such term in the definition of "NAIC Approved Bank" in this Section.
"NON-SYNDICATED LETTERS OF CREDIT" means letters of credit issued under Section 2.04.
"NON-U.S. BENEFIT PLAN" means any plan, fund (including any superannuation fund) or other similar program established or maintained outside the United States by any Account Party or any of their Subsidiaries, with respect to which such Account Party or such Subsidiary has an obligation to contribute, for the benefit of employees of such Account Party or such Subsidiary, which plan, fund or other similar program provides, or results in, the type of
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benefits described in Section 3(1) or 3(2) of ERISA, and which plan is not subject to ERISA or the Code.
"OBLIGORS" means each of the Account Parties and each of the Guarantors.
"OTHER TAXES" means any and all present or future stamp or documentary taxes or any other similar excise or property Taxes, arising from any payment made hereunder or from the execution, delivery or enforcement of this Agreement, but excluding property or similar Taxes other than any such Taxes imposed in such circumstances solely as a result of the Account Party being organized or resident in, maintaining an office in, conducting business in or maintaining property located in the taxing jurisdiction in question.
"PARTICIPANT" has the meaning assigned to such term in Section 10.04.
"PARTICIPATED LETTERS OF CREDIT" means letters of credit issued under Section 2.05.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
"PERSON" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
"PLAN" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which any Account
Party or any ERISA Affiliate is (or, if such plan were terminated, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"PRIME RATE" means the rate of interest per annum publicly announced from time to time by JPMCB as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.
"PRIVATE ACT" means separate legislation enacted in Bermuda with the intention that such legislation apply specifically to an Account Party, in whole or in part.
"PRO RATA SHARE" has the meaning assigned to such term in
Section 3.07.
"QUARTERLY DATE" means the last Business Day of March, June, September and December in each year, the first of which shall be the first such day after the date hereof.
"RC SUBLIMIT" means $600,000,000, as such amount may be reduced from time to time pursuant to Section 2.11.
"REGISTER" has the meaning assigned to such term in Section 10.04.
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"RELATED PARTIES" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates.
"REQUIRED LENDERS" means, at any time, Lenders having Commitments representing more than 50% of the aggregate amount of the Commitments at such time; PROVIDED that, if the Commitments have expired or been terminated, "Required Lenders" means Lenders having more than 50% of the Aggregate Credit Exposure at such time.
"SAP" means, as to each Account Party and each Subsidiary that offers insurance products, the statutory accounting practices prescribed or permitted by the relevant Governmental Authority for such Account Party's or such Subsidiary's domicile for the preparation of its financial statements and other reports by insurance corporations of the same type as such Account Party or such Subsidiary in effect on the date such statements or reports are to be prepared, except if otherwise notified by XL Capital as provided in Section 1.03.
"SEC" means the Securities and Exchange Commission or any successor entity.
"SIGNIFICANT SUBSIDIARY" means, at any time, each Subsidiary of XL Capital that, as of such time, meets the definition of a "significant subsidiary" under Regulation S-X of the SEC.
"SPECIFIED ACCOUNT PARTY" has the meaning assigned to such term in Section 2.05.
"SPECIFIED TRANSACTION AGREEMENT" means any agreement,
contract or documentation with respect to the following types of transactions:
rate swap transaction, swap option, basis swap, asset swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
current swap transaction, cross-currency rate swap transaction, currency option,
credit protection transaction, credit swap, credit default swap, credit default
option, total return swap, credit spread transaction, repurchase transaction,
reverse repurchase transaction, buy/sell-back transaction, securities lending or
borrowing transaction, weather index transaction or forward purchase or sale of
a security, commodity or other financial instrument or interest, and
transactions on any commodity futures or other exchanges, markets and their
associated clearing houses (including any option with respect to any of these
transactions).
"SPV" has the meaning assigned to such term in Section 10.04.
"STABLE VALUE INSTRUMENT" means any insurance, derivative or similar financial contract or instrument designed to mitigate the volatility of returns during a given period on a specified portfolio of securities held by one party (the "CUSTOMER") through the commitment of the other party (the "SVI PROVIDER") to provide the customer with a credited rate of return on the portfolio, typically determined through an interest-crediting mechanism (and in exchange for which the SVI provider typically receives a fee).
"STATUTORY RESERVE RATE" means, for any day (or for the Interest Period for any Eurodollar Borrowing), a fraction (expressed as a decimal), the numerator of which is the
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number one and the denominator of which is the number one MINUS the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject on such day (or, with respect to an Interest Period, the denominator of which is the number one MINUS the arithmetic mean of such aggregates for the days in such Interest Period) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
"SUBSIDIARY" means, with respect to any Person (the "PARENT"), at any date, any corporation (or similar entity) of which a majority of the shares of outstanding capital stock normally entitled to vote for the election of directors (regardless of any contingency which does or may suspend or dilute the voting rights of such capital stock) is at such time owned directly or indirectly by the parent or one or more subsidiaries of the parent. Unless otherwise specified, "Subsidiary" means a Subsidiary of an Account Party.
"SUPPLEMENTAL COMMITMENT DATE" has the meaning assigned to such term in Section 2.11(c).
"SUPPLEMENTAL LENDER" has the meaning assigned to such term in
Section 2.11(c).
"SYNDICATED LETTERS OF CREDIT" means letters of credit issued under Section 2.01.
"TAXES" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.
"TERM-OUT OPTION" has the meaning assigned to such term in
Section 2.12(b).
"THREE-YEAR CREDIT AGREEMENT" shall mean the Three-Year Credit Agreement dated as of the date hereof among the Account Parties, the lenders party thereto and JPMCB, as Administrative Agent.
"TOTAL FUNDED DEBT" means, at any time, all Indebtedness of XL Capital and its Subsidiaries which would at such time be classified in whole or in part as a liability on the consolidated balance sheet of XL Capital in accordance with GAAP.
"TRANSACTIONS" means the execution, delivery and performance by the Obligors of this Agreement and the other Credit Documents to which any Account Party is intended to be a party, the issuance of Letters of Credit, the borrowing of Loans and the use of the proceeds thereof.
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"TYPE", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans constituting such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.
"WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. TERMS GENERALLY. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
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SECTION 1.03. ACCOUNTING TERMS; GAAP AND SAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP or SAP, as the context requires, each as in effect from time to time; PROVIDED that, if XL Capital notifies the Administrative Agent that the Account Parties request an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or SAP, as the case may be, or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Account Parties that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or SAP, as the case may be, or in the application thereof, then such provision shall be interpreted on the basis of GAAP or SAP, as the case may be, as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.
ARTICLE II
THE CREDITS
(a) GENERAL. Subject to the terms and conditions set forth herein, at the request of any Account Party the Lenders agree at any time and from time to time during the Availability Period to issue Syndicated Letters of Credit for the account of such Account Party in an aggregate amount that will not result in the Credit Exposure exceeding the Commitments (it being understood that Syndicated Letters of Credit may be issued, or be outstanding, for the account of more than one of the Account Parties at any time). Each Syndicated Letter of Credit shall be in such form as is consistent with the requirements of the applicable regulatory authorities in Illinois, California, Wisconsin or New York, as reasonably determined by the Administrative Agent or as otherwise agreed to by the Administrative Agent and XL Capital; PROVIDED that, without the prior consent of each Lender, no Syndicated Letter of Credit may be issued that would vary the several and not joint nature of the obligations of the Lenders thereunder as provided in the next succeeding sentence. Each Syndicated Letter of Credit shall be issued by all of the Lenders, acting through the Administrative Agent, at the time of issuance as a single multi-bank letter of credit, but the obligation of each Lender thereunder shall be several and not joint, based upon its Applicable Percentage of the aggregate undrawn amount of such Syndicated Letter of Credit.
(b) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL OR EXTENSION. To request the issuance of a Syndicated Letter of Credit (or the amendment, renewal or extension of an outstanding Syndicated Letter of Credit), an Account Party shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Administrative Agent) to the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Syndicated Letter of Credit, or identifying the Syndicated Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension, as the case may be (which shall be a Business Day), the date on which such Syndicated Letter of Credit is to expire (which shall comply with paragraph (d) of this Section), the amount of such Syndicated
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Letter of Credit, the name and address of the beneficiary thereof and the terms and conditions of (and such other information as shall be necessary to prepare, amend, renew or extend, as the case may be) such Syndicated Letter of Credit. If any Syndicated Letter of Credit shall provide for the automatic extension of the expiry date thereof unless the Administrative Agent gives notice that such expiry date shall not be extended, then the Administrative Agent will give such notice if requested to do so by the Required Lenders in a notice given to the Administrative Agent not more than 60 days, but not less than 45 days, prior to the current expiry date of such Syndicated Letter of Credit. If requested by the Administrative Agent, such Account Party also shall submit a letter of credit application on JPMCB's standard form in connection with any request for a Syndicated Letter of Credit. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by any Account Party to, or entered into by any Account Party with, the Administrative Agent relating to any Syndicated Letter of Credit, the terms and conditions of this Agreement shall control.
(c) LIMITATIONS ON AMOUNTS. A Syndicated Letter of Credit shall be issued, amended, renewed or extended only if (and upon such issuance, amendment, renewal or extension of each Syndicated Letter of Credit the Account Parties shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension, (i) the Aggregate Credit Exposure shall not exceed the aggregate amount of the Commitments and (ii) the Credit Exposure (excluding any Alternative Currency LC Exposure) of each Lender shall not exceed the Commitment of such Lender.
(d) EXPIRY DATE. Each Syndicated Letter of Credit shall expire at or prior to the close of business on the date one year after the date of the issuance of such Syndicated Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension).
(e) OBLIGATION OF LENDERS. The obligation of any Lender under any Syndicated Letter of Credit shall be several and not joint and shall at any time be in an amount equal to such Lender's Applicable Percentage of the aggregate undrawn amount of such Syndicated Letter of Credit, and each Syndicated Letter of Credit shall expressly so provide.
(f) CONTINUATION OF EXISTING SYNDICATED LETTERS OF CREDIT. Subject to the terms and conditions hereof, each Syndicated Letter of Credit under (and as defined in) the Existing Credit Agreement which is outstanding on the Effective Date and is designated to be continued hereunder in the notice provided by XL Capital to the Administrative Agent pursuant to Section 5.01(f) shall automatically be continued hereunder by all of the Lenders having Commitments on the Effective Date. The obligation of each such Lender in respect of each such continued Syndicated Letter of Credit shall be several and not joint, based upon its Applicable Percentage and the aggregate undrawn amount thereof, and each such Syndicated Letter of Credit shall be deemed a Syndicated Letter of Credit for all purposes of this Agreement as of the Effective Date. The Administrative Agent shall, on the Effective Date or as promptly as practicable thereafter, notify the beneficiary of each such Syndicated Letter of Credit that is being continued hereunder as to the names of the Lenders that, as of the Effective Date, will be issuing lenders under, and party to, such Syndicated Letter of Credit and the Lenders' respective
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Applicable Percentages thereunder as of the Effective Date.
(g) ADJUSTMENT OF APPLICABLE PERCENTAGES. Upon (i) each increase of the Commitments pursuant to Section 2.11(c) or (ii) the assignment by a Lender of all or a portion of its Commitment and its interests in the Syndicated Letters of Credit pursuant to an Assignment and Assumption, the Administrative Agent shall promptly notify each beneficiary under an outstanding Syndicated Letter of Credit of the Lenders that are parties to such Syndicated Letter of Credit and their respective Applicable Percentages as of the effective date of, and after giving effect to, such increase or assignment, as the case may be.
SECTION 2.02. ISSUANCE AND ADMINISTRATION. Each Syndicated Letter of Credit shall be executed and delivered by the Administrative Agent in the name and on behalf of, and as attorney-in-fact for, each Lender party to such Syndicated Letter of Credit, and the Administrative Agent shall act under each Syndicated Letter of Credit, and each Syndicated Letter of Credit shall expressly provide that the Administrative Agent shall act, as the agent of each Lender to (a) receive drafts, other demands for payment and other documents presented by the beneficiary under such Syndicated Letter of Credit, (b) determine whether such drafts, demands and documents are in compliance with the terms and conditions of such Syndicated Letter of Credit and (c) notify such Lender and the Account Parties that a valid drawing has been made and the date that the related LC Disbursement is to be made; PROVIDED that the Administrative Agent shall have no obligation or liability for any LC Disbursement under such Syndicated Letter of Credit, and each Syndicated Letter of Credit shall expressly so provide. Each Lender hereby irrevocably appoints and designates the Administrative Agent as its attorney-in-fact, acting through any duly authorized officer of JPMCB, to execute and deliver in the name and on behalf of such Lender each Syndicated Letter of Credit to be issued by such Lender hereunder. Promptly upon the request of the Administrative Agent, each Lender will furnish to the Administrative Agent such powers of attorney or other evidence as any beneficiary of any Syndicated Letter of Credit may reasonably request in order to demonstrate that the Administrative Agent has the power to act as attorney-in-fact for such Lender to execute and deliver such Syndicated Letter of Credit. Notwithstanding anything in this Agreement to the contrary, the Administrative Agent has no responsibility hereunder with respect to the issuance, renewal, extension, amendment or other administration of any Alternative Currency Letter of Credit, except as expressly set forth in Section 2.06.
SECTION 2.03. REIMBURSEMENT OF LC DISBURSEMENTS, ETC.
(a) REIMBURSEMENT. If any Lender shall make any LC Disbursement in respect of any Syndicated Letter of Credit or Alternative Currency Letter of Credit, regardless of the identity of the Account Party of such Syndicated Letter of Credit or Alternative Currency Letter of Credit, as the case may be, the Account Parties jointly and severally agree that they shall reimburse such Lender in respect of such LC Disbursement under (x) a Syndicated Letter of Credit by paying to the Administrative Agent an amount equal to such LC Disbursement not later than noon, New York City time, on (i) the Business Day that the Account Parties receive notice of such LC Disbursement, if such notice is received prior to 10:00 a.m., New York City time, or (ii) the Business Day immediately following the day that the Account Parties receive such notice, if such notice is not received prior to such time and (y) an Alternative Currency Letter of Credit, by paying such Lender on the date, in the currency and amount thereof, together
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with interest thereon (if any), and in the manner (including the place of payment) as such Lender and such Account Party shall have separately agreed pursuant to Section 2.06.
(b) REIMBURSEMENT OBLIGATIONS ABSOLUTE. The Account Parties' joint and several obligations to reimburse LC Disbursements as provided in paragraph (a) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Syndicated Letter of Credit or any term or provision therein, (ii) any draft or other document presented under a Syndicated Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment under a Syndicated Letter of Credit against presentation of a draft or other document that does not comply strictly with the terms of such Syndicated Letter of Credit (PROVIDED that the Account Parties shall not be obligated to reimburse such LC Disbursements unless payment is made against presentation of a draft or other document that at least substantially complies with the terms of such Syndicated Letter of Credit), (iv) at any time or from time to time, without notice to any Account Party, the time for any performance of or compliance with any of such reimbursement obligations of any other Account Party shall be waived, extended or renewed, (v) any of such reimbursement obligations of any other Account Party being amended or otherwise modified in any respect, or any guarantee of any of such reimbursement obligations being released, substituted or exchanged in whole or in part or otherwise dealt with, (vi) the occurrence of any Default, (vii) the existence of any proceedings of the type described in clause (g) or (h) of Article VIII with respect to any other Account Party or any guarantor of any of such reimbursement obligations, (viii) any lack of validity or enforceability of any of such reimbursement obligations against any other Account Party or any guarantor of any of such reimbursement obligations, or (ix) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the obligations of any Account Party hereunder.
Neither the Administrative Agent, nor any Lender nor any of their Related Parties shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Syndicated Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Syndicated Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond their control; PROVIDED that the foregoing shall not be construed to excuse the Administrative Agent or a Lender from liability to any Account Party to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Account Parties to the extent permitted by applicable law) suffered by any Account Party that are caused by the gross negligence or willful misconduct of the Administrative Agent or a Lender. The parties hereto expressly agree that:
(i) the Administrative Agent may accept documents that appear on their face to be in substantial compliance with the terms of a Syndicated Letter of Credit without responsibility for further investigation, regardless of any notice or information to the
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contrary, and may make payment upon presentation of documents that appear on their face to be in substantial compliance with the terms of such Syndicated Letter of Credit;
(ii) the Administrative Agent shall have the right, in its sole discretion, to decline to accept such documents and to make such payment if such documents are not in strict compliance with the terms of such Syndicated Letter of Credit; and
(iii) this sentence shall establish the standard of care to be exercised by the Administrative Agent when determining whether drafts and other documents presented under a Syndicated Letter of Credit comply with the terms thereof (and the parties hereto hereby waive, to the extent permitted by applicable law, any standard of care inconsistent with the foregoing).
(c) DISBURSEMENT PROCEDURES. The Administrative Agent shall, within a reasonable time following its receipt thereof, examine all documents purporting to represent a demand for payment under any Syndicated Letter of Credit. The Administrative Agent shall promptly after such examination (i) notify each of the Lenders and the Account Parties by telephone (confirmed by telecopy) of such demand for payment and (ii) deliver to each Lender a copy of each document purporting to represent a demand for payment under such Syndicated Letter of Credit. With respect to any drawing properly made under a Syndicated Letter of Credit, each Lender will make an LC Disbursement in respect of such Syndicated Letter of Credit in accordance with its liability under such Syndicated Letter of Credit and this Agreement, such LC Disbursement to be made to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make any such LC Disbursement available to the beneficiary of such Syndicated Letter of Credit by promptly crediting the amounts so received, in like funds, to the account identified by such beneficiary in connection with such demand for payment. Promptly following any LC Disbursement by any Lender in respect of any Syndicated Letter of Credit, the Administrative Agent will notify the Account Parties of such LC Disbursement; PROVIDED that any failure to give or delay in giving such notice shall not relieve the Account Parties of their obligation to reimburse the Lenders with respect to any such LC Disbursement.
(d) INTERIM INTEREST. If any LC Disbursement with respect to a Syndicated Letter of Credit is made, then, unless the Account Parties shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Account Parties reimburse such LC Disbursement, at the rate per annum equal to (i) 1% PLUS the Alternate Base Rate to but excluding the date three Business Days after such LC Disbursement is made and (ii) from and including the date three Business Days after such LC Disbursement is made, 3% PLUS the Alternate Base Rate.
(e) RIGHT OF CONTRIBUTION. The Account Parties hereby agree, as between themselves, that if any Account Party shall pay any reimbursement obligation in respect of any LC Disbursement with respect to a Syndicated Letter of Credit issued to support the obligations of another Account Party (the "SPECIFIED ACCOUNT PARTY"), the Specified Account Party shall, on demand (but subject to the next sentence), pay to such first Account Party an amount equal to the
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amount of such reimbursement. The payment obligation of a Specified Account Party to another Account Party under this paragraph (e) shall be subordinate and subject in right of payment to the prior payment in full of the obligations of the Specified Account Party under this Agreement and each other Credit Document, and such other Account Party shall not exercise any right or remedy with respect to such reimbursement until payment and satisfaction in full of all of such obligations of the Specified Account Party.
SECTION 2.04. NON-SYNDICATED LETTERS OF CREDIT.
(a) GENERAL. Subject to the terms and conditions set forth herein, at the request of any Account Party the Lenders agree at any time and from time to time during the Availability Period to issue Non-Syndicated Letters of Credit for the account of such Account Party in an aggregate amount that will not result in the Credit Exposure exceeding the Commitments (it being understood that Non-Syndicated Letters of Credit may be issued, or be outstanding, for the account of more than one of the Account Parties at any time). Each Non-Syndicated Letter of Credit shall be in such form as is consistent with the requirements of the applicable regulatory authorities in the jurisdiction of issue as reasonably determined by the Administrative Agent or as otherwise agreed to by the Administrative Agent and XL Capital. Each Non-Syndicated Letter of Credit shall be issued by the respective Issuing Lender thereof, through the Administrative Agent as provided in Section 2.04(c), in the amount of such Issuing Lender's Applicable Percentage of the aggregate amount of Non-Syndicated Letters of Credit being requested by such Account Party at such time, and (notwithstanding anything herein or in any other Letter of Credit Document to the contrary) such Non-Syndicated Letter of Credit shall be the sole responsibility of such Issuing Lender (and of no other Person, including any other Lender or the Administrative Agent). Notwithstanding anything to the contrary in this Agreement, no Non-Syndicated Letter of Credit may be requested hereunder for any jurisdiction unless XL Capital provides evidence reasonably satisfactory to the Administrative Agent that Syndicated Letters of Credit do not comply with the insurance laws of such jurisdiction.
(b) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL OR EXTENSION. To request the issuance of Non-Syndicated Letters of Credit (or the amendment, renewal or extension of outstanding Non-Syndicated Letters of Credit), an Account Party shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Administrative Agent) to the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of Non-Syndicated Letters of Credit, or identifying the Non-Syndicated Letters of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension, as the case may be (which shall be a Business Day), the date on which such Non-Syndicated Letters of Credit are to expire (which shall comply with paragraph (e) of this Section), the aggregate amount of all Non-Syndicated Letters of Credit to be issued in connection with such request, the name and address of the beneficiary thereof and the terms and conditions of (and such other information as shall be necessary to prepare, amend, renew or extend, as the case may be) such Non-Syndicated Letters of Credit. If Non-Syndicated Letters of Credit issued in connection with the same request shall provide for the automatic extension of the expiry date thereof unless the Issuing Lender thereof or the Administrative Agent gives notice that such expiry date shall not be extended, then the Administrative Agent (acting on behalf of the relevant Issuing Lenders) will give such notice for all such Non-Syndicated Letters of Credit if requested to do so by the
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Required Lenders in a notice given to the Administrative Agent not more than 60 days, but not less than 45 days, prior to the current expiry date of such Non-Syndicated Letter of Credit. If requested by the Administrative Agent, such Account Party also shall submit a letter of credit application on JPMCB's standard form in connection with any request for a Non-Syndicated Letter of Credit. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by any Account Party to, or entered into by any Account Party with, the Administrative Agent (acting on behalf of the relevant Issuing Lenders) relating to any Non-Syndicated Letter of Credit, the terms and conditions of this Agreement shall control.
(c) ISSUANCE AND ADMINISTRATION. Each Non-Syndicated Letter of
Credit shall be executed and delivered by the Administrative Agent (which term,
for purposes of this Section 2.04 and any other provisions of this Agreement,
including Article IX and Section 10.03, relating to Non-Syndicated Letters of
Credit, shall be deemed to refer to, unless the context otherwise requires,
JPMCB acting in its capacity as the Administrative Agent or in its individual
capacity, in either case as attorney-in-fact for the respective Issuing Lender),
acting through any duly authorized officer of JPMCB, in the name and on behalf
of, and as attorney-in-fact for, the Issuing Lender party to such Non-Syndicated
Letter of Credit. With respect to each Non-Syndicated Letter of Credit, the
Administrative Agent shall act in the name and on behalf of, and as
attorney-in-fact for, the Lender issuing such Non-Syndicated Letter of Credit
and in that capacity shall, and each Lender hereby irrevocably appoints and
designates the Administrative Agent, acting through any duly authorized officer
of JPMCB, to so act in the name and on behalf of, and as attorney-in-fact for,
each Lender with respect to each Non-Syndicated Letter of Credit to be issued by
such Lender hereunder and, without limiting any other provision of this
Agreement, to, (i) execute and deliver in the name and on behalf of such Lender
each Non-Syndicated Letter of Credit to be issued by such Lender hereunder, (ii)
receive drafts, other demands for payment and/or other documents presented by
the beneficiary thereunder, (iii) determine whether such drafts, demands and/or
documents are in compliance with the terms and conditions thereof, (iv) notify
the beneficiary of any such Non-Syndicated Letter of Credit of the expiration or
non-renewal thereof in accordance with the terms thereof, (v) advise such
beneficiary of any change in the office for presentation of drafts under any
such Non-Syndicated Letter of Credit, (vi) enter into with the Account Parties
any such letter of credit application or similar agreement with respect to any
such Non-Syndicated Letter of Credit as the Administrative Agent shall require,
(vii) remit to the beneficiary of any such Non-Syndicated Letter of Credit any
payment made by such Lender and received by the Administrative Agent in
connection with a drawing thereunder, (viii) perform any and all other acts
which in the sole opinion of the Administrative Agent may be necessary or
incidental to the performance of the powers herein granted with respect to such
Non-Syndicated Letter of Credit, (ix) notify such Lender and the Account Parties
that a valid drawing has been made and the date that the related LC Disbursement
is to be made; PROVIDED that the Administrative Agent shall have no obligation
or liability for any LC Disbursement under such Non-Syndicated Letter of Credit
and (x) delegate to any agent of JPMCB and such agent's Related Parties, or any
of them, the performance of any of such powers. Each Lender hereby ratifies and
confirms (and undertakes to ratify and confirm from time to time upon the
request of the Administrative Agent) whatsoever the Administrative Agent (or any
Related Party thereof) shall do or purport to do by virtue of the power herein
granted. Promptly upon the request of the Administrative Agent, each
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Lender will furnish to the Administrative Agent such powers of attorney or other evidence as any beneficiary of any Non-Syndicated Letter of Credit may reasonably request in order to demonstrate that the Administrative Agent has the power to act as attorney-in-fact for such Lender with respect to such Non-Syndicated Letter of Credit (together with such evidence of the due authorization, execution, delivery and validity of such power of attorney as the Administrative Agent may reasonably request). Without limiting any provision of Article IX, the Administrative Agent may perform any and all of its duties and exercise any and all of its rights and powers under this Section through its Related Parties.
(d) LIMITATIONS ON AMOUNTS. Non-Syndicated Letters of Credit
shall be issued, amended, renewed or extended only if (and upon such issuance,
amendment, renewal or extension of each Non-Syndicated Letter of Credit the
Account Parties shall be deemed to represent and warrant that), after giving
effect to such issuance, amendment, renewal or extension, (i) the Aggregate
Credit Exposure shall not exceed the aggregate amount of the Commitments and
(ii) the Credit Exposure (excluding any Alternative Currency LC Exposure) of
each Lender shall not exceed the Commitment of such Lender.
(e) EXPIRY DATE. Each Non-Syndicated Letter of Credit shall expire at or prior to the close of business on the date one year after the date of the issuance of such Non-Syndicated Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension).
(f) PARTICIPATIONS. By the issuance of a Non-Syndicated Letter of Credit (or an amendment to a Non-Syndicated Letter of Credit increasing the amount thereof) by the respective Issuing Lender, and without any further action on the part of such Issuing Lender or the Lenders, such Issuing Lender hereby grants to each Lender (other than the Issuing Lender itself), and each such Lender hereby acquires from such Issuing Lender, a participation in such Non-Syndicated Letter of Credit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Non-Syndicated Letter of Credit. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Non-Syndicated Letter of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Non-Syndicated Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for account of the respective Issuing Lender, such Lender's Applicable Percentage of each LC Disbursement made by an Issuing Lender in respect of any Non-Syndicated Letter of Credit promptly upon the request of the Administrative Agent at any time from the time such LC Disbursement is made until such LC Disbursement is reimbursed by the Account Parties or at any time after any reimbursement payment is required to be refunded to the Account Parties for any reason. Such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Promptly following receipt by the Administrative Agent of any payment from the Account Parties pursuant to the next following paragraph, the Administrative Agent shall distribute such payment to the respective Issuing Lender or, to the extent that the Lenders have made payments pursuant to this paragraph to reimburse such Issuing Lender, then to such Lenders and such Issuing Lender as their interests may appear. Any payment made by a Lender
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pursuant to this paragraph to reimburse an Issuing Lender for any LC Disbursement shall not relieve the Account Parties of their obligation to reimburse such LC Disbursement.
(g) REIMBURSEMENT. If any Issuing Lender shall make any LC Disbursement in respect of any Non-Syndicated Letter of Credit, regardless of the identity of the Account Party of such Non-Syndicated Letter of Credit, the Account Parties jointly and severally agree that they shall reimburse such Issuing Lender in respect of such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than noon, New York City time, on (i) the Business Day that the Account Parties receive notice of such LC Disbursement, if such notice is received prior to 10:00 a.m., New York City time, or (ii) the Business Day immediately following the day that the Account Parties receive such notice, if such notice is not received prior to such time.
If the Account Parties fail to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Account Parties in respect thereof and such Lender's Applicable Percentage thereof.
(h) OBLIGATIONS ABSOLUTE. The Account Parties' joint and several obligations to reimburse LC Disbursements in respect of any Non-Syndicated Letter of Credit as provided in paragraph (g) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Non-Syndicated Letter of Credit, or any term or provision therein, (ii) any draft or other document presented under a Non-Syndicated Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Lender under a Non-Syndicated Letter of Credit against presentation of a draft or other document that does not comply strictly with the terms of such Non-Syndicated Letter of Credit (PROVIDED that the Account Parties shall not be obligated to reimburse such LC Disbursements unless payment is made against presentation of a draft or other document that at least substantially complies with the terms of such Non-Syndicated Letter of Credit), (iv) at any time or from time to time, without notice to any Account Party, the time for any performance of or compliance with any of such reimbursement obligations of any other Account Party being waived, extended or renewed, (v) any of such reimbursement obligations of any other Account Party being amended or otherwise modified in any respect, or any guarantee of any of such reimbursement obligations being released, substituted or exchanged in whole or in part or otherwise dealt with, (vi) the occurrence of any Default, (vii) the existence of any proceedings of the type described in clause (g) or (h) of Article VIII with respect to any other Account Party or any guarantor of any of such reimbursement obligations, (viii) any lack of validity or enforceability of any of such reimbursement obligations against any other Account Party or any guarantor of any of such reimbursement obligations, or (ix) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the obligations of any Account Party hereunder.
Neither the Administrative Agent, the Lenders nor any Issuing Lender, nor any of their respective Related Parties, shall have any liability or responsibility by reason of or in connection with the payment or failure to make any payment under a Non-Syndicated Letter of
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Credit (irrespective of any of the circumstances referred to in the preceding sentence) as a result of determining whether drafts or other documents presented under a Non-Syndicated Letter of Credit comply with the terms thereof, or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Non-Syndicated Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of an Issuing Lender; PROVIDED that the foregoing shall not be construed to excuse the Administrative Agent or a Lender from liability to the Account Parties to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Account Parties to the extent permitted by applicable law) suffered by the Account Parties that are caused by the gross negligence or willful misconduct of the Administrative Agent or a Lender when determining whether drafts and other documents presented under a Non-Syndicated Letter of Credit comply with the terms thereof. The parties hereto expressly agree that:
(i) the Administrative Agent may accept documents that appear on their face to be in substantial compliance with the terms of a Non-Syndicated Letter of Credit without responsibility for further investigation, regardless of any notice or information to the contrary, and may make payment upon presentation of documents that appear on their face to be in substantial compliance with the terms of such Non-Syndicated Letter of Credit;
(ii) the Administrative Agent shall have the right, in its sole discretion, to decline to accept such documents and to make such payment if such documents are not in strict compliance with the terms of such Non-Syndicated Letter of Credit; and
(iii) this sentence shall establish the standard of care to be exercised by the Administrative Agent when determining whether drafts and other documents presented under a Non-Syndicated Letter of Credit comply with the terms thereof (and the parties hereto hereby waive, to the extent permitted by applicable law, any standard of care inconsistent with the foregoing).
(i) DISBURSEMENT PROCEDURES. The Administrative Agent shall, within a reasonable time following its receipt thereof, examine all documents purporting to represent a demand for payment under any Non-Syndicated Letter of Credit. The Administrative Agent shall promptly after such examination (i) notify each of the Lenders and the Account Parties by telephone (confirmed by telecopy) of such demand for payment and (ii) deliver to each Lender (including the Issuing Lender) a copy of each document purporting to represent a demand for payment under such Non-Syndicated Letter of Credit. With respect to any drawing properly made under a Non-Syndicated Letter of Credit, the Issuing Lender thereof will make an LC Disbursement in respect of such Non-Syndicated Letter of Credit in accordance with its liability under such Non-Syndicated Letter of Credit and this Agreement, such LC Disbursement to be made to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make any such LC Disbursement available to the beneficiary of such Non-Syndicated Letter of Credit by promptly crediting the amounts so received, in like funds, to the account identified by such beneficiary in connection with such demand for payment. Promptly following any LC Disbursement by any Issuing
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Lender in respect of any Non-Syndicated Letter of Credit, the Administrative Agent will notify the Account Parties of such LC Disbursement; PROVIDED that any failure to give or delay in giving such notice shall not relieve the Account Parties of their obligation to reimburse such Issuing Lender with respect to any such LC Disbursement.
(j) INTERIM INTEREST. If any LC Disbursement with respect to a Non-Syndicated Letter of Credit is made, then, unless the Account Parties shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Account Parties reimburse such LC Disbursement, at the rate per annum equal to (i) 1% PLUS the Alternate Base Rate to but excluding the date three Business Days after such LC Disbursement is made and (ii) from and including the date three Business Days after such LC Disbursement is made, 3% PLUS the Alternate Base Rate.
(k) RIGHT OF CONTRIBUTION. The Account Parties hereby agree, as between themselves, that if any Account Party shall pay any reimbursement obligation in respect of any LC Disbursement with respect to a Non-Syndicated Letter of Credit issued to support the obligations of another Account Party (the "SPECIFIED ACCOUNT PARTY"), the Specified Account Party shall, on demand (but subject to the next sentence), pay to such first Account Party an amount equal to the amount of such reimbursement. The payment obligation of a Specified Account Party to another Account Party under this paragraph (k) shall be subordinate and subject in right of payment to the prior payment in full of the obligations of the Specified Account Party under this Agreement and each other Credit Document, and such other Account Party shall not exercise any right or remedy with respect to such reimbursement until payment and satisfaction in full of all of such obligations of the Specified Account Party.
(l) CONTINUATION OF EXISTING NON-SYNDICATED LETTERS OF CREDIT. Subject to the terms and conditions hereof, each Non-Syndicated Letter of Credit under (and as defined in) the Existing Credit Agreement which is outstanding on the Effective Date and is designated to be continued hereunder in the notice provided by XL Capital to the Administrative Agent pursuant to Section 5.01(f) shall, effective as of the Effective Date, be amended by the respective Issuing Lender (through the Administrative Agent) to reflect the Lenders having Commitments as of the Effective Date and, with respect to each such Non-Syndicated Letter of Credit issued by a Lender that is party to the Existing Credit Agreement, a face amount based upon the respective Lender's Applicable Percentage of the Commitments as in effect on the Effective Date, and each such Non-Syndicated Letter of Credit, as so amended, shall be deemed continued hereunder as a Non-Syndicated Letter of Credit issued by such Lender for all purposes of this Agreement as of the Effective Date.
(m) ADJUSTMENTS TO NON-SYNDICATED LETTERS OF CREDIT. Upon each increase of the Commitments pursuant to Section 2.11(c), (i) each Non-Syndicated Letter of Credit then outstanding hereunder shall, as of the effective date of such increase, be amended by the respective Issuing Lenders thereof (through the Administrative Agent) to reflect the Lenders having Commitments after giving effect to such increase and having, with respect to each such Non-Syndicated Letter of Credit issued by an existing Lender, a face amount based upon such Lender's Applicable Percentage of such Commitments and/or (ii) as applicable, new Non-
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Syndicated Letters of Credit shall be issued hereunder as of such effective date by each Supplemental Lender which has undertaken a new or incremental Commitment in connection with such increase in a face amount based upon such Supplemental Lender's Applicable Percentage of such Commitments. Upon the assignment by a Lender of all or a portion of its Commitment and its interests in the Non-Syndicated Letters of Credit pursuant to an Assignment and Assumption, (i) XL Capital shall, at the reasonable request of the Administrative Agent, execute such documents as may be necessary in connection with amendments to each Non-Syndicated Letter of Credit issued by such assigning Lender then outstanding hereunder (or to replace each such Non-Syndicated Letter of Credit with a new Non-Syndicated Letter of Credit of such assigning Lender) to reflect such assigning Lender's Commitment and with a face amount based upon such Lender's Applicable Percentage after giving effect to such assignment and/or (ii) as applicable, a new Non-Syndicated Letter of Credit shall be issued hereunder as of the effective date of such assignment by the assignee Lender which has undertaken a new or incremental Commitment in connection with such assignment in a face amount based upon such assignee Lender's Applicable Percentage of the Commitments after giving effect to such assignment.
SECTION 2.05. PARTICIPATED LETTERS OF CREDIT.
(a) GENERAL. Subject to the terms and conditions set forth herein, any Account Party may request the Issuing Lender to issue, at any time and from time to time during the Availability Period, Participated Letters of Credit for its own account. Each Participated Letter of Credit shall be in such form as is consistent with the requirements of the applicable regulatory authorities in Illinois, California, Wisconsin or New York as reasonably determined by the Administrative Agent or as otherwise agreed to by the Administrative Agent and XL Capital. Participated Letters of Credit issued hereunder shall constitute utilization of the Commitments.
(b) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL OR EXTENSION. To request the issuance of a Participated Letter of Credit (or the amendment, renewal or extension of an outstanding Participated Letter of Credit), an Account Party shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Lender) to the Issuing Lender and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Participated Letter of Credit, or identifying the Participated Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Participated Letter of Credit is to expire (which shall comply with paragraph (d) of this Section), the amount of such Participated Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Participated Letter of Credit. If requested by the Issuing Lender, such Account Party also shall submit a letter of credit application on the Issuing Lender's standard form in connection with any request for a Participated Letter of Credit. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by such Account Party to, or entered into by any Account Party with, the Issuing Lender relating to any Participated Letter of Credit, the terms and conditions of this Agreement shall control.
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(c) LIMITATIONS ON AMOUNTS. A Participated Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Participated Letter of Credit each Account Party shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the sum of (A) the LC Exposure of the Issuing Lender with respect to Participated Letters of Credit (determined for these purposes without giving effect to the participations therein of the Lenders pursuant to paragraph (e) of this Section) and (B) with respect to the Three-Year Credit Agreement, the LC Exposure of the Issuing Lender with respect to Participated Letters of Credit (determined for these purposes without giving effect to the participations therein of the Lenders pursuant to Section 2.05(e) of the Three-Year Credit Agreement) (the terms used in this clause (B) having the definitions assigned to them in the Three-Year Credit Agreement) shall not exceed $100,000,000 and (ii) the Aggregate Credit Exposure shall not exceed the aggregate amount of the Commitments.
(d) EXPIRY DATE. Each Participated Letter of Credit shall expire at or prior to the close of business on the date one year after the date of the issuance of such Participated Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension).
(e) PARTICIPATIONS. By the issuance of a Participated Letter of Credit (or an amendment to a Participated Letter of Credit increasing the amount thereof) by the Issuing Lender, and without any further action on the part of the Issuing Lender or the Lenders, the Issuing Lender hereby grants to each Lender, and each Lender hereby acquires from the Issuing Lender, a participation in such Participated Letter of Credit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Participated Letter of Credit. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Participated Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Participated Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for account of the Issuing Lender, such Lender's Applicable Percentage of each LC Disbursement made by the Issuing Lender in respect of any Participated Letter of Credit promptly upon the request of the Issuing Lender at any time from the time such LC Disbursement is made until such LC Disbursement is reimbursed by the Account Parties or at any time after any reimbursement payment is required to be refunded to the Account Parties for any reason. Such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Promptly following receipt by the Administrative Agent of any payment from the Account Parties pursuant to the next following paragraph, the Administrative Agent shall distribute such payment to the Issuing Lender or, to the extent that the Lenders have made payments pursuant to this paragraph to reimburse the Issuing Lender, then to such Lenders and the Issuing Lender as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse the Issuing Lender for any LC Disbursement shall not relieve the Account Parties of their obligation to reimburse such LC Disbursement.
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(f) REIMBURSEMENT. If any Lender shall make any LC Disbursement in respect of any Participated Letter of Credit, regardless of the identity of the Account Party of such Participated Letter of Credit, the Account Parties jointly and severally agree that they shall reimburse such Lender in respect of such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than noon, New York City time, on (i) the Business Day that the Account Parties receive notice of such LC Disbursement, if such notice is received prior to 10:00 a.m., New York City time, or (ii) the Business Day immediately following the day that the Account Parties receive such notice, if such notice is not received prior to such time.
If the Account Parties fail to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Account Parties in respect thereof and such Lender's Applicable Percentage thereof.
(g) OBLIGATIONS ABSOLUTE. The Account Parties' joint and several obligations to reimburse LC Disbursements in respect of any Participated Letter of Credit as provided in paragraph (f) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Participated Letter of Credit, or any term or provision therein, (ii) any draft or other document presented under a Participated Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Lender under a Participated Letter of Credit against presentation of a draft or other document that does not comply strictly with the terms of such Participated Letter of Credit (PROVIDED that the Account Parties shall not be obligated to reimburse such LC Disbursements unless payment is made against presentation of a draft or other document that at least substantially complies with the terms of such Participated Letter of Credit), (iv) at any time or from time to time, without notice to any Account Party, the time for any performance of or compliance with any of such reimbursement obligations of any other Account Party shall be waived, extended or renewed, (v) any of such reimbursement obligations of any other Account Party shall be amended or otherwise modified in any respect, or any guarantee of any of such reimbursement obligations shall be released, substituted or exchanged in whole or in part or otherwise dealt with, (vi) the occurrence of any Default, (vii) the existence of any proceedings of the type described in clause (g) or (h) of Article VIII with respect to any other Account Party or any guarantor of any of such reimbursement obligations, (viii) any lack of validity or enforceability of any of such reimbursement obligations against any other Account Party or any guarantor of any of such reimbursement obligations, or (ix) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the obligations of any Account Party hereunder.
Neither the Administrative Agent, the Lenders nor the Issuing Lender, nor any of their respective Related Parties, shall have any liability or responsibility by reason of or in connection with the payment or failure to make any payment under a Participated Letter of Credit (irrespective of any of the circumstances referred to in the preceding sentence) as a result of determining whether drafts or other documents presented under a Participated Letter of Credit comply with the terms thereof, or any error, omission, interruption, loss or delay in transmission
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or delivery of any draft, notice or other communication under or relating to any Participated Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Lender; PROVIDED that the foregoing shall not be construed to excuse the Issuing Lender from liability to the Account Parties to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Account Parties to the extent permitted by applicable law) suffered by the Account Parties that are caused by the Issuing Lender's gross negligence or willful misconduct when determining whether drafts and other documents presented under a Participated Letter of Credit comply with the terms thereof. The parties hereto expressly agree that:
(i) the Issuing Lender may accept documents that appear on their face to be in substantial compliance with the terms of a Participated Letter of Credit without responsibility for further investigation, regardless of any notice or information to the contrary, and may make payment upon presentation of documents that appear on their face to be in substantial compliance with the terms of such Participated Letter of Credit;
(ii) the Issuing Lender shall have the right, in its sole discretion, to decline to accept such documents and to make such payment if such documents are not in strict compliance with the terms of such Participated Letter of Credit; and
(iii) this sentence shall establish the standard of care to be exercised by the Issuing Lender when determining whether drafts and other documents presented under a Participated Letter of Credit comply with the terms thereof (and the parties hereto hereby waive, to the extent permitted by applicable law, any standard of care inconsistent with the foregoing).
(h) DISBURSEMENT PROCEDURES. The Issuing Lender shall, within a reasonable time following its receipt thereof, examine all documents purporting to represent a demand for payment under a Participated Letter of Credit. The Issuing Lender shall promptly after such examination notify the Administrative Agent and XL Capital by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Lender has made or will make a LC Disbursement thereunder; PROVIDED that any failure to give or delay in giving such notice shall not relieve the Account Parties of their obligation to reimburse the Issuing Lender and the Lenders with respect to any such LC Disbursement.
(i) INTERIM INTEREST. If any LC Disbursement is made with respect to a Participated Letter of Credit, then, unless the Account Parties shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Account Parties reimburse such LC Disbursement, at the rate per annum equal to (i) 1% PLUS the Alternate Base Rate to but excluding the date three Business Days after such LC Disbursement is made and (ii) from and including the date three Business Days after such LC Disbursement is made, 3% PLUS the Alternate Base Rate. Interest accrued pursuant to this paragraph shall be for account of the Issuing Lender, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (f) of this Section to reimburse the Issuing Lender shall be for account of such Lender to the extent of such payment.
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(j) REPLACEMENT OF THE ISSUING LENDER. The Issuing Lender may be replaced at any time by written agreement between XL Capital, the Administrative Agent, the replaced Issuing Lender and the successor Issuing Lender. The Administrative Agent shall notify the Lenders of any such replacement of the Issuing Lender. At the time any such replacement shall become effective, the Account Parties shall pay all unpaid fees accrued for account of the replaced Issuing Lender pursuant to Section 2.14(d). From and after the effective date of any such replacement, (i) the successor Issuing Lender shall have all the rights and obligations of the replaced Issuing Lender under this Agreement with respect to Participated Letters of Credit to be issued thereafter and (ii) references herein to the term "Issuing Lender" shall be deemed to refer to such successor or to any previous Issuing Lender, or to such successor and all previous Issuing Lenders, as the context shall require. After the replacement of an Issuing Lender hereunder, the replaced Issuing Lender shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Lender under this Agreement with respect to Participated Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Participated Letters of Credit.
(k) RIGHT OF CONTRIBUTION. The Account Parties hereby agree, as between themselves, that if any Account Party shall pay any reimbursement obligation in respect of any LC Disbursement with respect to a Participated Letter of Credit issued to support the obligations of another Account Party (the "SPECIFIED ACCOUNT PARTY"), the Specified Account Party shall, on demand (but subject to the next sentence), pay to such first Account Party an amount equal to the amount of such reimbursement. The payment obligation of a Specified Account Party to another Account Party under this paragraph (k) shall be subordinate and subject in right of payment to the prior payment in full of the obligations of the Specified Account Party under this Agreement and each other Credit Document, and such other Account Party shall not exercise any right or remedy with respect to such reimbursement until payment and satisfaction in full of all of such obligations of the Specified Account Party.
(l) CONTINUATION OF EXISTING PARTICIPATED LETTERS OF CREDIT. Subject to the terms and conditions hereof, each Participated Letter of Credit under (and as defined in) the Existing Credit Agreement which is outstanding on the Effective Date and is designated to be continued hereunder in the notice provided by XL Capital to the Administrative Agent pursuant to Section 5.01(f) shall automatically be continued hereunder on the Effective Date by the Issuing Lender of such Participated Letter of Credit, and as of the Effective Date the Lenders shall acquire a participation therein as if such Participated Letter of Credit were issued hereunder, and each such Participated Letter of Credit shall be deemed a Participated Letter of Credit for all purposes of this Agreement as of the Effective Date.
(m) ADJUSTMENT OF APPLICABLE PERCENTAGES. Notwithstanding anything herein to the contrary, upon (i) each increase of the Commitments pursuant to Section 2.11(c), each Lender's participation in each Participated Letter of Credit then outstanding shall automatically be adjusted to reflect its Applicable Percentage after giving effect to such increase and (ii) the assignment by a Lender of all or a portion of its Commitment and its interests in the Participated Letters of Credit pursuant to an Assignment and Assumption, the respective assigning Lender's participation in each Participated Letter of Credit then outstanding shall automatically be adjusted to reflect, and the respective assignee Lender shall be deemed to acquire a participation in each such Participated Letter of Credit in an amount equal to, its Applicable Percentage after
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giving effect to such assignment.
SECTION 2.06. ALTERNATIVE CURRENCY LETTERS OF CREDIT.
(a) REQUESTS FOR OFFERS. From time to time during the Availability Period, an Account Party may request any or all of the Lenders to make offers to issue an Alternative Currency Letter of Credit for account of such Account Party. Each Lender may, but shall have no obligation to, make such offers on terms and conditions that are satisfactory to such Lender, and such Account Party may, but shall have no obligation to, accept any such offers. An Alternative Currency Letter of Credit shall be issued, amended, renewed or extended only if (and upon such issuance, amendment, renewal or extension of each Alternative Currency Letter of Credit the Account Parties shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension, the Aggregate Credit Exposure shall not exceed the aggregate amount of the Commitments. Each such Alternative Currency Letter of Credit shall be issued, and subsequently, renewed, extended, amended and confirmed, on such terms as XL Capital, the applicable Account Party and such Lender shall agree, including expiry, drawing conditions, reimbursement, interest, fees and provision of cover; PROVIDED that the expiry of any Alternative Currency Letter of Credit shall not be later than the one-year anniversary from the date of issuance thereof (or, in the case of any renewal or extension thereof, one-year after such renewal or extension).
(b) REPORTS TO ADMINISTRATIVE AGENT. The Account Parties shall deliver to the Administrative Agent and each of the Lenders a report in respect of each Alternative Currency Letter of Credit (an "ALTERNATIVE CURRENCY LETTER OF CREDIT REPORT") on and as of the date (i) on which such Alternative Currency Letter of Credit is issued, (ii) of the issuance, renewal, extension or amendment of a Syndicated Letter of Credit or a Non-Syndicated Letter of Credit, if any Alternative Currency Letter of Credit is then outstanding and (iii) on which the Commitments are to be reduced pursuant to Section 2.11, specifying for each such Alternative Currency Letter of Credit (after giving effect to issuance thereof, as applicable):
(A) the date on which such Alternative Currency Letter of Credit was or is being issued;
(B) the Alternative Currency of such Alternative Currency Letter of Credit;
(C) the aggregate undrawn amount of such Alternative Currency Letter of Credit (in such Alternative Currency);
(D) the aggregate unpaid amount of LC Disbursements under such Alternative Currency Letter of Credit (in such Alternative Currency);
(E) the Alternative Currency LC Exposure (in Dollars) in respect of such Alternative Currency Letter of Credit; and
(F) the aggregate amount of Alternative Currency LC Exposures (in Dollars).
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Each Alternative Currency Letter of Credit Report shall be delivered to the Administrative Agent and each of the Lenders by 10:00 a.m. (New York City time) on the date on which it is required to be delivered.
SECTION 2.07. LOANS AND BORROWINGS.
(a) GENERAL. Subject to the terms and conditions set forth herein, each Lender agrees to make Loans to an Account Party from time to time during the Availability Period in an aggregate principal amount that will not result in (i) such Lender's outstanding Loans exceeding such Lender's Applicable Percentage of the RC Sublimit, (ii) such Lender's Credit Exposure (excluding any Alternative Currency LC Exposure) exceeding such Lender's Commitment, (iii) the sum of (A) the aggregate outstanding principal amount of the Loans and (B) the aggregate outstanding principal amount of the Loans under (and as defined in) the Three-Year Credit Agreement exceeding the RC Sublimit or (iv) the Aggregate Credit Exposure exceeding the aggregate amount of the Commitments. Loans may be made, or be outstanding, to more than one of the Account Parties at any time. Within the foregoing limits and subject to the terms and conditions set forth herein, the Account Parties may borrow, prepay and reborrow Loans. Loans shall constitute utilization of both the RC Sublimit and the Commitments.
(b) OBLIGATIONS OF LENDERS. Each Loan shall be made as part of a Borrowing consisting of Loans of the same Type made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; PROVIDED that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required.
(c) TYPE OF LOANS. Subject to Section 2.15, each Borrowing shall be constituted entirely of ABR Loans or of Eurodollar Loans as any Account Party may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; PROVIDED that any exercise of such option shall not affect the obligation of the Account Parties to repay such Loan in accordance with the terms of this Agreement.
(d) MINIMUM AMOUNTS; LIMITATION ON NUMBER OF BORROWINGS. Each Eurodollar Borrowing shall be in an aggregate amount of $10,000,000 or a larger multiple of $1,000,000. Each ABR Borrowing shall be in an aggregate amount equal to $10,000,000 or a larger multiple of $1,000,000; PROVIDED that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the Commitments or that is requested to finance the reimbursement of an LC Disbursement as contemplated by Section 2.03(a). Borrowings of more than one Type may be outstanding at the same time; PROVIDED that there shall not at any time be more than a total of ten Eurodollar Borrowings outstanding.
(e) LIMITATIONS ON INTEREST PERIODS. Notwithstanding any other provision of this Agreement, no Account Party shall be entitled to request (or to elect to convert to or continue as a Eurodollar Borrowing) any Borrowing if the Interest Period requested therefor would end after the Maturity Date.
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SECTION 2.08. REQUESTS FOR BORROWINGS.
(a) NOTICE BY THE ACCOUNT PARTIES. To request a Borrowing, XL
Capital shall notify the Administrative Agent of such request by telephone (i)
in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of the proposed Borrowing or (ii) in
the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on
the date of the proposed Borrowing; provided that any such notice of an ABR
Borrowing to finance the reimbursement of an LC Disbursement as contemplated by
Section 2.03(a) may be given not later than 11:00 a.m., New York City time, on
the date of the proposed Borrowing. Each such telephonic Borrowing Request shall
be irrevocable and shall be confirmed promptly by hand delivery or telecopy to
the Administrative Agent of a written Borrowing Request in a form approved by
the Administrative Agent and signed by XL Capital.
(b) CONTENT OF BORROWING REQUESTS. Each telephonic and written
Borrowing Request shall specify the following information in compliance with
Section 2.07:
(i) the relevant Account Party;
(ii) the aggregate amount of the requested Borrowing;
(iii) the date of such Borrowing, which shall be a Business Day;
(iv) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(v) in the case of a Eurodollar Borrowing, the Interest Period therefor, which shall be a period contemplated by the definition of the term "Interest Period" and permitted under Section 2.07(e); and
(vi) the location and number of such Account Party's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.09.
(c) NOTICE BY THE ADMINISTRATIVE AGENT TO THE LENDERS. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing.
(d) FAILURE TO ELECT. If no election as to the Type of a Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the requested Borrowing shall be made instead as an ABR Borrowing.
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SECTION 2.09. FUNDING OF BORROWINGS.
(a) FUNDING BY LENDERS. Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time (or 1:00 p.m., New York City time with respect to ABR Loans requested by XL Capital no later than 11:00 a.m. on the same day), to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the relevant Account Party by promptly crediting the amounts so received, in like funds, to an account of such Account Party maintained with the Administrative Agent in New York City and designated by such Account Party in the applicable Borrowing Request.
(b) PRESUMPTION BY THE ADMINISTRATIVE AGENT. Unless the
Administrative Agent shall have received notice from a Lender prior to the
proposed date of any Borrowing (or in the case of any ABR Borrowing, on or prior
to the proposed date of such Borrowing) that such Lender will not make available
to the Administrative Agent such Lender's share of such Borrowing, the
Administrative Agent may assume that such Lender has made such share available
on such date in accordance with paragraph (a) of this Section and may, in
reliance upon such assumption, make available to the relevant Account Party a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the relevant Account Party severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount with interest
thereon, for each day from and including the date such amount is made available
to such Account Party to but excluding the date of payment to the Administrative
Agent, at (i) in the case of such Lender, the Federal Funds Effective Rate or
(ii) in the case of such Account Party, the interest rate applicable to ABR
Loans. If such Lender pays such amount to the Administrative Agent, then such
amount shall constitute such Lender's Loan included in such Borrowing.
SECTION 2.10. INTEREST ELECTIONS.
(a) ELECTIONS BY THE ACCOUNT PARTIES. The Loans constituting each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have the Interest Period specified in such Borrowing Request. Thereafter, the relevant Account Party may elect to convert such Borrowing to a Borrowing of a different Type or to continue such Borrowing as a Borrowing of the same Type and, in the case of a Eurodollar Borrowing, may elect the Interest Period therefor, all as provided in this Section. The relevant Account Party may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans constituting such Borrowing, and the Loans constituting each such portion shall be considered a separate Borrowing.
(b) NOTICE OF ELECTIONS. To make an election pursuant to this Section, XL Capital shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.08 if XL Capital were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by
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hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by XL Capital.
(c) CONTENT OF INTEREST ELECTION REQUESTS. Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.07:
(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) of this paragraph shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period therefor after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period" and permitted under Section 2.07(e).
(d) NOTICE BY THE ADMINISTRATIVE AGENT TO THE LENDERS. Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing.
(e) FAILURE TO ELECT; EVENTS OF DEFAULT. If XL Capital fails to deliver a timely and complete Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period therefor, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies XL Capital, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period therefor.
SECTION 2.11. TERMINATION, REDUCTION AND INCREASE OF THE COMMITMENTS.
(a) SCHEDULED TERMINATION. Unless previously terminated, the Commitments shall terminate at the close of business on the Commitment Termination Date.
(b) VOLUNTARY TERMINATION OR REDUCTION. The Account Parties may at any time terminate, or from time to time reduce, the Commitments and/or the RC Sublimit; PROVIDED that (i) each reduction of the Commitments or the RC Sublimit shall be in an amount that is $25,000,000 or a larger multiple of $5,000,000 and (ii) the Account Parties shall not terminate or reduce the Commitments or the RC Sublimit if the Aggregate Credit Exposure would exceed the Commitments or the outstanding Loans would exceed the RC Sublimit, as the case may be. XL
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Capital shall notify the Administrative Agent of any election to terminate or
reduce the Commitments or the RC Sublimit under this paragraph (b) at least
three Business Days prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof, PROVIDED
that no reduction of the RC Sublimit shall occur in connection with a reduction
of the Commitments unless specified in such notice, except that upon the earlier
of (x) the termination of the Commitments and (y) the Commitment Termination
Date, the RC Sublimit shall be reduced to zero. Promptly following receipt of
any such notice, the Administrative Agent shall advise the Lenders of the
contents thereof. Each notice delivered by XL Capital pursuant to this paragraph
(b) shall be irrevocable; PROVIDED that a notice of termination of the
Commitments delivered by XL Capital may state that such notice is conditioned
upon the effectiveness of other credit facilities, in which case such notice may
be revoked by XL Capital (by notice to the Administrative Agent on or prior to
the specified effective date) if such condition is not satisfied. Subject to the
proviso in the immediately preceding sentence, any termination or reduction of
the Commitments or the RC Sublimit shall be permanent. Each reduction of the
Commitments or the RC Sublimit shall be made ratably among the Lenders in
accordance with their respective Commitments.
(c) INCREASES TO COMMITMENTS. XL Capital shall have the right, at any time by notice to the Administrative Agent, to increase the Commitments hereunder up to an aggregate amount not exceeding $1,800,000,000 (i) by including as a Lender hereunder with a new Commitment, any Person which is a NAIC Approved Bank that is not an existing Lender or (ii) by having an existing Lender increase its Commitment then in effect (with the consent of such Lender in its sole discretion) (each new or increasing Lender, a "SUPPLEMENTAL LENDER") in each case with the approval (not to be unreasonably withheld) of the Administrative Agent, which notice shall specify the name of each Supplemental Lender, the aggregate amount of such increase and the portion thereof being assumed by each such Supplemental Lender, and the date on which such increase is to become effective (each a "SUPPLEMENTAL COMMITMENT DATE") (which shall be a Business Day at least three Business Days after the delivery of such notice and 30 days prior to the Commitment Termination Date); PROVIDED that (x) the Commitment of any Supplemental Lender that is not an existing Lender shall be in an amount of at least $25,000,000 and (y) the aggregate amount of the increase of the Commitments effected on any day shall be in an aggregate amount of at least $25,000,000 and larger multiples of $1,000,000. Each such Supplemental Lender shall enter into an agreement in form and substance satisfactory to XL Capital and the Administrative Agent pursuant to which such Supplemental Lender shall, as of the applicable Supplemental Commitment Date, undertake a Commitment (or, if any such Supplemental Lender is an existing Lender, pursuant to which such Supplemental Lender's Commitment shall be increased in the agreed amount on such date) and such Supplemental Lender shall thereupon become (or, if it is already a Lender, continue to be) a "Lender" for all purposes hereof; PROVIDED that, in the case of any Supplemental Lender that is not a Lender immediately prior to such Supplemental Commitment Date and is not listed on the NAIC Approved Bank List, such Supplemental Lender and its Confirming Lender shall have entered into an agreement of the type contemplated in the definition of "Confirming Lender" in Section 1.01.
Notwithstanding the foregoing, no increase in the Commitments hereunder pursuant to this Section shall be effective unless on the applicable Supplemental Commitment Date:
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(i) no Default shall have occurred and be continuing;
(ii) the representations and warranties of the Obligors set forth in this Agreement (other than in Section 4.04(b)) shall be true and correct on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); and
(iii) no Loans are outstanding and no notices in respect of the issuance, amendment, renewal or extension of any Letter of Credit or of any Borrowing are pending, unless the Administrative Agent otherwise agrees.
Each such notice shall be deemed to constitute a representation and warranty by XL Capital as to the matters specified in clauses (i) and (ii) of the immediately preceding sentence as of such date.
SECTION 2.12. REPAYMENT OF LOANS; TERM-OUT OPTION; EVIDENCE OF DEBT.
(a) REPAYMENT. Each Account Party hereby unconditionally
promises to pay to the Administrative Agent for account of the relevant Lenders,
(i) in the event that the Term-Out Option has not been exercised, the
outstanding principal amount of the Loans made to such Account Party on the
Commitment Termination Date and (ii) in the event that the Term-Out Option has
been exercised and is in effect, the outstanding principal amount of the Loans
made to such Account Party on the Maturity Date.
(b) TERM-OUT OPTION. The Account Parties may, by notice given by XL Capital to the Administrative Agent (which shall promptly notify the Lenders) not less than 15 days prior to the Commitment Termination Date, extend the Maturity Date for all Loans outstanding at the close of business New York City time on the Commitment Termination Date to the first anniversary of the Commitment Termination Date (the "TERM-OUT OPTION"); PROVIDED that such extension shall not be effective with respect to any Lender unless:
(i) no Default shall have occurred and be continuing on each of the date of the notice requesting such extension and on the Commitment Termination Date; and
(ii) the representations and warranties of the Obligors set forth in this Agreement (other than in Section 4.04(b)) shall be true and correct on and as of each of the date of the notice requesting such extension and the Commitment Termination Date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date).
Such notice shall be deemed to constitute a representation and warranty by XL Capital as to the matters specified in clauses (i) and (ii) of the immediately preceding sentence as of each such date.
Notwithstanding the foregoing, the Commitments of the Lenders to make Loans shall terminate on the Commitment Termination Date.
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(c) MANNER OF PAYMENT. Prior to any repayment or prepayment of any Borrowings hereunder, XL Capital shall select the Borrowing or Borrowings to be paid and shall notify the Administrative Agent by telephone (confirmed by telecopy) of such selection not later than 11:00 a.m., New York City time, three Business Days before the scheduled date of such repayment; PROVIDED that each repayment of Borrowings shall be applied to repay any outstanding ABR Borrowings before any other Borrowings. If XL Capital fails to make a timely selection of the Borrowing or Borrowings to be repaid or prepaid, such payment shall be applied, first, to pay any outstanding ABR Borrowings and, second, to other Borrowings in the order of the remaining duration of their respective Interest Periods (the Borrowing with the shortest remaining Interest Period to be repaid first). Each payment of a Borrowing shall be applied ratably to the Loans included in such Borrowing.
(d) MAINTENANCE OF RECORDS BY LENDERS. Each Lender shall maintain in accordance with its usual practice records evidencing the indebtedness of each Account Party to such Lender resulting from each Loan made by such Lender to such Account Party, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(e) MAINTENANCE OF RECORDS BY THE ADMINISTRATIVE AGENT. The Administrative Agent shall maintain records in which it shall record (i) the amount of each Loan made to each Account Party hereunder, the Type thereof and each Interest Period therefor, (ii) the amount of any principal or interest due and payable or to become due and payable from such Account Party to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for account of the Lenders and each Lender's share thereof.
(f) EFFECT OF ENTRIES. The entries made in the records maintained pursuant to paragraph (d) or (e) of this Section shall be PRIMA FACIE evidence of the existence and amounts of the obligations recorded therein; PROVIDED that the failure of any Lender or the Administrative Agent to maintain such records or any error therein shall not in any manner affect the obligation of the Account Parties to repay the Loans in accordance with the terms of this Agreement.
(g) PROMISSORY NOTES. Any Lender may request that Loans made
by it to any Account Party be evidenced by a promissory note of such Account
Party. In such event, each Account Party shall prepare, execute and deliver to
such Lender a promissory note payable to such Lender (or, if requested by such
Lender, to such Lender and its registered assigns) and in a form approved by the
Administrative Agent. Thereafter, the Loans evidenced by such promissory note
and interest thereon shall at all times (including after assignment pursuant to
Section 10.04) be represented by one or more promissory notes in such form
payable to the payee named therein (or, if such promissory note is a registered
note, to such payee and its registered assigns).
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SECTION 2.13. PREPAYMENT OF LOANS.
(a) RIGHT TO PREPAY BORROWINGS. The Account Parties shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to the requirements of this Section.
(b) NOTICES, ETC. XL Capital shall notify the Administrative
Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in
the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New
York City time, three Business Days before the date of prepayment or (ii) in the
case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City
time, one Business Day before the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of
each Borrowing or portion thereof to be prepaid; PROVIDED that, if a notice of
prepayment is given in connection with a conditional notice of termination of
the Commitments as contemplated by Section 2.11, then such notice of prepayment
may be revoked if such notice of termination is revoked in accordance with
Section 2.11. Promptly following receipt of any such notice relating to a
Borrowing, the Administrative Agent shall advise the Lenders of the contents
thereof. Each partial prepayment of any Borrowing shall be in an amount that
would be permitted in the case of a Borrowing of the same Type as provided in
Section 2.07. Each prepayment of a Borrowing shall be applied ratably to the
Loans included in the prepaid Borrowing. Prepayments shall be accompanied by
accrued interest to the extent required by Section 2.15 and shall be made in the
manner specified in Section 2.12(c).
SECTION 2.14. FEES.
(a) FACILITY FEE. XL Capital agrees to pay to the Administrative Agent for account of each Lender a facility fee which shall accrue at a rate per annum equal to the Applicable Facility Fee Rate, (i) prior to the termination of such Lender's Commitment, on the daily amount of such Commitment (whether used or unused) during the period from and including the Effective Date to but excluding the earlier of the date on which such Commitment terminates and the Commitment Termination Date and (ii) if such Lender continues to have any Credit Exposure after its Commitment terminates, on the daily amount of such Lender's Credit Exposure from and including the date on which such Lender's Commitment terminates to but excluding the date on which such Lender ceases to have any Credit Exposure. Accrued facility fees shall be payable on each Quarterly Date and on (i) in the event the Term-Out Option has not been exercised, the earlier of the date the Commitments terminate and the Commitment Termination Date or (ii) in the event the Term-Out Option has been exercised and is in effect, on the Maturity Date; PROVIDED that any facility fees accruing after such earlier date or the Maturity Date, as the case may be, shall be payable on demand.
(b) SYNDICATED LETTER OF CREDIT FEES. XL Capital agrees to pay to the Administrative Agent for account of each Lender a letter of credit fee which shall accrue at a rate per annum equal to the Applicable Letter of Credit Fee Rate on the average daily aggregate undrawn amount of all outstanding Syndicated Letters of Credit during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Commitment terminates and the date on which such Lender ceases to have any LC Exposure. Syndicated Letter of Credit fees accrued through and including each Quarterly Date shall be
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payable on the third Business Day following such Quarterly Date, commencing on the first such date to occur after the Effective Date; PROVIDED that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand.
(c) NON-SYNDICATED LETTER OF CREDIT FEES. XL Capital agrees to pay to the Administrative Agent for account of each Lender a letter of credit fee which shall accrue at a rate per annum equal to the Applicable Letter of Credit Fee Rate on the average daily aggregate undrawn amount of all outstanding Non-Syndicated Letters of Credit during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Commitment terminates and the date on which such Lender ceases to have any LC Exposure. Non-Syndicated Letter of Credit fees accrued through and including each Quarterly Date shall be payable on the third Business Day following such Quarterly Date, commencing on the first such date to occur after the Effective Date; PROVIDED that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand.
(d) PARTICIPATED LETTER OF CREDIT FEES. XL Capital agrees to pay (i) to the Administrative Agent for account of each Lender a participation fee with respect to its participations in Participated Letters of Credit, which shall accrue at a rate per annum equal to the Applicable Letter of Credit Fee Rate on the average daily amount of such Lender's LC Exposure in respect of Participated Letters of Credit (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Commitment terminates and the date on which such Lender ceases to have any such LC Exposure, and (ii) to the Issuing Lender a fronting fee which shall accrue at a rate per annum as agreed in writing between XL Capital and the Issuing Lender on the average daily amount of the LC Exposure in respect of Participated Letters of Credit (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any such LC Exposure. Participation fees and fronting fees accrued through and including each Quarterly Date shall be payable on the third Business Day following such Quarterly Date, commencing on the first such date to occur after the Effective Date; PROVIDED that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand.
(e) LC ADMINISTRATIVE FEES. XL Capital agrees to pay to the Administrative Agent, for its own account, within 10 Business Days after demand the Administrative Agent's standard administrative fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder.
(f) ADMINISTRATIVE AGENT FEES. XL Capital agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between XL Capital and the Administrative Agent.
(g) PAYMENT AND COMPUTATION OF FEES. All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in
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the case of the fees referred to in paragraphs (a) through (d) of this Section, to the Lenders entitled thereto. Fees paid shall not be refundable under any circumstances. All fees payable under paragraphs (a) through (d) of this Section shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).
SECTION 2.15. INTEREST.
(a) ABR LOANS. The Loans constituting each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base Rate PLUS the Applicable Additional Margin, if any.
(b) EURODOLLAR LOANS. The Loans constituting each Eurodollar Borrowing shall bear interest at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period for such Borrowing PLUS the Applicable Margin PLUS the Applicable Additional Margin, if any.
(c) DEFAULT INTEREST. Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable (other that in respect of any LC Disbursement under Sections 2.03(d), 2.04(j), and 2.05(i)) by the Account Parties hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% PLUS the rate otherwise applicable to such Loan as provided above or (ii) in the case of any other amount, 2% PLUS the rate applicable to ABR Loans as provided in paragraph (a) of this Section.
(d) PAYMENT OF INTEREST. Accrued interest on each Loan shall be payable by the applicable Account Party in arrears on each Interest Payment Date for such Loan and upon (i) in the event the Term-Out Option has not been exercised, the date the Commitments terminate or (ii) in the event the Term-Out Option has been exercised and is in effect, the Maturity Date; PROVIDED that (x) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (y) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Loan prior to the later of the Commitment Termination Date and the Maturity Date), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (z) in the event of any conversion of any Eurodollar Borrowing prior to the end of the Interest Period therefor, accrued interest on such Borrowing shall be payable on the effective date of such conversion.
(e) COMPUTATION. All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.
SECTION 2.16. ALTERNATE RATE OF INTEREST. If prior to the commencement of the Interest Period for any Eurodollar Borrowing:
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(a) the Administrative Agent determines in good faith (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders (acting in good faith) that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their respective Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to XL Capital and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies XL Capital and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or the continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and such Borrowing (unless prepaid) shall be continued as, or converted to, an ABR Borrowing and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing.
SECTION 2.17. INCREASED COSTS.
(a) INCREASED COSTS GENERALLY. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any other condition affecting this Agreement, any Letter of Credit (or any participation therein) or any Eurodollar Loan made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining, or participating in, any Letter of Credit (or of maintaining any participation therein) or Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Account Parties jointly and severally agree that they will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.
(b) CAPITAL REQUIREMENTS. If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Letters of Credit issued or participated in, or the Loans made, by such Lender to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Account Parties will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered.
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(c) CERTIFICATES FROM LENDERS. A certificate of a Lender setting forth such Lender's good faith determination of the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to XL Capital and shall be conclusive absent manifest error. The Account Parties shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof by XL Capital.
(d) DELAY IN REQUESTS. Failure or delay on the part of any
Lender to demand compensation pursuant to this Section shall not constitute a
waiver of such Lender's right to demand such compensation; PROVIDED that the
Account Parties shall not be required to compensate a Lender pursuant to this
Section for any increased costs or reductions incurred more than 90 days prior
to the date that such Lender notifies XL Capital of the Change in Law giving
rise to such increased costs or reductions and of such Lender's intention to
claim compensation therefor; PROVIDED FURTHER that, if the Change in Law giving
rise to such increased costs or reductions is retroactive, then the 90 day
period referred to above shall be extended to include the period of retroactive
effect thereof.
(e) APPLICATION TO TAXES. Notwithstanding anything in this
Section to the contrary, this Section shall not apply to Taxes, which shall be
governed solely by Section 2.19.
SECTION 2.18. BREAK FUNDING PAYMENTS. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period therefor (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of an Interest Period therefor, (c) the failure to borrow, convert, continue or prepay any Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice is permitted to be revocable under Section 2.13(b) and is revoked in accordance herewith), or (d) the assignment as a result of a request by XL Capital pursuant to Section 2.21(b) of any Eurodollar Loan other than on the last day of an Interest Period therefor, then, in any such event, the Account Parties shall compensate each Lender for the loss attributable to such event. The loss to any Lender attributable to any such event shall be deemed to be an amount determined by such Lender to be equal to the excess, if any, of (i) the amount of interest that such Lender would pay for a deposit equal to the principal amount of such Loan for the period from the date of such payment, conversion, failure or assignment to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, convert or continue, the duration of the Interest Period that would have resulted from such borrowing, conversion or continuation) if the interest rate payable on such deposit were equal to the Adjusted LIBO Rate for such Interest Period, OVER (ii) the amount of interest that such Lender would earn on such principal amount for such period if such Lender were to invest such principal amount for such period at the interest rate that would be bid by such Lender (or an affiliate of such Lender) for Dollar deposits from other banks in the eurodollar market at the commencement of such period. A certificate of any Lender setting forth such Lender's good faith determination of any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to XL Capital and shall be conclusive absent manifest error. The Account Parties shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof by XL Capital.
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SECTION 2.19. TAXES.
(a) PAYMENTS FREE OF TAXES. Any and all payments by or on
account of any obligation of the Account Parties hereunder shall be made free
and clear of and without deduction for any Indemnified Taxes; PROVIDED that if
any Account Party shall be required to deduct any Indemnified Taxes from such
payments, then (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section) the Administrative Agent or Lender (as the case
may be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Account Party shall make such deductions and
(iii) such Account Party shall pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable law.
(b) PAYMENT OF OTHER TAXES BY THE ACCOUNT PARTIES. In addition, each Account Party shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(c) INDEMNIFICATION BY THE ACCOUNT PARTIES. The Account Parties shall indemnify the Administrative Agent and each Lender, within 10 days after written demand to XL Capital therefor, for the full amount of any Indemnified Taxes and Other Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes, as the case may be, were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate setting forth the Administrative Agent's or such Lender's, as the case may be, good faith determination of the amount of such payment or liability delivered to XL Capital by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive as between such Lender or the Administrative Agent, as the case may be, and the Account Parties absent manifest error.
(d) EVIDENCE OF PAYMENTS. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by any Account Party to a Governmental Authority, XL Capital on behalf of such Account Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e) EXEMPTIONS. Each Lender and the Administrative Agent shall, at the written request of XL Capital, provide to any Account Party such form, certification or similar documentation, if any (each duly completed, accurate and signed) as is currently required by any Account Party Jurisdiction or any other jurisdiction, or comply with such other requirements, if any, as is currently applicable in such Account Party Jurisdiction or any other jurisdiction, in order to obtain an exemption from, or reduced rate of, deduction, payment or withholding of Indemnified Taxes or Other Taxes to which such Lender or the Administrative Agent is entitled pursuant to an applicable tax treaty or the law of such Account Party Jurisdiction or any other jurisdiction; PROVIDED that XL Capital shall have furnished to such Lender or the Administrative Agent in a reasonably timely manner copies of such documentation and notice of such
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requirements together with applicable instructions. Upon the reasonable request of XL Capital in writing, each Lender and the Administrative Agent will provide to XL Capital such form, certification or similar documentation (each duly completed, accurate and signed) as may in the future be required by any Account Party Jurisdiction or any other jurisdiction, or comply with such other requirements, if any, as may be applicable in such Account Party Jurisdiction or any other jurisdiction in order to obtain an exemption from, or reduced rate of, deduction, payment or withholding of Indemnified Taxes or Other Taxes to which such Lender or the Administrative Agent is entitled pursuant to an applicable tax treaty or the law of the relevant jurisdiction. The Account Parties shall not be required to pay additional amount to, or to indemnify, any Lender or the Administrative Agent under paragraph (a) or (c) of this Section for any Indemnified Taxes or Other Taxes to the extent such Indemnified Taxes or Other Taxes would not have been imposed but for the failure by such Lender or the Administrative Agent, as the case may be, to comply with the foregoing provisions of paragraph (e) of this Section.
(f) If the Administrative Agent or a Lender determines, in its
reasonable discretion, that it has received a refund of any Taxes or Other Taxes
as to which it has been indemnified by an Account Party or with respect to which
an Account Party has paid additional amounts pursuant to this Section, it shall
pay over such refund to such Account Party (but only to the extent of indemnity
payments made, or additional amounts paid, by such Account Party under this
Section with respect to the Taxes or Other Taxes giving rise to such refund),
net of all out-of-pocket expenses of the Administrative Agent or such Lender and
without interest (other than any interest paid by the relevant Governmental
Authority with respect to such refund); PROVIDED that such Account Party, upon
the request of the Administrative Agent or such Lender, agrees to repay the
amount paid over to such Account Party (plus any penalties, interest or other
charges imposed by the relevant Governmental Authority) to the Administrative
Agent or such Lender in the event the Administrative Agent or such Lender is
required to repay such refund to such Governmental Authority. This Section shall
not be construed to require the Administrative Agent or any Lender to make
available its tax returns (or any other information relating to its taxes which
it deems confidential) to any Account Party or any other Person.
(g) Any Lender that is not a Lender as of the date hereof shall not be entitled to any greater payment under this Section than such Lender's assignor was entitled to immediately prior to such assignment (determined taking into account the provisions of this Section) except to the extent that the entitlement to a greater payment resulted solely from a Change in Law formally announced after the date on which such Lender became a Lender hereunder.
SECTION 2.20. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SET-OFFS.
(a) PAYMENTS BY THE ACCOUNT PARTIES. The Account Parties shall
make each payment required to be made by them hereunder (whether of principal,
interest, fees or reimbursement of LC Disbursements, interest or fees, or under
Section 2.17, 2.18 or 2.19, or otherwise) or under any other Credit Document
(except to the extent otherwise provided therein) prior to 12:00 noon, New York
City time, on the date when due, in immediately available funds, without set-off
or counterclaim; PROVIDED that any payments in respect of Alternative Currency
Letters of Credit shall be made in the manner (including the time and place of
payment) as shall have been separately agreed between the relevant Account Party
and Lender pursuant to Section 2.06. Any amounts received after such time on any
date may, in the discretion of the
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Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, except payments pursuant to Sections 2.17, 2.18, 2.19 and 10.03, which shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in Dollars.
(b) APPLICATION OF INSUFFICIENT PAYMENTS. If at any time
insufficient funds are received by and available to the Administrative Agent to
pay fully all amounts of principal, unreimbursed LC Disbursements, interest and
fees then due hereunder, such funds shall be applied (i) first, to pay interest
and fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and fees then due to such parties, and
(ii) second, to pay principal and unreimbursed LC Disbursements then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal and unreimbursed LC Disbursements then due to such parties.
(c) PRO RATA TREATMENT. Except to the extent otherwise
provided herein: (i) each reimbursement of LC Disbursements (other than in
respect of Alternative Currency Letters of Credit) shall be made to the Lenders,
each Borrowing shall be made from the Lenders, each payment of fees under
Section 2.14 shall be made for account of the relevant Lenders, and each
termination or reduction of the amount of the Commitments under Section 2.11
shall be applied to the respective Commitments of the Lenders, in each case pro
rata according to the amounts of their respective Commitments (or, in the case
of any such reimbursement or payment after the termination of the Commitments,
pro rata according to the Aggregate Credit Exposure); (ii) each Borrowing shall
be allocated pro rata among the Lenders according to the amounts of their
respective Commitments (in the case of the making of Loans) or their respective
Loans that are to be included in such Borrowing (in the case of conversions and
continuations of Loans); (iii) each payment or prepayment of principal of Loans
by any Account Party shall be made for account of the Lenders pro rata according
to the respective unpaid principal amounts of the Loans of such Account Party;
and (iv) each payment of interest on Loans by an Account Party shall be made for
account of the Lenders pro rata according to the amounts of interest on such
Loans then due and payable thereunder.
(d) SHARING OF PAYMENTS BY LENDERS. If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or LC Disbursements (other than with respect to Alternative Currency Letters of Credit) resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and/or LC Disbursements (other than with respect to Alternative Currency Letters of Credit) and accrued interest thereon then due than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and/or LC Disbursements (other than with respect to Alternative Currency Letters of Credit) of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of
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principal of and accrued interest on their respective Loans and/or LC Disbursements (other than with respect to Alternative Currency Letters of Credit); PROVIDED that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by any Account Party pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or LC Disbursements to any assignee or participant, other than to any Account Party or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Each Account Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Account Party rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Account Party in the amount of such participation.
(e) PRESUMPTIONS OF PAYMENT. Unless the Administrative Agent shall have received notice from an Account Party prior to the date on which any payment is due to the Administrative Agent for account of the relevant Lenders hereunder that such Account Party will not make such payment, the Administrative Agent may assume that such Account Party has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the relevant Lenders the amount due. In such event, if the relevant Account Party has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Federal Funds Effective Rate.
(f) CERTAIN DEDUCTIONS BY THE ADMINISTRATIVE AGENT. If any
Lender shall fail to make any payment required to be made by it pursuant to
Section 2.20(e), then the Administrative Agent may, in its discretion
(notwithstanding any contrary provision hereof), apply any amounts thereafter
received by the Administrative Agent for account of such Lender to satisfy such
Lender's obligations under such Sections until all such unsatisfied obligations
are fully paid.
SECTION 2.21. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS.
(a) DESIGNATION OF A DIFFERENT LENDING OFFICE. If any Lender requests compensation under Section 2.17, or if any Account Party is required to pay any additional amount or indemnification payment to any Lender or any Governmental Authority for account of any Lender pursuant to Section 2.19, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans and/or Letters of Credit hereunder or to assign its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the reasonable judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.17 or 2.19, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. Each Account Party hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
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(b) REPLACEMENT OF LENDERS. If any Lender requests compensation under Section 2.17, or if any Account Party is required to pay any additional amount to any Lender or any Governmental Authority for account of any Lender pursuant to Section 2.19, or if any Lender defaults in its obligation to fund Loans or to make LC Disbursements hereunder, or if any Lender ceases to be a NAIC Approved Bank, then XL Capital may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 10.04), all its interests, rights and obligations under this Agreement to an assignee selected by XL Capital that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); PROVIDED that (i) XL Capital shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and/or LC Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the relevant Account Party (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.17 or payments required to be made pursuant to Section 2.19, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the relevant Account Party to require such assignment and delegation cease to apply.
ARTICLE III
GUARANTEE
SECTION 3.01. THE GUARANTEE. Each Guarantor hereby jointly and severally guarantees to each Lender and the Administrative Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Loans and LC Disbursements (and interest thereon) made by the Lenders to each of the Account Parties (other than such Guarantor in its capacity as an Account Party hereunder) and all other amounts from time to time owing to the Lenders or the Administrative Agent by such Account Parties under this Agreement, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the "GUARANTEED OBLIGATIONS"). Each Guarantor hereby further jointly and severally agrees that if any Account Party (other than such Guarantor in its capacity as an Account Party hereunder) shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, such Guarantor will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal.
SECTION 3.02. OBLIGATIONS UNCONDITIONAL. The obligations of the Guarantors
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under Section 3.01 are absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Account Parties under this Agreement or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Article that the obligations of the Guarantors hereunder shall be absolute and unconditional, joint and several, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantors hereunder, which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to the Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this Agreement or any other agreement or instrument referred to herein shall be done or omitted; or
(iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under this Agreement or any other agreement or instrument referred to herein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with.
The Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Administrative Agent or any Lender exhaust any right, power or remedy or proceed against any Account Party under this Agreement or any other agreement or instrument referred to herein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations.
SECTION 3.03. REINSTATEMENT. The obligations of the Guarantors under this Article shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Account Party in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and the Guarantors jointly and severally agree that they will indemnify the Administrative Agent and each Lender on demand for all reasonable costs and expenses (including reasonable fees of counsel) incurred by the Administrative Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law.
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SECTION 3.04. SUBROGATION. The Guarantors hereby jointly and severally agree that until the payment and satisfaction in full of all Guaranteed Obligations and the expiration and termination of the Commitments they shall not exercise any right or remedy arising by reason of any performance by them of their guarantee in Section 3.01, whether by subrogation or otherwise, against any Account Party or any other guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations.
SECTION 3.05. REMEDIES. The Guarantors jointly and severally agree that, as between the Guarantors and the Lenders, the obligations of the Account Parties under this Agreement may be declared to be forthwith due and payable as provided in Article VIII (and shall be deemed to have become automatically due and payable in the circumstances provided in Article VIII) for purposes of Section 3.01 notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against any Account Party and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by any Account Party) shall forthwith become due and payable by the Guarantors for purposes of Section 3.01.
SECTION 3.06. CONTINUING GUARANTEE. The guarantee in this Article is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising.
SECTION 3.07. RIGHTS OF CONTRIBUTION. The Guarantors (other than XL Capital) hereby agree, as between themselves, that if any such Guarantor shall become an Excess Funding Guarantor (as defined below) by reason of the payment by such Guarantor of any Guaranteed Obligations, each other Guarantor (other than XL Capital) shall, on demand of such Excess Funding Guarantor (but subject to the next sentence), pay to such Excess Funding Guarantor an amount equal to such Guarantor's Pro Rata Share (as defined below and determined, for this purpose, without reference to the properties, debts and liabilities of such Excess Funding Guarantor) of the Excess Payment (as defined below) in respect of such Guaranteed Obligations. The payment obligation of a Guarantor to any Excess Funding Guarantor under this Section shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Guarantor under the other provisions of this Article III and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations.
For purposes of this Section, (i) "EXCESS FUNDING GUARANTOR" means, in respect of any Guaranteed Obligations, a Guarantor that has paid an amount in excess of its Pro Rata Share of such Guaranteed Obligations, (ii) "EXCESS PAYMENT" means, in respect of any Guaranteed Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such Guaranteed Obligations and (iii) "PRO RATA SHARE" means, for any Guarantor, the ratio (expressed as a percentage) of (x) the amount by which the aggregate present fair saleable value of all properties of such Guarantor (excluding any shares of stock of any other Guarantor) exceeds the amount of all the debts and liabilities of such Guarantor (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder and any obligations of any other Guarantor that have been Guaranteed by such Guarantor) to (y) the amount by which the aggregate fair saleable value of all properties of
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all of the Guarantors (other than XL Capital) exceeds the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of the Guarantors under this Article III) of all of the Guarantors (other than XL Capital), determined (A) with respect to any Guarantor that is a party hereto on the date hereof, as of the date hereof, and (B) with respect to any other Guarantor, as of the date such Guarantor becomes a Guarantor hereunder.
SECTION 3.08. GENERAL LIMITATION ON GUARANTEE OBLIGATIONS. In any action or proceeding involving any corporate law, or any bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Guarantor under Section 3.01 would otherwise, taking into account the provisions of Section 3.07, be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under Section 3.01, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by such Guarantor, any Lender, the Administrative Agent or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each Account Party represents and warrants to the Lenders that:
SECTION 4.01. ORGANIZATION; POWERS. Such Account Party and each of its Significant Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.
SECTION 4.02. AUTHORIZATION; ENFORCEABILITY. The Transactions are within such Account Parties' corporate powers and have been duly authorized by all necessary corporate and, if required, by all necessary shareholder action. This Agreement has been duly executed and delivered by such Account Party and constitutes a legal, valid and binding obligation of such Account Party, enforceable against such Account Party in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium, examination or similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
SECTION 4.03. GOVERNMENTAL APPROVALS; NO CONFLICTS. The Transactions (a) do not require any consent or approval of (including any exchange control approval), registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of such Account
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Party or any of its Significant Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any material indenture, agreement or other instrument binding upon such Account Party or any of its Significant Subsidiaries or assets, or give rise to a right thereunder to require any payment to be made by any such Person, and (d) will not result in the creation or imposition of any Lien on any asset of such Account Party or any of its Significant Subsidiaries.
SECTION 4.04. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE.
(a) FINANCIAL CONDITION. Such Account Party has heretofore furnished to the Lenders the consolidated balance sheet and statements of income, stockholders' equity and cash flows of such Account Party and its consolidated Subsidiaries (A) as of and for the fiscal year ended December 31, 2003, reported on by PricewaterhouseCoopers LLP, independent public accountants (as provided in XL Capital's Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2003), and (B) as of and for the fiscal quarter ended March 31, 2004, as provided in XL Capital's Report on Form 10-Q filed with the SEC for the fiscal quarter ended March 31, 2004. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of such Account Party and its respective consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP or (in the case of XL Insurance or XL Re) SAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (B) of the first sentence of this paragraph.
(b) NO MATERIAL ADVERSE CHANGE. Since December 31, 2003, there has been no material adverse change in the assets, business, financial condition or operations of such Account Party and its Subsidiaries, taken as a whole.
SECTION 4.05. PROPERTIES.
(a) PROPERTY GENERALLY. Such Account Party and each of its Significant Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, subject only to Liens permitted by Section 7.03 and except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes.
(b) INTELLECTUAL PROPERTY. Such Account Party and each of its Significant Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by such Account Party and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
SECTION 4.06. LITIGATION AND ENVIRONMENTAL MATTERS.
(a) ACTIONS, SUITS AND PROCEEDINGS. Except as disclosed in Schedule III or as routinely encountered in claims activity, there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority now pending against or, to the knowledge of such
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Account Party, threatened against or affecting such Account Party or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve this Agreement or the Transactions.
(b) ENVIRONMENTAL MATTERS. Except as disclosed in Schedule IV and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither such Account Party nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required for its business under any Environmental Law, (ii) has incurred any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability.
SECTION 4.07. COMPLIANCE WITH LAWS AND AGREEMENTS. Such Account Party and each of its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing.
SECTION 4.08. INVESTMENT AND HOLDING COMPANY STATUS. Such Account Party is not (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935.
SECTION 4.09. TAXES. Such Account Party and each of its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which such Person has set aside on its books adequate reserves or (b) to the extent that the failure to file any such Tax return or pay any such Taxes could not reasonably be expected to result in a Material Adverse Effect.
SECTION 4.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Plan by an amount that could reasonably be expected to result in a Material Adverse Effect.
Except as could not reasonably be expected to result in a Material Adverse Effect, (i) all contributions required to be made by any Account Party or any of their Subsidiaries with respect to a Non-U.S. Benefit Plan have been timely made, (ii) each Non-U.S. Benefit Plan has been maintained in compliance with its terms and with the requirements of any and all applicable laws and has been maintained, where required, in good standing with the applicable
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Governmental Authority and (iii) neither any Account Party nor any of their Subsidiaries has incurred any obligation in connection with the termination or withdrawal from any Non-U.S. Benefit Plan.
SECTION 4.11. DISCLOSURE. The reports, financial statements, certificates or other information furnished by such Account Party to the Lenders in connection with the negotiation of this Agreement or delivered hereunder (taken as a whole) do not contain any material misstatement of fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED that, with respect to projected financial information, such Account Party represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.
SECTION 4.12. USE OF CREDIT. Neither such Account Party nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock, and no Letter of Credit will be used in connection with buying or carrying any Margin Stock. No part of the proceeds of any Loan hereunder will be used to buy or carry any Margin Stock (except for repurchases of the capital stock of XL Capital and purchases of Margin Stock in accordance with XL Capital's Statement of Investment Policy Objectives and Guidelines as in effect on the date hereof or as it may be changed from time to time by a resolution duly adopted by the board of directors of XL Capital (or any committee thereof)). The purchase of any Margin Stock with the proceeds of any Loan will not be in violation of Regulation U or X of the Board and, after applying the proceeds of such Loan, not more than 25% of the value of the assets of XL Capital and its Subsidiaries taken as a whole consists or will consist of Margin Stock.
SECTION 4.13. SUBSIDIARIES. Set forth in Schedule V is a complete and correct list of all of the Subsidiaries of XL Capital as of March 31, 2004, together with, for each such Subsidiary, (i) the jurisdiction of organization of such Subsidiary, (ii) each Person holding ownership interests in such Subsidiary and (iii) the percentage of ownership of such Subsidiary represented by such ownership interests. Except as disclosed in Schedule V, (x) each of XL Capital and its Subsidiaries owns, free and clear of Liens, and has the unencumbered right to vote, all outstanding ownership interests in each Person shown to be held by it in Schedule V, (y) all of the issued and outstanding capital stock of each such Person organized as a corporation is validly issued, fully paid and nonassessable and (z) except as disclosed in filings of XL Capital with the SEC prior to the date hereof, there are no outstanding Equity Rights with respect to any Account Party.
SECTION 4.14. WITHHOLDING TAXES. Based upon information with respect to each Lender provided by each Lender to the Administrative Agent, as of the date hereof, the payment of the LC Disbursements and interest thereon, principal of and interest on the Loans, the fees under Section 2.14 and all other amounts payable hereunder will not be subject, by withholding or deduction, to any Indemnified Taxes imposed by Bermuda or the Cayman Islands.
SECTION 4.15. STAMP TAXES. To ensure the legality, validity, enforceability or
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admissibility in evidence of this Agreement or any promissory notes evidencing Loans made (or to be made), it is not necessary, as of the date hereof, that this Agreement or such promissory notes or any other document be filed or recorded with any Governmental Authority in Bermuda or the Cayman Islands, or that any stamp or similar tax be paid on or in respect of this Agreement in any such jurisdiction, or such promissory notes or any other document other than such filings and recordations that have already been made and such stamp or similar taxes that have been paid.
SECTION 4.16. LEGAL FORM. Each of this Agreement and any promissory notes evidencing Loans made (or to be made) is in proper legal form under the laws of any Account Party Jurisdiction for the admissibility thereof in the courts of such Account Party Jurisdiction.
ARTICLE V
CONDITIONS
SECTION 5.01. EFFECTIVE DATE. The obligations of the Lenders (or the Issuing Lender, as the case may be) to issue or continue Letters of Credit and to make Loans hereunder are subject to the receipt by the Administrative Agent of each of the following documents, each of which shall be satisfactory to the Administrative Agent (and to the extent specified below, to each Lender) in form and substance (or such condition shall have been waived in accordance with Section 10.02):
(a) EXECUTED COUNTERPARTS. From each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page to this Agreement) that such party has signed a counterpart of this Agreement.
(b) OPINIONS OF COUNSEL TO THE OBLIGORS. Opinions, each dated the Effective Date, of (i) Paul S. Giordano, Esq., counsel to XL Capital, substantially in the form of Exhibit B-1, (ii) Charles R. Barr, Esq., counsel to XL America, substantially in the form of Exhibit B-2, (iii) Cahill Gordon & Reindel LLP, special U.S. counsel for the Obligors, substantially in the form of Exhibit B-3, (iv) Conyers, Dill & Pearman, special Bermuda counsel to XL Insurance and XL Re, substantially in the form of Exhibit B-4 and (v) Appleby Spurling Hunter, special Cayman Islands counsel to XL Capital, substantially in the form of Exhibit B-5.
(c) OPINION OF SPECIAL NEW YORK COUNSEL TO JPMCB. An opinion, dated the Effective Date, of Milbank, Tweed, Hadley & McCloy LLP, special New York counsel to JPMCB, substantially in the form of Exhibit C (and JPMCB hereby instructs such counsel to deliver such opinion to the Lenders).
(d) CORPORATE DOCUMENTS. Such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing, if applicable, of the Obligors, the authorization of the Transactions and
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any other legal matters relating to the Obligors, this Agreement or the Transactions, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel.
(e) OFFICER'S CERTIFICATE. A certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of XL Capital, confirming compliance with the conditions set forth in the lettered clauses of the first sentence of Section 5.02.
(f) EXISTING CREDIT AGREEMENT; EXISTING LETTERS OF CREDIT. Evidence that (i) the Account Parties shall have paid in full all principal of and interest accrued on the loans and reimbursement obligations under the Existing Credit Agreement and all fees, expenses and other amounts owing by the Account Parties thereunder, (ii) the Commitments under (and as defined in) the Existing Credit Agreement) have terminated. In addition, the Administrative Agent shall have (i) received a notice satisfactory to the Administrative Agent from XL Capital designating whether any of the Syndicated Letters of Credit, Non-Syndicated Letters of Credit and/or Participated Letters of Credit under (and as defined in) the Existing Credit Agreement outstanding immediately prior to the Effective Date are to be continued under this Agreement and (ii) with respect to each such Non-Syndicated Letters of Credit to be continued hereunder, evidence that such Non-Syndicated Letters of Credit shall have been either amended in the manner contemplated by Section 2.04(l) or replaced with one or more Non-Syndicated Letters of Credit in favor of the relevant beneficiary issued by the Lenders having Commitments hereunder as of the Effective Date (or arrangements satisfactory to the Administrative Agent for such amendment or replacement, as applicable, as promptly as practicable following the Effective Date shall have been made).
(g) OTHER DOCUMENTS. Such other documents as the Administrative Agent or any Lender or special New York counsel to JPMCB may reasonably request.
The obligation of any Lender to make its initial extension of credit hereunder is also subject to the payment by XL Capital of such fees as XL Capital shall have agreed to pay to any Lender or the Administrative Agent in connection herewith, including the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy LLP, special New York counsel to JPMCB, in connection with the negotiation, preparation, execution and delivery of this Agreement and the other Credit Documents and the extensions of credit hereunder (to the extent that reasonably detailed statements for such fees and expenses have been delivered to XL Capital).
The Administrative Agent shall notify the Account Parties and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders (or the Issuing Lender, as the case may be) to issue or continue, Letters of Credit or to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 10.02) at or prior to 5:00 p.m., New York City time, on June 23, 2004 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).
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SECTION 5.02. EACH CREDIT EVENT. The obligation of each Lender to issue, continue, amend, renew or extend any Letter of Credit or to make any Loan is additionally subject to the satisfaction of the following conditions:
(a) the representations and warranties of the Obligors set forth in this Agreement (other than, at any time after the Effective Date, in Section 4.04(b)) shall be true and correct on and as of the date of issuance, continuation, amendment, renewal or extension of such Letter of Credit or the date of such Loan, as applicable (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date);
(b) at the time of and immediately after giving effect to the issuance, amendment, renewal or extension of such Letter of Credit or such Loan, as applicable, no Default shall have occurred and be continuing; and
(c) in the case of any Alternative Currency Letter of Credit, receipt by the Administrative Agent of a request for offers as required by Section 2.06(a).
Each issuance, continuation, amendment, renewal or extension of a Letter of Credit and each Borrowing shall be deemed to constitute a representation and warranty by the Obligors on the date thereof as to the matters specified in clauses (a) and (b) of the immediately preceding sentence.
ARTICLE VI
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated, the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Account Parties covenant and agree with the Lenders that:
SECTION 6.01. FINANCIAL STATEMENTS AND OTHER INFORMATION. Each Account Party will furnish to the Administrative Agent and each Lender:
(a) within 135 days after the end of each fiscal year of each Account Party except for XL America (but in the case of XL Capital, within 100 days after the end of each fiscal year of XL Capital), the audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows of such Account Party and its consolidated Subsidiaries as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year (if such figures were already produced for such corresponding period or periods) (it being understood that delivery to the Lenders of XL Capital's Report on Form 10-K filed with the SEC shall satisfy the financial statement delivery requirements of this paragraph (a) to deliver the annual financial statements of XL Capital so long as the financial information required to be contained in such Report is substantially the same as the financial information required
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under this paragraph (a)), all reported on by independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of such Account Party and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP or (in the case of XL Insurance and XL Re) SAP, as the case may be, consistently applied;
(b) by June 15 of each year, (i) an unaudited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows of XL America and its consolidated Subsidiaries as of the end of and for the immediately preceding fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year (if such figures were already produced for such corresponding period or periods), all certified by a Financial Officer of XL America as presenting fairly in all material respects the financial condition and results of operations of XL America and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes, and (ii) audited statutory financial statements for each Insurance Subsidiary of XL America reported on by independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such audited consolidated financial statements present fairly in all material respects the financial condition and results of operations of such Insurance Subsidiaries in accordance with SAP, consistently applied;
(c) within 60 days after the end of each of the first three fiscal quarters of each fiscal year of such Account Party, the consolidated balance sheet and related statements of operations, stockholders' equity and cash flows of such Account Party and its consolidated Subsidiaries as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for (or, in the case of the balance sheet, as of the end of) the corresponding period or periods of the previous fiscal year (if such figures were already produced for such corresponding period or periods), all certified by a Financial Officer of such Account Party as presenting fairly in all material respects the financial condition and results of operations of such Account Party and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP or (in the case of XL Insurance and XL Re) SAP, as the case may be, consistently applied, subject to normal year-end audit adjustments and the absence of footnotes (it being understood that delivery to the Lenders of XL Capital's Report on Form 10-Q filed with the SEC shall satisfy the financial statement delivery requirements of this paragraph (c) to deliver the quarterly financial statements of XL Capital so long as the financial information required to be contained in such Report is substantially the same as the financial information required under this paragraph (c));
(d) concurrently with any delivery of financial statements under clause (a), (b) or (c) of this Section, a certificate signed on behalf of each Account Party by a Financial Officer (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect
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thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Sections 7.03, 7.05, 7.06 and 7.07 and
(iii) stating whether any change in GAAP or (in the case of XL
Insurance, XL Re and any Insurance Subsidiary of XL America) SAP or in
the application thereof has occurred since the date of the audited
financial statements referred to in Section 4.04 and, if any such
change has occurred, specifying any material effect of such change on
the financial statements accompanying such certificate;
(e) concurrently with any delivery of financial statements under clauses (a) and (b)(ii) of this Section, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines);
(f) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by such Account Party or any of its respective Subsidiaries with the SEC, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any U.S. or other securities exchange, or distributed by such Account Party to its shareholders generally, as the case may be;
(g) concurrently with any delivery of financial statements under clause (a), (b) or (c) of this Section, a certificate of a Financial Officer of XL Capital, setting forth on a consolidated basis for XL Capital and its consolidated Subsidiaries as of the end of the fiscal year or quarter to which such certificate relates (i) the aggregate book value of assets which are subject to Liens permitted under Section 7.03(h) and the aggregate book value of liabilities which are subject to Liens permitted under Section 7.03(h)(it being understood that the reports required by paragraphs (a), (b) and (c) of this Section shall satisfy the requirement of this clause (i) of this paragraph (g) if such reports set forth separately, in accordance with GAAP, line items corresponding to such aggregate book values) and (ii) a calculation showing the portion of each of such aggregate amounts which portion is attributable to transactions among wholly-owned Subsidiaries of XL Capital;
(h) within 90 days after the end of each of the first three fiscal quarters of each fiscal year and within 135 days after the end of each fiscal year of XL Capital (commencing with the fiscal year ending December 31, 2004), a statement of a Financial Officer of XL Capital listing, as of the end of the immediately preceding fiscal quarter of XL Capital, the amount of cash and the securities of the Account Parties and their Subsidiaries that have been posted as collateral under Section 7.03(f); and
(i) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of XL Capital or any of its Subsidiaries, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request.
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SECTION 6.02. NOTICES OF MATERIAL EVENTS. Each Account Party will furnish to the Administrative Agent and each Lender prompt written notice of the following:
(a) the occurrence of any Default; and
(b) any event or condition constituting, or which could reasonably be expected to have a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the relevant Account Party setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken by such Account Party with respect thereto.
SECTION 6.03. PRESERVATION OF EXISTENCE AND FRANCHISES. Each
Account Party will, and will cause each of its Significant Subsidiaries to,
maintain its corporate existence and its material rights and franchises in full
force and effect in its jurisdiction of incorporation; PROVIDED that the
foregoing shall not prohibit any merger or consolidation permitted under Section
7.01. Each Account Party will, and will cause each of its Subsidiaries to,
qualify and remain qualified as a foreign corporation in each jurisdiction in
which failure to receive or retain such qualification would have a Material
Adverse Effect.
SECTION 6.04. INSURANCE. Each Account Party will, and will cause each of its Significant Subsidiaries to, maintain with financially sound and reputable insurers, insurance with respect to its properties in such amounts as is customary in the case of corporations engaged in the same or similar businesses having similar properties similarly situated.
SECTION 6.05. MAINTENANCE OF PROPERTIES. Each Account Party will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition the properties now or hereafter owned, leased or otherwise possessed by and used or useful in its business and will make or cause to be made all needful and proper repairs, renewals, replacements and improvements thereto so that the business carried on in connection therewith may be properly conducted at all times except if the failure to do so would not have a Material Adverse Effect, PROVIDED, HOWEVER, that the foregoing shall not impose on such Account Party or any Subsidiary of such Account Party any obligation in respect of any property leased by such Account Party or such Subsidiary in addition to such Account Party's obligations under the applicable document creating such Account Party's or such Subsidiary's lease or tenancy.
SECTION 6.06. PAYMENT OF TAXES AND OTHER POTENTIAL CHARGES AND PRIORITY CLAIMS; PAYMENT OF OTHER CURRENT LIABILITIES. Each Account Party will, and will cause each of its Subsidiaries to, pay or discharge:
(a) on or prior to the date on which penalties attach thereto, all taxes, assessments and other governmental charges or levies imposed upon it or any of its properties or income;
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(b) on or prior to the date when due, all lawful claims of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons which, if unpaid, might result in the creation of a Lien upon any such property; and
(c) on or prior to the date when due, all other lawful claims which, if unpaid, might result in the creation of a Lien upon any such property (other than Liens not forbidden by Section 7.03) or which, if unpaid, might give rise to a claim entitled to priority over general creditors of such Account Party or such Subsidiary in any proceeding under the Bermuda Companies Law or Bermuda Insurance Law, or any insolvency proceeding, liquidation, receivership, rehabilitation, dissolution or winding-up involving such Account Party or such Subsidiary;
PROVIDED that unless and until foreclosure, distraint, levy, sale or similar proceedings shall have been commenced, such Account Party or such Subsidiary need not pay or discharge any such tax, assessment, charge, levy or claim (i) so long as the validity thereof is contested in good faith and by appropriate proceedings diligently conducted and so long as such reserves or other appropriate provisions as may be required by GAAP or SAP, as the case may be, shall have been made therefor or (ii) so long as such failure to pay or discharge would not have a Material Adverse Effect.
SECTION 6.07. FINANCIAL ACCOUNTING PRACTICES. Such Account Party will, and will cause each of its consolidated Subsidiaries to, make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect its transactions and dispositions of its assets and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements required under Section 6.01 in conformity with GAAP and SAP, as applicable, and to maintain accountability for assets.
SECTION 6.08. COMPLIANCE WITH APPLICABLE LAWS. Each Account
Party will, and will cause each of its Subsidiaries to, comply with all
applicable Laws (including but not limited to the Bermuda Companies Law and
Bermuda Insurance Laws) in all respects; PROVIDED that such Account Party or any
Subsidiary of such Account Party will not be deemed to be in violation of this
Section as a result of any failure to comply with any such Law which would not
(i) result in fines, penalties, injunctive relief or other civil or criminal
liabilities which, in the aggregate, would have a Material Adverse Effect or
(ii) otherwise impair the ability of such Account Party to perform its
obligations under this Agreement.
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SECTION 6.09. USE OF LETTERS OF CREDIT AND PROCEEDS. No part of the proceeds of any Loan and no Letter of Credit will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations U and X. Each Account Party will use the Letters of Credit issued for its account hereunder in the ordinary course of business of, and will use the proceeds of all Loans made to it for the general corporate purposes of, such Account Party and its Affiliates. For the avoidance of doubt, the parties agree that any Account Party may apply for a Letter of Credit hereunder to support the obligations of any Affiliate of XL Capital, it being understood that such Account Party shall nonetheless remain the account party and as such be liable with respect to such Letter of Credit.
SECTION 6.10. CONTINUATION OF AND CHANGE IN BUSINESSES. Each Account Party and its Significant Subsidiaries will continue to engage in substantially the same business or businesses it engaged in (or proposes to engage in) on the date of this Agreement and businesses related or incidental thereto.
SECTION 6.11. VISITATION. Each Account Party will permit such Persons as any Lender may reasonably designate to visit and inspect any of the properties of such Account Party, to discuss its affairs with its financial management, and provide such other information relating to the business and financial condition of such Account Party at such times as such Lender may reasonably request. Each Account Party hereby authorizes its financial management to discuss with any Lender the affairs of such Account Party.
ARTICLE VII
NEGATIVE COVENANTS
Until the Commitments have expired or terminated, the principal of and interest on each Loan and all fees payable hereunder have been paid in full, all Letters of Credit have expired or terminated and all LC Disbursements have been reimbursed, each of the Account Parties covenants and agrees with the Lenders that:
SECTION 7.01. MERGERS. No Account Party will merge with or into or consolidate with any other Person, except that if no Default shall occur and be continuing or shall exist at the time of such merger or consolidation or immediately thereafter and after giving effect thereto (a) any Account Party may merge or consolidate with any other corporation, including a Subsidiary, if such Account Party shall be the surviving corporation, (b) XL Capital may merge with or into or consolidate with any other Person in a transaction that does not result in a reclassification, conversion, exchange or cancellation of the outstanding shares of capital stock of XL Capital (other than the cancellation of any outstanding shares of capital stock of XL Capital held by the Person with whom it merges or consolidates) and (c) any Account Party may enter into a merger or consolidation which is effected solely to change the jurisdiction of incorporation of such Account Party and results in a reclassification, conversion or exchange of outstanding shares of capital stock of such Account Party solely into shares of capital stock of the surviving entity.
SECTION 7.02. DISPOSITIONS. No Account Party will, nor will it permit any of
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its Significant Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily (any of the foregoing being referred to in this Section as a "DISPOSITION" and any series of related Dispositions constituting but a single Disposition), any of its properties or assets, tangible or intangible (including but not limited to sale, assignment, discount or other disposition of accounts, contract rights, chattel paper or general intangibles with or without recourse), except:
(a) Dispositions in the ordinary course of business involving current assets or other invested assets classified on such Account Party's or its respective Subsidiaries' balance sheet as available for sale or as a trading account;
(b) sales, conveyances, assignments or other transfers or dispositions in immediate exchange for cash or tangible assets, PROVIDED that any such sales, conveyances or transfers shall not individually, or in the aggregate for the Account Parties and their respective Subsidiaries, exceed $500,000,000 in any calendar year; or
(c) Dispositions of equipment or other property which is obsolete or no longer used or useful in the conduct of the business of such Account Party or its Subsidiaries.
SECTION 7.03. LIENS. No Account Party will, nor will it permit any of its Subsidiaries to, create, incur, assume or permit to exist any Lien on any property or assets, tangible or intangible, now owned or hereafter acquired by it, except:
(a) Liens existing on the date hereof (and extension, renewal and replacement Liens upon the same property, PROVIDED that the amount secured by each Lien constituting such an extension, renewal or replacement Lien shall not exceed the amount secured by the Lien theretofore existing) and listed on Part B of Schedule II;
(b) Liens arising from taxes, assessments, charges, levies or claims described in Section 6.06 that are not yet due or that remain payable without penalty or to the extent permitted to remain unpaid under the provision of Section 6.06;
(c) Liens on property securing all or part of the purchase
price thereof to such Account Party and Liens (whether or not assumed)
existing on property at the time of purchase thereof by such Account
Party (and extension, renewal and replacement Liens upon the same
property); PROVIDED (i) each such Lien is confined solely to the
property so purchased, improvements thereto and proceeds thereof, and
(ii) the aggregate amount of the obligations secured by all such Liens
on any particular property at any time purchased by such Account Party,
as applicable, shall not exceed 100% of the lesser of the fair market
value of such property at such time or the actual purchase price of
such property;
(d) zoning restrictions, easements, minor restrictions on the use of real property, minor irregularities in title thereto and other minor Liens that do not in the aggregate materially detract from the value of a property or asset to, or materially impair its use in the business of, such Account Party or any such Subsidiary;
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(e) Liens securing Indebtedness permitted by Section 7.07(b) covering assets whose market value is not materially greater than the amount of the Indebtedness secured thereby plus a commercially reasonable margin;
(f) Liens on cash and securities of an Account Party or any of its Subsidiaries incurred as part of the management of its investment portfolio including, but not limited to, pursuant to any International Swaps and Derivatives Association, Inc. ("ISDA") documentation or any Specified Transaction Agreement in accordance with XL Capital's Statement of Investment Policy Objectives and Guidelines as in effect on the date hereof or as it may be changed from time to time by a resolution duly adopted by the board of directors of XL Capital (or any committee thereof);
(g) Liens on cash and securities not to exceed $500,000,000 in the aggregate securing obligations of an Account Party or any of its Subsidiaries arising under any ISDA documentation or any other Specified Transaction Agreement (it being understood that in no event shall this clause (g) preclude any Person (other than any Subsidiary of XL Capital) in which XL Capital or any of its Subsidiaries shall invest (each an "INVESTEE") from granting Liens on such Person's assets to secure hedging obligations of such Person, so long as such obligations are non-recourse to XL Capital or any of its Subsidiaries (other than any investees)), PROVIDED that, for purposes of determining the aggregate amount of cash and/or securities subject to such Liens under this clause (g), the aggregate amount of cash and/or securities on which any Account Party or any Subsidiary shall have granted a Lien in favor of a counterparty at any time shall be netted against the aggregate amount of cash and/or securities on which such counterparty shall have granted a Lien in favor of such Account Party or such Subsidiary, as the case may be, at such time, so long as the relevant agreement between such Account Party or such Subsidiary, as the case may be, provides for the netting of their respective obligations thereunder;
(h) Liens on (i) assets received, and on actual or imputed investment income on such assets received, incurred as part of its business including activities utilizing ISDA documentation or any Specified Transaction Agreement relating and identified to specific insurance payment liabilities or to liabilities arising in the ordinary course of any Account Parties' or any of their Subsidiary's business as an insurance or reinsurance company (including GICs and Stable Value Investments) or corporate member of The Council of Lloyd's or as a provider of financial or investment services or contracts, or the proceeds thereof (including GICs and Stable Value Instruments), in each case held in a segregated trust, trust or other account and securing such liabilities, or (ii) any other assets subject to any trust or other account arising out of or as a result of contractual, regulatory or any other requirements; PROVIDED that in no case shall any such Lien secure Indebtedness and any Lien which secures Indebtedness shall not be permitted under this clause (h);
(i) statutory and common law Liens of materialmen, mechanics, carriers, warehousemen and landlords and other similar Liens arising in the ordinary course of business; and
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(j) Liens existing on property of a Person immediately prior to its being consolidated with or merged into any Account Party or any of their Subsidiaries or its becoming a Subsidiary, and Liens existing on any property acquired by any Account Party or any of their Subsidiaries at the time such property is so acquired (whether or not the Indebtedness secured thereby shall have been assumed) (and extension, renewal and replacement Liens upon the same property, PROVIDED that the amount secured by each Lien constituting such an extension, renewal or replacement Lien shall not exceed the amount secured by the Lien theretofore existing), PROVIDED that (i) no such Lien shall have been created or assumed in contemplation of such consolidation or merger or such Person's becoming a Subsidiary or such acquisition of property and (ii) each such Lien shall extend solely to the item or items of property so acquired and, if required by terms of the instrument originally creating such Lien, other property which is an improvement to or is acquired for specific use in connection with such acquired property.
SECTION 7.04. TRANSACTIONS WITH AFFILIATES. No Account Party will, nor will it permit any of its Significant Subsidiaries to, enter into or carry out any transaction with (including purchase or lease property or services to, loan or advance to or enter into, suffer to remain in existence or amend any contract, agreement or arrangement with) any Affiliate of such Account Party, or directly or indirectly agree to do any of the foregoing, except (i) transactions involving guarantees or co-obligors with respect to any Indebtedness described in Part A of Schedule II, (ii) transactions among the Account Parties and their wholly-owned Subsidiaries and (iii) transactions with Affiliates in good faith in the ordinary course of such Account Party's business consistent with past practice and on terms no less favorable to such Account Party or any Subsidiary than those that could have been obtained in a comparable transaction on an arm's length basis from an unrelated Person.
SECTION 7.05. RATIO OF TOTAL FUNDED DEBT TO TOTAL
CAPITALIZATION. XL Capital will not permit its ratio of (a) Total Funded Debt to
(b) the sum of Total Funded Debt PLUS Consolidated Net Worth to be greater than
0.35:1.00 at any time.
SECTION 7.06. CONSOLIDATED NET WORTH. XL Capital will not permit its Consolidated Net Worth to be less than $5,000,000,000 at any time.
SECTION 7.07. INDEBTEDNESS. No Account Party will, nor will it permit any of its Subsidiaries to, at any time create, incur, assume or permit to exist any Indebtedness, or agree, become or remain liable (contingent or otherwise) to do any of the foregoing, except:
(a) Indebtedness created hereunder;
(b) secured Indebtedness (including secured reimbursement obligations with respect to letters of credit) of any Account Party or any Subsidiary in an aggregate principal amount (for all Account Parties and their respective Subsidiaries) not exceeding at any time outstanding 15% of Consolidated Net Worth;
(c) other unsecured Indebtedness, so long as upon the incurrence thereof no Default would occur or exist;
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(d) Indebtedness consisting of accounts or claims payable and accrued and deferred compensation (including options) incurred in the ordinary course of business by any Account Party or any Subsidiary;
(e) Indebtedness incurred in transactions described in Section 7.03(f) and (g); and
(f) Indebtedness existing on the date hereof and described in Part A of Schedule II and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof.
SECTION 7.08. FINANCIAL STRENGTH RATINGS. None of XL Capital, XL Insurance and XL Re will permit at any time its financial strength ratings to be less than "A-" from A.M. Best & Co. (or its successor).
SECTION 7.09. PRIVATE ACT. No Account Party will become subject to a Private Act other than the X.L. Insurance Company, Ltd. Act, 1989.
ARTICLE VIII
EVENTS OF DEFAULT
If any of the following events ("EVENTS OF DEFAULT") shall occur:
(a) any Account Party shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;
(b) any Account Party shall fail to pay any interest on any Loan or LC Disbursement or any fee payable under this Agreement or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of 5 or more days;
(c) any representation or warranty made or deemed made by any Account Party in or in connection with this Agreement or any amendment or modification hereof, or in any certificate or financial statement furnished pursuant to the provisions hereof, shall prove to have been false or misleading in any material respect as of the time made (or deemed made) or furnished;
(d) any Account Party shall fail to observe or perform any covenant, condition or agreement contained in Article VII;
(e) any Obligor shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article or the reporting requirement pursuant to Section 6.01(h)) and such failure shall continue unremedied for a period of 20 or more days after notice thereof from the Administrative Agent (given at the request of any Lender) to such Obligor;
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(f) any Account Party or any of its Subsidiaries shall default
(i) in any payment of principal of or interest on any other obligation
for borrowed money in principal amount of $50,000,000 or more, or any
payment of any principal amount of $50,000,000 or more under Hedging
Agreements, in each case beyond any period of grace provided with
respect thereto, or (ii) in the performance of any other agreement,
term or condition contained in any such agreement (other than Hedging
Agreements) under which any such obligation in principal amount of
$50,000,000 or more is created, if the effect of such default is to
cause or permit the holder or holders of such obligation (or trustee on
behalf of such holder or holders) to cause such obligation to become
due prior to its stated maturity or to terminate its commitment under
such agreement, PROVIDED that this clause (f) shall not apply to
secured Indebtedness that becomes due as a result of the voluntary sale
or transfer of the property or assets securing such Indebtedness;
(g) a decree or order by a court having jurisdiction in the premises shall have been entered adjudging any Account Party a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization of such Account Party under the Bermuda Companies Law or the Cayman Islands Companies Law (2003 Revision) or any other similar applicable Law, and such decree or order shall have continued undischarged or unstayed for a period of 60 days; or a decree or order of a court having jurisdiction in the premises for the appointment of an examiner, receiver or liquidator or trustee or assignee in bankruptcy or insolvency of such Account Party or a substantial part of its property, or for the winding up or liquidation of its affairs, shall have been entered, and such decree or order shall have continued undischarged and unstayed for a period of 60 days;
(h) any Account Party shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization under the Bermuda Companies Law or the Cayman Islands Companies Law (2003 Revision) or any other similar applicable Law, or shall consent to the filing of any such petition, or shall consent to the appointment of an examiner, receiver or liquidator or trustee or assignee in bankruptcy or insolvency of it or a substantial part of its property, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or corporate or other action shall be taken by such Account Party in furtherance of any of the aforesaid purposes;
(i) one or more judgments for the payment of money in an aggregate amount in excess of $100,000,000 shall be rendered against any Account Party or any of its Subsidiaries or any combination thereof and the same shall not have been vacated, discharged, stayed (whether by appeal or otherwise) or bonded pending appeal within 45 days from the entry thereof;
(j) an ERISA Event (or similar event with respect to any Non-U.S. Benefit Plan) shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events and such similar events that have occurred, could reasonably be expected to result in liability of the Account Parties and their Subsidiaries in an aggregate amount exceeding $100,000,000;
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(k) a Change in Control shall occur;
(l) XL Capital shall cease to own, beneficially and of record, directly or indirectly all of the outstanding voting shares of capital stock of XL Insurance, XL Re or XL America; or
(m) the guarantee contained in Article III shall terminate or cease, in whole or material part, to be a legally valid and binding obligation of each Guarantor or any Guarantor or any Person acting for or on behalf of any of such parties shall contest such validity or binding nature of such guarantee itself or the Transactions, or any other Person shall assert any of the foregoing;
then, and in every such event (other than an event with respect to any Account Party described in clause (g) or (h) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Account Parties, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Account Parties accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Account Parties; and in case of any event with respect to any Account Party described in clause (g) or (h) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Account Parties accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Account Parties.
If an Event of Default shall occur and be continuing and XL
Capital receives notice from the Administrative Agent or the Required Lenders
demanding the deposit of cash collateral for the aggregate LC Exposure of all
the Lenders pursuant to this paragraph, the Account Parties shall immediately
deposit into an account established and maintained on the books and records of
the Administrative Agent, which account may be a "securities account" (within
the meaning of Section 8-501 of the Uniform Commercial Code as in effect in the
State of New York (the "UNIFORM COMMERCIAL CODE")), in the name of the
Administrative Agent and for the benefit of the Lenders, an amount in cash equal
to the total LC Exposure as of such date PLUS any accrued and unpaid interest
thereon; PROVIDED that the obligation to deposit such cash collateral shall
become effective immediately, and such deposit shall become immediately due and
payable, without demand or other notice of any kind, upon the occurrence of any
Event of Default with respect to any Account Party described in clause (g) or
(h) of this Article. Such deposit shall be held by the Administrative Agent as
collateral for the LC Exposure under this Agreement, and for this purpose each
of the Account Parties hereby grant a security interest to the Administrative
Agent for the benefit of the Lenders in such collateral account and in any
financial assets (as defined in the Uniform Commercial Code) or other property
held therein.
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In addition to the provisions of this Article, each Account Party agrees that upon the occurrence and during the continuance of any Event of Default any Lender which has issued any Alternative Currency Letter of Credit may, by notice to XL Capital and the Administrative Agent: (a) declare that all fees and other obligations of the Account Parties accrued in respect of Alternative Currency Letters of Credit issued by such Lender shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Account Party and (b) demand the deposit (without duplication of any amounts deposited with the Administrative Agent under the preceding paragraph) of cash collateral from the Account Parties in immediately available funds in the currency of such Alternative Currency Letter of Credit or, at the option of such Lender, in Dollars in an amount equal to the then aggregate undrawn face amount of all such Alternative Currency Letters of Credit and in such manner as previously agreed to by the Account Parties and such Lender; PROVIDED that, in the case of any of the Events of Default specified in clause (g) or (h) of this Article, without any notice to any Account Party or any other act by the Administrative Agent or the Lenders, all fees and other obligations of the Account Parties accrued in respect of all Alternative Currency Letters of Credit shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Account Party. If the Administrative Agent receives any notice from a Lender pursuant to the previous sentence, then it will promptly give notice thereof to the other Lenders.
ARTICLE IX
THE ADMINISTRATIVE AGENT
Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto.
The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such Person and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with any Account Party or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders, and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Account Party or any of their Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its
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Affiliates in any capacity. The Administrative Agent shall not be liable for any
action taken or not taken by it with the consent or at the request of the
Required Lenders or in the absence of its own gross negligence or willful
misconduct. The Administrative Agent shall be deemed not to have knowledge of
any Default unless and until written notice thereof is given to the
Administrative Agent by an Account Party or a Lender, and the Administrative
Agent shall not be responsible for or have any duty to ascertain or inquire into
(i) any statement, warranty or representation made in or in connection with this
Agreement, (ii) the contents of any certificate, report or other document
delivered hereunder or in connection herewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article V or elsewhere herein, other
than to confirm receipt of items expressly required to be delivered to the
Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for any Account Party), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.
The Administrative Agent may resign at any time by notifying the Lenders and the Account Parties. Upon any such resignation, the Required Lenders shall have the right, in consultation with XL Capital, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent's resignation shall nonetheless become effective and (1) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and (2) the Required Lenders shall perform the duties of the Administrative Agent (and all payments and communications provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly) until such time as the Required Lenders appoint a successor agent as provided for above in this paragraph. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations
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hereunder (if not already discharged therefrom as provided above in this paragraph). The fees payable by XL Capital to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between XL Capital and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 10.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder.
Notwithstanding anything herein to the contrary, the Sole Lead Arranger and Sole Bookrunner and the Co-Syndication Agents named on the cover page of this Agreement shall not have any duties or liabilities under this Agreement, except in their capacity, if any, as Lenders.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. NOTICES. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to any Account Party, to XL Capital at XL House, One Bermudiana Road, Hamilton HM 11 Bermuda, Attention of Roderick Gray (Telecopy No. (441) 296-6399); WITH A COPY to Paul Giordano, Esq. at the same address and telecopy number (441) 295-4867);
(b) if to the Administrative Agent, to JPMorgan Chase Bank, 1111 Fannin Street, 10th Floor, Houston, Texas 77002-8069, Attention of Loan and Agency Services Group (Telecopy No. (713) 750-2782; Telephone No. (713) 750-2102), WITH A COPY to JPMorgan Chase Bank, 270 Park Avenue, 4th Floor, New York, New York 10017, Attention of Helen Newcomb (Telecopy No. (212) 270-1511; Telephone No. (212) 270-6260); and
(c) if to a Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto (or, in the case of any such
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change by a Lender, by notice to the Account Parties and the Administrative Agent). All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.
Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; PROVIDED that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or any Account Party may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; PROVIDED that approval of such procedures may be limited to particular notices or communications. Without limiting the foregoing, the Account Parties may furnish to the Administrative Agent and the Lenders the financial statements required to be furnished by it pursuant to Section 6.01(a), 6.01(b) or 6.01(c) by electronic communications pursuant to procedures approved by the Administrative Agent.
SECTION 10.02. WAIVERS; AMENDMENTS.
(a) NO DEEMED WAIVERS; REMEDIES CUMULATIVE. No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Account Parties therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time.
(b) AMENDMENTS. Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Obligors and the Required Lenders or by the Obligors and the Administrative Agent with the consent of the Required Lenders; PROVIDED that no such agreement shall:
(i) increase the Commitment of any Lender without the written consent of such Lender,
(ii) reduce the principal amount of any Loan or the amount of any reimbursement obligation of an Account Party in respect of any LC Disbursement or reduce the rate of interest thereon, or reduce any fees or other amounts payable hereunder, without the written consent of each Lender directly affected thereby,
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(iii) postpone the scheduled date of payment of the principal amount of any Loan or for reimbursement of any LC Disbursement, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment or any Letter of Credit (other than an extension thereof pursuant to an "evergreen" provision"), without the written consent of each Lender directly affected thereby,
(iv) change Section 2.20(c) or 2.20(d) without the consent of each Lender directly affected thereby,
(v) release any of the Guarantors from any of their guarantee obligations under Article III without the written consent of each Lender, and
(vi) change any of the provisions of this Section or the percentage in the definition of the term "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender;
and PROVIDED FURTHER that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent.
SECTION 10.03. EXPENSES; INDEMNITY; DAMAGE WAIVER.
(a) COSTS AND EXPENSES. The Account Parties jointly and severally agree to pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of one legal counsel for the Administrative Agent and one legal counsel for the Lenders, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including in connection with any workout, restructuring or negotiations in respect thereof.
(b) INDEMNIFICATION BY THE ACCOUNT PARTIES. The Account Parties shall jointly and severally indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "INDEMNITEE") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee (but not including Excluded Taxes), incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other
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transactions contemplated hereby, (ii) any Loan or the use of the proceeds thereof or any Letter of Credit or the use thereof (including any refusal by any Lender to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by any Account Party or any of its Subsidiaries, or any Environmental Liability related in any way to any Account Party or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; PROVIDED that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses result from or arise out of the gross negligence or willful misconduct of such Indemnitee.
(c) REIMBURSEMENT BY LENDERS. To the extent that the Account Parties fail to pay any amount required to be paid by them to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; PROVIDED that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such.
(d) WAIVER OF CONSEQUENTIAL DAMAGES, ETC. To the extent permitted by applicable law, no Account Party shall assert, and each Account Party hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.
(e) PAYMENTS. All amounts due under this Section shall be payable promptly after written demand therefor.
SECTION 10.04. SUCCESSORS AND ASSIGNS.
(a) ASSIGNMENTS GENERALLY. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) no Account Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by an Account Party without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) ASSIGNMENTS BY LENDERS. (i) Subject to the conditions set forth in paragraph
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(b)(ii) of this Section, any Lender may assign all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans and LC Disbursements at the time owing to it) to one or more NAIC Approved Banks with the prior written consent (such consent not to be unreasonably withheld) of:
(A) the Account Parties, PROVIDED that no consent of any Account Party shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default under clause (a), (b), (g) or (h) of Article VIII has occurred and is continuing, any other assignee; and
(B) the Administrative Agent; and
(C) the Issuing Lender with respect to Participated Letters of Credit.
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender, an Approved Fund or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Account Parties and the Administrative Agent otherwise consent, PROVIDED that no such consent of the Account Parties shall be required if an Event of Default under clause (a), (b), (g) or (h) of Article VIII has occurred and is continuing;
(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement;
(C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; and
(D) the assignee, if it shall not be a Lender, shall deliver an Administrative Questionnaire to the Administrative Agent (with a copy to XL Capital).
(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(v) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.17, 2.18, 2.19 and 10.03). Any assignment or transfer
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by a Lender of rights or obligations under this Agreement that does not comply with this Section 10.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.
(iv) Notwithstanding anything to the contrary contained
herein, any Lender (a "GRANTING LENDER") may grant to a special purpose vehicle
(an "SPV") of such Granting Lender, identified as such in writing from time to
time by the Granting Lender to the Administrative Agent and the Account Parties,
the option to provide to the Account Parties all or any part of any Loan or LC
Disbursement that such Granting Lender would otherwise be obligated to make to
the Account Parties pursuant to Section 2.01, PROVIDED that (i) nothing herein
shall constitute a commitment by any SPV to make any Loan or LC Disbursement,
(ii) if an SPV elects not to exercise such option or otherwise fails to provide
all or any part of such Loan or LC Disbursement, the Granting Lender shall be
obligated to make such Loan or LC Disbursement pursuant to the terms hereof and
(iii) the Account Parties may bring any proceeding against either or both the
Granting Lender or the SPV in order to enforce any rights of the Account Parties
hereunder. The making of a Loan or LC Disbursement by an SPV hereunder shall
utilize the Commitment of the Granting Lender to the same extent, and as if,
such Loan or LC Disbursement were made by the Granting Lender. Each party hereto
hereby agrees that no SPV shall be liable for any payment under this Agreement
for which a Lender would otherwise be liable, for so long as, and to the extent,
the related Granting Lender makes such payment. In furtherance of the foregoing,
each party hereto hereby agrees (which agreement shall survive the termination
of this Agreement) that, prior to the date that is one year and one day after
the payment in full of all outstanding commercial paper or other senior
indebtedness of any SPV, it will not institute against, or join any other person
in instituting against, such SPV any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings or similar proceedings under the laws of
the United States or any State thereof arising out of any claim against such SPV
under this Agreement. In addition, notwithstanding anything to the contrary
contained in this Section, any SPV may with notice to, but without the prior
written consent of, the Account Parties or the Administrative Agent and without
paying any processing fee therefor, assign all or a portion of its interests in
any Loan or Letter of Credit to its Granting Lender or to any financial
institutions (consented to by the Account Parties and the Administrative Agent)
providing liquidity and/or credit support (if any) with respect to commercial
paper issued by such SPV to fund such Loans and to issue such Letters of Credit
and such SPV may disclose, on a confidential basis, confidential information
with respect to any Account Party and its Subsidiaries to any rating agency,
commercial paper dealer or provider of a surety, guarantee or credit liquidity
enhancement to such SPV. Notwithstanding anything to the contrary in this
Agreement, no SPV shall be entitled to any greater rights under Section 2.17 or
Section 2.19 than its Granting Lender would have been entitled to absent the use
of such SPV. This paragraph may not be amended without the consent of any SPV at
the time holding Loans or LC Disbursements under this Agreement.
(v) The Administrative Agent, acting for this purpose as an agent of the Account Parties, shall maintain at one of its offices in New York City a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the "REGISTER"). The entries in
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the Register shall be conclusive, and the Account Parties, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by any Account Party and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(vi) Upon its receipt of a duly completed Assignment and
Assumption executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b)(ii)(C) of this Section and any written consent to such assignment required
by paragraph (b)(i) of this Section, the Administrative Agent shall accept such
Assignment and Assumption and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.
(c) PARTICIPATIONS. (i) Any Lender may, without the consent of
the Account Parties, the Administrative Agent or any Issuing Lender, sell
participations to one or more banks or other entities (a "PARTICIPANT") in all
or a portion of such Lender's rights and obligations under this Agreement and
the other Credit Documents (including all or a portion of its Commitment, the
Loans and LC Disbursements owing to it); PROVIDED that (A) any such
participation sold to a Participant which is not a Lender, an Approved Fund or a
Federal Reserve Bank shall be made only with the consent (which in each case
shall not be unreasonably withheld) of XL Capital and the Administrative Agent,
unless a Default has occurred and is continuing, in which case the consent of XL
Capital shall not be required, (B) such Lender's obligations under this
Agreement and the other Credit Documents shall remain unchanged, (C) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations and (D) the Account Parties, the Administrative Agent and
the other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
the other Credit Documents. Any agreement or instrument pursuant to which a
Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and the other Credit Documents and to
approve any amendment, modification or waiver of any provision of this Agreement
or the other Credit Documents; PROVIDED that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver described in the first proviso to
Section 10.02(b) that affects such Participant. Subject to paragraph (c)(ii) of
this Section, the Account Parties agree that each Participant shall be entitled
to the benefits of Sections 2.17, 2.18 and 2.19 (subject to the requirements of
such Sections) to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to paragraph (b) of this Section. To the extent
permitted by law, each Participant also shall be entitled to the benefits of
Section 10.08 as though it were a Lender, provided such Participant agrees to be
subject to Section 2.20(d) as though it were a Lender.
(ii) A Participant shall not be entitled to receive any greater payment under Section 2.17, 2.18 or 2.19 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant or the Lender interest assigned, unless (A) the sale of the participation to such Participant is made with the Account Parties' prior written
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consent and (B) in the case of Section 2.17 or 2.19, the entitlement to greater payment results solely from a Change in Law formally announced after such Participant became a Participant.
(d) CERTAIN PLEDGES. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any such pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; PROVIDED that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(e) NO ASSIGNMENTS TO ACCOUNT PARTIES OR AFFILIATES. Anything in this Section to the contrary notwithstanding, no Lender may assign or participate any interest in any Loan or LC Exposure held by it hereunder to any Account Party or any of its Affiliates or Subsidiaries without the prior consent of each Lender.
SECTION 10.05. SURVIVAL. All covenants, agreements, representations and warranties made by the Account Parties herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and the issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of, or any accrued interest on, any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.17, 2.18, 2.19 and 10.03 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof.
SECTION 10.06. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract between and among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 5.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page to this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.
SECTION 10.07. SEVERABILITY. Any provision of this Agreement held to be
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invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 10.08. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of any Account Party against any of and all the obligations of such Account Party now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.
SECTION 10.09. GOVERNING LAW; JURISDICTION; ETC.
(a) GOVERNING LAW. This Agreement shall be construed in accordance with and governed by the law of the State of New York.
(b) SUBMISSION TO JURISDICTION. Each Obligor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against any Obligor or its properties in the courts of any jurisdiction.
(c) WAIVER OF VENUE. Each Obligor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d) SERVICE OF PROCESS. By the execution and delivery of this Agreement, XL Capital Ltd, XL Insurance (Bermuda) Ltd and XL Re Ltd acknowledge that they have by a separate written instrument, designated and appointed CT Corporation System, 111 Eighth Avenue, 13th floor, New York, New York 10011 (or any successor entity thereto), as its
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authorized agent upon which process may be served in any suit or proceeding
arising out of or relating to this Agreement that may be instituted in any
federal or state court in the State of New York. Each party to this Agreement
irrevocably consents to service of process in the manner provided for notices in
Section 10.01. Nothing in this Agreement will affect the right of any party to
this Agreement to serve process in any other manner permitted by law.
(e) WAIVER OF IMMUNITIES. To the extent that any Account Party has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution or execution, on the ground of sovereignty or otherwise) with respect to itself or its property, it hereby irrevocably waives, to the fullest extent permitted by applicable law, such immunity in respect of its obligations under this Agreement.
SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 10.11. HEADINGS. Article and Section headings and the
Table of Contents used herein are for convenience of reference only, are not
part of this Agreement and shall not affect the construction of, or be taken
into consideration in interpreting, this Agreement.
SECTION 10.12. TREATMENT OF CERTAIN INFORMATION;
CONFIDENTIALITY.
(a) TREATMENT OF CERTAIN INFORMATION. Each of the Account
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Parties acknowledge that from time to time financial advisory, investment banking and other services may be offered or provided to any Account Party or one or more of their Subsidiaries (in connection with this Agreement or otherwise) by any Lender or by one or more subsidiaries or affiliates of such Lender and each of the Account Parties hereby authorizes each Lender to share any information delivered to such Lender by such Account Party and its Subsidiaries pursuant to this Agreement, or in connection with the decision of such Lender to enter into this Agreement, to any such subsidiary or affiliate, it being understood that (i) any such information shall be used only for the purpose of advising the Account Parties or preparing presentation materials for the benefit of the Account Parties and (ii) any such subsidiary or affiliate receiving such information shall be bound by the provisions of paragraph (b) of this Section as if it were a Lender hereunder. Such authorization shall survive the repayment of the Loans, the expiration or termination of the Letters of Credit, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof.
364-DAY CREDIT AGREEMENT
(b) CONFIDENTIALITY. Each of the Administrative Agent, the
Lenders and each SPV agrees to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (i) to its and its
Affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (ii) to the
extent requested by any regulatory authority (including self-regulating
organizations) having jurisdiction over the Administrative Agent or any Lender,
(iii) to the extent required by applicable laws or regulations or by any
subpoena or similar legal process, (iv) to any other party to this Agreement,
(v) in connection with the exercise of any remedies hereunder or any suit,
action or proceeding relating to this Agreement or the enforcement of rights
hereunder, (vi) subject to an agreement in writing containing provisions
substantially the same as those of this paragraph and for the benefit of the
Account Parties, to (a) any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this
Agreement or (b) any actual or prospective counterparty (or its advisors) to any
swap or derivative transaction relating to any Account Party and its
obligations, (vii) with the consent of the Account Parties or (viii) to the
extent such Information (A) becomes publicly available other than as a result of
a breach of this paragraph or (B) becomes available to the Administrative Agent
or any Lender on a nonconfidential basis from a source other than an Account
Party. For the purposes of this paragraph, "INFORMATION" means all information
received from an Account Party relating to an Account Party or its business,
other than any such information that is available to the Administrative Agent or
any Lender on a nonconfidential basis prior to disclosure by such Account Party;
PROVIDED that, in the case of information received from an Account Party after
the date hereof, such information is clearly identified at the time of delivery
as confidential. Any Person required to maintain the confidentiality of
Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information. Notwithstanding the foregoing, each
of the Administrative Agent and the Lenders agree that they will not trade the
securities of any of the Account Parties based upon non-public Information that
is received by them.
SECTION 10.13. JUDGMENT CURRENCY. This is an international loan transaction in which the obligations of each Account Party under this Agreement to make payment hereunder shall be satisfied only in Dollars and only if such payment shall be made in New York City, and the obligations of each Account Party under this Agreement to make payment to (or for account of) a Lender in Dollars shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any other currency or in another place except to the extent that such tender or recovery results in the effective receipt by such Lender in New York City of the full amount of Dollars payable to such Lender under this Agreement. If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in Dollars into another currency (in this Section called the "JUDGMENT CURRENCY"), the rate of exchange that shall be applied shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase such Dollars at the principal office of the Administrative Agent in New York City with the judgment currency on the Business Day next preceding the day on which such judgment is rendered. The obligation of each Account Party in respect of any such sum due from it to the Administrative Agent or any Lender hereunder (in this
364-DAY CREDIT AGREEMENT
Section called an "ENTITLED PERSON") shall, notwithstanding the rate of exchange actually applied in rendering such judgment, be discharged only to the extent that on the Business Day following receipt by such Entitled Person of any sum adjudged to be due hereunder in the judgment currency such Entitled Person may in accordance with normal banking procedures purchase and transfer Dollars to New York City with the amount of the judgment currency so adjudged to be due; and each Account Party hereby, as a separate obligation and notwithstanding any such judgment, agrees to indemnify such Entitled Person against, and to pay such Entitled Person on demand, in Dollars, the amount (if any) by which the sum originally due to such Entitled Person in Dollars hereunder exceeds the amount of the Dollars so purchased and transferred.
SECTION 10.14. USA PATRIOT ACT. Each Lender hereby notifies the Account Parties that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), such Lender is required to obtain, verify and record information that identifies the Account Parties, which information includes the name and address of the Account Parties and other information that will allow such Lender to identify each Account Party in accordance with said Act.
364-DAY CREDIT AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
X.L. AMERICA, INC.,
as an Account Party and a Guarantor
By: /s/ Charles Barr
----------------------------------
Name: Charles Barr
Title: Senior Vice-President,
General Counsel & Secretary
|
U.S. FEDERAL TAX IDENTIFICATION NO.: 06-1516268
XL INSURANCE (BERMUDA) LTD,
as an Account Party and a Guarantor
By: /s/ Christopher A. Coelho
----------------------------------
Name: Christopher A. Coelho
Title: Senior Vice-President &
Chief Financial Officer
|
U.S. FEDERAL TAX IDENTIFICATION NO.: 98-0354869
XL RE LTD,
as an Account Party and a Guarantor
By: /s/ James O' Shaughnessy
----------------------------------
Name: James O' Shaughnessy
Title: Senior Vice-President and
Chief Financial Officer
|
U.S. FEDERAL TAX IDENTIFICATION NO.: 98-0351953
364-DAY CREDIT AGREEMENT
IN WITNESS WHEREOF, XL Capital has caused this Agreement to be duly executed as a Deed by an authorized officer as of the day and year first above written.
EXECUTED AS A DEED by XL CAPITAL LTD,
as an Account Party and a Guarantor
/s/ Gayna Joynes
---------------------------------
witness
By: /s/ Michael Siese
------------------------------------
Name: Michael Siese
Title: Senior Vice-President and
Controller
|
U.S. FEDERAL TAX IDENTIFICATION NO.: 98-0191089
364-DAY CREDIT AGREEMENT
LENDERS
JPMORGAN CHASE BANK,
individually and as Administrative Agent
By: /s/ Helen L. Newcomb
------------------------------------------
Name: Helen L. Newcomb
Title: Vice President
|
BARCLAYS BANK PLC, NEW YORK BRANCH
By: /s/ Paul Johnson
------------------------------------------
Name: Paul Johnson
Title: Relationship Director
|
CITIBANK, N.A.
By: /s/ Michael A. Taylor
------------------------------------------
Name: Michael A. Taylor
Title: Managing Director
|
DEUTSCHE BANK AG NEW YORK BRANCH
By: /s/ Clinton M. Johnson
------------------------------------------
Name: Clinton M. Johnson
Title: Managing Director
By: /s/ John S. McGill
------------------------------------------
Name: John S. McGill
Title: Director
|
KEYBANK NATIONAL ASSOCIATION
By: /s/ Mary K. Young
------------------------------------------
Name: Mary K. Young
Title: Vice President
|
364-DAY CREDIT AGREEMENT
WACHOVIA BANK, NATIONAL ASSOCIATION
By: /s/ Kimberly Shaffer
------------------------------------------
Name: Kimberly Shaffer
Title: Director
|
ABN AMRO BANK N.V., NEW YORK BRANCH
By: /s/ Neil R. Stein
------------------------------------------
Name: Neil R. Stein
Title: Group Vice President
By: /s/ Michael Demarco
------------------------------------------
Name: Michael DeMarco
Title: Assistant Vice President
|
CALYON NEW YORK BRANCH
By: /s/ William Denton
------------------------------------------
Name: William Denton
Title: Managing Director
By: /s/ Sebastian Rocco
------------------------------------------
Name: Sebastian Rocco
Title: Managing Director
|
HSBC BANK USA
By: /s/ Kenneth J. Johnson
------------------------------------------
Name: Kenneth J. Johnson
Title: Senior Vice President
|
364-DAY CREDIT AGREEMENT
MERRILL LYNCH BANK USA
By: /s/ Louis Alder
------------------------------------------
Name: Louis Alder
Title: Director
|
MELLON BANK, N.A.
By: /s/ Karla K. Maloof
------------------------------------------
Name: Karla K. Maloof
Title: First Vice President
|
THE BANK OF TOKYO-MITSUBISHI, LTD.
NEW YORK BRANCH
By: /s/ Jesse A. Reid, Jr.
------------------------------------------
Name: Jesse A. Reid, Jr.
Title: Authorized Signatory
|
BANK OF AMERICA, N.A.
By: /s/ Leslie Nannen
------------------------------------------
Name: Leslie Nannen
Title: Principal
|
BNP PARIBAS
By: /s/ Barry S. Feigenbaum
------------------------------------------
Name: Barry S. Feigenbaum
Title: Managing Director
By: /s/ Marguerite L. Lebon
------------------------------------------
Name: Marguerite L. Lebon
Title: Vice President
|
364-DAY CREDIT AGREEMENT
CREDIT SUISSE FIRST BOSTON NEW YORK BRANCH
By: /s/ Jay Chall
------------------------------------------
Name: Jay Chall
Title: Director
By: /s/ David J. Dodd
------------------------------------------
Name: David J. Dodd
Title: Associate
|
ING BANK N.V., LONDON BRANCH
By: /s/ Mike Sharman
------------------------------------------
Name: Mike Sharman
Title: Managing Director
By: /s/ Paul Galpin
------------------------------------------
Name: Paul Galpin
Title: Director
|
LEHMAN BROTHERS BANK, FSB
By: /s/ Gary T. Taylor
------------------------------------------
Name: Gary T. Taylor
Title: Vice President
|
LLOYDS TSB BANK PLC, NEW YORK BRANCH
By: /s/ Matthew S.R. Tuck
------------------------------------------
Name: Matthew S.R. Tuck
Title: Vice President
By: /s/ James M. Rudd
------------------------------------------
Name: James M. Rudd
Title: Vice President
|
364-DAY CREDIT AGREEMENT
NATIONAL WESTMINSTER BANK PLC
By: /s/ John Mallett
------------------------------------------
Name: John Mallet
Title: Relationship Director
|
THE BANK OF NEW YORK
By: /s/ Scott Schaffer
------------------------------------------
Name: Scott Schaffer
Title: Vice President
|
UBS AG, STAMFORD BRANCH
By: /s/ Wilfred V. Saint
------------------------------------------
Name: Wilfred V. Saint
Title: Director
By: /s/ Doris Mesa
------------------------------------------
Name: Doris Mesa
Title: Associate Director
|
COMERICA BANK
By: /s/ Martin G. Ellis
------------------------------------------
Name: Martin G. Ellis
Title: First Vice President
|
MORGAN STANLEY BANK
By: /s/ Daniel Twenge
------------------------------------------
Name: Daniel Twenge
Title: Vice President
|
364-DAY CREDIT AGREEMENT
THE BANK OF NOVA SCOTIA
By: /s/ Todd S. Meller
------------------------------------------
Name: Todd S. Meller
Title: Managing Director
|
LANDESBANK HESSEN-THURINGEN
GIROZENTRALE, acting through its NEW YORK BRANCH
By: /s/ Bill Dorante
------------------------------------------
Name: Bill Dorante
Title: Senior Vice President
By: /s/ Kerstin T. Kalawski
------------------------------------------
Name: Kerstin T. Kalawski
Title: German Legal Counsel
Syndications Manager
|
Exhibit 10.3
EXECUTION COPY
THREE-YEAR CREDIT AGREEMENT
dated as of
June 23, 2004
between
XL CAPITAL LTD,
X.L. AMERICA, INC., XL INSURANCE (BERMUDA) LTD and
XL RE LTD, as Account Parties and Guarantors,
The LENDERS Party Hereto
and
JPMORGAN CHASE BANK,
as Administrative Agent
$2,000,000,000
J.P. MORGAN SECURITIES INC.,
as Sole Lead Arranger and Sole Bookrunner
BARCLAYS BANK PLC,
CITIBANK, N.A.,
DEUTSCHE BANK AG, NEW YORK BRANCH,
KEYBANK NATIONAL ASSOCIATION,
and
WACHOVIA BANK, NATIONAL ASSOCIATION,
as Co-Syndication Agents
TABLE OF CONTENTS
PAGE
ARTICLE I......................................................................1
DEFINITIONS.................................................................1
SECTION 1.01. Defined Terms............................................1
SECTION 1.02. Terms Generally.........................................16
SECTION 1.03. Accounting Terms; GAAP and SAP..........................16
ARTICLE II....................................................................16
THE CREDITS................................................................16
SECTION 2.01. Syndicated Letters of Credit............................16
SECTION 2.02. Issuance and Administration.............................18
SECTION 2.03. Reimbursement of LC Disbursements, Etc..................19
SECTION 2.04. Non-Syndicated Letters of Credit........................22
SECTION 2.05. Participated Letters of Credit..........................28
SECTION 2.06. Alternative Currency Letters of Credit..................33
SECTION 2.07. Loans and Borrowings....................................34
SECTION 2.08. Requests for Borrowings.................................34
SECTION 2.09. Funding of Borrowings...................................36
SECTION 2.10. Interest Elections......................................36
SECTION 2.11. Termination, Reduction and Increase of the Commitments..37
SECTION 2.12. Repayment of Loans; Evidence of Debt....................39
SECTION 2.13. Prepayment of Loans.....................................40
SECTION 2.14. Fees ...................................................40
SECTION 2.15. Interest................................................42
SECTION 2.16. Alternate Rate of Interest..............................43
SECTION 2.17. Increased Costs.........................................43
SECTION 2.18. Break Funding Payments..................................44
SECTION 2.19. Taxes...................................................45
SECTION 2.20. Payments Generally; Pro Rata Treatment;
Sharing of Set-offs.....................................47
SECTION 2.21. Mitigation Obligations; Replacement of Lenders..........49
ARTICLE III...................................................................49
GUARANTEE..................................................................49
SECTION 3.01. The Guarantee...........................................49
SECTION 3.02. Obligations Unconditional...............................50
SECTION 3.03. Reinstatement...........................................51
SECTION 3.04. Subrogation.............................................51
SECTION 3.05. Remedies................................................51
SECTION 3.06. Continuing Guarantee....................................51
SECTION 3.07. Rights of Contribution..................................51
SECTION 3.08. General Limitation on Guarantee Obligations.............52
i
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ARTICLE IV....................................................................52
REPRESENTATIONS AND WARRANTIES.............................................52
SECTION 4.01. Organization; Powers....................................52
SECTION 4.02. Authorization; Enforceability...........................52
SECTION 4.03. Governmental Approvals; No Conflicts....................53
SECTION 4.04. Financial Condition; No Material Adverse Change.........53
SECTION 4.05. Properties..............................................53
SECTION 4.06. Litigation and Environmental Matters....................54
SECTION 4.07. Compliance with Laws and Agreements.....................54
SECTION 4.08. Investment and Holding Company Status...................54
SECTION 4.09. Taxes ..................................................54
SECTION 4.10. ERISA ..................................................54
SECTION 4.11. Disclosure..............................................55
SECTION 4.12. Use of Credit...........................................55
SECTION 4.13. Subsidiaries............................................55
SECTION 4.14. Withholding Taxes.......................................56
SECTION 4.15. Stamp Taxes.............................................56
SECTION 4.16. Legal Form..............................................56
ARTICLE V.....................................................................56
CONDITIONS.................................................................56
SECTION 5.01. Effective Date..........................................56
SECTION 5.02. Each Credit Event.......................................58
ARTICLE VI....................................................................58
AFFIRMATIVE COVENANTS......................................................58
SECTION 6.01. Financial Statements and Other Information..............58
SECTION 6.02. Notices of Material Events..............................61
SECTION 6.03. Preservation of Existence and Franchises................61
SECTION 6.04. Insurance...............................................61
SECTION 6.05. Maintenance of Properties...............................61
SECTION 6.06. Payment of Taxes and Other Potential Charges and
Priority Claims; Payment of Other Current Liabilities...61
SECTION 6.07. Financial Accounting Practices..........................62
SECTION 6.08. Compliance with Applicable Laws.........................62
SECTION 6.09. Use of Letters of Credit and Proceeds...................62
SECTION 6.10. Continuation of and Change in Businesses................63
SECTION 6.11. Visitation..............................................63
ARTICLE VII...................................................................63
NEGATIVE COVENANTS.........................................................63
SECTION 7.01. Mergers.................................................63
SECTION 7.02. Dispositions............................................63
SECTION 7.03. Liens 64
SECTION 7.04. Transactions with Affiliates............................66
SECTION 7.05. Ratio of Total Funded Debt to Total Capitalization......66
SECTION 7.06. Consolidated Net Worth..................................66
SECTION 7.07. Indebtedness............................................66
ii
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SECTION 7.08. Financial Strength Ratings..............................67
SECTION 7.09. Private Act.............................................67
ARTICLE VIII..................................................................67
EVENTS OF DEFAULT..........................................................67
ARTICLE IX....................................................................70
THE ADMINISTRATIVE AGENT...................................................70
ARTICLE X.....................................................................72
MISCELLANEOUS..............................................................72
SECTION 10.01. Notices................................................72
SECTION 10.02. Waivers; Amendments....................................73
SECTION 10.03. Expenses; Indemnity; Damage Waiver.....................74
SECTION 10.04. Successors and Assigns.................................75
SECTION 10.05. Survival...............................................79
SECTION 10.06. Counterparts; Integration; Effectiveness...............79
SECTION 10.07. Severability...........................................79
SECTION 10.08. Right of Setoff........................................80
SECTION 10.09. Governing Law; Jurisdiction; Etc.......................80
SECTION 10.10. WAIVER OF JURY TRIAL...................................81
SECTION 10.11. Headings...............................................81
SECTION 10.12. Treatment of Certain Information; Confidentiality......81
SECTION 10.13. Judgment Currency......................................82
SECTION 10.14. USA PATRIOT Act........................................83
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THREE-YEAR CREDIT AGREEMENT dated as of June 23, 2004, between XL CAPITAL LTD, a company incorporated under the laws of the Cayman Islands, British West Indies ("XL CAPITAL"), X.L. AMERICA, INC., a Delaware corporation ("XL AMERICA"), XL INSURANCE (BERMUDA) LTD, a Bermuda limited liability company ("XL INSURANCE") and XL RE LTD, a Bermuda limited liability company ("XL RE" and, together with XL Capital, XL America and XL Insurance, each an "ACCOUNT PARTY" and each a "GUARANTOR" and collectively, the "ACCOUNT PARTIES" and the "GUARANTORS"; the Account Parties and the Guarantors being collectively referred to as the "OBLIGORS"), the LENDERS party hereto, and JPMORGAN CHASE BANK, as Administrative Agent.
The Account Parties have requested that the Lenders issue letters of credit for their account and make loans to them in an aggregate face or principal amount not exceeding $2,000,000,000 at any one time outstanding, and the Lenders are prepared to issue such letters of credit and make such loans upon the terms and conditions hereof. Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans constituting such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.
"ACCOUNT PARTIES" means each of XL Capital, XL America, XL Insurance and XL Re.
"ACCOUNT PARTY JURISDICTION" means (a) Bermuda, (b) the Cayman Islands and (c) any other country (i) where any Account Party is licensed or qualified to do business or (ii) from or through which payments hereunder are made by any Account Party.
"ADJUSTED LIBO RATE" means, for the Interest Period for any Eurodollar Borrowing, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period MULTIPLIED BY (b) the Statutory Reserve Rate for such Interest Period.
"ADMINISTRATIVE AGENT" means JPMCB, in its capacity as administrative agent for the Lenders hereunder.
"ADMINISTRATIVE QUESTIONNAIRE" means an Administrative Questionnaire in a form supplied by the Administrative Agent.
"AFFILIATE" means, with respect to a specified Person, another Person that directly, or indirectly, Controls or is Controlled by or is under common Control with the Person specified.
364-Day Credit Agreement
"AGGREGATE CREDIT EXPOSURE" means the aggregate amount of the Credit Exposures of each of the Lenders.
"ALTERNATE BASE RATE" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day, and (b) the Federal Funds Effective Rate for such day PLUS 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, as the case may be.
"ALTERNATIVE CURRENCY" means any currency other than Dollars (a) that is freely transferable and convertible into Dollars in the London foreign exchange market and (b) for which no central bank or other governmental authorization in the country of issue of such currency is required to permit use of such currency by any Lender for issuing, renewing, extending or amending letter of credits or funding or making drawings thereunder and/or to permit any Account Party to pay the reimbursement obligations and interest thereon, each as contemplated hereunder, unless such authorization has been obtained and is in full force and effect.
"ALTERNATIVE CURRENCY LC EXPOSURE" means, at any time, the sum of
(a) the Dollar Equivalent of the aggregate undrawn amount of all outstanding
Alternative Currency Letters of Credit at such time PLUS (b) the Dollar
Equivalent of the aggregate amount of all LC Disbursements under Alternative
Currency Letters of Credit that have not been reimbursed by or on behalf of the
Account Parties at such time. The Alternative Currency LC Exposure of any Lender
shall at any time be such Lender's share of the total Alternative Currency LC
Exposure at such time.
"ALTERNATIVE CURRENCY LETTER OF CREDIT" means a letter of credit issued by a Lender in an Alternative Currency pursuant to Section 2.06.
"ALTERNATIVE CURRENCY LETTER OF CREDIT REPORT" has the meaning set
forth in Section 2.06(b).
"APPLICABLE ADDITIONAL MARGIN" means a rate per annum equal to 0.10% for any period during which the aggregate outstanding principal amount of the Loans shall be greater than 50% of the RC Sublimit then in effect.
"APPLICABLE MARGIN" means, with respect to any Eurodollar Loan, the rate per annum specified under the caption "Applicable Margin" in the table contained in the definition of "Applicable Rate" in this Section or otherwise determined in accordance with such definition.
"APPLICABLE PERCENTAGE" means, with respect to any Lender, the percentage of the Commitments of all the Lenders represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments.
"APPLICABLE RATE" means, for any day, with respect to letter of credit fees payable hereunder, interest margins applicable to Eurodollar Loans or the facility fees payable hereunder,
THREE-YEAR CREDIT AGREEMENT
as the case may be, the applicable rate per annum set forth below under the caption "Applicable Letter of Credit Fee Rate", "Applicable Margin " or "Applicable Facility Fee Rate", respectively, based upon the S&P Rating and/or Moody's Rating, on such date:
------------------- ------------------- ------------------- --------------------
S&P/ Moody's Applicable Letter Applicable Margin Applicable Facility
Ratings of Credit Fee Rate Fee Rate
------------------- ------------------- ------------------- --------------------
> A+/A1 0.305% 0.305% 0.07%
-
------------------- ------------------- ------------------- --------------------
A/A2 0.32% 0.32% 0.08%
------------------- ------------------- ------------------- --------------------
A-/A3 0.385% 0.385% 0.09%
------------------- ------------------- ------------------- --------------------
< BBB+/Baa1or 0.625% 0.625% 0.125%
|
For purposes of the foregoing, (i) if either Moody's or S&P shall
not have in effect a Moody's Rating or a S&P Rating, as the case may be (other
than by reason of the circumstances referred to in the last sentence of this
definition), then the Applicable Rate shall be based upon the remaining rating,
(ii) if the Moody's Rating and the S&P Rating shall fall within different
Categories, the Applicable Rate shall be based on the higher of the two ratings
unless one of the two ratings is two or more Categories higher than the other,
in which case the Applicable Rate shall be determined by reference to the
ratings level next above that of the lower of the two ratings, and (iii) if the
Moody's Rating and the S&P Rating established or deemed to have been established
by Moody's and S&P, respectively, shall be changed (other than as a result of a
change in the rating system of Moody's or S&P), such change shall be effective
as of the date on which it is first announced by the applicable rating agency.
Each change in the Applicable Rate shall apply during the period commencing on
the effective date of such change and ending on the date immediately preceding
the effective date of the next such change. If the rating system of Moody's or
S&P shall change, or if either such rating agency shall cease to be in the
business of providing insurance ratings, the Borrower and the Lenders shall
negotiate in good faith to amend this definition to reflect such changed rating
system or the unavailability of ratings from such rating agency and, pending the
effectiveness of any such amendment, the Applicable Rate shall be determined by
reference to the rating most recently in effect prior to such change or
cessation.
"APPROVED FUND" means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
THREE-YEAR CREDIT AGREEMENT
"ASSIGNMENT AND ASSUMPTION" means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.
"AVAILABILITY PERIOD" means the period from and including the Effective Date to and including the Commitment Termination Date.
"BOARD" means the Board of Governors of the Federal Reserve System of the United States of America.
"BORROWING" means, with respect to any Account Party, (a) all ABR Loans of such Account Party made, converted or continued on the same date or (b) all Eurodollar Loans of such Account Party that have the same Interest Period.
"BORROWING REQUEST" means a request by an Account Party for a Borrowing in accordance with Section 2.08.
"BUSINESS DAY" means any day (a) that is not a Saturday, Sunday or other day on which commercial banks in New York City, London, the Cayman Islands, British West Indies or Bermuda are authorized or required by law to remain closed and (b) if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, a continuation or conversion of or into, or the Interest Period for, a Eurodollar Loan, or to a notice by an Account Party with respect to any such borrowing, payment, prepayment, continuation, conversion, or Interest Period, that is also a day on which dealings in Dollar deposits are carried out in the London interbank market.
"CAPITAL LEASE OBLIGATIONS" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
"CHANGE IN CONTROL" means the occurrence of any of the following events or conditions: (a) any Person, including any syndicate or group deemed to be a Person under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of XL Capital entitling such Person to exercise 40% or more of the total voting power of all shares of capital stock of XL Capital that is entitled to vote generally in elections of directors, other than an acquisition by XL Capital, any of its Subsidiaries or any employee benefit plans of XL Capital; or (b) XL Capital merges or consolidates with or into any other Person (other than a Subsidiary), another Person (other than a Subsidiary) merges into XL Capital or XL Capital conveys, sells, transfers or leases all or substantially all of its assets to another Person (other than a Subsidiary), other than any transaction: (i) that does not result in a reclassification, conversion, exchange or cancellation of
THREE-YEAR CREDIT AGREEMENT
the outstanding shares of capital stock of XL Capital (other than the
cancellation of any outstanding shares of capital stock of XL Capital held by
the Person with whom it merges or consolidates) or (ii) which is effected solely
to change the jurisdiction of incorporation of XL Capital and results in a
reclassification, conversion or exchange of outstanding shares of capital stock
of XL Capital solely into shares of capital stock of the surviving entity; or
(c) a majority of the members of XL Capital's board of directors are persons who
are then serving on the board of directors without having been elected by the
board of directors or having been nominated for election by its shareholders.
"CHANGE IN LAW" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.17(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended from time to time.
"COMMITMENT" means, with respect to any Lender, the commitment of
such Lender (a) to issue Syndicated Letters of Credit and Non-Syndicated Letters
of Credit and acquire participations in Participated Letters of Credit and (b)
to make Loans, in each case expressed as an amount representing the maximum
aggregate amount of such Lender's Credit Exposure hereunder, as such commitment
may be (i) reduced or increased from time to time pursuant to Section 2.11 and
(ii) reduced or increased from time to time pursuant to assignments by or to
such Lender pursuant to Section 10.04. The initial amount of each Lender's
Commitment (including the RC Sublimit) is set forth on Schedule I or in the
Assignment and Assumption or other agreement entered into under Section 2.11(c)
pursuant to which such Lender shall have assumed its Commitment, as applicable.
The initial aggregate amount of the Lenders' Commitments is $2,000,000,000.
"COMMITMENT TERMINATION DATE" means June 22, 2007.
"CONFIRMING LENDER" means, with respect to any Lender, any other Person which is listed on the NAIC Approved Bank List that has agreed, by delivery of an agreement between such Lender and such other Person in substantially the form of Exhibit D or any other form satisfactory to the Administrative Agent, to honor the obligations of such Lender in respect of a draft complying with the terms of a Syndicated Letter of Credit or a Non-Syndicated Letter of Credit, as the case may be, as if, and to the extent, such other Person were the "issuing lender" (in place of such Lender) named in such Syndicated Letter of Credit or Non-Syndicated Letter of Credit, as the case may be.
"CONSOLIDATED NET WORTH" means, at any time, the consolidated stockholders' equity of XL Capital and its Subsidiaries.
"CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to
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exercise voting power, by contract or otherwise. "CONTROLLING" and "CONTROLLED" have meanings correlative thereto.
"CREDIT DOCUMENTS" means, collectively, this Agreement and the Letter of Credit Documents.
"CREDIT EXPOSURE" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Loans and its LC Exposure at such time.
"DEFAULT" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
"DOLLAR EQUIVALENT" means, as used in each Alternative Currency Letter of Credit Report and in respect of any Alternative Currency Letter of Credit, the amount of Dollars obtained by converting the Alternative Currency LC Exposure with respect to such Alternative Currency Letter of Credit, as specified in such Alternative Currency Letter of Credit Report, into Dollars at the spot rate for the purchase of Dollars with such currency as quoted by the Administrative Agent at approximately 11:00 a.m. (London time) on the second Business Day before the date of such Alternative Currency Letter of Credit Report (unless another rate or time is agreed to by XL Capital and the Administrative Agent).
"DOLLARS" or "$" refers to lawful money of the United States of America.
"EFFECTIVE DATE" means the date on which the conditions specified in Section 5.01 are satisfied (or waived in accordance with Section 10.02).
"ENVIRONMENTAL LAWS" means any Law, whether now existing or subsequently enacted or amended, relating to (a) pollution or protection of the environment, including natural resources, (b) exposure of Persons, including but not limited to employees, to Hazardous Materials, (c) protection of the public health or welfare from the effects of products, by-products, wastes, emissions, discharges or releases of Hazardous Materials or (d) regulation of the manufacture, use or introduction into commerce of Hazardous Materials, including their manufacture, formulation, packaging, labeling, distribution, transportation, handling, storage or disposal.
"ENVIRONMENTAL LIABILITY" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of an Account Party or any
Subsidiary resulting from or based upon (a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract or agreement pursuant to which liability is
assumed or imposed with respect to any of the foregoing.
"EQUITY RIGHTS" means, with respect to any Person, any subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including any
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shareholders' or voting trust agreements) for the issuance, sale, registration or voting of, or securities convertible into, any additional shares of capital stock of any class, or partnership or other ownership interests of any type in, such Person.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that, together with any Account Party, is treated as a single
employer under Section 414(b) or (c) of the Code, or, solely for purposes of
Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA EVENT" means (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d)
of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by any Account Party or any of such
Account Party's ERISA Affiliates of any liability under Title IV of ERISA with
respect to the termination of any Plan; (e) the receipt by any Account Party or
any ERISA Affiliate from the PBGC or a plan administrator of any notice relating
to an intention to terminate any Plan or Plans or to appoint a trustee to
administer any Plan; (f) the incurrence by any Account Party or any of its ERISA
Affiliates of any liability with respect to the withdrawal or partial withdrawal
from any Plan or Multiemployer Plan; or (g) the receipt by any Account Party or
any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from
any Account Party or any ERISA Affiliate of any notice, concerning the
imposition of Withdrawal Liability or a determination that a Multiemployer Plan
is, or is expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA.
"EURODOLLAR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans constituting such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
"EVENT OF DEFAULT" has the meaning assigned to such term in Article VIII.
"EXCESS FUNDING GUARANTOR" has the meaning assigned to such term in Section 3.07.
"EXCESS PAYMENT" has the meaning assigned to such term in Section 3.07.
"EXCLUDED TAXES" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Account Party hereunder, (a) Taxes imposed on (or measured by) its net income, net profits or overall gross receipts (including, without limitation, branch profits or similar taxes) by the United States of America, or by any jurisdiction under the laws of which such recipient is organized or resident, in which such recipient has an office or with which such recipient has any
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other connection (other than a connection that is deemed to arise solely by
reason of both (I) the transactions contemplated by this Agreement and (II) an
Account Party being organized in, maintaining an office in, conducting business
in, or having a connection with, such jurisdiction), (b) any Taxes not described
in clause (a) above (other than Other Taxes) that are imposed as a result of a
connection the Administrative Agent or any Lender, as the case may be, has with
the relevant jurisdiction (other than a connection that is deemed to arise
solely by reason of both (I) the transactions contemplated by this Agreement and
(II) an Account Party being organized or resident in, maintaining an office in,
conducting business in, or having a connection with, such jurisdiction) and (c)
any Tax that is not imposed solely as a result of a Change in Law formally
announced after the date hereof.
"EXISTING CREDIT AGREEMENT" means the 364-Day Credit Agreement dated as of June 25, 2003 between the Obligors, XL Europe Limited, the lenders party thereto, and JPMCB, as administrative agent for such lenders.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.
"FINANCIAL OFFICER" means, with respect to any Obligor, a principal financial officer of such Obligor.
"GAAP" means generally accepted accounting principles in the United States of America.
"GIC" means a guaranteed investment contract or funding agreement or other similar agreement issued by an Account Party or any of its Subsidiaries that guarantees to a counterparty a rate of return on the invested capital over the life of such contract or agreement.
"GOVERNMENTAL AUTHORITY" means the government of the United States of America, or of any other nation (including the European Union), or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
"GRANTING LENDER" has the meaning assigned to such term in Section 10.04.
"GUARANTEE" means, with respect to any Person, without duplication, any obligations of such Person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing or intended to guarantee any Indebtedness of any other Person in any manner, whether direct or indirect, and including any obligation, whether or not contingent, (i) to purchase any such Indebtedness or any property
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constituting security therefor for the purpose of assuring the holder of such Indebtedness, (ii) to advance or provide funds or other support for the payment or purchase of any such Indebtedness or to maintain working capital, solvency or other balance sheet condition of such other Person (including keepwell agreements, maintenance agreements, comfort letters or similar agreements or arrangements) for the benefit of any holder of Indebtedness of such other Person, (iii) to lease or purchase property, securities or services primarily for the purpose of assuring the holder of such Indebtedness, or (iv) to otherwise assure or hold harmless the holder of such Indebtedness against loss in respect thereof. The amount of any Guarantee hereunder shall (subject to any limitations set forth therein) be deemed to be an amount equal to the outstanding principal amount of the Indebtedness in respect of which such Guarantee is made. The terms "GUARANTEE" and "GUARANTEED" used as a verb shall have a correlative meaning.
"GUARANTEED OBLIGATIONS" has the meaning assigned to such term in
Section 3.01.
"GUARANTORS" means each of XL Capital, XL America, XL Insurance and XL Re.
"HAZARDOUS MATERIALS" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
"HEDGING AGREEMENT" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement.
"INDEBTEDNESS" means, for any Person, without duplication (it being understood, for the avoidance of doubt, that insurance payment liabilities, as such, and liabilities arising in the ordinary course of such Person's business as an insurance or reinsurance company (including GICs and Stable Value Instruments and any Specified Transaction Agreement relating thereto) or corporate member of The Council of Lloyd's or as a provider of financial or investment services or contracts (including GICs and Stable Value Instruments and any Specified Transaction Agreement relating thereto) (in each case other than in connection with the provision of financing to such Person or any of such Person's Affiliates) shall not be deemed to constitute Indebtedness): (i) all indebtedness or liability for or on account of money borrowed by, or for or on account of deposits with or advances to (but not including accrued pension costs, deferred income taxes or accounts payable of) such Person; (ii) all obligations (including contingent liabilities) of such Person evidenced by bonds, debentures, notes, banker's acceptances or similar instruments; (iii) all indebtedness or liability for or on account of property or services purchased or acquired by such Person; (iv) any amount secured by a Lien on property owned by such Person (whether or not assumed) and Capital Lease Obligations of such Person (without regard to any limitation of the rights and remedies of the holder of such Lien or the lessor under such capital lease to repossession or sale of such property); (v) the maximum available amount of all standby letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder (to the extent unreimbursed); and (vi) all Guarantees of such Person.
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"INDEMNIFIED TAXES" means Taxes imposed on the Administrative Agent or any Lender on or with respect to any payment hereunder, other than Excluded Taxes and Other Taxes.
"INSURANCE SUBSIDIARY" means any Subsidiary which is subject to the regulation of, and is required to file statutory financial statements with, any governmental body, agency or official in any State or territory of the United States or the District of Columbia which regulates insurance companies or the doing of an insurance business therein.
"INTEREST ELECTION REQUEST" means a request by an Account Party to convert or continue a Borrowing in accordance with Section 2.10.
"INTEREST PAYMENT DATE" means (a) with respect to any ABR Loan, each Quarterly Date and (b) with respect to any Eurodollar Loan, the last day of each Interest Period therefor and, in the case of any Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at three-month intervals after the first day of such Interest Period.
"INTEREST PERIOD" means, for any Eurodollar Loan or Borrowing, the period commencing on the date of such Loan or Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as specified in the applicable Borrowing Request or Interest Election Request; PROVIDED that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, and (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Loan initially shall be the date on which such Loan is made and thereafter shall be the effective date of the most recent conversion or continuation of such Loan, and the date of a Borrowing comprising Loans that have been converted or continued shall be the effective date of the most recent conversion or continuation of such Loans.
"ISDA" has the meaning assigned to such term in Section 7.03(f).
"ISSUING LENDER" means (a) with respect to any Participated Letter of Credit, JPMCB, in its capacity as the issuer of such Participated Letter of Credit hereunder, and its successors in such capacity as provided in Section 2.05(j), (b) with respect to any Syndicated Letter of Credit, each Lender, in its capacity as the issuer of such Syndicated Letter of Credit and (c) with respect to any Non-Syndicated Letter of Credit, the Lender named therein as the issuer thereof.
"JPMCB" means JPMorgan Chase Bank.
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"LAW" means any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of any Governmental Authority.
"LC DISBURSEMENT" means (a) with respect to any Participated Letter of Credit or Non-Syndicated Letter of Credit, a payment made by the Issuing Lender thereof pursuant thereto and (b) with respect to any Syndicated Letter of Credit or Alternative Currency Letter of Credit, a payment made by a Lender pursuant thereto.
"LC EXPOSURE" means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time PLUS (b) the aggregate amount of all LC Disbursements under Letters of Credit that have not yet been reimbursed by or on behalf of the Account Parties at such time. The LC Exposure of any Lender at any time shall be the sum of (i) its Applicable Percentage of the total LC Exposure (excluding any Alternative Currency LC Exposure) PLUS (ii) the Alternative Currency LC Exposure (if any) of such Lender at such time.
"LENDERS" means the Persons listed on Schedule I and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption or an agreement pursuant to the terms of Section 2.11(c), other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.
"LETTER OF CREDIT DOCUMENTS" means, with respect to any Letter of Credit, collectively, any application therefor and any other agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for the rights and obligations of the parties concerned or at risk with respect to such Letter of Credit.
"LETTERS OF CREDIT" means each of the Syndicated Letters of Credit, the Non-Syndicated Letters of Credit, the Participated Letters of Credit and the Alternative Currency Letters of Credit.
"LIBO RATE" means, for the Interest Period for any Eurodollar Borrowing, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for the offering of Dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the LIBO Rate for such Interest Period shall be the rate at which Dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.
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"LIEN" means, with respect to any asset, any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, including but not limited to any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security.
"LOANS" means the loans made by the Lenders to the Account Parties pursuant to Section 2.07.
"MARGIN STOCK" means "margin stock" within the meaning of Regulations T, U and X of the Board.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on: (a) the assets, business, financial condition or operations of an Account Party and its Subsidiaries taken as a whole; or (b) the ability of an Account Party to perform any of its payment or other material obligations under this Agreement.
"MOODY'S" means Moody's Investors Service, Inc., or any successor thereto.
"MOODY'S RATING" means, at any time, the rating of XL Capital's long-term senior unsecured debt (PROVIDED that such debt is not supported by any other Person).
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NAIC" means the National Association of Insurance Commissioners.
"NAIC APPROVED BANK" means (a) any Person that is a bank listed on the most current "Bank List" of banks approved by the NAIC (the "NAIC APPROVED BANK LIST") or (b) any Lender as to which its Confirming Lender is a bank listed on the NAIC Approved Bank List.
"NAIC APPROVED BANK LIST" has the meaning assigned to such term in the definition of "NAIC Approved Bank" in this Section.
"NON-SYNDICATED LETTERS OF CREDIT" means letters of credit issued under Section 2.04.
"NON-U.S. BENEFIT PLAN" means any plan, fund (including any superannuation fund) or other similar program established or maintained outside the United States by any Account Party or any of their Subsidiaries, with respect to which such Account Party or such Subsidiary has an obligation to contribute, for the benefit of employees of such Account Party or such Subsidiary, which plan, fund or other similar program provides, or results in, the type of benefits described in Section 3(1) or 3(2) of ERISA, and which plan is not subject to ERISA or the Code.
"OBLIGORS" means each of the Account Parties and each of the Guarantors.
"OTHER TAXES" means any and all present or future stamp or documentary taxes or any other similar excise or property Taxes, arising from any payment made hereunder or from
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the execution, delivery or enforcement of this Agreement, but excluding property or similar Taxes other than any such Taxes imposed in such circumstances solely as a result of the Account Party being organized or resident in, maintaining an office in, conducting business in or maintaining property located in the taxing jurisdiction in question.
"PARTICIPANT" has the meaning assigned to such term in Section 10.04.
"PARTICIPATED LETTERS OF CREDIT" means letters of credit issued under Section 2.05.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
"PERSON" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
"PLAN" means any employee pension benefit plan (other than a
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which any Account
Party or any ERISA Affiliate is (or, if such plan were terminated, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"PRIME RATE" means the rate of interest per annum publicly announced from time to time by JPMCB as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.
"PRIVATE ACT" means separate legislation enacted in Bermuda with the intention that such legislation apply specifically to an Account Party, in whole or in part.
"PRO RATA SHARE" has the meaning assigned to such term in Section 3.07.
"QUARTERLY DATE" means the last Business Day of March, June, September and December in each year, the first of which shall be the first such day after the date hereof.
"RC SUBLIMIT" means $600,000,000, as such amount may be reduced from time to time pursuant to Section 2.11.
"REGISTER" has the meaning assigned to such term in Section 10.04.
"RELATED PARTIES" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates.
"REQUIRED LENDERS" means, at any time, Lenders having Commitments representing more than 50% of the aggregate amount of the Commitments at such time; PROVIDED that, if the Commitments have expired or been terminated, "Required Lenders" means Lenders having more than 50% of the Aggregate Credit Exposure at such time.
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"S&P" means Standard & Poor's Ratings, or any successor thereto.
"S&P RATING" means, at any time, the rating of XL Capital's long-term senior unsecured debt (PROVIDED that such debt is not supported by any other Person).
"SAP" means, as to each Account Party and each Subsidiary that offers insurance products, the statutory accounting practices prescribed or permitted by the relevant Governmental Authority for such Account Party's or such Subsidiary's domicile for the preparation of its financial statements and other reports by insurance corporations of the same type as such Account Party or such Subsidiary in effect on the date such statements or reports are to be prepared, except if otherwise notified by XL Capital as provided in Section 1.03.
"SEC" means the Securities and Exchange Commission or any successor entity.
"SIGNIFICANT SUBSIDIARY" means, at any time, each Subsidiary of XL Capital that, as of such time, meets the definition of a "significant subsidiary" under Regulation S-X of the SEC.
"SPECIFIED ACCOUNT PARTY" has the meaning assigned to such term in
Section 2.05.
"SPECIFIED TRANSACTION AGREEMENT" means any agreement, contract or documentation with respect to the following types of transactions: rate swap transaction, swap option, basis swap, asset swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, current swap transaction, cross-currency rate swap transaction, currency option, credit protection transaction, credit swap, credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse repurchase transaction, buy/sell-back transaction, securities lending or borrowing transaction, weather index transaction or forward purchase or sale of a security, commodity or other financial instrument or interest, and transactions on any commodity futures or other exchanges, markets and their associated clearing houses (including any option with respect to any of these transactions).
"SPV" has the meaning assigned to such term in Section 10.04.
"STABLE VALUE INSTRUMENT" means any insurance, derivative or similar financial contract or instrument designed to mitigate the volatility of returns during a given period on a specified portfolio of securities held by one party (the "CUSTOMER") through the commitment of the other party (the "SVI PROVIDER") to provide the customer with a credited rate of return on the portfolio, typically determined through an interest-crediting mechanism (and in exchange for which the SVI provider typically receives a fee).
"STATUTORY RESERVE RATE" means, for any day (or for the Interest Period for any Eurodollar Borrowing), a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one MINUS the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject on such day (or, with respect to an Interest Period, the denominator of which is the
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number one MINUS the arithmetic mean of such aggregates for the days in such Interest Period) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
"SUBSIDIARY" means, with respect to any Person (the "PARENT"), at any date, any corporation (or similar entity) of which a majority of the shares of outstanding capital stock normally entitled to vote for the election of directors (regardless of any contingency which does or may suspend or dilute the voting rights of such capital stock) is at such time owned directly or indirectly by the parent or one or more subsidiaries of the parent. Unless otherwise specified, "Subsidiary" means a Subsidiary of an Account Party.
"SUPPLEMENTAL COMMITMENT DATE" has the meaning assigned to such term in Section 2.11(c).
"SUPPLEMENTAL LENDER" has the meaning assigned to such term in
Section 2.11(c).
"SYNDICATED LETTERS OF CREDIT" means letters of credit issued under Section 2.01.
"TAXES" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.
"TOTAL FUNDED DEBT" means, at any time, all Indebtedness of XL Capital and its Subsidiaries which would at such time be classified in whole or in part as a liability on the consolidated balance sheet of XL Capital in accordance with GAAP.
"TRANSACTIONS" means the execution, delivery and performance by the Obligors of this Agreement and the other Credit Documents to which any Account Party is intended to be a party, the issuance of Letters of Credit, the borrowing of Loans and the use of the proceeds thereof.
"TYPE", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans constituting such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.
"WITHDRAWAL LIABILITY" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
"364-DAY CREDIT AGREEMENT" means the 364-Day Credit Agreement dated as of the date hereof among the Account Parties, the lenders party thereto and JPMCB, as Administrative Agent (including any renewals, restatements or replacements thereof).
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SECTION 1.02. TERMS GENERALLY. The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The word "will" shall be construed to have the same meaning and effect as the
word "shall". Unless the context requires otherwise (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
SECTION 1.03. ACCOUNTING TERMS; GAAP AND SAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP or SAP, as the context requires, each as in effect from time to time; PROVIDED that, if XL Capital notifies the Administrative Agent that the Account Parties request an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or SAP, as the case may be, or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Account Parties that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or SAP, as the case may be, or in the application thereof, then such provision shall be interpreted on the basis of GAAP or SAP, as the case may be, as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.
ARTICLE II
THE CREDITS
SECTION 2.01. SYNDICATED LETTERS OF CREDIT.
(a) GENERAL. Subject to the terms and conditions set forth herein, at the request of any Account Party the Lenders agree at any time and from time to time during the Availability Period to issue Syndicated Letters of Credit for the account of such Account Party in an aggregate amount that will not result in the Credit Exposure exceeding the Commitments (it being understood that Syndicated Letters of Credit may be issued, or be outstanding, for the account of more than one of the Account Parties at any time). Each Syndicated Letter of Credit shall be in such form as is consistent with the requirements of the applicable regulatory authorities in Illinois, California, Wisconsin or New York, as reasonably determined by the Administrative Agent or as otherwise agreed to by the Administrative Agent and XL Capital;
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PROVIDED that, without the prior consent of each Lender, no Syndicated Letter of Credit may be issued that would vary the several and not joint nature of the obligations of the Lenders thereunder as provided in the next succeeding sentence. Each Syndicated Letter of Credit shall be issued by all of the Lenders, acting through the Administrative Agent, at the time of issuance as a single multi-bank letter of credit, but the obligation of each Lender thereunder shall be several and not joint, based upon its Applicable Percentage of the aggregate undrawn amount of such Syndicated Letter of Credit.
(b) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL OR EXTENSION. To request the issuance of a Syndicated Letter of Credit (or the amendment, renewal or extension of an outstanding Syndicated Letter of Credit), an Account Party shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Administrative Agent) to the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Syndicated Letter of Credit, or identifying the Syndicated Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension, as the case may be (which shall be a Business Day), the date on which such Syndicated Letter of Credit is to expire (which shall comply with paragraph (d) of this Section), the amount of such Syndicated Letter of Credit, the name and address of the beneficiary thereof and the terms and conditions of (and such other information as shall be necessary to prepare, amend, renew or extend, as the case may be) such Syndicated Letter of Credit. If any Syndicated Letter of Credit shall provide for the automatic extension of the expiry date thereof unless the Administrative Agent gives notice that such expiry date shall not be extended, then the Administrative Agent will give such notice if requested to do so by the Required Lenders in a notice given to the Administrative Agent not more than 60 days, but not less than 45 days, prior to the current expiry date of such Syndicated Letter of Credit. If requested by the Administrative Agent, such Account Party also shall submit a letter of credit application on JPMCB's standard form in connection with any request for a Syndicated Letter of Credit. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by any Account Party to, or entered into by any Account Party with, the Administrative Agent relating to any Syndicated Letter of Credit, the terms and conditions of this Agreement shall control.
(c) LIMITATIONS ON AMOUNTS. A Syndicated Letter of Credit shall be issued, amended, renewed or extended only if (and upon such issuance, amendment, renewal or extension of each Syndicated Letter of Credit the Account Parties shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension, (i) the Aggregate Credit Exposure shall not exceed the aggregate amount of the Commitments and (ii) the Credit Exposure (excluding any Alternative Currency LC Exposure) of each Lender shall not exceed the Commitment of such Lender.
(d) EXPIRY DATE. Each Syndicated Letter of Credit shall expire at or prior to the close of business on the date one year after the date of the issuance of such Syndicated Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension).
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(e) OBLIGATION OF LENDERS. The obligation of any Lender under any Syndicated Letter of Credit shall be several and not joint and shall at any time be in an amount equal to such Lender's Applicable Percentage of the aggregate undrawn amount of such Syndicated Letter of Credit, and each Syndicated Letter of Credit shall expressly so provide.
(f) CONTINUATION OF EXISTING SYNDICATED LETTERS OF CREDIT. Subject to the terms and conditions hereof, each Syndicated Letter of Credit under (and as defined in) the Existing Credit Agreement which is outstanding on the Effective Date and is designated to be continued hereunder in the notice provided by XL Capital to the Administrative Agent pursuant to Section 5.01(f) shall automatically be continued hereunder by all of the Lenders having Commitments on the Effective Date. The obligation of each such Lender in respect of each such continued Syndicated Letter of Credit shall be several and not joint, based upon its Applicable Percentage and the aggregate undrawn amount thereof, and each such Syndicated Letter of Credit shall be deemed a Syndicated Letter of Credit for all purposes of this Agreement as of the Effective Date. The Administrative Agent shall, on the Effective Date or as promptly as practicable thereafter, notify the beneficiary of each such Syndicated Letter of Credit that is being continued hereunder as to the names of the Lenders that, as of the Effective Date, will be issuing lenders under, and party to, such Syndicated Letter of Credit and the Lenders' respective Applicable Percentages thereunder as of the Effective Date.
(g) ADJUSTMENT OF APPLICABLE PERCENTAGES. Upon (i) each increase of the Commitments pursuant to Section 2.11(c) or (ii) the assignment by a Lender of all or a portion of its Commitment and its interests in the Syndicated Letters of Credit pursuant to an Assignment and Assumption, the Administrative Agent shall promptly notify each beneficiary under an outstanding Syndicated Letter of Credit of the Lenders that are parties to such Syndicated Letter of Credit and their respective Applicable Percentages as of the effective date of, and after giving effect to, such increase or assignment, as the case may be.
SECTION 2.02. ISSUANCE AND ADMINISTRATION. Each Syndicated Letter of Credit shall be executed and delivered by the Administrative Agent in the name and on behalf of, and as attorney-in-fact for, each Lender party to such Syndicated Letter of Credit, and the Administrative Agent shall act under each Syndicated Letter of Credit, and each Syndicated Letter of Credit shall expressly provide that the Administrative Agent shall act, as the agent of each Lender to (a) receive drafts, other demands for payment and other documents presented by the beneficiary under such Syndicated Letter of Credit, (b) determine whether such drafts, demands and documents are in compliance with the terms and conditions of such Syndicated Letter of Credit and (c) notify such Lender and the Account Parties that a valid drawing has been made and the date that the related LC Disbursement is to be made; PROVIDED that the Administrative Agent shall have no obligation or liability for any LC Disbursement under such Syndicated Letter of Credit, and each Syndicated Letter of Credit shall expressly so provide. Each Lender hereby irrevocably appoints and designates the Administrative Agent as its attorney-in-fact, acting through any duly authorized officer of JPMCB, to execute and deliver in the name and on behalf of such Lender each Syndicated Letter of Credit to be issued by such Lender hereunder. Promptly upon the request of the Administrative Agent, each Lender will furnish to the Administrative Agent such powers of attorney or other evidence as any beneficiary of any Syndicated Letter of Credit may reasonably request in order to demonstrate that the Administrative Agent has the power to act as attorney-in-fact for such Lender to execute and
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deliver such Syndicated Letter of Credit. Notwithstanding anything in this Agreement to the contrary, the Administrative Agent has no responsibility hereunder with respect to the issuance, renewal, extension, amendment or other administration of any Alternative Currency Letter of Credit, except as expressly set forth in Section 2.06.
SECTION 2.03. REIMBURSEMENT OF LC DISBURSEMENTS, ETC.
(a) REIMBURSEMENT. If any Lender shall make any LC Disbursement in respect of any Syndicated Letter of Credit or Alternative Currency Letter of Credit, regardless of the identity of the Account Party of such Syndicated Letter of Credit or Alternative Currency Letter of Credit, as the case may be, the Account Parties jointly and severally agree that they shall reimburse such Lender in respect of such LC Disbursement under (x) a Syndicated Letter of Credit by paying to the Administrative Agent an amount equal to such LC Disbursement not later than noon, New York City time, on (i) the Business Day that the Account Parties receive notice of such LC Disbursement, if such notice is received prior to 10:00 a.m., New York City time, or (ii) the Business Day immediately following the day that the Account Parties receive such notice, if such notice is not received prior to such time and (y) an Alternative Currency Letter of Credit, by paying such Lender on the date, in the currency and amount thereof, together with interest thereon (if any), and in the manner (including the place of payment) as such Lender and such Account Party shall have separately agreed pursuant to Section 2.06.
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(b) REIMBURSEMENT OBLIGATIONS ABSOLUTE. The Account Parties' joint
and several obligations to reimburse LC Disbursements as provided in paragraph
(a) of this Section shall be absolute, unconditional and irrevocable, and shall
be performed strictly in accordance with the terms of this Agreement under any
and all circumstances whatsoever and irrespective of (i) any lack of validity or
enforceability of any Syndicated Letter of Credit or any term or provision
therein, (ii) any draft or other document presented under a Syndicated Letter of
Credit proving to be forged, fraudulent or invalid in any respect or any
statement therein being untrue or inaccurate in any respect, (iii) payment under
a Syndicated Letter of Credit against presentation of a draft or other document
that does not comply strictly with the terms of such Syndicated Letter of Credit
(PROVIDED that the Account Parties shall not be obligated to reimburse such LC
Disbursements unless payment is made against presentation of a draft or other
document that at least substantially complies with the terms of such Syndicated
Letter of Credit), (iv) at any time or from time to time, without notice to any
Account Party, the time for any performance of or compliance with any of such
reimbursement obligations of any other Account Party shall be waived, extended
or renewed, (v) any of such reimbursement obligations of any other Account Party
being amended or otherwise modified in any respect, or any guarantee of any of
such reimbursement obligations being released, substituted or exchanged in whole
or in part or otherwise dealt with, (vi) the occurrence of any Default, (vii)
the existence of any proceedings of the type described in clause (g) or (h) of
Article VIII with respect to any other Account Party or any guarantor of any of
such reimbursement obligations, (viii) any lack of validity or enforceability of
any of such reimbursement obligations against any other Account Party or any
guarantor of any of such reimbursement obligations, or (ix) any other event or
circumstance whatsoever, whether or not similar to any of the foregoing, that
might, but for the provisions of this Section, constitute a legal or equitable
discharge of the obligations of any Account Party hereunder.
Neither the Administrative Agent, nor any Lender nor any of their Related Parties shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Syndicated Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Syndicated Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond their control; PROVIDED that the foregoing shall not be construed to excuse the Administrative Agent or a Lender from liability to any Account Party to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Account Parties to the extent permitted by applicable law) suffered by any Account Party that are caused by the gross negligence or willful misconduct of the Administrative Agent or a Lender. The parties hereto expressly agree that:
(i) the Administrative Agent may accept documents that appear on their face to be in substantial compliance with the terms of a Syndicated Letter of Credit without responsibility for further investigation, regardless of any notice or information to the contrary, and may make payment upon presentation of documents that appear on their face to be in substantial compliance with the terms of such Syndicated Letter of Credit;
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(ii) the Administrative Agent shall have the right, in its sole discretion, to decline to accept such documents and to make such payment if such documents are not in strict compliance with the terms of such Syndicated Letter of Credit; and
(iii) this sentence shall establish the standard of care to be exercised by the Administrative Agent when determining whether drafts and other documents presented under a Syndicated Letter of Credit comply with the terms thereof (and the parties hereto hereby waive, to the extent permitted by applicable law, any standard of care inconsistent with the foregoing).
(c) DISBURSEMENT PROCEDURES. The Administrative Agent shall, within a reasonable time following its receipt thereof, examine all documents purporting to represent a demand for payment under any Syndicated Letter of Credit. The Administrative Agent shall promptly after such examination (i) notify each of the Lenders and the Account Parties by telephone (confirmed by telecopy) of such demand for payment and (ii) deliver to each Lender a copy of each document purporting to represent a demand for payment under such Syndicated Letter of Credit. With respect to any drawing properly made under a Syndicated Letter of Credit, each Lender will make an LC Disbursement in respect of such Syndicated Letter of Credit in accordance with its liability under such Syndicated Letter of Credit and this Agreement, such LC Disbursement to be made to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make any such LC Disbursement available to the beneficiary of such Syndicated Letter of Credit by promptly crediting the amounts so received, in like funds, to the account identified by such beneficiary in connection with such demand for payment. Promptly following any LC Disbursement by any Lender in respect of any Syndicated Letter of Credit, the Administrative Agent will notify the Account Parties of such LC Disbursement; PROVIDED that any failure to give or delay in giving such notice shall not relieve the Account Parties of their obligation to reimburse the Lenders with respect to any such LC Disbursement.
(d) INTERIM INTEREST. If any LC Disbursement with respect to a Syndicated Letter of Credit is made, then, unless the Account Parties shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Account Parties reimburse such LC Disbursement, at the rate per annum equal to (i) 1% PLUS the Alternate Base Rate to but excluding the date three Business Days after such LC Disbursement is made and (ii) from and including the date three Business Days after such LC Disbursement is made, 3% PLUS the Alternate Base Rate.
(e) RIGHT OF CONTRIBUTION. The Account Parties hereby agree, as between themselves, that if any Account Party shall pay any reimbursement obligation in respect of any LC Disbursement with respect to a Syndicated Letter of Credit issued to support the obligations of another Account Party (the "SPECIFIED ACCOUNT PARTY"), the Specified Account Party shall, on demand (but subject to the next sentence), pay to such first Account Party an amount equal to the amount of such reimbursement. The payment obligation of a Specified Account Party to another Account Party under this paragraph (e) shall be subordinate and subject in right of payment to the prior payment in full of the obligations of the Specified Account Party under this Agreement
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and each other Credit Document, and such other Account Party shall not exercise any right or remedy with respect to such reimbursement until payment and satisfaction in full of all of such obligations of the Specified Account Party.
SECTION 2.04. NON-SYNDICATED LETTERS OF CREDIT.
(a) GENERAL. Subject to the terms and conditions set forth herein, at the request of any Account Party the Lenders agree at any time and from time to time during the Availability Period to issue Non-Syndicated Letters of Credit for the account of such Account Party in an aggregate amount that will not result in the Credit Exposure exceeding the Commitments (it being understood that Non-Syndicated Letters of Credit may be issued, or be outstanding, for the account of more than one of the Account Parties at any time). Each Non-Syndicated Letter of Credit shall be in such form as is consistent with the requirements of the applicable regulatory authorities in the jurisdiction of issue as reasonably determined by the Administrative Agent or as otherwise agreed to by the Administrative Agent and XL Capital. Each Non-Syndicated Letter of Credit shall be issued by the respective Issuing Lender thereof, through the Administrative Agent as provided in Section 2.04(c), in the amount of such Issuing Lender's Applicable Percentage of the aggregate amount of Non-Syndicated Letters of Credit being requested by such Account Party at such time, and (notwithstanding anything herein or in any other Letter of Credit Document to the contrary) such Non-Syndicated Letter of Credit shall be the sole responsibility of such Issuing Lender (and of no other Person, including any other Lender or the Administrative Agent). Notwithstanding anything to the contrary in this Agreement, no Non-Syndicated Letter of Credit may be requested hereunder for any jurisdiction unless XL Capital provides evidence reasonably satisfactory to the Administrative Agent that Syndicated Letters of Credit do not comply with the insurance laws of such jurisdiction.
(b) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL OR EXTENSION. To request the issuance of Non-Syndicated Letters of Credit (or the amendment, renewal or extension of outstanding Non-Syndicated Letters of Credit), an Account Party shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Administrative Agent) to the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of Non-Syndicated Letters of Credit, or identifying the Non-Syndicated Letters of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension, as the case may be (which shall be a Business Day), the date on which such Non-Syndicated Letters of Credit are to expire (which shall comply with paragraph (e) of this Section), the aggregate amount of all Non-Syndicated Letters of Credit to be issued in connection with such request, the name and address of the beneficiary thereof and the terms and conditions of (and such other information as shall be necessary to prepare, amend, renew or extend, as the case may be) such Non-Syndicated Letters of Credit. If Non-Syndicated Letters of Credit issued in connection with the same request shall provide for the automatic extension of the expiry date thereof unless the Issuing Lender thereof or the Administrative Agent gives notice that such expiry date shall not be extended, then the Administrative Agent (acting on behalf of the relevant Issuing Lenders) will give such notice for all such Non-Syndicated Letters of Credit if requested to do so by the Required Lenders in a notice given to the Administrative Agent not more than 60 days, but not less than 45 days, prior to the current expiry date of such Non-Syndicated Letter of Credit. If requested by the Administrative Agent, such Account Party also shall submit a letter of credit
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application on JPMCB's standard form in connection with any request for a Non-Syndicated Letter of Credit. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by any Account Party to, or entered into by any Account Party with, the Administrative Agent (acting on behalf of the relevant Issuing Lenders) relating to any Non-Syndicated Letter of Credit, the terms and conditions of this Agreement shall control.
(c) ISSUANCE AND ADMINISTRATION. Each Non-Syndicated Letter of
Credit shall be executed and delivered by the Administrative Agent (which term,
for purposes of this Section 2.04 and any other provisions of this Agreement,
including Article IX and Section 10.03, relating to Non-Syndicated Letters of
Credit, shall be deemed to refer to, unless the context otherwise requires,
JPMCB acting in its capacity as the Administrative Agent or in its individual
capacity, in either case as attorney-in-fact for the respective Issuing Lender),
acting through any duly authorized officer of JPMCB, in the name and on behalf
of, and as attorney-in-fact for, the Issuing Lender party to such Non-Syndicated
Letter of Credit. With respect to each Non-Syndicated Letter of Credit, the
Administrative Agent shall act in the name and on behalf of, and as
attorney-in-fact for, the Lender issuing such Non-Syndicated Letter of Credit
and in that capacity shall, and each Lender hereby irrevocably appoints and
designates the Administrative Agent, acting through any duly authorized officer
of JPMCB, to so act in the name and on behalf of, and as attorney-in-fact for,
each Lender with respect to each Non-Syndicated Letter of Credit to be issued by
such Lender hereunder and, without limiting any other provision of this
Agreement, to, (i) execute and deliver in the name and on behalf of such Lender
each Non-Syndicated Letter of Credit to be issued by such Lender hereunder, (ii)
receive drafts, other demands for payment and/or other documents presented by
the beneficiary thereunder, (iii) determine whether such drafts, demands and/or
documents are in compliance with the terms and conditions thereof, (iv) notify
the beneficiary of any such Non-Syndicated Letter of Credit of the expiration or
non-renewal thereof in accordance with the terms thereof, (v) advise such
beneficiary of any change in the office for presentation of drafts under any
such Non-Syndicated Letter of Credit, (vi) enter into with the Account Parties
any such letter of credit application or similar agreement with respect to any
such Non-Syndicated Letter of Credit as the Administrative Agent shall require,
(vii) remit to the beneficiary of any such Non-Syndicated Letter of Credit any
payment made by such Lender and received by the Administrative Agent in
connection with a drawing thereunder, (viii) perform any and all other acts
which in the sole opinion of the Administrative Agent may be necessary or
incidental to the performance of the powers herein granted with respect to such
Non-Syndicated Letter of Credit, (ix) notify such Lender and the Account Parties
that a valid drawing has been made and the date that the related LC Disbursement
is to be made; PROVIDED that the Administrative Agent shall have no obligation
or liability for any LC Disbursement under such Non-Syndicated Letter of Credit
and (x) delegate to any agent of JPMCB and such agent's Related Parties, or any
of them, the performance of any of such powers. Each Lender hereby ratifies and
confirms (and undertakes to ratify and confirm from time to time upon the
request of the Administrative Agent) whatsoever the Administrative Agent (or any
Related Party thereof) shall do or purport to do by virtue of the power herein
granted. Promptly upon the request of the Administrative Agent, each Lender will
furnish to the Administrative Agent such powers of attorney or other evidence as
any beneficiary of any Non-Syndicated Letter of Credit may reasonably request in
order to demonstrate that the Administrative Agent has the power to act as
attorney-in-fact for such
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Lender with respect to such Non-Syndicated Letter of Credit (together with such evidence of the due authorization, execution, delivery and validity of such power of attorney as the Administrative Agent may reasonably request). Without limiting any provision of Article IX, the Administrative Agent may perform any and all of its duties and exercise any and all of its rights and powers under this Section through its Related Parties.
(d) LIMITATIONS ON AMOUNTS. Non-Syndicated Letters of Credit shall
be issued, amended, renewed or extended only if (and upon such issuance,
amendment, renewal or extension of each Non-Syndicated Letter of Credit the
Account Parties shall be deemed to represent and warrant that), after giving
effect to such issuance, amendment, renewal or extension, (i) the Aggregate
Credit Exposure shall not exceed the aggregate amount of the Commitments and
(ii) the Credit Exposure (excluding any Alternative Currency LC Exposure) of
each Lender shall not exceed the Commitment of such Lender.
(e) EXPIRY DATE. Each Non-Syndicated Letter of Credit shall expire at or prior to the close of business on the date one year after the date of the issuance of such Non-Syndicated Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension).
(f) PARTICIPATIONS. By the issuance of a Non-Syndicated Letter of Credit (or an amendment to a Non-Syndicated Letter of Credit increasing the amount thereof) by the respective Issuing Lender, and without any further action on the part of such Issuing Lender or the Lenders, such Issuing Lender hereby grants to each Lender (other than the Issuing Lender itself), and each such Lender hereby acquires from such Issuing Lender, a participation in such Non-Syndicated Letter of Credit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Non-Syndicated Letter of Credit. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Non-Syndicated Letter of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Non-Syndicated Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for account of the respective Issuing Lender, such Lender's Applicable Percentage of each LC Disbursement made by an Issuing Lender in respect of any Non-Syndicated Letter of Credit promptly upon the request of the Administrative Agent at any time from the time such LC Disbursement is made until such LC Disbursement is reimbursed by the Account Parties or at any time after any reimbursement payment is required to be refunded to the Account Parties for any reason. Such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Promptly following receipt by the Administrative Agent of any payment from the Account Parties pursuant to the next following paragraph, the Administrative Agent shall distribute such payment to the respective Issuing Lender or, to the extent that the Lenders have made payments pursuant to this paragraph to reimburse such Issuing Lender, then to such Lenders and such Issuing Lender as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse an Issuing Lender for any LC Disbursement shall not relieve the Account Parties of their obligation to reimburse such LC Disbursement.
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(g) REIMBURSEMENT. If any Issuing Lender shall make any LC Disbursement in respect of any Non-Syndicated Letter of Credit, regardless of the identity of the Account Party of such Non-Syndicated Letter of Credit, the Account Parties jointly and severally agree that they shall reimburse such Issuing Lender in respect of such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than noon, New York City time, on (i) the Business Day that the Account Parties receive notice of such LC Disbursement, if such notice is received prior to 10:00 a.m., New York City time, or (ii) the Business Day immediately following the day that the Account Parties receive such notice, if such notice is not received prior to such time.
If the Account Parties fail to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Account Parties in respect thereof and such Lender's Applicable Percentage thereof.
(h) OBLIGATIONS ABSOLUTE. The Account Parties' joint and several obligations to reimburse LC Disbursements in respect of any Non-Syndicated Letter of Credit as provided in paragraph (g) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Non-Syndicated Letter of Credit, or any term or provision therein, (ii) any draft or other document presented under a Non-Syndicated Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Lender under a Non-Syndicated Letter of Credit against presentation of a draft or other document that does not comply strictly with the terms of such Non-Syndicated Letter of Credit (PROVIDED that the Account Parties shall not be obligated to reimburse such LC Disbursements unless payment is made against presentation of a draft or other document that at least substantially complies with the terms of such Non-Syndicated Letter of Credit), (iv) at any time or from time to time, without notice to any Account Party, the time for any performance of or compliance with any of such reimbursement obligations of any other Account Party being waived, extended or renewed, (v) any of such reimbursement obligations of any other Account Party being amended or otherwise modified in any respect, or any guarantee of any of such reimbursement obligations being released, substituted or exchanged in whole or in part or otherwise dealt with, (vi) the occurrence of any Default, (vii) the existence of any proceedings of the type described in clause (g) or (h) of Article VIII with respect to any other Account Party or any guarantor of any of such reimbursement obligations, (viii) any lack of validity or enforceability of any of such reimbursement obligations against any other Account Party or any guarantor of any of such reimbursement obligations, or (ix) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the obligations of any Account Party hereunder.
Neither the Administrative Agent, the Lenders nor any Issuing Lender, nor any of their respective Related Parties, shall have any liability or responsibility by reason of or in connection with the payment or failure to make any payment under a Non-Syndicated Letter of Credit (irrespective of any of the circumstances referred to in the preceding sentence) as a result of determining whether drafts or other documents presented under a Non-Syndicated Letter of Credit comply with the terms thereof, or any error, omission, interruption, loss or delay in
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transmission or delivery of any draft, notice or other communication under or relating to any Non-Syndicated Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of an Issuing Lender; PROVIDED that the foregoing shall not be construed to excuse the Administrative Agent or a Lender from liability to the Account Parties to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Account Parties to the extent permitted by applicable law) suffered by the Account Parties that are caused by the gross negligence or willful misconduct of the Administrative Agent or a Lender when determining whether drafts and other documents presented under a Non-Syndicated Letter of Credit comply with the terms thereof. The parties hereto expressly agree that:
(i) the Administrative Agent may accept documents that appear on their face to be in substantial compliance with the terms of a Non-Syndicated Letter of Credit without responsibility for further investigation, regardless of any notice or information to the contrary, and may make payment upon presentation of documents that appear on their face to be in substantial compliance with the terms of such Non-Syndicated Letter of Credit;
(ii) the Administrative Agent shall have the right, in its sole discretion, to decline to accept such documents and to make such payment if such documents are not in strict compliance with the terms of such Non-Syndicated Letter of Credit; and
(iii) this sentence shall establish the standard of care to be exercised by the Administrative Agent when determining whether drafts and other documents presented under a Non-Syndicated Letter of Credit comply with the terms thereof (and the parties hereto hereby waive, to the extent permitted by applicable law, any standard of care inconsistent with the foregoing).
(i) DISBURSEMENT PROCEDURES. The Administrative Agent shall, within a reasonable time following its receipt thereof, examine all documents purporting to represent a demand for payment under any Non-Syndicated Letter of Credit. The Administrative Agent shall promptly after such examination (i) notify each of the Lenders and the Account Parties by telephone (confirmed by telecopy) of such demand for payment and (ii) deliver to each Lender (including the Issuing Lender) a copy of each document purporting to represent a demand for payment under such Non-Syndicated Letter of Credit. With respect to any drawing properly made under a Non-Syndicated Letter of Credit, the Issuing Lender thereof will make an LC Disbursement in respect of such Non-Syndicated Letter of Credit in accordance with its liability under such Non-Syndicated Letter of Credit and this Agreement, such LC Disbursement to be made to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make any such LC Disbursement available to the beneficiary of such Non-Syndicated Letter of Credit by promptly crediting the amounts so received, in like funds, to the account identified by such beneficiary in connection with such demand for payment. Promptly following any LC Disbursement by any Issuing Lender in respect of any Non-Syndicated Letter of Credit, the Administrative Agent will notify the Account Parties of such LC Disbursement; PROVIDED that any failure to give or delay in giving such notice shall not relieve the Account Parties of their obligation to reimburse such
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Issuing Lender with respect to any such LC Disbursement.
(j) INTERIM INTEREST. If any LC Disbursement with respect to a Non-Syndicated Letter of Credit is made, then, unless the Account Parties shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Account Parties reimburse such LC Disbursement, at the rate per annum equal to (i) 1% PLUS the Alternate Base Rate to but excluding the date three Business Days after such LC Disbursement is made and (ii) from and including the date three Business Days after such LC Disbursement is made, 3% PLUS the Alternate Base Rate.
(k) RIGHT OF CONTRIBUTION. The Account Parties hereby agree, as between themselves, that if any Account Party shall pay any reimbursement obligation in respect of any LC Disbursement with respect to a Non-Syndicated Letter of Credit issued to support the obligations of another Account Party (the "SPECIFIED ACCOUNT PARTY"), the Specified Account Party shall, on demand (but subject to the next sentence), pay to such first Account Party an amount equal to the amount of such reimbursement. The payment obligation of a Specified Account Party to another Account Party under this paragraph (k) shall be subordinate and subject in right of payment to the prior payment in full of the obligations of the Specified Account Party under this Agreement and each other Credit Document, and such other Account Party shall not exercise any right or remedy with respect to such reimbursement until payment and satisfaction in full of all of such obligations of the Specified Account Party.
(l) CONTINUATION OF EXISTING NON-SYNDICATED LETTERS OF CREDIT. Subject to the terms and conditions hereof, each Non-Syndicated Letter of Credit under (and as defined in) the Existing Credit Agreement which is outstanding on the Effective Date and is designated to be continued hereunder in the notice provided by XL Capital to the Administrative Agent pursuant to Section 5.01(f) shall, effective as of the Effective Date, be amended by the respective Issuing Lender (through the Administrative Agent) to reflect the Lenders having Commitments as of the Effective Date and, with respect to each such Non-Syndicated Letter of Credit issued by a Lender that is party to the Existing Credit Agreement, a face amount based upon the respective Lender's Applicable Percentage of the Commitments as in effect on the Effective Date, and each such Non-Syndicated Letter of Credit, as so amended, shall be deemed continued hereunder as a Non-Syndicated Letter of Credit issued by such Lender for all purposes of this Agreement as of the Effective Date.
(m) ADJUSTMENTS TO NON-SYNDICATED LETTERS OF CREDIT. Upon each increase of the Commitments pursuant to Section 2.11(c), (i) each Non-Syndicated Letter of Credit then outstanding hereunder shall, as of the effective date of such increase, be amended by the respective Issuing Lenders thereof (through the Administrative Agent) to reflect the Lenders having Commitments after giving effect to such increase and having, with respect to each such Non-Syndicated Letter of Credit issued by an existing Lender, a face amount based upon such Lender's Applicable Percentage of such Commitments and/or (ii) as applicable, new Non-Syndicated Letters of Credit shall be issued hereunder as of such effective date by each Supplemental Lender which has undertaken a new or incremental Commitment in connection with such increase in a face amount based upon such Supplemental Lender's Applicable
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Percentage of such Commitments. Upon the assignment by a Lender of all or a portion of its Commitment and its interests in the Non-Syndicated Letters of Credit pursuant to an Assignment and Assumption, (i) XL Capital shall, at the reasonable request of the Administrative Agent, execute such documents as may be necessary in connection with amendments to each Non-Syndicated Letter of Credit issued by such assigning Lender then outstanding hereunder (or to replace each such Non-Syndicated Letter of Credit with a new Non-Syndicated Letter of Credit of such assigning Lender) to reflect such assigning Lender's Commitment and with a face amount based upon such Lender's Applicable Percentage after giving effect to such assignment and/or (ii) as applicable, a new Non-Syndicated Letter of Credit shall be issued hereunder as of the effective date of such assignment by the assignee Lender which has undertaken a new or incremental Commitment in connection with such assignment in a face amount based upon such assignee Lender's Applicable Percentage of the Commitments after giving effect to such assignment.
SECTION 2.05. PARTICIPATED LETTERS OF CREDIT.
(a) GENERAL. Subject to the terms and conditions set forth herein, any Account Party may request the Issuing Lender to issue, at any time and from time to time during the Availability Period, Participated Letters of Credit for its own account. Each Participated Letter of Credit shall be in such form as is consistent with the requirements of the applicable regulatory authorities in Illinois, California, Wisconsin or New York as reasonably determined by the Administrative Agent or as otherwise agreed to by the Administrative Agent and XL Capital. Participated Letters of Credit issued hereunder shall constitute utilization of the Commitments.
(b) NOTICE OF ISSUANCE, AMENDMENT, RENEWAL OR EXTENSION. To request the issuance of a Participated Letter of Credit (or the amendment, renewal or extension of an outstanding Participated Letter of Credit), an Account Party shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Lender) to the Issuing Lender and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Participated Letter of Credit, or identifying the Participated Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Participated Letter of Credit is to expire (which shall comply with paragraph (d) of this Section), the amount of such Participated Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Participated Letter of Credit. If requested by the Issuing Lender, such Account Party also shall submit a letter of credit application on the Issuing Lender's standard form in connection with any request for a Participated Letter of Credit. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by such Account Party to, or entered into by any Account Party with, the Issuing Lender relating to any Participated Letter of Credit, the terms and conditions of this Agreement shall control.
(c) LIMITATIONS ON AMOUNTS. A Participated Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Participated Letter of Credit each Account Party shall be deemed to represent and warrant
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that), after giving effect to such issuance, amendment, renewal or extension (i) the sum of (A) the LC Exposure of the Issuing Lender with respect to Participated Letters of Credit (determined for these purposes without giving effect to the participations therein of the Lenders pursuant to paragraph (e) of this Section) and (B) with respect to the 364-Day Credit Agreement, the LC Exposure of the Issuing Lender with respect to Participated Letters of Credit (determined for these purposes without giving effect to the participations therein of the Lenders pursuant to Section 2.05(e) of the 364-Day Credit Agreement) (the terms used in this clause (B) having the definitions assigned to them in the 364-Day Credit Agreement) shall not exceed $100,000,000 and (ii) the Aggregate Credit Exposure shall not exceed the aggregate amount of the Commitments.
(d) EXPIRY DATE. Each Participated Letter of Credit shall expire at or prior to the close of business on the date one year after the date of the issuance of such Participated Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension).
(e) PARTICIPATIONS. By the issuance of a Participated Letter of Credit (or an amendment to a Participated Letter of Credit increasing the amount thereof) by the Issuing Lender, and without any further action on the part of the Issuing Lender or the Lenders, the Issuing Lender hereby grants to each Lender, and each Lender hereby acquires from the Issuing Lender, a participation in such Participated Letter of Credit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Participated Letter of Credit. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Participated Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Participated Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for account of the Issuing Lender, such Lender's Applicable Percentage of each LC Disbursement made by the Issuing Lender in respect of any Participated Letter of Credit promptly upon the request of the Issuing Lender at any time from the time such LC Disbursement is made until such LC Disbursement is reimbursed by the Account Parties or at any time after any reimbursement payment is required to be refunded to the Account Parties for any reason. Such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Promptly following receipt by the Administrative Agent of any payment from the Account Parties pursuant to the next following paragraph, the Administrative Agent shall distribute such payment to the Issuing Lender or, to the extent that the Lenders have made payments pursuant to this paragraph to reimburse the Issuing Lender, then to such Lenders and the Issuing Lender as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse the Issuing Lender for any LC Disbursement shall not relieve the Account Parties of their obligation to reimburse such LC Disbursement.
(f) REIMBURSEMENT. If any Lender shall make any LC Disbursement in respect of any Participated Letter of Credit, regardless of the identity of the Account Party of such Participated Letter of Credit, the Account Parties jointly and severally agree that they shall reimburse such Lender in respect of such LC Disbursement by paying to the Administrative
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Agent an amount equal to such LC Disbursement not later than noon, New York City time, on (i) the Business Day that the Account Parties receive notice of such LC Disbursement, if such notice is received prior to 10:00 a.m., New York City time, or (ii) the Business Day immediately following the day that the Account Parties receive such notice, if such notice is not received prior to such time.
If the Account Parties fail to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Account Parties in respect thereof and such Lender's Applicable Percentage thereof.
(g) OBLIGATIONS ABSOLUTE. The Account Parties' joint and several obligations to reimburse LC Disbursements in respect of any Participated Letter of Credit as provided in paragraph (f) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Participated Letter of Credit, or any term or provision therein, (ii) any draft or other document presented under a Participated Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Lender under a Participated Letter of Credit against presentation of a draft or other document that does not comply strictly with the terms of such Participated Letter of Credit (PROVIDED that the Account Parties shall not be obligated to reimburse such LC Disbursements unless payment is made against presentation of a draft or other document that at least substantially complies with the terms of such Participated Letter of Credit), (iv) at any time or from time to time, without notice to any Account Party, the time for any performance of or compliance with any of such reimbursement obligations of any other Account Party shall be waived, extended or renewed, (v) any of such reimbursement obligations of any other Account Party shall be amended or otherwise modified in any respect, or any guarantee of any of such reimbursement obligations shall be released, substituted or exchanged in whole or in part or otherwise dealt with, (vi) the occurrence of any Default, (vii) the existence of any proceedings of the type described in clause (g) or (h) of Article VIII with respect to any other Account Party or any guarantor of any of such reimbursement obligations, (viii) any lack of validity or enforceability of any of such reimbursement obligations against any other Account Party or any guarantor of any of such reimbursement obligations, or (ix) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of the obligations of any Account Party hereunder.
Neither the Administrative Agent, the Lenders nor the Issuing Lender, nor any of their respective Related Parties, shall have any liability or responsibility by reason of or in connection with the payment or failure to make any payment under a Participated Letter of Credit (irrespective of any of the circumstances referred to in the preceding sentence) as a result of determining whether drafts or other documents presented under a Participated Letter of Credit comply with the terms thereof, or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Participated Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Lender; PROVIDED that the foregoing shall not be construed to excuse the Issuing
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Lender from liability to the Account Parties to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Account Parties to the extent permitted by applicable law) suffered by the Account Parties that are caused by the Issuing Lender's gross negligence or willful misconduct when determining whether drafts and other documents presented under a Participated Letter of Credit comply with the terms thereof. The parties hereto expressly agree that:
(i) the Issuing Lender may accept documents that appear on their face to be in substantial compliance with the terms of a Participated Letter of Credit without responsibility for further investigation, regardless of any notice or information to the contrary, and may make payment upon presentation of documents that appear on their face to be in substantial compliance with the terms of such Participated Letter of Credit;
(ii) the Issuing Lender shall have the right, in its sole discretion, to decline to accept such documents and to make such payment if such documents are not in strict compliance with the terms of such Participated Letter of Credit; and
(iii) this sentence shall establish the standard of care to be exercised by the Issuing Lender when determining whether drafts and other documents presented under a Participated Letter of Credit comply with the terms thereof (and the parties hereto hereby waive, to the extent permitted by applicable law, any standard of care inconsistent with the foregoing).
(h) DISBURSEMENT PROCEDURES. The Issuing Lender shall, within a reasonable time following its receipt thereof, examine all documents purporting to represent a demand for payment under a Participated Letter of Credit. The Issuing Lender shall promptly after such examination notify the Administrative Agent and XL Capital by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Lender has made or will make a LC Disbursement thereunder; PROVIDED that any failure to give or delay in giving such notice shall not relieve the Account Parties of their obligation to reimburse the Issuing Lender and the Lenders with respect to any such LC Disbursement.
(i) INTERIM INTEREST. If any LC Disbursement is made with respect to a Participated Letter of Credit, then, unless the Account Parties shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Account Parties reimburse such LC Disbursement, at the rate per annum equal to (i) 1% PLUS the Alternate Base Rate to but excluding the date three Business Days after such LC Disbursement is made and (ii) from and including the date three Business Days after such LC Disbursement is made, 3% PLUS the Alternate Base Rate. Interest accrued pursuant to this paragraph shall be for account of the Issuing Lender, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (f) of this Section to reimburse the Issuing Lender shall be for account of such Lender to the extent of such payment.
(j) REPLACEMENT OF THE ISSUING LENDER. The Issuing Lender may be replaced at any time by written agreement between XL Capital, the Administrative Agent, the replaced Issuing Lender and the successor Issuing Lender. The Administrative Agent shall notify the
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Lenders of any such replacement of the Issuing Lender. At the time any such
replacement shall become effective, the Account Parties shall pay all unpaid
fees accrued for account of the replaced Issuing Lender pursuant to Section
2.14(d). From and after the effective date of any such replacement, (i) the
successor Issuing Lender shall have all the rights and obligations of the
replaced Issuing Lender under this Agreement with respect to Participated
Letters of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Lender" shall be deemed to refer to such successor or to any previous
Issuing Lender, or to such successor and all previous Issuing Lenders, as the
context shall require. After the replacement of an Issuing Lender hereunder, the
replaced Issuing Lender shall remain a party hereto and shall continue to have
all the rights and obligations of an Issuing Lender under this Agreement with
respect to Participated Letters of Credit issued by it prior to such
replacement, but shall not be required to issue additional Participated Letters
of Credit.
(k) RIGHT OF CONTRIBUTION. The Account Parties hereby agree, as between themselves, that if any Account Party shall pay any reimbursement obligation in respect of any LC Disbursement with respect to a Participated Letter of Credit issued to support the obligations of another Account Party (the "SPECIFIED ACCOUNT PARTY"), the Specified Account Party shall, on demand (but subject to the next sentence), pay to such first Account Party an amount equal to the amount of such reimbursement. The payment obligation of a Specified Account Party to another Account Party under this paragraph (k) shall be subordinate and subject in right of payment to the prior payment in full of the obligations of the Specified Account Party under this Agreement and each other Credit Document, and such other Account Party shall not exercise any right or remedy with respect to such reimbursement until payment and satisfaction in full of all of such obligations of the Specified Account Party.
(l) CONTINUATION OF EXISTING PARTICIPATED LETTERS OF CREDIT. Subject to the terms and conditions hereof, each Participated Letter of Credit under (and as defined in) the Existing Credit Agreement which is outstanding on the Effective Date and is designated to be continued hereunder in the notice provided by XL Capital to the Administrative Agent pursuant to Section 5.01(f) shall automatically be continued hereunder on the Effective Date by the Issuing Lender of such Participated Letter of Credit, and as of the Effective Date the Lenders shall acquire a participation therein as if such Participated Letter of Credit were issued hereunder, and each such Participated Letter of Credit shall be deemed a Participated Letter of Credit for all purposes of this Agreement as of the Effective Date.
(m) ADJUSTMENT OF APPLICABLE PERCENTAGES. Notwithstanding anything
herein to the contrary, upon (i) each increase of the Commitments pursuant to
Section 2.11(c), each Lender's participation in each Participated Letter of
Credit then outstanding shall automatically be adjusted to reflect its
Applicable Percentage after giving effect to such increase and (ii) the
assignment by a Lender of all or a portion of its Commitment and its interests
in the Participated Letters of Credit pursuant to an Assignment and Assumption,
the respective assigning Lender's participation in each Participated Letter of
Credit then outstanding shall automatically be adjusted to reflect, and the
respective assignee Lender shall be deemed to acquire a participation in each
such Participated Letter of Credit in an amount equal to, its Applicable
Percentage after giving effect to such assignment.
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SECTION 2.06. ALTERNATIVE CURRENCY LETTERS OF CREDIT.
(a) REQUESTS FOR OFFERS. From time to time during the Availability Period, an Account Party may request any or all of the Lenders to make offers to issue an Alternative Currency Letter of Credit for account of such Account Party. Each Lender may, but shall have no obligation to, make such offers on terms and conditions that are satisfactory to such Lender, and such Account Party may, but shall have no obligation to, accept any such offers. An Alternative Currency Letter of Credit shall be issued, amended, renewed or extended only if (and upon such issuance, amendment, renewal or extension of each Alternative Currency Letter of Credit the Account Parties shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension, the Aggregate Credit Exposure shall not exceed the aggregate amount of the Commitments. Each such Alternative Currency Letter of Credit shall be issued, and subsequently, renewed, extended, amended and confirmed, on such terms as XL Capital, the applicable Account Party and such Lender shall agree, including expiry, drawing conditions, reimbursement, interest, fees and provision of cover; PROVIDED that the expiry of any Alternative Currency Letter of Credit shall not be later than the one-year anniversary from the date of issuance thereof (or, in the case of any renewal or extension thereof, one-year after such renewal or extension).
(b) REPORTS TO ADMINISTRATIVE AGENT. The Account Parties shall deliver to the Administrative Agent and each of the Lenders a report in respect of each Alternative Currency Letter of Credit (an "ALTERNATIVE CURRENCY LETTER OF CREDIT REPORT") on and as of the date (i) on which such Alternative Currency Letter of Credit is issued, (ii) of the issuance, renewal, extension or amendment of a Syndicated Letter of Credit or a Non-Syndicated Letter of Credit, if any Alternative Currency Letter of Credit is then outstanding and (iii) on which the Commitments are to be reduced pursuant to Section 2.11, specifying for each such Alternative Currency Letter of Credit (after giving effect to issuance thereof, as applicable):
(A) the date on which such Alternative Currency Letter of Credit was or is being issued;
(B) the Alternative Currency of such Alternative Currency Letter of Credit;
(C) the aggregate undrawn amount of such Alternative Currency Letter of Credit (in such Alternative Currency);
(D) the aggregate unpaid amount of LC Disbursements under such Alternative Currency Letter of Credit (in such Alternative Currency);
(E) the Alternative Currency LC Exposure (in Dollars) in respect of such Alternative Currency Letter of Credit; and
(F) the aggregate amount of Alternative Currency LC Exposures (in Dollars).
Each Alternative Currency Letter of Credit Report shall be delivered to the Administrative Agent and each of the Lenders by 10:00 a.m. (New York City time) on the date on which it is required to be delivered.
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SECTION 2.07. LOANS AND BORROWINGS.
(a) GENERAL. Subject to the terms and conditions set forth herein,
each Lender agrees to make Loans to an Account Party from time to time during
the Availability Period in an aggregate principal amount that will not result in
(i) such Lender's outstanding Loans exceeding such Lender's Applicable
Percentage of the RC Sublimit, (ii) such Lender's Credit Exposure (excluding any
Alternative Currency LC Exposure) exceeding such Lender's Commitment, (iii) the
sum of (A) the aggregate outstanding principal amount of the Loans and (B) the
aggregate outstanding principal amount of the Loans under (and as defined in)
the Three-Year Credit Agreement exceeding the RC Sublimit or (iv) the Aggregate
Credit Exposure exceeding the aggregate amount of the Commitments. Loans may be
made, or be outstanding, to more than one of the Account Parties at any time.
Within the foregoing limits and subject to the terms and conditions set forth
herein, the Account Parties may borrow, prepay and reborrow Loans. Loans shall
constitute utilization of both the RC Sublimit and the Commitments.
(b) OBLIGATIONS OF LENDERS. Each Loan shall be made as part of a Borrowing consisting of Loans of the same Type made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; PROVIDED that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required.
(c) TYPE OF LOANS. Subject to Section 2.15, each Borrowing shall be constituted entirely of ABR Loans or of Eurodollar Loans as any Account Party may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; PROVIDED that any exercise of such option shall not affect the obligation of the Account Parties to repay such Loan in accordance with the terms of this Agreement.
(d) MINIMUM AMOUNTS; LIMITATION ON NUMBER OF BORROWINGS. Each Eurodollar Borrowing shall be in an aggregate amount of $10,000,000 or a larger multiple of $1,000,000. Each ABR Borrowing shall be in an aggregate amount equal to $10,000,000 or a larger multiple of $1,000,000; PROVIDED that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the Commitments or that is requested to finance the reimbursement of an LC Disbursement as contemplated by Section 2.03(a). Borrowings of more than one Type may be outstanding at the same time; PROVIDED that there shall not at any time be more than a total of ten Eurodollar Borrowings outstanding.
(e) LIMITATIONS ON INTEREST PERIODS. Notwithstanding any other provision of this Agreement, no Account Party shall be entitled to request (or to elect to convert to or continue as a Eurodollar Borrowing) any Borrowing if the Interest Period requested therefor would end after the Commitment Termination Date.
SECTION 2.08. REQUESTS FOR BORROWINGS.
(a) NOTICE BY THE ACCOUNT PARTIES. To request a Borrowing, XL Capital shall notify the Administrative Agent of such request by telephone (i) in the case of a Eurodollar
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Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing or (ii) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the date of the proposed Borrowing; provided that any such notice of an ABR Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.03(a) may be given not later than 11:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by XL Capital.
(b) CONTENT OF BORROWING REQUESTS. Each telephonic and written
Borrowing Request shall specify the following information in compliance with
Section 2.07:
(i) the relevant Account Party;
(ii) the aggregate amount of the requested Borrowing;
(iii) the date of such Borrowing, which shall be a Business Day;
(iv) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(v) in the case of a Eurodollar Borrowing, the Interest Period therefor, which shall be a period contemplated by the definition of the term "Interest Period" and permitted under Section 2.07(e); and
(vi) the location and number of such Account Party's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.09.
(c) NOTICE BY THE ADMINISTRATIVE AGENT TO THE LENDERS. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing.
(d) FAILURE TO ELECT. If no election as to the Type of a Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the requested Borrowing shall be made instead as an ABR Borrowing.
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SECTION 2.09. FUNDING OF BORROWINGS.
(a) FUNDING BY LENDERS. Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time (or 1:00 p.m., New York City time with respect to ABR Loans requested by XL Capital no later than 11:00 a.m. on the same day), to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the relevant Account Party by promptly crediting the amounts so received, in like funds, to an account of such Account Party maintained with the Administrative Agent in New York City and designated by such Account Party in the applicable Borrowing Request.
(b) PRESUMPTION BY THE ADMINISTRATIVE AGENT. Unless the
Administrative Agent shall have received notice from a Lender prior to the
proposed date of any Borrowing (or in the case of any ABR Borrowing, on or prior
to the proposed date of such Borrowing) that such Lender will not make available
to the Administrative Agent such Lender's share of such Borrowing, the
Administrative Agent may assume that such Lender has made such share available
on such date in accordance with paragraph (a) of this Section and may, in
reliance upon such assumption, make available to the relevant Account Party a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the relevant Account Party severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount with interest
thereon, for each day from and including the date such amount is made available
to such Account Party to but excluding the date of payment to the Administrative
Agent, at (i) in the case of such Lender, the Federal Funds Effective Rate or
(ii) in the case of such Account Party, the interest rate applicable to ABR
Loans. If such Lender pays such amount to the Administrative Agent, then such
amount shall constitute such Lender's Loan included in such Borrowing.
SECTION 2.10. INTEREST ELECTIONS.
(a) ELECTIONS BY THE ACCOUNT PARTIES. The Loans constituting each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have the Interest Period specified in such Borrowing Request. Thereafter, the relevant Account Party may elect to convert such Borrowing to a Borrowing of a different Type or to continue such Borrowing as a Borrowing of the same Type and, in the case of a Eurodollar Borrowing, may elect the Interest Period therefor, all as provided in this Section. The relevant Account Party may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans constituting such Borrowing, and the Loans constituting each such portion shall be considered a separate Borrowing.
(b) NOTICE OF ELECTIONS. To make an election pursuant to this Section, XL Capital shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.08 if XL Capital were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by
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hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by XL Capital.
(c) CONTENT OF INTEREST ELECTION REQUESTS. Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.07:
(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) of this paragraph shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period therefor after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period" and permitted under Section 2.07(e).
(d) NOTICE BY THE ADMINISTRATIVE AGENT TO THE LENDERS. Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing.
(e) FAILURE TO ELECT; EVENTS OF DEFAULT. If XL Capital fails to deliver a timely and complete Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period therefor, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies XL Capital, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period therefor.
SECTION 2.11. TERMINATION, REDUCTION AND INCREASE OF THE COMMITMENTS.
(a) SCHEDULED TERMINATION. Unless previously terminated, the Commitments shall terminate at the close of business on the Commitment Termination Date.
(b) VOLUNTARY TERMINATION OR REDUCTION. The Account Parties may at
any time terminate, or from time to time reduce, the Commitments and/or the RC
Sublimit; PROVIDED that (i) each reduction of the Commitments or the RC Sublimit
shall be in an amount that is $25,000,000 or a larger multiple of $5,000,000 and
(ii) the Account Parties shall not terminate or reduce the Commitments or the RC
Sublimit if the Aggregate Credit Exposure would exceed the Commitments or the
outstanding Loans would exceed the RC Sublimit, as the case may be. XL
THREE-YEAR CREDIT AGREEMENT
Capital shall notify the Administrative Agent of any election to terminate or
reduce the Commitments or the RC Sublimit under this paragraph (b) at least
three Business Days prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof, PROVIDED
that no reduction of the RC Sublimit shall occur in connection with a reduction
of the Commitments unless specified in such notice, except that upon the earlier
of (x) the termination of the Commitments and (y) the Commitment Termination
Date, the RC Sublimit shall be reduced to zero. Promptly following receipt of
any such notice, the Administrative Agent shall advise the Lenders of the
contents thereof. Each notice delivered by XL Capital pursuant to this paragraph
(b) shall be irrevocable; PROVIDED that a notice of termination of the
Commitments delivered by XL Capital may state that such notice is conditioned
upon the effectiveness of other credit facilities, in which case such notice may
be revoked by XL Capital (by notice to the Administrative Agent on or prior to
the specified effective date) if such condition is not satisfied. Subject to the
proviso in the immediately preceding sentence, any termination or reduction of
the Commitments or the RC Sublimit shall be permanent. Each reduction of the
Commitments or the RC Sublimit shall be made ratably among the Lenders in
accordance with their respective Commitments.
(c) INCREASES TO COMMITMENTS. XL Capital shall have the right, at any time by notice to the Administrative Agent, to increase the Commitments hereunder up to an aggregate amount not exceeding $2,700,000,000 (i) by including as a Lender hereunder with a new Commitment, any Person which is a NAIC Approved Bank that is not an existing Lender or (ii) by having an existing Lender increase its Commitment then in effect (with the consent of such Lender in its sole discretion) (each new or increasing Lender, a "SUPPLEMENTAL LENDER") in each case with the approval (not to be unreasonably withheld) of the Administrative Agent, which notice shall specify the name of each Supplemental Lender, the aggregate amount of such increase and the portion thereof being assumed by each such Supplemental Lender, and the date on which such increase is to become effective (each a "SUPPLEMENTAL COMMITMENT DATE") (which shall be a Business Day at least three Business Days after the delivery of such notice and 30 days prior to the Commitment Termination Date); PROVIDED that (x) the Commitment of any Supplemental Lender that is not an existing Lender shall be in an amount of at least $25,000,000 and (y) the aggregate amount of the increase of the Commitments effected on any day shall be in an aggregate amount of at least $25,000,000 and larger multiples of $1,000,000. Each such Supplemental Lender shall enter into an agreement in form and substance satisfactory to XL Capital and the Administrative Agent pursuant to which such Supplemental Lender shall, as of the applicable Supplemental Commitment Date, undertake a Commitment (or, if any such Supplemental Lender is an existing Lender, pursuant to which such Supplemental Lender's Commitment shall be increased in the agreed amount on such date) and such Supplemental Lender shall thereupon become (or, if it is already a Lender, continue to be) a "Lender" for all purposes hereof; PROVIDED that, in the case of any Supplemental Lender that is not a Lender immediately prior to such Supplemental Commitment Date and is not listed on the NAIC Approved Bank List, such Supplemental Lender and its Confirming Lender shall have entered into an agreement of the type contemplated in the definition of "Confirming Lender" in Section 1.01.
Notwithstanding the foregoing, no increase in the Commitments hereunder pursuant to this Section shall be effective unless on the applicable Supplemental Commitment Date:
THREE-YEAR CREDIT AGREEMENT
(i) no Default shall have occurred and be continuing;
(ii) the representations and warranties of the Obligors set forth in this Agreement (other than in Section 4.04(b)) shall be true and correct on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); and
(iii) no Loans are outstanding and no notices in respect of the issuance, amendment, renewal or extension of any Letter of Credit or of any Borrowing are pending, unless the Administrative Agent otherwise agrees.
Each such notice shall be deemed to constitute a representation and warranty by XL Capital as to the matters specified in clauses (i) and (ii) of the immediately preceding sentence as of such date.
SECTION 2.12. REPAYMENT OF LOANS; EVIDENCE OF DEBT.
(a) REPAYMENT. Each Account Party hereby unconditionally promises to pay to the Administrative Agent for account of the relevant Lenders the outstanding principal amount of the Loans made to such Account Party on the Commitment Termination Date.
(b) MANNER OF PAYMENT. Prior to any repayment or prepayment of any Borrowings hereunder, XL Capital shall select the Borrowing or Borrowings to be paid and shall notify the Administrative Agent by telephone (confirmed by telecopy) of such selection not later than 11:00 a.m., New York City time, three Business Days before the scheduled date of such repayment; PROVIDED that each repayment of Borrowings shall be applied to repay any outstanding ABR Borrowings before any other Borrowings. If XL Capital fails to make a timely selection of the Borrowing or Borrowings to be repaid or prepaid, such payment shall be applied, first, to pay any outstanding ABR Borrowings and, second, to other Borrowings in the order of the remaining duration of their respective Interest Periods (the Borrowing with the shortest remaining Interest Period to be repaid first). Each payment of a Borrowing shall be applied ratably to the Loans included in such Borrowing.
(c) MAINTENANCE OF RECORDS BY LENDERS. Each Lender shall maintain in accordance with its usual practice records evidencing the indebtedness of each Account Party to such Lender resulting from each Loan made by such Lender to such Account Party, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(d) MAINTENANCE OF RECORDS BY THE ADMINISTRATIVE AGENT. The Administrative Agent shall maintain records in which it shall record (i) the amount of each Loan made to each Account Party hereunder, the Type thereof and each Interest Period therefor, (ii) the amount of any principal or interest due and payable or to become due and payable from such Account Party to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for account of the Lenders and each Lender's share thereof.
THREE-YEAR CREDIT AGREEMENT
(e) EFFECT OF ENTRIES. The entries made in the records maintained pursuant to paragraph (c) or (d) of this Section shall be PRIMA FACIE evidence of the existence and amounts of the obligations recorded therein; PROVIDED that the failure of any Lender or the Administrative Agent to maintain such records or any error therein shall not in any manner affect the obligation of the Account Parties to repay the Loans in accordance with the terms of this Agreement.
(f) PROMISSORY NOTES. Any Lender may request that Loans made by it
to any Account Party be evidenced by a promissory note of such Account Party. In
such event, each Account Party shall prepare, execute and deliver to such Lender
a promissory note payable to such Lender (or, if requested by such Lender, to
such Lender and its registered assigns) and in a form approved by the
Administrative Agent. Thereafter, the Loans evidenced by such promissory note
and interest thereon shall at all times (including after assignment pursuant to
Section 10.04) be represented by one or more promissory notes in such form
payable to the payee named therein (or, if such promissory note is a registered
note, to such payee and its registered assigns).
SECTION 2.13. PREPAYMENT OF LOANS.
(a) RIGHT TO PREPAY BORROWINGS. The Account Parties shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to the requirements of this Section.
(b) NOTICES, ETC. XL Capital shall notify the Administrative Agent
by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case
of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York
City time, three Business Days before the date of prepayment or (ii) in the case
of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City
time, one Business Day before the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of
each Borrowing or portion thereof to be prepaid; PROVIDED that, if a notice of
prepayment is given in connection with a conditional notice of termination of
the Commitments as contemplated by Section 2.11, then such notice of prepayment
may be revoked if such notice of termination is revoked in accordance with
Section 2.11. Promptly following receipt of any such notice relating to a
Borrowing, the Administrative Agent shall advise the Lenders of the contents
thereof. Each partial prepayment of any Borrowing shall be in an amount that
would be permitted in the case of a Borrowing of the same Type as provided in
Section 2.07. Each prepayment of a Borrowing shall be applied ratably to the
Loans included in the prepaid Borrowing. Prepayments shall be accompanied by
accrued interest to the extent required by Section 2.15 and shall be made in the
manner specified in Section 2.12(b).
SECTION 2.14. FEES.
(a) FACILITY FEE. XL Capital agrees to pay to the Administrative Agent for account of each Lender a facility fee which shall accrue at a rate per annum equal to the Applicable Rate (i) prior to the termination of such Lender's Commitment, on the daily amount of such Commitment (whether used or unused) during the period from and including the Effective Date to but excluding the earlier of the date on which such Commitment terminates and the Commitment Termination Date and (ii) if such Lender continues to have any Credit Exposure
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after its Commitment terminates, on the daily amount of such Lender's Credit Exposure from and including the date on which such Lender's Commitment terminates to but excluding the date on which such Lender ceases to have any Credit Exposure. Accrued facility fees shall be payable on each Quarterly Date and on the earlier of the date the Commitments terminate and the Commitment Termination Date; PROVIDED that any facility fees accruing after such earlier date shall be payable on demand.
(b) SYNDICATED LETTER OF CREDIT FEES. XL Capital agrees to pay to the Administrative Agent for account of each Lender a letter of credit fee which shall accrue at a rate per annum equal to the Applicable Rate on the average daily aggregate undrawn amount of all outstanding Syndicated Letters of Credit during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Commitment terminates and the date on which such Lender ceases to have any LC Exposure. Syndicated Letter of Credit fees accrued through and including each Quarterly Date shall be payable on the third Business Day following such Quarterly Date, commencing on the first such date to occur after the Effective Date; PROVIDED that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand.
(c) NON-SYNDICATED LETTER OF CREDIT FEES. XL Capital agrees to pay to the Administrative Agent for account of each Lender a letter of credit fee which shall accrue at a rate per annum equal to the Applicable Rate on the average daily aggregate undrawn amount of all outstanding Non-Syndicated Letters of Credit during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Commitment terminates and the date on which such Lender ceases to have any LC Exposure. Non-Syndicated Letter of Credit fees accrued through and including each Quarterly Date shall be payable on the third Business Day following such Quarterly Date, commencing on the first such date to occur after the Effective Date; PROVIDED that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand.
(d) PARTICIPATED LETTER OF CREDIT FEES. XL Capital agrees to pay
(i) to the Administrative Agent for account of each Lender a participation fee
with respect to its participations in Participated Letters of Credit, which
shall accrue at a rate per annum equal to the Applicable Rate on the average
daily amount of such Lender's LC Exposure in respect of Participated Letters of
Credit (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date to but
excluding the later of the date on which such Lender's Commitment terminates and
the date on which such Lender ceases to have any such LC Exposure, and (ii) to
the Issuing Lender a fronting fee which shall accrue at a rate per annum as
agreed in writing between XL Capital and the Issuing Lender on the average daily
amount of the LC Exposure in respect of Participated Letters of Credit
(excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the Effective Date to but excluding the
later of the date of termination of the Commitments and the date on which there
ceases to be any such LC Exposure. Participation fees and fronting fees accrued
through and including each Quarterly Date shall be payable on the third Business
Day following such Quarterly Date, commencing on the first such date to occur
after the Effective Date; PROVIDED that all such fees shall be payable on the
date on which the
THREE-YEAR CREDIT AGREEMENT
Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand.
(e) LC ADMINISTRATIVE FEES. XL Capital agrees to pay to the Administrative Agent, for its own account, within 10 Business Days after demand the Administrative Agent's standard administrative fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder.
(f) ADMINISTRATIVE AGENT FEES. XL Capital agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between XL Capital and the Administrative Agent.
(g) PAYMENT AND COMPUTATION OF FEES. All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of the fees referred to in paragraphs (a) through (d) of this Section, to the Lenders entitled thereto. Fees paid shall not be refundable under any circumstances. All fees payable under paragraphs (a) through (d) of this Section shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).
SECTION 2.15. INTEREST.
(a) ABR LOANS. The Loans constituting each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base Rate PLUS the Applicable Additional Margin, if any.
(b) EURODOLLAR LOANS. The Loans constituting each Eurodollar Borrowing shall bear interest at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period for such Borrowing PLUS the Applicable Margin PLUS the Applicable Additional Margin, if any.
(c) DEFAULT INTEREST. Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable (other that in respect of any LC Disbursement under Sections 2.03(d), 2.04(j), and 2.05(i)) by the Account Parties hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% PLUS the rate otherwise applicable to such Loan as provided above or (ii) in the case of any other amount, 2% PLUS the rate applicable to ABR Loans as provided in paragraph (a) of this Section.
(d) PAYMENT OF INTEREST. Accrued interest on each Loan shall be payable by the applicable Account Party in arrears on each Interest Payment Date for such Loan and upon the date the Commitments terminate; PROVIDED that (x) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (y) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Loan prior to the Commitment Termination Date), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (z) in the event of any conversion of any Eurodollar Borrowing
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prior to the end of the Interest Period therefor, accrued interest on such Borrowing shall be payable on the effective date of such conversion.
(e) COMPUTATION. All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.
SECTION 2.16. ALTERNATE RATE OF INTEREST. If prior to the commencement of the Interest Period for any Eurodollar Borrowing:
(a) the Administrative Agent determines in good faith (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders (acting in good faith) that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their respective Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to XL Capital and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies XL Capital and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or the continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and such Borrowing (unless prepaid) shall be continued as, or converted to, an ABR Borrowing and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing.
SECTION 2.17. INCREASED COSTS.
(a) INCREASED COSTS GENERALLY. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any other condition affecting this Agreement, any Letter of Credit (or any participation therein) or any Eurodollar Loan made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining, or participating in, any Letter of Credit (or of maintaining any participation therein) or Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the
THREE-YEAR CREDIT AGREEMENT
amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Account Parties jointly and severally agree that they will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.
(b) CAPITAL REQUIREMENTS. If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Letters of Credit issued or participated in, or the Loans made, by such Lender to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Account Parties will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered.
(c) CERTIFICATES FROM LENDERS. A certificate of a Lender setting forth such Lender's good faith determination of the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to XL Capital and shall be conclusive absent manifest error. The Account Parties shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof by XL Capital.
(d) DELAY IN REQUESTS. Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; PROVIDED that the Account Parties shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 90 days prior to the date that such Lender notifies XL Capital of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; PROVIDED FURTHER that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 90 day period referred to above shall be extended to include the period of retroactive effect thereof.
(e) APPLICATION TO TAXES. Notwithstanding anything in this Section to the contrary, this Section shall not apply to Taxes, which shall be governed solely by Section 2.19.
SECTION 2.18. BREAK FUNDING PAYMENTS. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period therefor (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of an Interest Period therefor, (c) the failure to borrow, convert, continue or prepay any Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice is permitted to be revocable under Section 2.13(b) and is revoked in accordance herewith), or (d) the assignment as a result of a request by XL Capital pursuant to Section 2.21(b) of any Eurodollar Loan other than on the last day of an Interest Period therefor, then, in any such event, the Account Parties shall compensate each Lender for the loss attributable to such event. The loss to any Lender attributable to any such event shall be deemed to be an amount determined by such Lender to be equal to the excess, if any, of (i) the amount of interest that such Lender would pay for a deposit equal to the principal amount of such Loan for
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the period from the date of such payment, conversion, failure or assignment to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, convert or continue, the duration of the Interest Period that would have resulted from such borrowing, conversion or continuation) if the interest rate payable on such deposit were equal to the Adjusted LIBO Rate for such Interest Period, OVER (ii) the amount of interest that such Lender would earn on such principal amount for such period if such Lender were to invest such principal amount for such period at the interest rate that would be bid by such Lender (or an affiliate of such Lender) for Dollar deposits from other banks in the eurodollar market at the commencement of such period. A certificate of any Lender setting forth such Lender's good faith determination of any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to XL Capital and shall be conclusive absent manifest error. The Account Parties shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof by XL Capital.
SECTION 2.19. TAXES.
(a) PAYMENTS FREE OF TAXES. Any and all payments by or on account
of any obligation of the Account Parties hereunder shall be made free and clear
of and without deduction for any Indemnified Taxes; PROVIDED that if any Account
Party shall be required to deduct any Indemnified Taxes from such payments, then
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent or Lender (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Account Party shall make such deductions and
(iii) such Account Party shall pay the full amount deducted to the relevant
Governmental Authority in accordance with applicable law.
(b) PAYMENT OF OTHER TAXES BY THE ACCOUNT PARTIES. In addition, each Account Party shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(c) INDEMNIFICATION BY THE ACCOUNT PARTIES. The Account Parties shall indemnify the Administrative Agent and each Lender, within 10 days after written demand to XL Capital therefor, for the full amount of any Indemnified Taxes and Other Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes, as the case may be, were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate setting forth the Administrative Agent's or such Lender's, as the case may be, good faith determination of the amount of such payment or liability delivered to XL Capital by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive as between such Lender or the Administrative Agent, as the case may be, and the Account Parties absent manifest error.
(d) EVIDENCE OF PAYMENTS. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by any Account Party to a Governmental Authority, XL Capital on behalf of such Account Party shall deliver to the Administrative Agent the original or
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a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e) EXEMPTIONS. Each Lender and the Administrative Agent shall, at the written request of XL Capital, provide to any Account Party such form, certification or similar documentation, if any (each duly completed, accurate and signed) as is currently required by any Account Party Jurisdiction or any other jurisdiction, or comply with such other requirements, if any, as is currently applicable in such Account Party Jurisdiction or any other jurisdiction, in order to obtain an exemption from, or reduced rate of, deduction, payment or withholding of Indemnified Taxes or Other Taxes to which such Lender or the Administrative Agent is entitled pursuant to an applicable tax treaty or the law of such Account Party Jurisdiction or any other jurisdiction; PROVIDED that XL Capital shall have furnished to such Lender or the Administrative Agent in a reasonably timely manner copies of such documentation and notice of such requirements together with applicable instructions. Upon the reasonable request of XL Capital in writing, each Lender and the Administrative Agent will provide to XL Capital such form, certification or similar documentation (each duly completed, accurate and signed) as may in the future be required by any Account Party Jurisdiction or any other jurisdiction, or comply with such other requirements, if any, as may be applicable in such Account Party Jurisdiction or any other jurisdiction in order to obtain an exemption from, or reduced rate of, deduction, payment or withholding of Indemnified Taxes or Other Taxes to which such Lender or the Administrative Agent is entitled pursuant to an applicable tax treaty or the law of the relevant jurisdiction. The Account Parties shall not be required to pay additional amount to, or to indemnify, any Lender or the Administrative Agent under paragraph (a) or (c) of this Section for any Indemnified Taxes or Other Taxes to the extent such Indemnified Taxes or Other Taxes would not have been imposed but for the failure by such Lender or the Administrative Agent, as the case may be, to comply with the foregoing provisions of paragraph (e) of this Section.
(f) If the Administrative Agent or a Lender determines, in its
reasonable discretion, that it has received a refund of any Taxes or Other Taxes
as to which it has been indemnified by an Account Party or with respect to which
an Account Party has paid additional amounts pursuant to this Section, it shall
pay over such refund to such Account Party (but only to the extent of indemnity
payments made, or additional amounts paid, by such Account Party under this
Section with respect to the Taxes or Other Taxes giving rise to such refund),
net of all out-of-pocket expenses of the Administrative Agent or such Lender and
without interest (other than any interest paid by the relevant Governmental
Authority with respect to such refund); PROVIDED that such Account Party, upon
the request of the Administrative Agent or such Lender, agrees to repay the
amount paid over to such Account Party (plus any penalties, interest or other
charges imposed by the relevant Governmental Authority) to the Administrative
Agent or such Lender in the event the Administrative Agent or such Lender is
required to repay such refund to such Governmental Authority. This Section shall
not be construed to require the Administrative Agent or any Lender to make
available its tax returns (or any other information relating to its taxes which
it deems confidential) to any Account Party or any other Person.
(g) Any Lender that is not a Lender as of the date hereof shall not be entitled to any greater payment under this Section than such Lender's assignor was entitled to immediately prior to such assignment (determined taking into account the provisions of this Section) except to
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the extent that the entitlement to a greater payment resulted solely from a Change in Law formally announced after the date on which such Lender became a Lender hereunder.
SECTION 2.20. PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SET-OFFS.
(a) PAYMENTS BY THE ACCOUNT PARTIES. The Account Parties shall
make each payment required to be made by them hereunder (whether of principal,
interest, fees or reimbursement of LC Disbursements, interest or fees, or under
Section 2.17, 2.18 or 2.19, or otherwise) or under any other Credit Document
(except to the extent otherwise provided therein) prior to 12:00 noon, New York
City time, on the date when due, in immediately available funds, without set-off
or counterclaim; PROVIDED that any payments in respect of Alternative Currency
Letters of Credit shall be made in the manner (including the time and place of
payment) as shall have been separately agreed between the relevant Account Party
and Lender pursuant to Section 2.06. Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the Administrative Agent at
its offices at 270 Park Avenue, New York, New York, except payments pursuant to
Sections 2.17, 2.18, 2.19 and 10.03, which shall be made directly to the Persons
entitled thereto. The Administrative Agent shall distribute any such payments
received by it for account of any other Person to the appropriate recipient
promptly following receipt thereof. If any payment hereunder shall be due on a
day that is not a Business Day, the date for payment shall be extended to the
next succeeding Business Day and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All payments
hereunder shall be made in Dollars.
(b) APPLICATION OF INSUFFICIENT PAYMENTS. If at any time
insufficient funds are received by and available to the Administrative Agent to
pay fully all amounts of principal, unreimbursed LC Disbursements, interest and
fees then due hereunder, such funds shall be applied (i) first, to pay interest
and fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and fees then due to such parties, and
(ii) second, to pay principal and unreimbursed LC Disbursements then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal and unreimbursed LC Disbursements then due to such parties.
(c) PRO RATA TREATMENT. Except to the extent otherwise provided herein: (i) each reimbursement of LC Disbursements (other than in respect of Alternative Currency Letters of Credit) shall be made to the Lenders, each Borrowing shall be made from the Lenders, each payment of fees under Section 2.14 shall be made for account of the relevant Lenders, and each termination or reduction of the amount of the Commitments under Section 2.11 shall be applied to the respective Commitments of the Lenders, in each case pro rata according to the amounts of their respective Commitments (or, in the case of any such reimbursement or payment after the termination of the Commitments, pro rata according to the Aggregate Credit Exposure); (ii) each Borrowing shall be allocated pro rata among the Lenders according to the amounts of their respective Commitments (in the case of the making of Loans) or their respective Loans that are to be included in such Borrowing (in the case of conversions and continuations of Loans); (iii) each payment or prepayment of principal of Loans by any Account Party shall be made for account of the Lenders pro rata according to the respective unpaid principal amounts of the
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Loans of such Account Party; and (iv) each payment of interest on Loans by an Account Party shall be made for account of the Lenders pro rata according to the amounts of interest on such Loans then due and payable thereunder.
(d) SHARING OF PAYMENTS BY LENDERS. If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or LC Disbursements (other than with respect to Alternative Currency Letters of Credit) resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and/or LC Disbursements (other than with respect to Alternative Currency Letters of Credit) and accrued interest thereon then due than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and/or LC Disbursements (other than with respect to Alternative Currency Letters of Credit) of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and/or LC Disbursements (other than with respect to Alternative Currency Letters of Credit); PROVIDED that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by any Account Party pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or LC Disbursements to any assignee or participant, other than to any Account Party or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Each Account Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Account Party rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Account Party in the amount of such participation.
(e) PRESUMPTIONS OF PAYMENT. Unless the Administrative Agent shall have received notice from an Account Party prior to the date on which any payment is due to the Administrative Agent for account of the relevant Lenders hereunder that such Account Party will not make such payment, the Administrative Agent may assume that such Account Party has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the relevant Lenders the amount due. In such event, if the relevant Account Party has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Federal Funds Effective Rate.
(f) CERTAIN DEDUCTIONS BY THE ADMINISTRATIVE AGENT. If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.20(e), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid.
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SECTION 2.21. MITIGATION OBLIGATIONS; REPLACEMENT OF LENDERS.
(a) DESIGNATION OF A DIFFERENT LENDING OFFICE. If any Lender requests compensation under Section 2.17, or if any Account Party is required to pay any additional amount or indemnification payment to any Lender or any Governmental Authority for account of any Lender pursuant to Section 2.19, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans and/or Letters of Credit hereunder or to assign its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the reasonable judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.17 or 2.19, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. Each Account Party hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b) REPLACEMENT OF LENDERS. If any Lender requests compensation under Section 2.17, or if any Account Party is required to pay any additional amount to any Lender or any Governmental Authority for account of any Lender pursuant to Section 2.19, or if any Lender defaults in its obligation to fund Loans or to make LC Disbursements hereunder, or if any Lender ceases to be a NAIC Approved Bank, then XL Capital may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 10.04), all its interests, rights and obligations under this Agreement to an assignee selected by XL Capital that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); PROVIDED that (i) XL Capital shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and/or LC Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the relevant Account Party (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.17 or payments required to be made pursuant to Section 2.19, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the relevant Account Party to require such assignment and delegation cease to apply.
ARTICLE III
GUARANTEE
SECTION 3.01. THE GUARANTEE. Each Guarantor hereby jointly and severally guarantees to each Lender and the Administrative Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Loans and LC Disbursements (and interest
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thereon) made by the Lenders to each of the Account Parties (other than such Guarantor in its capacity as an Account Party hereunder) and all other amounts from time to time owing to the Lenders or the Administrative Agent by such Account Parties under this Agreement, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the "GUARANTEED OBLIGATIONS"). Each Guarantor hereby further jointly and severally agrees that if any Account Party (other than such Guarantor in its capacity as an Account Party hereunder) shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, such Guarantor will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal.
SECTION 3.02. OBLIGATIONS UNCONDITIONAL. The obligations of the Guarantors under Section 3.01 are absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Account Parties under this Agreement or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Article that the obligations of the Guarantors hereunder shall be absolute and unconditional, joint and several, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantors hereunder, which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to the Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this Agreement or any other agreement or instrument referred to herein shall be done or omitted; or
(iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under this Agreement or any other agreement or instrument referred to herein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with.
The Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Administrative Agent or any Lender exhaust any right, power or remedy or proceed against any Account Party under this Agreement or any other agreement or instrument referred to herein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations.
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SECTION 3.03. REINSTATEMENT. The obligations of the Guarantors under this Article shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Account Party in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, and the Guarantors jointly and severally agree that they will indemnify the Administrative Agent and each Lender on demand for all reasonable costs and expenses (including reasonable fees of counsel) incurred by the Administrative Agent or such Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law.
SECTION 3.04. SUBROGATION. The Guarantors hereby jointly and severally agree that until the payment and satisfaction in full of all Guaranteed Obligations and the expiration and termination of the Commitments they shall not exercise any right or remedy arising by reason of any performance by them of their guarantee in Section 3.01, whether by subrogation or otherwise, against any Account Party or any other guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations.
SECTION 3.05. REMEDIES. The Guarantors jointly and severally agree
that, as between the Guarantors and the Lenders, the obligations of the Account
Parties under this Agreement may be declared to be forthwith due and payable as
provided in Article VIII (and shall be deemed to have become automatically due
and payable in the circumstances provided in Article VIII) for purposes of
Section 3.01 notwithstanding any stay, injunction or other prohibition
preventing such declaration (or such obligations from becoming automatically due
and payable) as against any Account Party and that, in the event of such
declaration (or such obligations being deemed to have become automatically due
and payable), such obligations (whether or not due and payable by any Account
Party) shall forthwith become due and payable by the Guarantors for purposes of
Section 3.01.
SECTION 3.06. CONTINUING GUARANTEE. The guarantee in this Article is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising.
SECTION 3.07. RIGHTS OF CONTRIBUTION. The Guarantors (other than XL Capital) hereby agree, as between themselves, that if any such Guarantor shall become an Excess Funding Guarantor (as defined below) by reason of the payment by such Guarantor of any Guaranteed Obligations, each other Guarantor (other than XL Capital) shall, on demand of such Excess Funding Guarantor (but subject to the next sentence), pay to such Excess Funding Guarantor an amount equal to such Guarantor's Pro Rata Share (as defined below and determined, for this purpose, without reference to the properties, debts and liabilities of such Excess Funding Guarantor) of the Excess Payment (as defined below) in respect of such Guaranteed Obligations. The payment obligation of a Guarantor to any Excess Funding Guarantor under this Section shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Guarantor under the other provisions of this Article III and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations.
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For purposes of this Section, (i) "EXCESS FUNDING GUARANTOR" means, in respect of any Guaranteed Obligations, a Guarantor that has paid an amount in excess of its Pro Rata Share of such Guaranteed Obligations, (ii) "EXCESS PAYMENT" means, in respect of any Guaranteed Obligations, the amount paid by an Excess Funding Guarantor in excess of its Pro Rata Share of such Guaranteed Obligations and (iii) "PRO RATA SHARE" means, for any Guarantor, the ratio (expressed as a percentage) of (x) the amount by which the aggregate present fair saleable value of all properties of such Guarantor (excluding any shares of stock of any other Guarantor) exceeds the amount of all the debts and liabilities of such Guarantor (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder and any obligations of any other Guarantor that have been Guaranteed by such Guarantor) to (y) the amount by which the aggregate fair saleable value of all properties of all of the Guarantors (other than XL Capital) exceeds the amount of all the debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities, but excluding the obligations of the Guarantors under this Article III) of all of the Guarantors (other than XL Capital), determined (A) with respect to any Guarantor that is a party hereto on the date hereof, as of the date hereof, and (B) with respect to any other Guarantor, as of the date such Guarantor becomes a Guarantor hereunder.
SECTION 3.08. GENERAL LIMITATION ON GUARANTEE OBLIGATIONS. In any action or proceeding involving any corporate law, or any bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Guarantor under Section 3.01 would otherwise, taking into account the provisions of Section 3.07, be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under Section 3.01, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by such Guarantor, any Lender, the Administrative Agent or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each Account Party represents and warrants to the Lenders that:
SECTION 4.01. ORGANIZATION; POWERS. Such Account Party and each of its Significant Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.
SECTION 4.02. AUTHORIZATION; ENFORCEABILITY. The Transactions are within such Account Parties' corporate powers and have been duly authorized by all necessary corporate and, if required, by all necessary shareholder action. This Agreement has been duly executed and
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delivered by such Account Party and constitutes a legal, valid and binding obligation of such Account Party, enforceable against such Account Party in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium, examination or similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
SECTION 4.03. GOVERNMENTAL APPROVALS; NO CONFLICTS. The
Transactions (a) do not require any consent or approval of (including any
exchange control approval), registration or filing with, or any other action by,
any Governmental Authority, except such as have been obtained or made and are in
full force and effect, (b) will not violate any applicable law or regulation or
the charter, by-laws or other organizational documents of such Account Party or
any of its Significant Subsidiaries or any order of any Governmental Authority,
(c) will not violate or result in a default under any material indenture,
agreement or other instrument binding upon such Account Party or any of its
Significant Subsidiaries or assets, or give rise to a right thereunder to
require any payment to be made by any such Person, and (d) will not result in
the creation or imposition of any Lien on any asset of such Account Party or any
of its Significant Subsidiaries.
SECTION 4.04. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE.
(a) FINANCIAL CONDITION. Such Account Party has heretofore furnished to the Lenders the consolidated balance sheet and statements of income, stockholders' equity and cash flows of such Account Party and its consolidated Subsidiaries (A) as of and for the fiscal year ended December 31, 2003, reported on by PricewaterhouseCoopers LLP, independent public accountants (as provided in XL Capital's Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2003), and (B) as of and for the fiscal quarter ended March 31, 2004, as provided in XL Capital's Report on Form 10-Q filed with the SEC for the fiscal quarter ended March 31, 2004. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of such Account Party and its respective consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP or (in the case of XL Insurance or XL Re) SAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (B) of the first sentence of this paragraph.
(b) NO MATERIAL ADVERSE CHANGE. Since December 31, 2003, there has been no material adverse change in the assets, business, financial condition or operations of such Account Party and its Subsidiaries, taken as a whole.
SECTION 4.05. PROPERTIES.
(a) PROPERTY GENERALLY. Such Account Party and each of its Significant Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, subject only to Liens permitted by Section 7.03 and except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes.
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(b) INTELLECTUAL PROPERTY. Such Account Party and each of its Significant Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by such Account Party and its Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
SECTION 4.06. LITIGATION AND ENVIRONMENTAL MATTERS.
(a) ACTIONS, SUITS AND PROCEEDINGS. Except as disclosed in
Schedule III or as routinely encountered in claims activity, there are no
actions, suits or proceedings by or before any arbitrator or Governmental
Authority now pending against or, to the knowledge of such Account Party,
threatened against or affecting such Account Party or any of its Subsidiaries
(i) as to which there is a reasonable possibility of an adverse determination
and that could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect or (ii) that involve this Agreement or the
Transactions.
(b) ENVIRONMENTAL MATTERS. Except as disclosed in Schedule IV and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither such Account Party nor any of its Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required for its business under any Environmental Law, (ii) has incurred any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability.
SECTION 4.07. COMPLIANCE WITH LAWS AND AGREEMENTS. Such Account Party and each of its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing.
SECTION 4.08. INVESTMENT AND HOLDING COMPANY STATUS. Such Account Party is not (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935.
SECTION 4.09. TAXES. Such Account Party and each of its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which such Person has set aside on its books adequate reserves or (b) to the extent that the failure to file any such Tax return or pay any such Taxes could not reasonably be expected to result in a Material Adverse Effect.
SECTION 4.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability
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is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Plan by an amount that could reasonably be expected to result in a Material Adverse Effect.
Except as could not reasonably be expected to result in a Material Adverse Effect, (i) all contributions required to be made by any Account Party or any of their Subsidiaries with respect to a Non-U.S. Benefit Plan have been timely made, (ii) each Non-U.S. Benefit Plan has been maintained in compliance with its terms and with the requirements of any and all applicable laws and has been maintained, where required, in good standing with the applicable Governmental Authority and (iii) neither any Account Party nor any of their Subsidiaries has incurred any obligation in connection with the termination or withdrawal from any Non-U.S. Benefit Plan.
SECTION 4.11. DISCLOSURE. The reports, financial statements, certificates or other information furnished by such Account Party to the Lenders in connection with the negotiation of this Agreement or delivered hereunder (taken as a whole) do not contain any material misstatement of fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED that, with respect to projected financial information, such Account Party represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.
SECTION 4.12. USE OF CREDIT. Neither such Account Party nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock, and no Letter of Credit will be used in connection with buying or carrying any Margin Stock. No part of the proceeds of any Loan hereunder will be used to buy or carry any Margin Stock (except for repurchases of the capital stock of XL Capital and purchases of Margin Stock in accordance with XL Capital's Statement of Investment Policy Objectives and Guidelines as in effect on the date hereof or as it may be changed from time to time by a resolution duly adopted by the board of directors of XL Capital (or any committee thereof)). The purchase of any Margin Stock with the proceeds of any Loan will not be in violation of Regulation U or X of the Board and, after applying the proceeds of such Loan, not more than 25% of the value of the assets of XL Capital and its Subsidiaries taken as a whole consists or will consist of Margin Stock.
SECTION 4.13. SUBSIDIARIES. Set forth in Schedule V is a complete and correct list of all of the Subsidiaries of XL Capital as of March 31, 2004, together with, for each such Subsidiary, (i) the jurisdiction of organization of such Subsidiary, (ii) each Person holding ownership interests in such Subsidiary and (iii) the percentage of ownership of such Subsidiary represented by such ownership interests. Except as disclosed in Schedule V, (x) each of XL Capital and its Subsidiaries owns, free and clear of Liens, and has the unencumbered right to vote, all outstanding ownership interests in each Person shown to be held by it in Schedule V, (y) all of the issued and outstanding capital stock of each such Person organized as a corporation
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is validly issued, fully paid and nonassessable and (z) except as disclosed in filings of XL Capital with the SEC prior to the date hereof, there are no outstanding Equity Rights with respect to any Account Party.
SECTION 4.14. WITHHOLDING TAXES. Based upon information with respect to each Lender provided by each Lender to the Administrative Agent, as of the date hereof, the payment of the LC Disbursements and interest thereon, principal of and interest on the Loans, the fees under Section 2.14 and all other amounts payable hereunder will not be subject, by withholding or deduction, to any Indemnified Taxes imposed by Bermuda or the Cayman Islands.
SECTION 4.15. STAMP TAXES. To ensure the legality, validity, enforceability or admissibility in evidence of this Agreement or any promissory notes evidencing Loans made (or to be made), it is not necessary, as of the date hereof, that this Agreement or such promissory notes or any other document be filed or recorded with any Governmental Authority in Bermuda or the Cayman Islands, or that any stamp or similar tax be paid on or in respect of this Agreement in any such jurisdiction, or such promissory notes or any other document other than such filings and recordations that have already been made and such stamp or similar taxes that have been paid.
SECTION 4.16. LEGAL FORM. Each of this Agreement and any promissory notes evidencing Loans made (or to be made) is in proper legal form under the laws of any Account Party Jurisdiction for the admissibility thereof in the courts of such Account Party Jurisdiction.
ARTICLE V
CONDITIONS
SECTION 5.01. EFFECTIVE DATE. The obligations of the Lenders (or
the Issuing Lender, as the case may be) to issue or continue Letters of Credit
and to make Loans hereunder are subject to the receipt by the Administrative
Agent of each of the following documents, each of which shall be satisfactory to
the Administrative Agent (and to the extent specified below, to each Lender) in
form and substance (or such condition shall have been waived in accordance with
Section 10.02):
(a) EXECUTED COUNTERPARTS. From each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page to this Agreement) that such party has signed a counterpart of this Agreement.
(b) OPINIONS OF COUNSEL TO THE OBLIGORS. Opinions, each dated the Effective Date, of (i) Paul S. Giordano, Esq., counsel to XL Capital, substantially in the form of Exhibit B-1, (ii) Charles R. Barr, Esq., counsel to XL America, substantially in the form of Exhibit B-2, (iii) Cahill Gordon & Reindel LLP, special U.S. counsel for the Obligors, substantially in the form of Exhibit B-3, (iv) Conyers, Dill & Pearman, special Bermuda counsel to XL Insurance and XL Re, substantially in the form of Exhibit B-4 and (v)
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Appleby Spurling Hunter, special Cayman Islands counsel to XL Capital, substantially in the form of Exhibit B-5.
(c) OPINION OF SPECIAL NEW YORK COUNSEL TO JPMCB. An opinion, dated the Effective Date, of Milbank, Tweed, Hadley & McCloy LLP, special New York counsel to JPMCB, substantially in the form of Exhibit C (and JPMCB hereby instructs such counsel to deliver such opinion to the Lenders).
(d) CORPORATE DOCUMENTS. Such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing, if applicable, of the Obligors, the authorization of the Transactions and any other legal matters relating to the Obligors, this Agreement or the Transactions, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel.
(e) OFFICER'S CERTIFICATE. A certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of XL Capital, confirming compliance with the conditions set forth in the lettered clauses of the first sentence of Section 5.02.
(f) EXISTING CREDIT AGREEMENT; EXISTING LETTERS OF CREDIT. Evidence that (i) the Account Parties shall have paid in full all principal of and interest accrued on the loans and reimbursement obligations under the Existing Credit Agreement and all fees, expenses and other amounts owing by the Account Parties thereunder, (ii) the Commitments under (and as defined in) the Existing Credit Agreement) have terminated. In addition, the Administrative Agent shall have (i) received a notice satisfactory to the Administrative Agent from XL Capital designating whether any of the Syndicated Letters of Credit, Non-Syndicated Letters of Credit and/or Participated Letters of Credit under (and as defined in) the Existing Credit Agreement outstanding immediately prior to the Effective Date are to be continued under this Agreement and (ii) with respect to each such Non-Syndicated Letters of Credit to be continued hereunder, evidence that such Non-Syndicated Letters of Credit shall have been either amended in the manner contemplated by Section 2.04(l) or replaced with one or more Non-Syndicated Letters of Credit in favor of the relevant beneficiary issued by the Lenders having Commitments hereunder as of the Effective Date (or arrangements satisfactory to the Administrative Agent for such amendment or replacement, as applicable, as promptly as practicable following the Effective Date shall have been made).
(g) OTHER DOCUMENTS. Such other documents as the Administrative Agent or any Lender or special New York counsel to JPMCB may reasonably request.
The obligation of any Lender to make its initial extension of credit hereunder is also subject to the payment by XL Capital of such fees as XL Capital shall have agreed to pay to any Lender or the Administrative Agent in connection herewith, including the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy LLP, special New York counsel to JPMCB, in connection with the negotiation, preparation, execution and delivery of this Agreement and the other Credit Documents and the extensions of credit hereunder (to the extent that reasonably detailed statements for such fees and expenses have been delivered to XL Capital).
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The Administrative Agent shall notify the Account Parties and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders (or the Issuing Lender, as the case may be) to issue or continue, Letters of Credit or to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 10.02) at or prior to 5:00 p.m., New York City time, on June 23, 2004 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).
SECTION 5.02. EACH CREDIT EVENT. The obligation of each Lender to issue, continue, amend, renew or extend any Letter of Credit or to make any Loan is additionally subject to the satisfaction of the following conditions:
(a) the representations and warranties of the Obligors set forth
in this Agreement (other than, at any time after the Effective Date, in
Section 4.04(b)) shall be true and correct on and as of the date of
issuance, continuation, amendment, renewal or extension of such Letter of
Credit or the date of such Loan, as applicable (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date);
(b) at the time of and immediately after giving effect to the issuance, amendment, renewal or extension of such Letter of Credit or such Loan, as applicable, no Default shall have occurred and be continuing; and
(c) in the case of any Alternative Currency Letter of Credit, receipt by the Administrative Agent of a request for offers as required by Section 2.06(a).
Each issuance, continuation, amendment, renewal or extension of a Letter of Credit and each Borrowing shall be deemed to constitute a representation and warranty by the Obligors on the date thereof as to the matters specified in clauses (a) and (b) of the immediately preceding sentence.
ARTICLE VI
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated, the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Account Parties covenant and agree with the Lenders that:
SECTION 6.01. FINANCIAL STATEMENTS AND OTHER INFORMATION. Each Account Party will furnish to the Administrative Agent and each Lender:
(a) within 135 days after the end of each fiscal year of each Account Party except for XL America (but in the case of XL Capital, within 100 days after the end of each fiscal year of XL Capital), the audited consolidated balance sheet and related statements
THREE-YEAR CREDIT AGREEMENT
of operations, stockholders' equity and cash flows of such Account Party
and its consolidated Subsidiaries as of the end of and for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year (if such figures were already produced for such
corresponding period or periods) (it being understood that delivery to
the Lenders of XL Capital's Report on Form 10-K filed with the SEC shall
satisfy the financial statement delivery requirements of this paragraph
(a) to deliver the annual financial statements of XL Capital so long as
the financial information required to be contained in such Report is
substantially the same as the financial information required under this
paragraph (a)), all reported on by independent public accountants of
recognized national standing (without a "going concern" or like
qualification or exception and without any qualification or exception as
to the scope of such audit) to the effect that such consolidated
financial statements present fairly in all material respects the
financial condition and results of operations of such Account Party and
its consolidated Subsidiaries on a consolidated basis in accordance with
GAAP or (in the case of XL Insurance and XL Re) SAP, as the case may be,
consistently applied;
(b) by June 15 of each year, (i) an unaudited consolidated balance
sheet and related statements of operations, stockholders' equity and cash
flows of XL America and its consolidated Subsidiaries as of the end of
and for the immediately preceding fiscal year, setting forth in each case
in comparative form the figures for the previous fiscal year (if such
figures were already produced for such corresponding period or periods),
all certified by a Financial Officer of XL America as presenting fairly
in all material respects the financial condition and results of
operations of XL America and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject
to normal year-end audit adjustments and the absence of footnotes, and
(ii) audited statutory financial statements for each Insurance Subsidiary
of XL America reported on by independent public accountants of recognized
national standing (without a "going concern" or like qualification or
exception and without any qualification or exception as to the scope of
such audit) to the effect that such audited consolidated financial
statements present fairly in all material respects the financial
condition and results of operations of such Insurance Subsidiaries in
accordance with SAP, consistently applied;
(c) within 60 days after the end of each of the first three fiscal quarters of each fiscal year of such Account Party, the consolidated balance sheet and related statements of operations, stockholders' equity and cash flows of such Account Party and its consolidated Subsidiaries as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for (or, in the case of the balance sheet, as of the end of) the corresponding period or periods of the previous fiscal year (if such figures were already produced for such corresponding period or periods), all certified by a Financial Officer of such Account Party as presenting fairly in all material respects the financial condition and results of operations of such Account Party and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP or (in the case of XL Insurance and XL Re) SAP, as the case may be, consistently applied, subject to normal year-end audit adjustments and the absence of footnotes (it being understood that delivery to the Lenders of XL Capital's Report on
THREE-YEAR CREDIT AGREEMENT
Form 10-Q filed with the SEC shall satisfy the financial statement delivery requirements of this paragraph (c) to deliver the quarterly financial statements of XL Capital so long as the financial information required to be contained in such Report is substantially the same as the financial information required under this paragraph (c));
(d) concurrently with any delivery of financial statements under
clause (a), (b) or (c) of this Section, a certificate signed on behalf of
each Account Party by a Financial Officer (i) certifying as to whether a
Default has occurred and, if a Default has occurred, specifying the
details thereof and any action taken or proposed to be taken with respect
thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Sections 7.03, 7.05, 7.06 and 7.07 and
(iii) stating whether any change in GAAP or (in the case of XL Insurance,
XL Re and any Insurance Subsidiary of XL America) SAP or in the
application thereof has occurred since the date of the audited financial
statements referred to in Section 4.04 and, if any such change has
occurred, specifying any material effect of such change on the financial
statements accompanying such certificate;
(e) concurrently with any delivery of financial statements under clauses (a) and (b)(ii) of this Section, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines);
(f) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by such Account Party or any of its respective Subsidiaries with the SEC, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any U.S. or other securities exchange, or distributed by such Account Party to its shareholders generally, as the case may be;
(g) concurrently with any delivery of financial statements under clause (a), (b) or (c) of this Section, a certificate of a Financial Officer of XL Capital, setting forth on a consolidated basis for XL Capital and its consolidated Subsidiaries as of the end of the fiscal year or quarter to which such certificate relates (i) the aggregate book value of assets which are subject to Liens permitted under Section 7.03(h) and the aggregate book value of liabilities which are subject to Liens permitted under Section 7.03(h)(it being understood that the reports required by paragraphs (a), (b) and (c) of this Section shall satisfy the requirement of this clause (i) of this paragraph (g) if such reports set forth separately, in accordance with GAAP, line items corresponding to such aggregate book values) and (ii) a calculation showing the portion of each of such aggregate amounts which portion is attributable to transactions among wholly-owned Subsidiaries of XL Capital;
(h) within 90 days after the end of each of the first three fiscal quarters of each fiscal year and within 135 days after the end of each fiscal year of XL Capital (commencing with the fiscal year ending December 31, 2004), a statement of a Financial Officer of XL Capital listing, as of the end of the immediately preceding fiscal quarter
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of XL Capital, the amount of cash and the securities of the Account
Parties and their Subsidiaries that have been posted as collateral under
Section 7.03(f); and
(i) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of XL Capital or any of its Subsidiaries, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request.
SECTION 6.02. NOTICES OF MATERIAL EVENTS. Each Account Party will furnish to the Administrative Agent and each Lender prompt written notice of the following:
(a) the occurrence of any Default; and
(b) any event or condition constituting, or which could reasonably be expected to have a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the relevant Account Party setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken by such Account Party with respect thereto.
SECTION 6.03. PRESERVATION OF EXISTENCE AND FRANCHISES. Each
Account Party will, and will cause each of its Significant Subsidiaries to,
maintain its corporate existence and its material rights and franchises in full
force and effect in its jurisdiction of incorporation; PROVIDED that the
foregoing shall not prohibit any merger or consolidation permitted under Section
7.01. Each Account Party will, and will cause each of its Subsidiaries to,
qualify and remain qualified as a foreign corporation in each jurisdiction in
which failure to receive or retain such qualification would have a Material
Adverse Effect.
SECTION 6.04. INSURANCE. Each Account Party will, and will cause each of its Significant Subsidiaries to, maintain with financially sound and reputable insurers, insurance with respect to its properties in such amounts as is customary in the case of corporations engaged in the same or similar businesses having similar properties similarly situated.
SECTION 6.05. MAINTENANCE OF PROPERTIES. Each Account Party will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition the properties now or hereafter owned, leased or otherwise possessed by and used or useful in its business and will make or cause to be made all needful and proper repairs, renewals, replacements and improvements thereto so that the business carried on in connection therewith may be properly conducted at all times except if the failure to do so would not have a Material Adverse Effect, PROVIDED, HOWEVER, that the foregoing shall not impose on such Account Party or any Subsidiary of such Account Party any obligation in respect of any property leased by such Account Party or such Subsidiary in addition to such Account Party's obligations under the applicable document creating such Account Party's or such Subsidiary's lease or tenancy.
SECTION 6.06. PAYMENT OF TAXES AND OTHER POTENTIAL CHARGES AND PRIORITY
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CLAIMS; PAYMENT OF OTHER CURRENT LIABILITIES. Each Account Party will, and will cause each of its Subsidiaries to, pay or discharge:
(a) on or prior to the date on which penalties attach thereto, all taxes, assessments and other governmental charges or levies imposed upon it or any of its properties or income;
(b) on or prior to the date when due, all lawful claims of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons which, if unpaid, might result in the creation of a Lien upon any such property; and
(c) on or prior to the date when due, all other lawful claims which, if unpaid, might result in the creation of a Lien upon any such property (other than Liens not forbidden by Section 7.03) or which, if unpaid, might give rise to a claim entitled to priority over general creditors of such Account Party or such Subsidiary in any proceeding under the Bermuda Companies Law or Bermuda Insurance Law, or any insolvency proceeding, liquidation, receivership, rehabilitation, dissolution or winding-up involving such Account Party or such Subsidiary;
PROVIDED that unless and until foreclosure, distraint, levy, sale or similar proceedings shall have been commenced, such Account Party or such Subsidiary need not pay or discharge any such tax, assessment, charge, levy or claim (i) so long as the validity thereof is contested in good faith and by appropriate proceedings diligently conducted and so long as such reserves or other appropriate provisions as may be required by GAAP or SAP, as the case may be, shall have been made therefor or (ii) so long as such failure to pay or discharge would not have a Material Adverse Effect.
SECTION 6.07. FINANCIAL ACCOUNTING PRACTICES. Such Account Party will, and will cause each of its consolidated Subsidiaries to, make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect its transactions and dispositions of its assets and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements required under Section 6.01 in conformity with GAAP and SAP, as applicable, and to maintain accountability for assets.
SECTION 6.08. COMPLIANCE WITH APPLICABLE LAWS. Each Account Party
will, and will cause each of its Subsidiaries to, comply with all applicable
Laws (including but not limited to the Bermuda Companies Law and Bermuda
Insurance Laws) in all respects; PROVIDED that such Account Party or any
Subsidiary of such Account Party will not be deemed to be in violation of this
Section as a result of any failure to comply with any such Law which would not
(i) result in fines, penalties, injunctive relief or other civil or criminal
liabilities which, in the aggregate, would have a Material Adverse Effect or
(ii) otherwise impair the ability of such Account Party to perform its
obligations under this Agreement.
SECTION 6.09. USE OF LETTERS OF CREDIT AND PROCEEDS. No part of the proceeds of any Loan and no Letter of Credit will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations U and X.
THREE-YEAR CREDIT AGREEMENT
Each Account Party will use the Letters of Credit issued for its account hereunder in the ordinary course of business of, and will use the proceeds of all Loans made to it for the general corporate purposes of, such Account Party and its Affiliates. For the avoidance of doubt, the parties agree that any Account Party may apply for a Letter of Credit hereunder to support the obligations of any Affiliate of XL Capital, it being understood that such Account Party shall nonetheless remain the account party and as such be liable with respect to such Letter of Credit.
SECTION 6.10. CONTINUATION OF AND CHANGE IN BUSINESSES. Each Account Party and its Significant Subsidiaries will continue to engage in substantially the same business or businesses it engaged in (or proposes to engage in) on the date of this Agreement and businesses related or incidental thereto.
SECTION 6.11. VISITATION. Each Account Party will permit such Persons as any Lender may reasonably designate to visit and inspect any of the properties of such Account Party, to discuss its affairs with its financial management, and provide such other information relating to the business and financial condition of such Account Party at such times as such Lender may reasonably request. Each Account Party hereby authorizes its financial management to discuss with any Lender the affairs of such Account Party.
ARTICLE VII
NEGATIVE COVENANTS
Until the Commitments have expired or terminated, the principal of and interest on each Loan and all fees payable hereunder have been paid in full, all Letters of Credit have expired or terminated and all LC Disbursements have been reimbursed, each of the Account Parties covenants and agrees with the Lenders that:
SECTION 7.01. MERGERS. No Account Party will merge with or into or consolidate with any other Person, except that if no Default shall occur and be continuing or shall exist at the time of such merger or consolidation or immediately thereafter and after giving effect thereto (a) any Account Party may merge or consolidate with any other corporation, including a Subsidiary, if such Account Party shall be the surviving corporation, (b) XL Capital may merge with or into or consolidate with any other Person in a transaction that does not result in a reclassification, conversion, exchange or cancellation of the outstanding shares of capital stock of XL Capital (other than the cancellation of any outstanding shares of capital stock of XL Capital held by the Person with whom it merges or consolidates) and (c) any Account Party may enter into a merger or consolidation which is effected solely to change the jurisdiction of incorporation of such Account Party and results in a reclassification, conversion or exchange of outstanding shares of capital stock of such Account Party solely into shares of capital stock of the surviving entity.
SECTION 7.02. DISPOSITIONS. No Account Party will, nor will it permit any of its Significant Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily (any of the foregoing being referred to in this Section as a "DISPOSITION" and any series of related Dispositions constituting but a single Disposition), any of
THREE-YEAR CREDIT AGREEMENT
its properties or assets, tangible or intangible (including but not limited to sale, assignment, discount or other disposition of accounts, contract rights, chattel paper or general intangibles with or without recourse), except:
(a) Dispositions in the ordinary course of business involving current assets or other invested assets classified on such Account Party's or its respective Subsidiaries' balance sheet as available for sale or as a trading account;
(b) sales, conveyances, assignments or other transfers or dispositions in immediate exchange for cash or tangible assets, PROVIDED that any such sales, conveyances or transfers shall not individually, or in the aggregate for the Account Parties and their respective Subsidiaries, exceed $500,000,000 in any calendar year; or
(c) Dispositions of equipment or other property which is obsolete or no longer used or useful in the conduct of the business of such Account Party or its Subsidiaries.
SECTION 7.03. LIENS. No Account Party will, nor will it permit any of its Subsidiaries to, create, incur, assume or permit to exist any Lien on any property or assets, tangible or intangible, now owned or hereafter acquired by it, except:
(a) Liens existing on the date hereof (and extension, renewal and replacement Liens upon the same property, PROVIDED that the amount secured by each Lien constituting such an extension, renewal or replacement Lien shall not exceed the amount secured by the Lien theretofore existing) and listed on Part B of Schedule II;
(b) Liens arising from taxes, assessments, charges, levies or claims described in Section 6.06 that are not yet due or that remain payable without penalty or to the extent permitted to remain unpaid under the provision of Section 6.06;
(c) Liens on property securing all or part of the purchase price thereof to such Account Party and Liens (whether or not assumed) existing on property at the time of purchase thereof by such Account Party (and extension, renewal and replacement Liens upon the same property); PROVIDED (i) each such Lien is confined solely to the property so purchased, improvements thereto and proceeds thereof, and (ii) the aggregate amount of the obligations secured by all such Liens on any particular property at any time purchased by such Account Party, as applicable, shall not exceed 100% of the lesser of the fair market value of such property at such time or the actual purchase price of such property;
(d) zoning restrictions, easements, minor restrictions on the use of real property, minor irregularities in title thereto and other minor Liens that do not in the aggregate materially detract from the value of a property or asset to, or materially impair its use in the business of, such Account Party or any such Subsidiary;
(e) Liens securing Indebtedness permitted by Section 7.07(b) covering assets whose market value is not materially greater than the amount of the Indebtedness secured thereby plus a commercially reasonable margin;
THREE-YEAR CREDIT AGREEMENT
(f) Liens on cash and securities of an Account Party or any of its Subsidiaries incurred as part of the management of its investment portfolio including, but not limited to, pursuant to any International Swaps and Derivatives Association, Inc. ("ISDA") documentation or any Specified Transaction Agreement in accordance with XL Capital's Statement of Investment Policy Objectives and Guidelines as in effect on the date hereof or as it may be changed from time to time by a resolution duly adopted by the board of directors of XL Capital (or any committee thereof);
(g) Liens on cash and securities not to exceed $500,000,000 in the aggregate securing obligations of an Account Party or any of its Subsidiaries arising under any ISDA documentation or any other Specified Transaction Agreement (it being understood that in no event shall this clause (g) preclude any Person (other than any Subsidiary of XL Capital) in which XL Capital or any of its Subsidiaries shall invest (each an "INVESTEE") from granting Liens on such Person's assets to secure hedging obligations of such Person, so long as such obligations are non-recourse to XL Capital or any of its Subsidiaries (other than any investees)), PROVIDED that, for purposes of determining the aggregate amount of cash and/or securities subject to such Liens under this clause (g), the aggregate amount of cash and/or securities on which any Account Party or any Subsidiary shall have granted a Lien in favor of a counterparty at any time shall be netted against the aggregate amount of cash and/or securities on which such counterparty shall have granted a Lien in favor of such Account Party or Subsidiary, as the case may be, at such time, so long as the relevant agreement between such Account Party or such Subsidiary, as the case may be, provides for the netting of their respective obligations thereunder;
(h) Liens on (i) assets received, and on actual or imputed investment income on such assets received incurred as part of its business including activities utilizing ISDA documentation or any Specified Transaction Agreement relating and identified to specific insurance payment liabilities or to liabilities arising in the ordinary course of any Account Parties' or any of their Subsidiary's business as an insurance or reinsurance company (including GICs and Stable Value Instruments) or corporate member of The Council of Lloyd's or as a provider of financial or investment services or contracts, or the proceeds thereof (including GICs and Stable Value Instruments), in each case held in a segregated trust, trust or other account and securing such liabilities, or (ii) any other assets subject to any trust or other account arising out of or as a result of contractual, regulatory or any other requirements; PROVIDED that in no case shall any such Lien secure Indebtedness and any Lien which secures Indebtedness shall not be permitted under this clause (h);
(i) statutory and common law Liens of materialmen, mechanics, carriers, warehousemen and landlords and other similar Liens arising in the ordinary course of business; and
(j) Liens existing on property of a Person immediately prior to its being consolidated with or merged into any Account Party or any of their Subsidiaries or its becoming a Subsidiary, and Liens existing on any property acquired by any Account Party or any of their Subsidiaries at the time such property is so acquired (whether or not
THREE-YEAR CREDIT AGREEMENT
the Indebtedness secured thereby shall have been assumed) (and extension,
renewal and replacement Liens upon the same property, PROVIDED that the
amount secured by each Lien constituting such an extension, renewal or
replacement Lien shall not exceed the amount secured by the Lien
theretofore existing), PROVIDED that (i) no such Lien shall have been
created or assumed in contemplation of such consolidation or merger or
such Person's becoming a Subsidiary or such acquisition of property and
(ii) each such Lien shall extend solely to the item or items of property
so acquired and, if required by terms of the instrument originally
creating such Lien, other property which is an improvement to or is
acquired for specific use in connection with such acquired property.
SECTION 7.04. TRANSACTIONS WITH AFFILIATES. No Account Party will, nor will it permit any of its Significant Subsidiaries to, enter into or carry out any transaction with (including purchase or lease property or services to, loan or advance to or enter into, suffer to remain in existence or amend any contract, agreement or arrangement with) any Affiliate of such Account Party, or directly or indirectly agree to do any of the foregoing, except (i) transactions involving guarantees or co-obligors with respect to any Indebtedness described in Part A of Schedule II, (ii) transactions among the Account Parties and their wholly-owned Subsidiaries and (iii) transactions with Affiliates in good faith in the ordinary course of such Account Party's business consistent with past practice and on terms no less favorable to such Account Party or any Subsidiary than those that could have been obtained in a comparable transaction on an arm's length basis from an unrelated Person.
SECTION 7.05. RATIO OF TOTAL FUNDED DEBT TO TOTAL CAPITALIZATION. XL Capital will not permit its ratio of (a) Total Funded Debt to (b) the sum of Total Funded Debt PLUS Consolidated Net Worth to be greater than 0.35:1.00 at any time.
SECTION 7.06. CONSOLIDATED NET WORTH. XL Capital will not permit
its Consolidated Net Worth to be less than the sum of (a) $5,000,000,000 PLUS
(b) 25% of consolidated net income (if positive) of XL Capital and its
Subsidiaries for each fiscal quarter ending on or after March 31, 2005.
SECTION 7.07. INDEBTEDNESS. No Account Party will, nor will it permit any of its Subsidiaries to, at any time create, incur, assume or permit to exist any Indebtedness, or agree, become or remain liable (contingent or otherwise) to do any of the foregoing, except:
(a) Indebtedness created hereunder;
(b) secured Indebtedness (including secured reimbursement obligations with respect to letters of credit) of any Account Party or any Subsidiary in an aggregate principal amount (for all Account Parties and their respective Subsidiaries) not exceeding at any time outstanding 15% of Consolidated Net Worth;
(c) other unsecured Indebtedness, so long as upon the incurrence thereof no Default would occur or exist;
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(d) Indebtedness consisting of accounts or claims payable and accrued and deferred compensation (including options) incurred in the ordinary course of business by any Account Party or any Subsidiary;
(e) Indebtedness incurred in transactions described in Section 7.03(f) and (g); and
(f) Indebtedness existing on the date hereof and described in Part A of Schedule II and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof.
SECTION 7.08. FINANCIAL STRENGTH RATINGS. None of XL Capital, XL Insurance and XL Re will permit at any time its financial strength ratings to be less than "A-" from A.M. Best & Co. (or its successor).
SECTION 7.09. PRIVATE ACT. No Account Party will become subject to
a Private Act other than the X.L. Insurance Company, Ltd. Act, 1989. ARTICLE
VIII
EVENTS OF DEFAULT
If any of the following events ("EVENTS OF DEFAULT") shall occur:
(a) any Account Party shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;
(b) any Account Party shall fail to pay any interest on any Loan or LC Disbursement or any fee payable under this Agreement or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of 5 or more days;
(c) any representation or warranty made or deemed made by any Account Party in or in connection with this Agreement or any amendment or modification hereof, or in any certificate or financial statement furnished pursuant to the provisions hereof, shall prove to have been false or misleading in any material respect as of the time made (or deemed made) or furnished;
(d) any Account Party shall fail to observe or perform any covenant, condition or agreement contained in Article VII;
(e) any Obligor shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article or the reporting requirement pursuant to Section 6.01(h)) and such failure shall continue unremedied for a period of 20 or more days after notice thereof from the Administrative Agent (given at the request of any Lender) to such Obligor;
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(f) any Account Party or any of its Subsidiaries shall default (i)
in any payment of principal of or interest on any other obligation for
borrowed money in principal amount of $50,000,000 or more, or any payment
of any principal amount of $50,000,000 or more under Hedging Agreements,
in each case beyond any period of grace provided with respect thereto, or
(ii) in the performance of any other agreement, term or condition
contained in any such agreement (other than Hedging Agreements) under
which any such obligation in principal amount of $50,000,000 or more is
created, if the effect of such default is to cause or permit the holder
or holders of such obligation (or trustee on behalf of such holder or
holders) to cause such obligation to become due prior to its stated
maturity or to terminate its commitment under such agreement, PROVIDED
that this clause (f) shall not apply to secured Indebtedness that becomes
due as a result of the voluntary sale or transfer of the property or
assets securing such Indebtedness;
(g) a decree or order by a court having jurisdiction in the premises shall have been entered adjudging any Account Party a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization of such Account Party under the Bermuda Companies Law or the Cayman Islands Companies Law (2003 Revision) or any other similar applicable Law, and such decree or order shall have continued undischarged or unstayed for a period of 60 days; or a decree or order of a court having jurisdiction in the premises for the appointment of an examiner, receiver or liquidator or trustee or assignee in bankruptcy or insolvency of such Account Party or a substantial part of its property, or for the winding up or liquidation of its affairs, shall have been entered, and such decree or order shall have continued undischarged and unstayed for a period of 60 days;
(h) any Account Party shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization under the Bermuda Companies Law or the Cayman Islands Companies Law (2003 Revision) or any other similar applicable Law, or shall consent to the filing of any such petition, or shall consent to the appointment of an examiner, receiver or liquidator or trustee or assignee in bankruptcy or insolvency of it or a substantial part of its property, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or corporate or other action shall be taken by such Account Party in furtherance of any of the aforesaid purposes;
(i) one or more judgments for the payment of money in an aggregate amount in excess of $100,000,000 shall be rendered against any Account Party or any of its Subsidiaries or any combination thereof and the same shall not have been vacated, discharged, stayed (whether by appeal or otherwise) or bonded pending appeal within 45 days from the entry thereof;
(j) an ERISA Event (or similar event with respect to any Non-U.S. Benefit Plan) shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events and such similar events that have occurred, could reasonably be expected to result in liability of the Account Parties and their Subsidiaries in an aggregate amount exceeding $100,000,000;
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(k) a Change in Control shall occur;
(l) XL Capital shall cease to own, beneficially and of record, directly or indirectly all of the outstanding voting shares of capital stock of XL Insurance, XL Re or XL America; or
(m) the guarantee contained in Article III shall terminate or cease, in whole or material part, to be a legally valid and binding obligation of each Guarantor or any Guarantor or any Person acting for or on behalf of any of such parties shall contest such validity or binding nature of such guarantee itself or the Transactions, or any other Person shall assert any of the foregoing;
then, and in every such event (other than an event with respect to any Account Party described in clause (g) or (h) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Account Parties, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Account Parties accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Account Parties; and in case of any event with respect to any Account Party described in clause (g) or (h) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Account Parties accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Account Parties.
If an Event of Default shall occur and be continuing and XL
Capital receives notice from the Administrative Agent or the Required Lenders
demanding the deposit of cash collateral for the aggregate LC Exposure of all
the Lenders pursuant to this paragraph, the Account Parties shall immediately
deposit into an account established and maintained on the books and records of
the Administrative Agent, which account may be a "securities account" (within
the meaning of Section 8-501 of the Uniform Commercial Code as in effect in the
State of New York (the "UNIFORM COMMERCIAL CODE")), in the name of the
Administrative Agent and for the benefit of the Lenders, an amount in cash equal
to the total LC Exposure as of such date PLUS any accrued and unpaid interest
thereon; PROVIDED that the obligation to deposit such cash collateral shall
become effective immediately, and such deposit shall become immediately due and
payable, without demand or other notice of any kind, upon the occurrence of any
Event of Default with respect to any Account Party described in clause (g) or
(h) of this Article. Such deposit shall be held by the Administrative Agent as
collateral for the LC Exposure under this Agreement, and for this purpose each
of the Account Parties hereby grant a security interest to the Administrative
Agent for the benefit of the Lenders in such collateral account and in any
financial assets (as defined in the Uniform Commercial Code) or other property
held therein.
THREE-YEAR CREDIT AGREEMENT
In addition to the provisions of this Article, each Account Party agrees that upon the occurrence and during the continuance of any Event of Default any Lender which has issued any Alternative Currency Letter of Credit may, by notice to XL Capital and the Administrative Agent: (a) declare that all fees and other obligations of the Account Parties accrued in respect of Alternative Currency Letters of Credit issued by such Lender shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Account Party and (b) demand the deposit (without duplication of any amounts deposited with the Administrative Agent under the preceding paragraph) of cash collateral from the Account Parties in immediately available funds in the currency of such Alternative Currency Letter of Credit or, at the option of such Lender, in Dollars in an amount equal to the then aggregate undrawn face amount of all such Alternative Currency Letters of Credit and in such manner as previously agreed to by the Account Parties and such Lender; PROVIDED that, in the case of any of the Events of Default specified in clause (g) or (h) of this Article, without any notice to any Account Party or any other act by the Administrative Agent or the Lenders, all fees and other obligations of the Account Parties accrued in respect of all Alternative Currency Letters of Credit shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Account Party. If the Administrative Agent receives any notice from a Lender pursuant to the previous sentence, then it will promptly give notice thereof to the other Lenders.
ARTICLE IX
THE ADMINISTRATIVE AGENT
Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto.
The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such Person and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with any Account Party or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders, and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Account Party or any of their Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its
THREE-YEAR CREDIT AGREEMENT
Affiliates in any capacity. The Administrative Agent shall not be liable for any
action taken or not taken by it with the consent or at the request of the
Required Lenders or in the absence of its own gross negligence or willful
misconduct. The Administrative Agent shall be deemed not to have knowledge of
any Default unless and until written notice thereof is given to the
Administrative Agent by an Account Party or a Lender, and the Administrative
Agent shall not be responsible for or have any duty to ascertain or inquire into
(i) any statement, warranty or representation made in or in connection with this
Agreement, (ii) the contents of any certificate, report or other document
delivered hereunder or in connection herewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article V or elsewhere herein, other
than to confirm receipt of items expressly required to be delivered to the
Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for any Account Party), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.
The Administrative Agent may resign at any time by notifying the Lenders and the Account Parties. Upon any such resignation, the Required Lenders shall have the right, in consultation with XL Capital, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent's resignation shall nonetheless become effective and (1) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and (2) the Required Lenders shall perform the duties of the Administrative Agent (and all payments and communications provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly) until such time as the Required Lenders appoint a successor agent as provided for above in this paragraph. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations
THREE-YEAR CREDIT AGREEMENT
hereunder (if not already discharged therefrom as provided above in this paragraph). The fees payable by XL Capital to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between XL Capital and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 10.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder.
Notwithstanding anything herein to the contrary, the Sole Lead Arranger and Sole Bookrunner and the Co-Syndication Agents named on the cover page of this Agreement shall not have any duties or liabilities under this Agreement, except in their capacity, if any, as Lenders.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. NOTICES. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to any Account Party, to XL Capital at XL House, One Bermudiana Road, Hamilton HM 11 Bermuda, Attention of Roderick Gray (Telecopy No. (441) 296-6399); WITH A COPY to Paul Giordano, Esq. at the same address and telecopy number (441) 295-4867);
(b) if to the Administrative Agent, to JPMorgan Chase Bank, 1111
Fannin Street, 10th Floor, Houston, Texas 77002-8069, Attention of Loan
and Agency Services Group (Telecopy No. (713) 750-2782; Telephone No.
(713) 750-2102), WITH A COPY to JPMorgan Chase Bank, 270 Park Avenue, 4th
Floor, New York, New York 10017, Attention of Helen Newcomb (Telecopy No.
(212) 270-1511; Telephone No. (212) 270-6260); and
(c) if to a Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto (or, in the case of any such
THREE-YEAR CREDIT AGREEMENT
change by a Lender, by notice to the Account Parties and the Administrative Agent). All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.
Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; PROVIDED that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or any Account Party may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; PROVIDED that approval of such procedures may be limited to particular notices or communications. Without limiting the foregoing, the Account Parties may furnish to the Administrative Agent and the Lenders the financial statements required to be furnished by it pursuant to Section 6.01(a), 6.01(b) or 6.01(c) by electronic communications pursuant to procedures approved by the Administrative Agent.
SECTION 10.02. WAIVERS; AMENDMENTS.
(a) NO DEEMED WAIVERS; REMEDIES CUMULATIVE. No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Account Parties therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time.
(b) AMENDMENTS. Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Obligors and the Required Lenders or by the Obligors and the Administrative Agent with the consent of the Required Lenders; PROVIDED that no such agreement shall:
(i) increase the Commitment of any Lender without the written consent of such Lender,
(ii) reduce the principal amount of any Loan or the amount of any reimbursement obligation of an Account Party in respect of any LC Disbursement or reduce the rate of interest thereon, or reduce any fees or other amounts payable hereunder, without the written consent of each Lender directly affected thereby,
THREE-YEAR CREDIT AGREEMENT
(iii) postpone the scheduled date of payment of the principal amount of any Loan or for reimbursement of any LC Disbursement, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment or any Letter of Credit (other than an extension thereof pursuant to an "evergreen" provision"), without the written consent of each Lender directly affected thereby,
(iv) change Section 2.20(c) or 2.20(d) without the consent of each Lender directly affected thereby,
(v) release any of the Guarantors from any of their guarantee obligations under Article III without the written consent of each Lender, and
(vi) change any of the provisions of this Section or the percentage in the definition of the term "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender;
and PROVIDED FURTHER that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent.
SECTION 10.03. EXPENSES; INDEMNITY; DAMAGE WAIVER.
(a) COSTS AND EXPENSES. The Account Parties jointly and severally agree to pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of one legal counsel for the Administrative Agent and one legal counsel for the Lenders, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including in connection with any workout, restructuring or negotiations in respect thereof.
(b) INDEMNIFICATION BY THE ACCOUNT PARTIES. The Account Parties shall jointly and severally indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "INDEMNITEE") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee (but not including Excluded Taxes), incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other
THREE-YEAR CREDIT AGREEMENT
transactions contemplated hereby, (ii) any Loan or the use of the proceeds thereof or any Letter of Credit or the use thereof (including any refusal by any Lender to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by any Account Party or any of its Subsidiaries, or any Environmental Liability related in any way to any Account Party or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; PROVIDED that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses result from or arise out of the gross negligence or willful misconduct of such Indemnitee.
(c) REIMBURSEMENT BY LENDERS. To the extent that the Account Parties fail to pay any amount required to be paid by them to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; PROVIDED that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such.
(d) WAIVER OF CONSEQUENTIAL DAMAGES, ETC. To the extent permitted by applicable law, no Account Party shall assert, and each Account Party hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.
(e) PAYMENTS. All amounts due under this Section shall be payable promptly after written demand therefor.
SECTION 10.04. SUCCESSORS AND ASSIGNS.
(a) ASSIGNMENTS GENERALLY. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) no Account Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by an Account Party without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) ASSIGNMENTS BY LENDERS. (i) Subject to the conditions set forth in paragraph THREE-YEAR CREDIT AGREEMENT
(b)(ii) of this Section, any Lender may assign all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans and LC Disbursements at the time owing to it) to one or more NAIC Approved Banks with the prior written consent (such consent not to be unreasonably withheld) of:
(A) the Account Parties, PROVIDED that no consent of any Account Party shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default under clause (a), (b), (g) or (h) of Article VIII has occurred and is continuing, any other assignee; and
(B) the Administrative Agent; and
(C) the Issuing Lender with respect to Participated Letters of Credit.
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender, an
Approved Fund or an Affiliate of a Lender or an assignment of the entire
remaining amount of the assigning Lender's Commitment, the amount of the
Commitment of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Assumption with respect to
such assignment is delivered to the Administrative Agent) shall not be
less than $5,000,000 unless each of the Account Parties and the
Administrative Agent otherwise consent, PROVIDED that no such consent of
the Account Parties shall be required if an Event of Default under clause
(a), (b), (g) or (h) of Article VIII has occurred and is continuing;
(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement;
(C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; and
(D) the assignee, if it shall not be a Lender, shall deliver an Administrative Questionnaire to the Administrative Agent (with a copy to XL Capital).
(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(v) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.17, 2.18, 2.19 and 10.03). Any assignment or transfer
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by a Lender of rights or obligations under this Agreement that does not comply with this Section 10.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.
(iv) Notwithstanding anything to the contrary contained herein,
any Lender (a "GRANTING LENDER") may grant to a special purpose vehicle (an
"SPV") of such Granting Lender, identified as such in writing from time to time
by the Granting Lender to the Administrative Agent and the Account Parties, the
option to provide to the Account Parties all or any part of any Loan or LC
Disbursement that such Granting Lender would otherwise be obligated to make to
the Account Parties pursuant to Section 2.01, PROVIDED that (i) nothing herein
shall constitute a commitment by any SPV to make any Loan or LC Disbursement,
(ii) if an SPV elects not to exercise such option or otherwise fails to provide
all or any part of such Loan or LC Disbursement, the Granting Lender shall be
obligated to make such Loan or LC Disbursement pursuant to the terms hereof and
(iii) the Account Parties may bring any proceeding against either or both the
Granting Lender or the SPV in order to enforce any rights of the Account Parties
hereunder. The making of a Loan or LC Disbursement by an SPV hereunder shall
utilize the Commitment of the Granting Lender to the same extent, and as if,
such Loan or LC Disbursement were made by the Granting Lender. Each party hereto
hereby agrees that no SPV shall be liable for any payment under this Agreement
for which a Lender would otherwise be liable, for so long as, and to the extent,
the related Granting Lender makes such payment. In furtherance of the foregoing,
each party hereto hereby agrees (which agreement shall survive the termination
of this Agreement) that, prior to the date that is one year and one day after
the payment in full of all outstanding commercial paper or other senior
indebtedness of any SPV, it will not institute against, or join any other person
in instituting against, such SPV any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings or similar proceedings under the laws of
the United States or any State thereof arising out of any claim against such SPV
under this Agreement. In addition, notwithstanding anything to the contrary
contained in this Section, any SPV may with notice to, but without the prior
written consent of, the Account Parties or the Administrative Agent and without
paying any processing fee therefor, assign all or a portion of its interests in
any Loan or Letter of Credit to its Granting Lender or to any financial
institutions (consented to by the Account Parties and the Administrative Agent)
providing liquidity and/or credit support (if any) with respect to commercial
paper issued by such SPV to fund such Loans and to issue such Letters of Credit
and such SPV may disclose, on a confidential basis, confidential information
with respect to any Account Party and its Subsidiaries to any rating agency,
commercial paper dealer or provider of a surety, guarantee or credit liquidity
enhancement to such SPV. Notwithstanding anything to the contrary in this
Agreement, no SPV shall be entitled to any greater rights under Section 2.17 or
Section 2.19 than its Granting Lender would have been entitled to absent the use
of such SPV. This paragraph may not be amended without the consent of any SPV at
the time holding Loans or LC Disbursements under this Agreement.
(v) The Administrative Agent, acting for this purpose as an agent of the Account Parties, shall maintain at one of its offices in New York City a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, the Commitment of, and principal amount of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the "REGISTER"). The entries in
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the Register shall be conclusive, and the Account Parties, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by any Account Party and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(vi) Upon its receipt of a duly completed Assignment and
Assumption executed by an assigning Lender and an assignee, the assignee's
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in paragraph
(b)(ii)(C) of this Section and any written consent to such assignment required
by paragraph (b)(i) of this Section, the Administrative Agent shall accept such
Assignment and Assumption and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this paragraph.
(c) PARTICIPATIONS. (i) Any Lender may, without the consent of the
Account Parties, the Administrative Agent or any Issuing Lender, sell
participations to one or more banks or other entities (a "PARTICIPANT") in all
or a portion of such Lender's rights and obligations under this Agreement and
the other Credit Documents (including all or a portion of its Commitment, the
Loans and LC Disbursements owing to it); PROVIDED that (A) any such
participation sold to a Participant which is not a Lender, an Approved Fund or a
Federal Reserve Bank shall be made only with the consent (which in each case
shall not be unreasonably withheld) of XL Capital and the Administrative Agent,
unless a Default has occurred and is continuing, in which case the consent of XL
Capital shall not be required, (B) such Lender's obligations under this
Agreement and the other Credit Documents shall remain unchanged, (C) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations and (D) the Account Parties, the Administrative Agent and
the other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
the other Credit Documents. Any agreement or instrument pursuant to which a
Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and the other Credit Documents and to
approve any amendment, modification or waiver of any provision of this Agreement
or the other Credit Documents; PROVIDED that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver described in the first proviso to
Section 10.02(b) that affects such Participant. Subject to paragraph (c)(ii) of
this Section, the Account Parties agree that each Participant shall be entitled
to the benefits of Sections 2.17, 2.18 and 2.19 (subject to the requirements of
such Sections) to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to paragraph (b) of this Section. To the extent
permitted by law, each Participant also shall be entitled to the benefits of
Section 10.08 as though it were a Lender, provided such Participant agrees to be
subject to Section 2.20(d) as though it were a Lender.
(ii) A Participant shall not be entitled to receive any greater payment under Section 2.17, 2.18 or 2.19 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant or the Lender interest assigned, unless (A) the sale of the participation to such Participant is made with the Account Parties' prior written
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consent and (B) in the case of Section 2.17 or 2.19, the entitlement to greater payment results solely from a Change in Law formally announced after such Participant became a Participant.
(d) CERTAIN PLEDGES. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any such pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; PROVIDED that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(e) NO ASSIGNMENTS TO ACCOUNT PARTIES OR AFFILIATES. Anything in this Section to the contrary notwithstanding, no Lender may assign or participate any interest in any Loan or LC Exposure held by it hereunder to any Account Party or any of its Affiliates or Subsidiaries without the prior consent of each Lender.
SECTION 10.05. SURVIVAL. All covenants, agreements, representations and warranties made by the Account Parties herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and the issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of, or any accrued interest on, any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.17, 2.18, 2.19 and 10.03 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof.
SECTION 10.06. COUNTERPARTS; INTEGRATION; EFFECTIVENESS. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract between and among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 5.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page to this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.
SECTION 10.07. SEVERABILITY. Any provision of this Agreement held to be
THREE-YEAR CREDIT AGREEMENT
invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 10.08. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of any Account Party against any of and all the obligations of such Account Party now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.
SECTION 10.09. GOVERNING LAW; JURISDICTION; ETC.
(a) GOVERNING LAW. This Agreement shall be construed in accordance with and governed by the law of the State of New York.
(b) SUBMISSION TO JURISDICTION. Each Obligor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against any Obligor or its properties in the courts of any jurisdiction.
(c) WAIVER OF VENUE. Each Obligor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d) SERVICE OF PROCESS. By the execution and delivery of this Agreement, XL Capital Ltd, XL Insurance (Bermuda) Ltd and XL Re Ltd acknowledge that they have by a separate written instrument, designated and appointed CT Corporation System, 111 Eighth Avenue, 13th floor, New York, New York 10011 (or any successor entity thereto), as its
THREE-YEAR CREDIT AGREEMENT
authorized agent upon which process may be served in any suit or proceeding
arising out of or relating to this Agreement that may be instituted in any
federal or state court in the State of New York. Each party to this Agreement
irrevocably consents to service of process in the manner provided for notices in
Section 10.01. Nothing in this Agreement will affect the right of any party to
this Agreement to serve process in any other manner permitted by law.
(e) WAIVER OF IMMUNITIES. To the extent that any Account Party has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution or execution, on the ground of sovereignty or otherwise) with respect to itself or its property, it hereby irrevocably waives, to the fullest extent permitted by applicable law, such immunity in respect of its obligations under this Agreement.
SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 10.11. HEADINGS. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
SECTION 10.12. TREATMENT OF CERTAIN INFORMATION; CONFIDENTIALITY.
(a) TREATMENT OF CERTAIN INFORMATION. Each of the Account Parties
acknowledge that from time to time financial advisory, investment banking and
other services may be offered or provided to any Account Party or one or more of
their Subsidiaries (in connection with this Agreement or otherwise) by any
Lender or by one or more subsidiaries or affiliates of such Lender and each of
the Account Parties hereby authorizes each Lender to share any information
delivered to such Lender by such Account Party and its Subsidiaries pursuant to
this Agreement, or in connection with the decision of such Lender to enter into
this Agreement, to any such subsidiary or affiliate, it being understood that
(i) any such information shall be used only for the purpose of advising the
Account Parties or preparing presentation materials for the benefit of the
Account Parties and (ii) any such subsidiary or affiliate receiving such
information shall be bound by the provisions of paragraph (b) of this Section as
if it were a Lender hereunder. Such authorization shall survive the repayment of
the Loans, the expiration or termination of the Letters of Credit, the
expiration or termination of the Commitments or the termination of this
Agreement or any provision hereof.
THREE-YEAR CREDIT AGREEMENT
(b) CONFIDENTIALITY. Each of the Administrative Agent, the Lenders
and each SPV agrees to maintain the confidentiality of the Information (as
defined below), except that Information may be disclosed (i) to its and its
Affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom
such disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (ii) to the
extent requested by any regulatory authority (including self-regulating
organizations) having jurisdiction over the Administrative Agent or any Lender,
(iii) to the extent required by applicable laws or regulations or by any
subpoena or similar legal process, (iv) to any other party to this Agreement,
(v) in connection with the exercise of any remedies hereunder or any suit,
action or proceeding relating to this Agreement or the enforcement of rights
hereunder, (vi) subject to an agreement in writing containing provisions
substantially the same as those of this paragraph and for the benefit of the
Account Parties, to (a) any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this
Agreement or (b) any actual or prospective counterparty (or its advisors) to any
swap or derivative transaction relating to any Account Party and its
obligations, (vii) with the consent of the Account Parties or (viii) to the
extent such Information (A) becomes publicly available other than as a result of
a breach of this paragraph or (B) becomes available to the Administrative Agent
or any Lender on a nonconfidential basis from a source other than an Account
Party. For the purposes of this paragraph, "INFORMATION" means all information
received from an Account Party relating to an Account Party or its business,
other than any such information that is available to the Administrative Agent or
any Lender on a nonconfidential basis prior to disclosure by such Account Party;
PROVIDED that, in the case of information received from an Account Party after
the date hereof, such information is clearly identified at the time of delivery
as confidential. Any Person required to maintain the confidentiality of
Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information. Notwithstanding the foregoing, each
of the Administrative Agent and the Lenders agree that they will not trade the
securities of any of the Account Parties based upon non-public Information that
is received by them.
SECTION 10.13. JUDGMENT CURRENCY. This is an international loan transaction in which the obligations of each Account Party under this Agreement to make payment hereunder shall be satisfied only in Dollars and only if such payment shall be made in New York City, and the obligations of each Account Party under this Agreement to make payment to (or for account of) a Lender in Dollars shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any other currency or in another place except to the extent that such tender or recovery results in the effective receipt by such Lender in New York City of the full amount of Dollars payable to such Lender under this Agreement. If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in Dollars into another currency (in this Section called the "JUDGMENT CURRENCY"), the rate of exchange that shall be applied shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase such Dollars at the principal office of the Administrative Agent in New York City with the judgment currency on the Business Day next preceding the day on which such judgment is rendered. The obligation of each Account Party in respect of any such sum due from it to the Administrative Agent or any Lender hereunder (in this
THREE-YEAR CREDIT AGREEMENT
Section called an "ENTITLED PERSON") shall, notwithstanding the rate of exchange actually applied in rendering such judgment, be discharged only to the extent that on the Business Day following receipt by such Entitled Person of any sum adjudged to be due hereunder in the judgment currency such Entitled Person may in accordance with normal banking procedures purchase and transfer Dollars to New York City with the amount of the judgment currency so adjudged to be due; and each Account Party hereby, as a separate obligation and notwithstanding any such judgment, agrees to indemnify such Entitled Person against, and to pay such Entitled Person on demand, in Dollars, the amount (if any) by which the sum originally due to such Entitled Person in Dollars hereunder exceeds the amount of the Dollars so purchased and transferred.
SECTION 10.14. USA PATRIOT ACT. Each Lender hereby notifies the Account Parties that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), such Lender is required to obtain, verify and record information that identifies the Account Parties, which information includes the name and address of the Account Parties and other information that will allow such Lender to identify each Account Party in accordance with said Act.
THREE-YEAR CREDIT AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
X.L. AMERICA, INC., as an
Account Party and a Guarantor
By: /s/ Charles Barr
----------------------------------
Name: Charles Barr
Title: Senior Vice-President,
General Counsel & Secretary
|
U.S. FEDERAL TAX IDENTIFICATION NO.: 06-1516268
XL INSURANCE (BERMUDA) LTD,
as an Account Party and a Guarantor
By: /s/ Christopher A. Coelho
--------------------------------------------
Name: Christopher A. Coelho
Title: Senior Vice-President &
Chief Financial Officer
|
U.S. FEDERAL TAX IDENTIFICATION NO.: 98-0354869
XL RE LTD,
as an Account Party and a Guarantor
By: /s/ James O' Shaughnessy
--------------------------------------------
Name: James O' Shaughnessy
Title: Senior Vice-President and
Chief Financial Officer
|
U.S. FEDERAL TAX IDENTIFICATION NO.: 98-0351953
THREE-YEAR CREDIT AGREEMENT
IN WITNESS WHEREOF, XL Capital has caused this Agreement to be duly executed as a Deed by an authorized officer as of the day and year first above written.
EXECUTED AS A DEED by XL CAPITAL LTD,
as an Account Party and a Guarantor
/s/ Gayna Joynes
-----------------------------------------------
witness
By: /s/ Michael Siese
--------------------------------------------
Name: Michael Siese
Title: Senior Vice-President and
Controller
|
U.S. FEDERAL TAX IDENTIFICATION NO.: 98-0191089
THREE-YEAR CREDIT AGREEMENT
LENDERS
JPMORGAN CHASE BANK,
individually and as Administrative Agent
By: /s/ Helen L. Newcomb
--------------------------------------------
Name: Helen L. Newcomb
Title: Vice President
|
BARCLAYS BANK PLC, NEW YORK BRANCH
By: /s/ Paul Johnson
--------------------------------------------
Name: Paul Johnson
Title: Relationship Director
|
CITIBANK, N.A.
By: /s/ Michael A. Taylor
--------------------------------------------
Name: Michael A. Taylor
Title: Managing Director
|
DEUTSCHE BANK AG NEW YORK BRANCH
By: /s/ Clinton M. Johnson
--------------------------------------------
Name: Clinton M. Johnson
Title: Managing Director
By: /s/ John S. McGill
--------------------------------------------
Name: John S. McGill
Title: Director
|
KEYBANK NATIONAL ASSOCIATION
By: /s/ Mary K. Young
--------------------------------------------
Name: Mary K. Young
Title: Vice President
|
THREE-YEAR CREDIT AGREEMENT
WACHOVIA BANK, NATIONAL ASSOCIATION
By: /s/ Kimberly Shaffer
--------------------------------------------
Name: Kimberly Shaffer
Title: Director
|
ABN AMRO BANK N.V., NEW YORK BRANCH
By: /s/ Neil R. Stein
--------------------------------------------
Name: Neil R. Stein
Title: Group Vice President
By: /s/ Michael DeMarco
--------------------------------------------
Name: Michael DeMarco
Title: Assistant Vice President
|
CALYON NEW YORK BRANCH
By: /s/ William Denton
--------------------------------------------
Name: William Denton
Title: Managing Director
By: /s/ Sebastian Rocco
--------------------------------------------
Name: Sebastian Rocco
Title: Managing Director
|
HSBC BANK USA
By: /s/ Kenneth J. Johnson
--------------------------------------------
Name: Kenneth J. Johnson
Title: Senior Vice President
|
THREE-YEAR CREDIT AGREEMENT
MERRILL LYNCH BANK USA
By: /s/ Louis Alder
--------------------------------------------
Name: Louis Alder
Title: Director
|
MELLON BANK, N.A.
By: /s/ Karla K. Maloof
--------------------------------------------
Name: Karla K. Maloof
Title: First Vice President
|
THE BANK OF TOKYO-MITSUBISHI, LTD.
NEW YORK BRANCH
By: /s/ Jesse A. Reid, Jr.
--------------------------------------------
Name: Jesse A. Reid, Jr.
Title: Authorized Signatory
|
BANK OF AMERICA, N.A.
By: /s/ Leslie Nannen
--------------------------------------------
Name: Leslie Nannen
Title: Principal
|
BNP PARIBAS
By: /s/ Barry S. Feigenbaum
--------------------------------------------
Name: Barry S. Feigenbaum
Title: Managing Director
By: /s/ Marguerite L. Lebon
--------------------------------------------
Name: Marguerite L. Lebon
Title: Vice President
|
THREE-YEAR CREDIT AGREEMENT
CREDIT SUISSE FIRST BOSTON NEW YORK BRANCH
By: /s/ Jay Chall
--------------------------------------------
Name: Jay Chall
Title: Director
By: /s/ David J. Dodd
--------------------------------------------
Name: David J. Dodd
Title: Associate
|
ING BANK N.V., LONDON BRANCH
By: /s/ Mike Sharman
--------------------------------------------
Name: Mike Sharman
Title: Managing Director
By: /s/ Paul Galpin
--------------------------------------------
Name: Paul Galpin
Title: Director
|
LEHMAN BROTHERS BANK, FSB
By: /s/ Gary T. Taylor
--------------------------------------------
Name: Gary T. Taylor
Title: Vice President
|
LLOYDS TSB BANK PLC, NEW YORK BRANCH
By: /s/ Matthew S.R. Tuck
--------------------------------------------
Name: Matthew S.R. Tuck
Title: Vice President
By: /s/ James M. Rudd
--------------------------------------------
Name: James M. Rudd
Title: Vice President
|
THREE-YEAR CREDIT AGREEMENT
NATIONAL WESTMINSTER BANK PLC
By: /s/ John Mallett
--------------------------------------------
Name: John Mallet
Title: Relationship Director
|
THE BANK OF NEW YORK
By: /s/ Scott Schaffer
--------------------------------------------
Name: Scott Schaffer
Title: Vice President
|
UBS AG, STAMFORD BRANCH
By: /s/ Wilfred V. Saint
--------------------------------------------
Name: Wilfred V. Saint
Title: Director
By: /s/ Doris Mesa
--------------------------------------------
Name: Doris Mesa
Title: Associate Director
|
COMERICA BANK
By: /s/ Martin G. Ellis
--------------------------------------------
Name: Martin G. Ellis
Title: First Vice President
|
MORGAN STANLEY BANK
By: /s/ Daniel Twenge
--------------------------------------------
Name: Daniel Twenge
Title: Vice President
|
THREE-YEAR CREDIT AGREEMENT
THE BANK OF NOVA SCOTIA
By: /s/ Todd S. Meller
--------------------------------------------
Name: Todd S. Meller
Title: Managing Director
|
LANDESBANK HESSEN-THURINGEN GIROZENTRALE,
acting through its NEW YORK BRANCH
By: /s/ Bill Dorante
--------------------------------------------
Name: Bill Dorante
Title: Senior Vice President
By: /s/ Kerstin T. Kalawski
--------------------------------------------
Name: Kerstin T. Kalawski
Title: German Legal Counsel
Syndications Manager
|
THREE-YEAR CREDIT AGREEMENT
Exhibit 10.4
XL CAPITAL LTD
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT, made and entered into as of the date of the ____ day of __________, 200_, by and between XL Capital Ltd, a Cayman Islands corporation (the "Company"), and ______________ (the "Employee");
WITNESSETH:
WHEREAS, the Board of Directors of the Company is of the opinion that the interest of the Company will be advanced by granting an incentive to employees and by encouraging and enabling them to acquire stock ownership in the Company and assuring a close identity of their interests with those of the Company; and
WHEREAS, pursuant to the provisions of the 1991 Performance Incentive Program (the "Program") of the Company, the Committee (as defined in the Program) has authorized and directed the execution and delivery of this Agreement in the name of and on behalf of the Company;
NOW THEREFORE, the parties hereto agree as follows:
a. Subject and pursuant to all terms and conditions stated in this Agreement and in the Program, which is incorporated by reference into this Agreement and made a part hereof as though herein fully set forth, the Company hereby grants on the date set forth above to the Employee the right and option to purchase all or any part of the aggregate number of shares set forth below of Ordinary Shares of the Company, to be issued or transferred as provided in the Program at the option price per share set forth below. This option shall not be treated as an incentive stock option as defined in Section 422 of the Code.
Option to purchase ______________ shares, for _____________ per share.
Such option shall not be exercisable until the fourth anniversary of the date of grant, at which time it shall become exercisable in full; PROVIDED, HOWEVER, that the option shall be immediately exercisable in full (i) in the event of a Change of Control, (ii) upon termination of the Employee's employment due to his or her death, Disability or Retirement, or (iii) upon termination of the Employee's employment by the Company by reason of the Employee's Redundancy. "Redundancy" shall mean termination of employment by the Company due to its need to reduce the size of its workforce, including due to closure of a business or a particular workplace or change in business process. Whether a termination of employment is due to "Redundancy" shall be determined in good faith by the Committee in its sole and absolute discretion, such determination being final and binding on all parties hereto and
all persons claiming through, in the name of or on behalf of such parties. The portion of the option, if any, that is not exercisable immediately following termination of the Employee's employment shall be immediately forfeited.
b. The option herein granted may be exercised in whole or in part by the Employee giving notice of exercise to the Program administrator designated from time to time by the Company stating the number of shares with respect to which the option is being exercised. Such notice shall be in the form prescribed by the Company from time to time. Such exercise shall be effective upon (1) receipt of such written notice by the Program administrator and (2) payment in full of the option price.
c. The Employee agrees (1) not to disclose any trade or secret data or any other confidential information acquired during employment by the Company or a subsidiary of the Company, during employment or after the termination of employment or retirement, (2) to abide by all the terms and conditions of the Program and such other terms and conditions as may be imposed by the Committee, and (3) not to interfere with the employment of any other employee of the Company or a subsidiary of the Company.
d. The option granted under this Agreement shall expire upon the first of the following events to occur:
(i) The tenth anniversary of the Agreement;
(ii) The third anniversary of the death or Disability of the Employee;
(iii) Unless otherwise provided in an Employment Agreement between the Employee and the Company, the third anniversary of termination of the Employee's employment by the Company not for Cause (including termination of the Employee's employment by the Company by reason of the Employee's Redundancy) within two years following a Change of Control (the "Post-Change Period");
(iv) Ninety days following termination of the Employee's employment by the Company not for Cause (including termination of the Employee's employment by the Company by reason of the Employee's Redundancy) outside a Post-Change Period;
(v) The last date of employment of the Employee if employment is terminated by the Company for Cause; or
(vi) Thirty days after the last date of employment of the
Employee if employment terminates other than due to the
Employee's Retirement and other than as set forth in
(ii), (iii), (iv) or (v) of this paragraph d. For the
avoidance of doubt, if an Employee's employment
terminates due to the Employee's Retirement, the option
shall remain exercisable until the tenth anniversary of
this Agreement.
"Cause" shall mean:
(A) conviction of the Employee of a felony involving moral turpitude or dishonesty;
(B) the Employee, in carrying out his or her duties for the Company, has been guilty of (1) gross neglect or (2) willful misconduct; PROVIDED, HOWEVER, that any act or failure to act by the Employee shall not constitute Cause for this purpose if such act or failure to act was committed, or omitted, by the Employee in good faith and in a manner reasonably believed to be in the overall best interests of the Company. The determination of whether the Employee acted in good faith and that he or she reasonably believed his or her action to be in the Company's overall best interest will be in the reasonable judgment of the General Counsel of the Company or, if the General Counsel shall have an actual or potential conflict of interest, the Committee; or
(C) the Employee's continued willful refusal to obey any appropriate policy or requirement duly adopted by the Company and the continuance of such refusal after receipt of notice.
e. The Employee acknowledges that when the Employee is required to recognize income for any tax purposes as the result of the exercise of an option to purchase shares pursuant to this Agreement, that such income may be subjected to the withholding of tax by the Company. The Employee agrees that the Company may either withhold an appropriate amount from any compensation or any other payment of any kind then payable or which may become payable to the Employee, or the Company may require the Employee to make a cash payment to the Company equal to the amount of withholding required in the opinion of the Company. In the event the Employee does not make such payment when requested, the Company may refuse to issue or cause to be delivered any shares under this Agreement entered into pursuant to the Program until such payment has been made or arrangements for such payment satisfactory to the Company have been made. In addition, such withholding tax obligations may be satisfied by withholding Shares upon exercise of the option; provided that the amount of tax withholding to be satisfied by withholding Shares shall be limited to the minimum amount of taxes, including employment taxes, required to be withheld under applicable law.
f. The Employee shall have no rights as a shareholder with respect to any Ordinary Shares subject to this option prior to the date of exercise of the option by such Employee.
g. The option herein granted may be assigned or otherwise transferred only in the following circumstances: (i) by will or the laws of descent and distribution; (ii) by valid beneficiary designation taking effect at death made in accordance with procedures established by the Committee; or (iii) by the Employee to members of his or her "immediate family," to a trust established for the exclusive benefit of solely one or more members of the Employee's "immediate family" and/or the Employee, or to a partnership, limited liability company or other entity pursuant to which the only owners are one or more members of the Employee's "immediate family" and/or the Employee. Any option held by the transferee will continue to be subject to the same terms and conditions that were applicable to the option immediately prior to the transfer, except that the option will be transferable by the transferee only by will or the laws of descent and distribution. For purposes hereof, "immediate family" means the Employee's children, stepchildren, grandchildren, parents, stepparents, grandparents, spouse, siblings (including half brothers and sisters), in-laws, and relationships arising because of legal adoption.
h. This Agreement shall be binding upon and inure to the benefit of the Company and the Employee and their respective heirs, representatives and successors.
i. The Employee, by execution of this Agreement, acknowledges receipt of the option granted on the date shown above, as well as a copy of the Program and the Program Prospectus.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, all as of the date of grant set forth above.
ATTEST: XL CAPITAL LTD
_______________________ By:_________________________
WITNESS:
Exhibit 10.5
XL CAPITAL LTD
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT, made and entered into as of the date of the ____ day of __________, 200_, by and between XL Capital Ltd, a Cayman Islands corporation (the "Company"), and ______________ (the "Employee");
WITNESSETH:
WHEREAS, the Board of Directors of the Company is of the opinion that the interest of the Company will be advanced by granting an incentive to employees and by encouraging and enabling them to acquire stock ownership in the Company and assuring a close identity of their interests with those of the Company; and
WHEREAS, pursuant to the provisions of the 1991 Performance Incentive Program (the "Program") of the Company, the Committee (as defined in the Program) has authorized and directed the execution and delivery of this Agreement in the name of and on behalf of the Company;
NOW THEREFORE, the parties hereto agree as follows:
a. Subject and pursuant to all terms and conditions stated in this Agreement and in the Program, which is incorporated by reference into this Agreement and made a part hereof as though herein fully set forth, the Company hereby grants on the date set forth above to the Employee the right and option to purchase all or any part of the aggregate number of shares set forth below of Ordinary Shares of the Company, to be issued or transferred as provided in the Program at the option price per share set forth below. This option shall not be treated as an incentive stock option as defined in Section 422 of the Code.
Option to purchase ______________ shares, for _____________ per share.
One-fourth of such options shall become exercisable on each of the first four anniversaries of the date of grant; PROVIDED, HOWEVER, that the option shall be immediately exercisable in full (i) in the event of a Change of Control, (ii) upon termination of the Employee's employment due to his or her death, Disability or Retirement, or (iii) upon termination of the Employee's employment by the Company by reason of the Employee's Redundancy. "Redundancy" shall mean termination of employment by the Company due to its need to reduce the size of its workforce, including due to closure of a business or a particular workplace or change in business process. Whether a termination of employment is due to "Redundancy" shall be determined in good faith by the Committee in its sole and absolute discretion, such determination being final and binding on all parties hereto and all persons claiming through,
in the name of or on behalf of such parties. The portion of the option, if any, that is not exercisable immediately following termination of the Employee's employment shall be immediately forfeited.
b. The option herein granted may be exercised in whole or in part by the Employee giving notice of exercise to the Program administrator designated from time to time by the Company stating the number of shares with respect to which the option is being exercised. Such notice shall be in the form prescribed by the Company from time to time. Such exercise shall be effective upon (1) receipt of such written notice by the Program administrator and (2) payment in full of the option price.
c. The Employee agrees (1) not to disclose any trade or secret data or any other confidential information acquired during employment by the Company or a subsidiary of the Company, during employment or after the termination of employment or retirement, (2) to abide by all the terms and conditions of the Program and such other terms and conditions as may be imposed by the Committee, and (3) not to interfere with the employment of any other employee of the Company or a subsidiary of the Company.
d. The options granted under this Agreement shall expire upon the first of the following events to occur:
(i) The tenth anniversary of the Agreement;
(ii) The third anniversary of the death or Disability of the Employee;
(iii) Unless otherwise provided in an Employment Agreement between the Employee and the Company, the third anniversary of termination of the Employee's employment by the Company not for Cause (including termination of the Employee's employment by the Company by reason of the Employee's Redundancy) within two years following a Change of Control (the "Post-Change Period");
(iv) Ninety days following termination of the Employee's employment by the Company not for Cause (including termination of the Employee's employment by the Company by reason of the Employee's Redundancy) outside a Post-Change Period;
(v) The last date of employment of the Employee if employment is terminated by the Company for Cause; or
(vi) Thirty days after the last date of employment of the
Employee if employment terminates other than due to the
Employee's Retirement and other than as set forth in
(ii), (iii), (iv) or (v) of this paragraph d. For the
avoidance of doubt, if an Employee's employment
terminates due to the Employee's Retirement, the option
shall remain exercisable until the tenth anniversary of
this Agreement.
"Cause" shall mean:
(A) conviction of the Employee of a felony involving moral turpitude or dishonesty;
(B) the Employee, in carrying out his or her duties for the Company, has been guilty of (1) gross neglect or (2) willful misconduct; PROVIDED, HOWEVER, that any act or failure to act by the Employee shall not constitute Cause for this purpose if such act or failure to act was committed, or omitted, by the Employee in good faith and in a manner reasonably believed to be in the overall best interests of the Company. The determination of whether the Employee acted in good faith and that he or she reasonably believed his or her action to be in the Company's overall best interest will be in the reasonable judgment of the General Counsel of the Company or, if the General Counsel shall have an actual or potential conflict of interest, the Committee; or
(C) the Employee's continued willful refusal to obey any appropriate policy or requirement duly adopted by the Company and the continuance of such refusal after receipt of notice.
e. The Employee acknowledges that when the Employee is required to recognize income for any tax purposes as the result of the exercise of an option to purchase shares pursuant to this Agreement, that such income may be subjected to the withholding of tax by the Company. The Employee agrees that the Company may either withhold an appropriate amount from any compensation or any other payment of any kind then payable or which may become payable to the Employee, or the Company may require the Employee to make a cash payment to the Company equal to the amount of withholding required in the opinion of the Company. In the event the Employee does not make such payment when requested, the Company may refuse to issue or cause to be delivered any shares under this Agreement entered into pursuant to the Program until such payment has been made or arrangements for such payment satisfactory to the Company have been made. In addition, such withholding tax obligations may be satisfied by withholding Shares upon exercise of the option; provided that the amount of tax withholding to be satisfied by withholding Shares shall be limited to the minimum amount of taxes, including employment taxes, required to be withheld under applicable law.
f. The Employee shall have no rights as a shareholder with respect to any Ordinary Shares subject to this option prior to the date of exercise of the option by such Employee.
g. The option herein granted may be assigned or otherwise transferred only in the following circumstances: (i) by will or the laws of descent and distribution; (ii) by valid beneficiary designation taking effect at death made in accordance with procedures established by the Committee; or (iii) by the Employee to members of his or her "immediate family," to a trust established for the exclusive benefit of solely one or more members of the Employee's "immediate family" and/or the Employee, or to a partnership, limited liability company or other entity pursuant to which the only owners are one or more members of the Employee's "immediate family" and/or the Employee. Any option held by the transferee will continue to be subject to the same terms and conditions that were applicable to the option immediately prior to the transfer, except that the option will be transferable by the transferee only by will or the laws of descent and distribution. For purposes hereof, "immediate family" means the Employee's children, stepchildren, grandchildren, parents, stepparents, grandparents, spouse, siblings (including half brothers and sisters), in-laws, and relationships arising because of legal adoption.
h. This Agreement shall be binding upon and inure to the benefit of the Company and the Employee and their respective heirs, representatives and successors.
i. The Employee, by execution of this Agreement, acknowledges receipt of the option granted on the date shown above, as well as a copy of the Program and the Program Prospectus.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, all as of the date of grant set forth above.
ATTEST: XL CAPITAL LTD
_______________________ By:_________________________
WITNESS:
Exhibit 10.6
XL CAPITAL LTD
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made and entered into as of the date of the ____ day of __________, 200_, by and between XL Capital Ltd, a Cayman Islands corporation (the "Company"), and ______________ (the "Employee");
WITNESSETH:
WHEREAS, the Board of Directors of the Company is of the opinion that the interest of the Company will be advanced by granting an incentive to employees and by encouraging and enabling them to acquire stock ownership in the Company and assuring a close identity of their interests with those of the Company; and
WHEREAS, pursuant to the provisions of the 1991 Performance Incentive Program (the "Program") of the Company, the Committee (as defined in the Program) has authorized and directed the execution and delivery of this Agreement in the name of and on behalf of the Company;
NOW THEREFORE, the parties hereto agree as follows:
a. Subject and pursuant to all terms and conditions stated in this Agreement and in the Program, which is incorporated by reference into this Agreement and made a part hereof as though herein fully set forth, the Company hereby grants on the date set forth above to the Employee the right and option to purchase all or any part of the aggregate number of shares set forth below of Ordinary Shares of the Company, to be issued or transferred as provided in the Program at the option price per share set forth below. This option is intended to be an incentive stock option as defined in Section 422 of the Code. However, the option will qualify as an incentive stock option only to the extent that the aggregate fair market value (determined on the date of grant) of the shares (together with shares under other incentive stock options granted by the Company to the Employee) for which the incentive stock options first become exercisable in any calendar year does not exceed US$100,000. Should the fair market value exceed US$100,000, the options to the extent of such excess shall be regarded as Nonstatutory Stock Options.
Option to purchase ______________ shares, for _____________ per share.
One-fourth of such options shall become exercisable on each of the first four anniversaries of the date of grant; PROVIDED, HOWEVER, that the option shall be immediately exercisable in full (i) in the event of a Change of Control, (ii) upon termination of the Employee's employment due to his or her death, Disability or Retirement, or (iii) upon termination of the Employee's employment by the Company by reason of the Employee's Redundancy.
"Redundancy" shall mean termination of employment by the Company due to its need to reduce the size of its workforce, including due to closure of a business or a particular workplace or change in business process. Whether a termination of employment is due to "Redundancy" shall be determined in good faith by the Committee in its sole and absolute discretion, such determination being final and binding on all parties hereto and all persons claiming through, in the name of or on behalf of such parties. The portion of the option, if any, that is not exercisable immediately following termination of the Employee's employment shall be immediately forfeited.
b. The option herein granted may be exercised in whole or in part by the Employee giving notice of exercise to the Program administrator designated from time to time by the Company stating the number of shares with respect to which the option is being exercised. Such notice shall be in the form prescribed by the Company from time to time. Such exercise shall be effective upon (1) receipt of such written notice by the Program administrator and (2) payment in full of the option price.
c. The Employee agrees (1) not to disclose any trade or secret data or any other confidential information acquired during employment by the Company or a subsidiary of the Company, during employment or after the termination of employment or retirement, (2) to abide by all the terms and conditions of the Program and such other terms and conditions as may be imposed by the Committee, and (3) not to interfere with the employment of any other employee of the Company or a subsidiary of the Company. d. The options granted under this Agreement shall expire upon the first of the following events to occur:
(i) The tenth anniversary of the Agreement;
(ii) The third anniversary of the death or Disability of the Employee;
(iii) Unless otherwise provided in an Employment Agreement between the Employee and the Company, the third anniversary of termination of the Employee's employment by the Company not for Cause (including termination of the Employee's employment by the Company by reason of the Employee's Redundancy) within two years following a Change of Control (the "Post-Change Period");
(iv) Ninety days following termination of the Employee's employment by the Company not for Cause (including termination of the Employee's employment by the Company by reason of the Employee's Redundancy) outside a Post-Change Period;
(v) The last date of employment of the Employee if employment is terminated by the Company for Cause; or
(vi) Thirty days after the last date of employment of the Employee if employment terminates other than due to the Employee's Retirement and other than as set forth in (ii), (iii), (iv) or (v) of this paragraph d. For the avoidance of doubt, if an Employee's employment terminates due to the Employee's Retirement, the option shall remain exercisable until the tenth anniversary of this Agreement.
"Cause" shall mean:
(A) conviction of the Employee of a felony involving moral turpitude or dishonesty;
(B) the Employee, in carrying out his or her duties for the Company, has been guilty of (1) gross neglect or (2) willful misconduct; PROVIDED, HOWEVER, that any act or failure to act by the Employee shall not constitute Cause for this purpose if such act or failure to act was committed, or omitted, by the Employee in good faith and in a manner reasonably believed to be in the overall best interests of the Company. The determination of whether the Employee acted in good faith and that he or she reasonably believed his or her action to be in the Company's overall best interest will be in the reasonable judgment of the General Counsel of the Company or, if the General Counsel shall have an actual or potential conflict of interest, the Committee; or
(C) the Employee's continued willful refusal to obey any appropriate policy or requirement duly adopted by the Company and the continuance of such refusal after receipt of notice.
e. The Employee acknowledges that when the Employee is required to recognize income for any tax purposes as the result of the exercise of an option to purchase shares pursuant to this Agreement, that such income may be subjected to the withholding of tax by the Company. The Employee agrees that the Company may either withhold an appropriate amount from any compensation or any other payment of any kind then payable or which may become payable to the Employee, or the Company may require the Employee to make a cash payment to the Company equal to the amount of withholding required in the opinion of the Company. In the event the Employee does not make such payment when requested, the Company may refuse to issue or cause to be delivered any shares under this Agreement entered into pursuant to the Program until such payment has been made or
arrangements for such payment satisfactory to the Company have been made. In addition, such withholding tax obligations may be satisfied by withholding Shares upon exercise of the option; provided that the amount of tax withholding to be satisfied by withholding Shares shall be limited to the minimum amount of taxes, including employment taxes, required to be withheld under applicable law.
f. The Employee shall have no rights as a shareholder with respect to any Ordinary Shares subject to this option prior to the date of exercise of the option by such Employee.
g. This option may not be assigned or otherwise transferred in any manner other than by will or the laws of descent and distribution, and it may be exercised during the lifetime of the Employee only by the Employee.
h. This Agreement shall be binding upon and inure to the benefit of the Company and the Employee and their respective heirs, representatives and successors.
i. The Employee, by execution of this Agreement, acknowledges receipt of the option granted on the date shown above, as well as a copy of the Program and the Program Prospectus.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, all as of the date of grant set forth above.
ATTEST: XL CAPITAL LTD
_______________________ By:________________________
WITNESS:
Exhibit 10.7
RESTRICTED STOCK AGREEMENT
AGREEMENT, made and entered into as of _________ ___, 200__ by and between XL Capital Ltd, a Cayman Islands corporation ("XL"), and <<Grantee>> (the "Grantee").
WHEREAS, the Grantee is an employee of XL and/or any of its subsidiaries (collectively called the "Company"); and
WHEREAS, XL regards the Grantee as a valuable employee of the Company and has determined it to be in the interest of the Company to grant to the Grantee an award of Restricted Shares (as defined) under the Company's 1991 Performance Incentive Program;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and for other good and valuable consideration, XL and the Grantee agree as follows:
(a) GRANT OF RESTRICTED SHARES.
XL hereby grants to the Grantee, for a cash consideration of US$0.01 per Share, an award (the "Award") of <<NoOfShares>> Ordinary Shares, US $0.01 par value per share, of XL ("Shares"), subject to the restrictions set forth below (the "Restricted Shares"). The Award is granted pursuant to the terms of the Company's 1991 Performance Incentive Program, which is incorporated by reference herein.
(b) ISSUANCE OF RESTRICTED SHARES.
A stock certificate representing the Restricted Shares granted and issued to the Grantee under the Award shall be issued in the Grantee's name upon the Grantee's delivery to XL of the par value for such Shares in such form as XL may require.
The stock certificate shall be held in custody by XL for the Grantee's account.
(c) RESTRICTED PERIOD.
The Restricted Period means the period of time from the date hereof until the Award vests, during which period the restrictions imposed upon the Award by paragraph (d) below shall apply. The Award will vest in four equal annual installments, beginning on the first anniversary of the date hereof; PROVIDED, HOWEVER, that the Award shall vest in full upon an Early Termination (as defined in paragraph (e) below).
(d) RIGHTS AND RESTRICTIONS.
The Grantee shall generally have the rights and privileges of a shareholder as to the Restricted Shares, including the right to receive dividends and the right to vote such Restricted Shares, EXCEPT THAT, the following restrictions shall apply: (i) the Grantee shall not be entitled to delivery of a stock certificate representing the Restricted Shares until the expiration or Early Termination of the Restricted Period; (ii) no Restricted Share may be sold, transferred, assigned, pledged, or otherwise encumbered, tendered or exchanged, or disposed of before the expiration or Early Termination of the Restricted Period; and (iii) the Restricted Shares shall be forfeited to XL and redeemed by it for US$0.01 per Share and all rights of the Grantee to such Restricted Shares shall terminate without further obligation on the part of XL unless the Grantee has continuously remained an employee of the Company until the expiration date of the Restricted Period or its Early Termination.
In the case of a tender or exchange offer that is applicable to any outstanding Restricted Shares with respect to which restrictions have not lapsed, the Board of Directors of XL, and not the Grantee, shall have the sole right to determine and to instruct the Company as to whether such Restricted Shares are to be tendered or exchanged.
(e) EARLY TERMINATION.
The restrictions contained in paragraph (d) above and the Restricted Period shall terminate immediately ("Early Termination") upon the happening of any of the following events:
(i) DEATH OF GRANTEE. In the event the Grantee dies while in the employment of the Company.
(ii) TERMINATION OF EMPLOYMENT DUE TO DISABILITY. In the event the Grantee's employment with the Company is terminated by the Company by reason of the Grantee's Disability. "Disability" means the inability of the Grantee, as a result of accident or sickness, to perform the duties pertaining to his occupation or employment with the Company as determined by the Company.
(iii) TERMINATION OF EMPLOYMENT DUE TO RETIREMENT. In the event the Grantee's employment with the Company is terminated due to his or her Retirement.
(iv) TERMINATION OF EMPLOYMENT DUE TO REDUNDANCY. In the event the Grantee's employment with the Company is terminated by the Company by reason of the Grantee's Redundancy. "Redundancy" shall mean termination of employment by the Company due to its need to reduce the size of its workforce, including due to closure of a business or a particular workplace or change in business process. Whether a termination of employment is due to "Redundancy" shall be determined in good faith by the Committee in its sole and absolute discretion,
such
determination being final and binding on all parties hereto and all persons claiming through, in the name of or on behalf of such parties.
(v) CHANGE OF CONTROL. In the event there is a Change of Control of the Company.
(f) LAPSE OF RESTRICTIONS; DELIVERY OF CERTIFICATE.
Upon the expiration of the Restricted Period, or its Early Termination, the restrictions applicable to the Restricted Shares shall lapse. As promptly as administratively feasible thereafter, XL shall deliver to Grantee, or if Grantee is deceased, to Grantee's personal representative, a stock certificate for such Shares free of all such restrictions.
(g) STATUS OF SHARES.
Upon issuance, the Restricted Shares shall rank equally in all respects with the other outstanding Shares of XL and shall be fully paid.
(h) ADJUSTMENTS FOR RECAPITALIZATIONS, ETC.
In the event of any change in the number or nature of Shares outstanding prior to the lapse of restrictions with respect to the Award, by reason of stock dividends, split-ups, recapitalizations, combinations, exchanges of shares or the like, the number of Shares subject to the Award shall be adjusted accordingly by the Board of Directors of XL so as to avoid dilution or other material adverse effect to the Grantee's rights hereunder.
(i) OBLIGATIONS AS TO CAPITAL.
XL agrees that it will at all times maintain authorized and unissued share capital sufficient to fulfill all of its obligations under this Agreement.
(j) WITHHOLDING.
The Grantee agrees to make appropriate arrangements with XL for satisfaction of any applicable income tax withholding requirements or social security or similar requirements arising out of the Award. Such withholding tax obligations may be satisfied by withholding Shares from this Award; provided that the amount of tax withholding to be satisfied by withholding Shares shall be limited to the minimum amount of taxes, including employment taxes, required to be withheld under applicable law.
(k) REFERENCES.
References herein to rights and obligations of the Grantee shall apply, where appropriate, to the estate or personal representative of the Grantee without regard to whether specific reference to them is contained in a particular provision of this Agreement.
(l) NOTICE.
Any notice or communication to be given to XL under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, duly addressed to XL Capital Ltd, XL House, One Bermudiana Road, Hamilton HM 08, Bermuda.
(m) GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to the principles of conflict of laws.
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be executed and delivered on the date first above written.
XL Capital Ltd
By: ______________________________
Exhibit 10.8
XL CAPITAL LTD
NONSTATUTORY STOCK OPTION AGREEMENT
[Renewal Form]
THIS AGREEMENT, made and entered into as of the date of the ____ day of __________, 200_, by and between XL Capital Ltd, a Cayman Islands corporation (the "Company"), and ______________ (the "Employee");
WITNESSETH:
WHEREAS, the Board of Directors of the Company is of the opinion that the interest of the Company will be advanced by granting an incentive to employees and by encouraging and enabling them to acquire stock ownership in the Company and assuring a close identity of their interests with those of the Company; and
WHEREAS, pursuant to the provisions of the 1991 Performance Incentive Program (the "Program") of the Company, the Committee (as defined in the Program) has authorized and directed the execution and delivery of this Agreement in the name of and on behalf of the Company;
NOW THEREFORE, the parties hereto agree as follows:
a. Subject and pursuant to all terms and conditions stated in this Agreement and in the Program, which is incorporated by reference into this Agreement and made a part hereof as though herein fully set forth, the Company hereby grants on the date set forth above to the Employee the right and option to purchase all or any part of the aggregate number of shares set forth below of Ordinary Shares of the Company, to be issued or transferred as provided in the Program at the option price per share set forth below. This option shall not be treated as an incentive stock option as defined in Section 422 of the Code.
Option to purchase ______________ shares, for _____________ per share.
One-third of such options shall become exercisable on each of the first three anniversaries of the date of grant; PROVIDED, HOWEVER, that the option shall be immediately exercisable in full in the event of a Change of Control or upon termination of the Employee's employment due to his or her death or Disability; PROVIDED FURTHER, HOWEVER, that the option
shall become exercisable in full no later than 90 days prior to the date set forth in paragraph (d)(i) below.
b. The option herein granted may be exercised in whole or in part by the Employee giving written notice of exercise to the Treasurer of the Company stating the number of shares with respect to which the option is being exercised, in the form prescribed by the Treasurer, duly signed by the Employee. Such exercise shall be effective upon (1) receipt of such written notice by the Treasurer and (2) payment in full to the Company of the option price.
c. The Employee agrees (1) not to disclose any trade or secret data or any other confidential information acquired during employment by the Company or a subsidiary of the Company, during employment or after the termination of employment or retirement, (2) to abide by all the terms and conditions of the Program and such other terms and conditions as may be imposed by the Committee, and (3) not to interfere with the employment of any other employee of the Company or a subsidiary of the Company.
d. The options granted under this Agreement shall expire upon the first of the following events to occur:
(i) _________________________________(1);
(ii) The third anniversary of the Retirement, death or Disability of the Employee;
(iii) Unless otherwise provided in an Employment Agreement between the Employee and the Company, the third anniversary of termination of the Employee's employment by the Company not for Cause within two years following a Change of Control (the "Post-Change Period");
(iv) Ninety days following termination of the Employee's employment by the Company not for Cause outside a Post-Change Period;
(v) The last date of employment of the Employee if
employment is terminated by the Company for Cause; or
(vi) Thirty days after the last date of employment of the
Employee if employment terminates other than as set
forth in (ii), (iii), (iv) or (v) of this paragraph d.
"Cause" shall mean:
(A) conviction of the Employee of a felony involving moral turpitude or
|
dishonesty;
(B) the Employee, in carrying out his or her duties for the Company, has been guilty of (1) gross neglect or (2) willful misconduct; PROVIDED, HOWEVER, that any act or failure to act by the Employee shall not constitute Cause for this purpose if such act or failure to act was committed, or omitted, by the Employee in good faith and in a manner reasonably believed to be in the overall best interests of the Company. The determination of whether the Employee acted in good faith and that he or she reasonably believed his or her action to be in the Company's overall best interest will be in the reasonable judgment of the General Counsel of the Company or, if the General Counsel shall have an actual or potential conflict of interest, the Committee; or
(C) the Employee's continued willful refusal to obey any appropriate policy or requirement duly adopted by the Company and the continuance of such refusal after receipt of notice.
e. Notwithstanding any provision in this Agreement or the Program to the contrary, in the event the Employee fails to continue to be the beneficial owner of at least _______ of the Shares received on exercise of the option to purchase _______ Shares granted to the Employee on ____________ for at least two years following such exercise, (i) this option shall terminate in full immediately upon the disposition of beneficial ownership of any of such Shares, and (ii) if the Employee has exercised all or any portion of this option prior to such a disposition of beneficial ownership of such Shares, the Employee shall immediately upon such disposition return to the Company, in cash, an amount equal to the excess of the fair market value of the Shares received on exercise of this option (determined at the time of exercise) over the exercise price.
f. The Employee acknowledges that when the Employee is required to recognize income for any tax purposes as the result of the exercise of an option to purchase shares pursuant to this Agreement, that such income may be subjected to the withholding of tax by the Company. The Employee agrees that the Company may either withhold an appropriate amount from any compensation or any other payment of any kind then payable or which may become payable to the Employee, or the Company may require the Employee to make a cash payment to the Company equal to the amount of withholding required in the opinion of the Company. In the event the Employee does not make such payment when requested, the Company may refuse to issue or cause to be delivered any shares under this Agreement entered into pursuant to the Program until such payment has been made or arrangements for such payment satisfactory to the Company have been made.
g. The Employee shall have no rights as a shareholder with respect to any Ordinary Shares subject to this option prior to the date of issuance to such Employee of a certificate or certificates for such shares.
h. The option herein granted may be assigned or otherwise transferred only in the following circumstances: (i) by will or the laws of descent and distribution; (ii) by valid beneficiary designation taking effect at death made in accordance with procedures established by the Committee; or (iii) by the Employee to members of his or her "immediate family," to a trust established for the exclusive benefit of solely one or more members of the Employee's "immediate family" and/or the Employee, or to a partnership pursuant to which the only partners are one or more members of the Employee's "immediate family" and/or the Employee. Any option held by the transferee will continue to be subject to the same terms and conditions that were applicable to the option immediately prior to the transfer, except that the option will be transferable by the transferee only by will or the laws of descent and distribution. For purposes hereof, "immediate family" means the Employee's children, stepchildren, grandchildren, parents, stepparents, grandparents, spouse, siblings (including half brothers and sisters), in-laws, and relationships arising because of legal adoption.
i. This Agreement shall be binding upon and inure to the benefit of the Company and the Employee and their respective heirs, representatives and successors.
j. The Employee, by execution of this Agreement, acknowledges receipt of the option granted on the date shown above, as well as a copy of the Program.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, all as of the date of grant set forth above.
ATTEST: XL CAPITAL LTD
_______________________ By:_________________________
WITNESS:
Exhibit 10.9
XL CAPITAL LTD
NONSTATUTORY STOCK OPTION AGREEMENT
[Nonemployee Director Renewal Form]
THIS AGREEMENT, made and entered into as of the date of the ____ day of __________, 200_, by and between XL Capital Ltd, a Cayman Islands corporation (the "Company"), and ______________ (the "Director");
WITNESSETH:
WHEREAS, the interest of the Company will be advanced by granting an incentive to nonemployee directors and by encouraging and enabling them to acquire stock ownership in the Company and assuring a close identity of their interests with those of the Company; and
WHEREAS, pursuant to the provisions of the 1991 Performance Incentive Program (the "Program") of the Company, the Committee (as defined in the Program) has authorized and directed the execution and delivery of this Agreement in the name of and on behalf of the Company;
NOW THEREFORE, the parties hereto agree as follows:
a. Subject and pursuant to all terms and conditions stated in this Agreement and in the Program, which is incorporated by reference into this Agreement and made a part hereof as though herein fully set forth, the Company hereby grants on the date set forth above to the Director the right and option to purchase all or any part of the aggregate number of Ordinary Shares of the Company set forth below, to be issued or transferred as provided in the Program at the option price per share set forth below. This option shall not be treated as an incentive stock option as defined in Section 422 of the Code.
Option to purchase ______________ shares, for _____________ per share.
The option granted hereunder shall be fully exercisable on the date of grant and shall expire on _________.(1)
Exercisability of the option shall not be dependent upon the Director's continuing service on the Board.
b. The option herein granted may be exercised in whole or in part by the Director giving written notice of exercise to the Treasurer of the Company stating the number of shares with respect to which the option is being exercised, in the form prescribed by the Treasurer, duly signed by the Director. Such exercise shall be effective upon (1) receipt of such written notice by the Treasurer and (2) payment in full to the Company of the option price.
c. Notwithstanding any provision in this Agreement or the Program to the contrary, in the event the Director fails to continue to be the beneficial owner of at least _______ of the Shares received on exercise of the option to purchase _______ Shares granted to the Director on ____________ for at least two years following such exercise, (i) this option shall terminate in full immediately upon the disposition of beneficial ownership of any of such Shares, and (ii) if the Director has exercised all or any portion of this option prior to such a disposition of beneficial ownership of such Shares, the Director shall immediately upon such disposition return to the Company, in cash, an amount equal to the excess of the fair market value of the Shares received on exercise of this option (determined at the time of exercise) over the exercise price.
d. The Director shall have no rights as a shareholder with respect to any Ordinary Shares subject to this option prior to the date of issuance to such Director of a certificate or certificates for such shares.
e. The option herein granted may be assigned or otherwise transferred only in the following circumstances: (i) by will or the laws of descent and distribution; (ii) by valid beneficiary designation taking effect at death made in accordance with procedures established by the Committee; or (iii) by the Director to members of his or her "immediate family," to a trust established for the exclusive benefit of solely one or more members of the Director's "immediate family" and/or the Director, or to a partnership pursuant to which the only partners are one or more members of the Director's "immediate family" and/or the Director. Any option held by the transferee will continue to be subject to the same terms and conditions that were applicable to the option immediately prior to the transfer, except that the option will be transferable by the transferee only by will or the laws of descent and distribution. For purposes hereof, "immediate family" means the Director's
children, stepchildren, grandchildren, parents, stepparents, grandparents, spouse, siblings (including half brothers and sisters), in-laws, and relationships arising because of legal adoption.
f. This Agreement shall be binding upon and inure to the benefit of the Company and the Director and their respective heirs, representatives and successors.
g. The Director, by execution of this Agreement, acknowledges receipt of the option granted on the date shown above, as well as a copy of the Program.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, all as of the date of grant set forth above.
ATTEST: XL CAPITAL LTD
_______________________ By:_________________________
WITNESS:
Exhibit 10.10
DIRECTORS RESTRICTED STOCK AGREEMENT
AGREEMENT, made and entered into as of _________ ___, 200__ by and between XL Capital Ltd, a Cayman Islands corporation ("XL"), and <<Grantee>> (the "Grantee").
WHEREAS, the Grantee is a nonemployee member of the Board of Directors of XL; and
WHEREAS, XL has granted to the Grantee a Restricted Stock Award under XL's Directors Stock & Option Plan;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and for other good and valuable consideration, XL and the Grantee agree as follows:
(a) GRANT OF RESTRICTED STOCK.
XL hereby grants to the Grantee, for cash consideration of US$0.01 per share, an award (the "Award") of <<No. of Shares>> Ordinary Shares, US $0.01 par value per share, of XL ("Shares"), subject to the restrictions set forth below (the "Restricted Stock"). The date of grant of the Award is ___________, 200_ (the "Date of Grant"). The Award is granted pursuant to the terms of XL's Directors Stock & Option Plan, the terms of which are incorporated by reference herein.
(b) ISSUANCE OF RESTRICTED STOCK
A stock certificate representing the Restricted Stock granted and issued to the Grantee under the Award shall be issued in the Grantee's name upon the Grantee's delivery to
XL of the par value for such shares of Restricted Stock in such form as XL may require. The stock certificate shall be held in the custody of XL for the Grantee's account.
(c) RESTRICTED PERIOD.
The Restricted Period means the period of time from the Date of Grant until the first anniversary of the Date of Grant, during which period the restrictions imposed upon the Award by paragraph (d) below shall apply. The Award will be vested in full on the Date of Grant.
(d) RIGHTS AND RESTRICTIONS.
From the Date of Grant the Grantee shall have all of the rights and privileges of a shareholder as to the Restricted Stock, including the right to receive dividends and the right to vote such Restricted Stock, EXCEPT THAT, the following restrictions shall apply: (i) the Grantee shall not be entitled to delivery of a stock certificate representing the Restricted Stock until the expiration of the Restricted Period; and (ii) no share of Restricted Stock may be sold, transferred, assigned, pledged, or otherwise disposed of before the expiration of the Restricted Period.
(e) LAPSE OF RESTRICTIONS; DELIVERY OF CERTIFICATE.
Upon the expiration of the Restricted Period, the restrictions applicable to the Restricted Stock shall lapse. As promptly as administratively feasible thereafter, XL shall deliver to Grantee, or if Grantee is deceased, to Grantee's personal representative, a stock certificate for such Shares free of all such restrictions.
(f) STATUS OF SHARES.
Upon issuance, the Restricted Stock shall rank equally in all respects with the other outstanding Shares of XL and shall be fully paid.
(g) REFERENCES.
References herein to rights and obligations of the Grantee shall apply, where appropriate, to the estate or personal representative of the Grantee without regard to whether specific reference to them is contained in a particular provision of this Agreement.
(h) NOTICE.
Any notice or communication to be given to XL under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, duly addressed to XL Capital Ltd, XL House, One Bermudiana Road, Hamilton HM 08, Bermuda.
(i) GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be executed and delivered on the date first above written.
XL Capital Ltd
By: ______________________________
Exhibit 10.11
PERFORMANCE RESTRICTED STOCK AGREEMENT
AGREEMENT, made and entered into as of _________ ___, 200__ by and between XL Capital Ltd, a Cayman Islands corporation ("XL"), and <<Grantee>> (the "Grantee").
WHEREAS, the Grantee is an employee of XL and/or any of its subsidiaries (collectively called the "Company"); and
WHEREAS, XL regards the Grantee as a valuable employee of the Company and has determined it to be in the interest of the Company to grant to the Grantee an award of Performance Restricted Shares under the Company's 1991 Performance Incentive Program;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and for other good and valuable consideration, XL and the Grantee agree as follows:
(a) GRANT OF RESTRICTED SHARES.
XL hereby grants to the Grantee, for a cash consideration of US$0.01 per Share, an award (the "Award") of <<NoOfShares>> Ordinary Shares, US $0.01 par value per share, of XL ("Shares"), subject to the restrictions set forth below (the "Restricted Shares"). The date of grant of the Award shall be the date set forth above (the "Date of Grant"). The Award is granted pursuant to the terms of the Company's 1991 Performance Incentive Program, which is incorporated by reference herein.
(b) ISSUANCE OF RESTRICTED SHARES.
A stock certificate representing the Restricted Shares granted and issued to the Grantee under the Award shall be issued in the Grantee's name upon the Grantee's delivery to XL of the par value for such Shares in such form as XL may require.
The stock certificate shall be held in custody by XL for the Grantee's account.
(c) RESTRICTED PERIOD.
The Restricted Period means the period of time from the date hereof until the Award vests, during which period the restrictions imposed upon the Award by paragraph (d) below shall apply. The Award will vest as follows:
(i) 25% of the Shares subject to the Award will vest on each of the first, second, third and fourth anniversaries of the Date of Grant (or, if later, the date the Board determines that the applicable ROE (as defined below) threshold has been met), in each case if, and only if, the consolidated return on equity of the Company, as determined by the Board, (the "ROE") for the immediately preceding calendar year equals or exceeds [__]%.
(ii) If in any year the Shares subject to vesting for the first time under (i) above do not vest because the ROE for the immediately preceding calendar year was below the [__]% threshold set forth in (i) above, such Shares will vest on the next anniversary of the Date of Grant (or, if later, the date the Board determines that the applicable ROE threshold has been met), in each case if, and only if, the ROE for the two calendar year period immediately preceding such next anniversary (for this purpose treating the ROE for any calendar year as not less than zero) equals or exceeds [__]% per annum, compounded annually.
(iii) If Shares fail to vest in two or more successive years due to the failure to achieve the required ROE thresholds, such Shares will vest on the next anniversary of the
Date of Grant (or, if later, the date the Board determines that the applicable ROE threshold has been met), in each case if, and only if, the ROE for the three calendar year period immediately preceding such next anniversary (for this purpose treating the ROE for any calendar year as not less than zero) equals or exceeds [__]% per annum, compounded annually.
(iv) Notwithstanding the foregoing, the Award shall vest in full on the tenth anniversary of the Date of Grant or upon an Early Termination (as defined in paragraph (e) below).
(v) ROE determinations for a period shall be made by the Board no later than the 20th day of February next following the end of the period.
(d) RIGHTS AND RESTRICTIONS.
The Grantee shall generally have the rights and privileges of a shareholder as to the Restricted Shares, including the right to receive dividends and the right to vote such Restricted Shares, EXCEPT THAT, the following restrictions shall apply: (i) the Grantee shall not be entitled to delivery of a stock certificate representing the Restricted Shares until the expiration or Early Termination of the Restricted Period; (ii) no Restricted Share may be sold, transferred, assigned, pledged, or otherwise encumbered, tendered or exchanged, or disposed of before the expiration or Early Termination of the Restricted Period; and (iii) the Restricted Shares shall be forfeited to XL and redeemed by it for US$0.01 per Share and all rights of the Grantee to such Restricted Shares shall terminate without further obligation on the part of XL unless the Grantee has continuously remained an employee of the Company until the expiration date of the Restricted Period or its Early Termination.
In the case of a tender or exchange offer that is applicable to any outstanding Restricted Shares with respect to which restrictions have not lapsed, the Board of Directors of
XL, and not the Grantee, shall have the sole right to determine and to instruct the Company as to whether such Restricted Shares are to be tendered or exchanged.
(e) EARLY TERMINATION.
The restrictions contained in paragraph (d) above and the Restricted Period shall terminate immediately ("Early Termination") upon the happening of any of the following events:
(i) DEATH OF GRANTEE. In the event the Grantee dies while in the employment of the Company.
(ii) TERMINATION OF EMPLOYMENT DUE TO DISABILITY. In the event the Grantee's employment with the Company is terminated by the Company by reason of the Grantee's Disability. "Disability" means the inability of the Grantee, as a result of accident or sickness, to perform the duties pertaining to his occupation or employment with the Company as determined by the Company.
(iii) TERMINATION OF EMPLOYMENT DUE TO RETIREMENT. In the event the Grantee's employment with the Company is terminated due to his or her Retirement.
(iv) CHANGE OF CONTROL. In the event there is a Change of Control of the Company.
(f) LAPSE OF RESTRICTIONS; DELIVERY OF CERTIFICATE.
Upon the expiration of the Restricted Period, or its Early Termination, the restrictions applicable to the Restricted Shares shall lapse. As promptly as administratively feasible thereafter, XL shall deliver to Grantee, or if Grantee is deceased, to Grantee's personal representative, a stock certificate for such Shares free of all such restrictions.
(g) STATUS OF SHARES.
Upon issuance, the Restricted Shares shall rank equally in all respects with the other outstanding Shares of XL and shall be fully paid.
(h) ADJUSTMENTS FOR RECAPITALIZATIONS, ETC.
In the event of any change in the number or nature of Shares outstanding prior to the lapse of restrictions with respect to the Award, by reason of stock dividends, split-ups, recapitalizations, combinations, exchanges of shares or the like, the number of Shares subject to the Award shall be adjusted accordingly by the Board of Directors of XL so as to avoid dilution or other material adverse effect to the Grantee's rights hereunder.
(i) OBLIGATIONS AS TO CAPITAL.
XL agrees that it will at all times maintain authorized and unissued share capital sufficient to fulfill all of its obligations under this Agreement.
(j) WITHHOLDING.
The Grantee agrees to make appropriate arrangements with XL for satisfaction of any applicable income tax withholding requirements or social security or similar requirements arising out of the Award. Such withholding tax obligations may be satisfied by withholding Shares from this Award; provided that the amount of tax withholding to be satisfied by with-
holding Shares shall be limited to the minimum amount of taxes, including employment taxes, required to be withheld under applicable law.
(k) REFERENCES.
References herein to rights and obligations of the Grantee shall apply, where appropriate, to the estate or personal representative of the Grantee without regard to whether specific reference to them is contained in a particular provision of this Agreement.
(l) NOTICE.
Any notice or communication to be given to XL under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, duly addressed to XL Capital Ltd, XL House, One Bermudiana Road, Hamilton HM 08, Bermuda.
(m) GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to the principles of conflict of laws.
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be executed and delivered on the date first above written.
XL Capital Ltd
By: ______________________________
Exhibit 10.12
PERFORMANCE RESTRICTED STOCK UNIT AGREEMENT
AGREEMENT, made and entered into as of _________ ___, 200__ by and between XL Capital Ltd, a Cayman Islands corporation ("XL"), and <<Grantee>> (the "Grantee").
WHEREAS, the Grantee is an employee of XL and/or any of its subsidiaries (collectively called the "Company"); and
WHEREAS, XL regards the Grantee as a valuable employee of the Company and has determined it to be in the interest of the Company to grant to the Grantee an award of Performance Restricted Stock Units under the Company's 1991 Performance Incentive Program;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and for other good and valuable consideration, XL and the Grantee agree as follows:
(a) GRANT OF PERFORMANCE RESTRICTED STOCK UNITS.
XL hereby grants to the Grantee an award (the "Award") of <<No. of Shares>> Performance Restricted Stock Units subject to the restrictions set forth below (the "Performance Restricted Stock Units"). The date of grant of the Award shall be the date set forth above (the "Date of Grant"). The Award is granted pursuant to the terms of the Company's 1991 Performance Incentive Program, which is incorporated by reference herein. Any capitalized terms used herein and not defined shall have the meanings given to those terms in the 1991 Performance Incentive Program.
(b) VESTING.
The Award will vest as follows:
(i) 25% of the Performance Restricted Share Units subject to the
Award will vest on each of the first, second, third and fourth anniversaries of
the Date of Grant (or, if later, the date the Board determines that the
applicable ROE (as defined below) threshold has been met), in each case if, and
only if, the consolidated return on equity of the Company, as determined by the
Board, (the "ROE") for the immediately preceding calendar year equals or exceeds
[__]%.
(ii) If in any year the portion of the Performance Restricted Share Units subject to vesting for the first time under (i) above does not vest because the ROE for the immediately preceding calendar year was below the [__]% threshold set forth in (i) above, such portion of the Performance Restricted Share Units will vest on the next anniversary of the Date of Grant (or, if later, the date the Board determines that the applicable ROE threshold has been met), in each case if, and only if, the ROE for the two calendar year period immediately preceding such next anniversary (for this purpose treating the ROE for any calendar year as not less than zero) equals or exceeds [__]% per annum, compounded annually.
(iii) If any portion of the Performance Restricted Share Units subject to the Award fails to vest in two or more successive years due to the failure to achieve the required ROE thresholds, such portion of the Performance Restricted Share Units will vest on the next anniversary of the Date of Grant (or, if later, the date the Board determines that the applicable ROE threshold has been met), in each case if, and only if, the ROE for the three calendar year period immediately preceding such next anniversary (for this purpose treating the ROE for any calendar year as not less than zero) equals or exceeds [__]% per annum, compounded annually.
(iv) Notwithstanding the foregoing, the Award shall vest in full on the tenth anniversary of the Date of Grant or upon an Early Termination (as defined in paragraph (e) below).
(v) ROE determinations for a period shall be made by the Board no later than the 20th day of February next following the end of the period.
(vi) The portion of the Award, if any, that is not vested immediately following termination of the Grantee's employment shall be immediately forfeited.
(c) DISTRIBUTION OF STOCK.
At the time the Award vests in accordance with paragraph (b) above, the Company shall distribute to the Grantee a number of Ordinary Shares, US$0.01 par value per share, of XL (the "Shares") equal to the number of Performance Restricted Stock Units which vested. Prior to the Company's delivery of the Shares, the Grantee shall pay to XL an amount of cash equal to the par value for each of such Shares delivered.
(d) RIGHTS AND RESTRICTIONS.
The Performance Restricted Stock Units shall not be transferable other than pursuant to will or the laws of descent and distribution. Prior to vesting of the Performance Restricted Stock Units and delivery of the Shares to the Grantee, the Grantee shall not have any rights and privileges of a shareholder as to the Shares subject to the Award. Specifically, the Grantee shall not have the right to receive dividends or the right to vote such Shares prior to vesting of the Award and delivery of the Shares.
(e) EARLY TERMINATION.
The Award shall vest in full immediately upon the happening of any of the following events (each an "Early Termination"):
(i) DEATH OF GRANTEE. In the event the Grantee dies while in the employment of the Company.
(ii) TERMINATION OF EMPLOYMENT DUE TO DISABILITY. In the event the Grantee's employment with the Company is terminated by the Company by reason of the Grantee's Disability. "Disability" means the inability of the Grantee, as a result of accident or sickness, to perform the duties pertaining to his occupation or employment with the Company as determined by the Company.
(iii) TERMINATION OF EMPLOYMENT DUE TO RETIREMENT. In the event the Grantee's employment with the Company is terminated due to his or her Retirement.
(iv) CHANGE OF CONTROL. In the event there is a Change of Control of the Company.
(f) STATUS OF SHARES.
Upon issuance, the Shares shall rank equally in all respects with the other outstanding Shares of XL and shall be fully paid.
(g) ADJUSTMENTS FOR RECAPITALIZATIONS, ETC.
In the event of stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations, exchanges of shares, spin-off, liquidations, reclassifications or other similar changes in the capitalization of XL, the number of Shares subject to this Award shall be proportionately adjusted by the Board on an equitable basis.
(h) OBLIGATIONS AS TO CAPITAL.
XL agrees that it will at all times maintain authorized and unissued share capital sufficient to fulfill all of its obligations under this Agreement.
(i) WITHHOLDING.
The Grantee agrees to make appropriate arrangements with XL for satisfaction of any applicable income tax withholding requirements or social security or similar requirements arising out of the Award. Such withholding tax obligations may be satisfied by withholding Shares from this Award; provided that the amount of tax withholding to be satisfied by withholding Shares shall be limited to the minimum amount of taxes, including employment taxes, required to be withheld under applicable law.
(j) REFERENCES.
References herein to rights and obligations of the Grantee shall apply, where appropriate, to the estate or personal representative of the Grantee without regard to whether specific reference to them is contained in a particular provision of this Agreement.
(k) NOTICE.
Any notice or communication to be given to XL under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, duly addressed to XL Capital Ltd, XL House, One Bermudiana Road, Hamilton HM 08, Bermuda.
(l) GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to the principles of conflict of laws.
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement to be executed and delivered on the date first above written.
XL Capital Ltd
By: ______________________________
Exhibit 10.13
RESTRICTED STOCK UNIT AGREEMENT
AGREEMENT, made and entered into as of _________ ___, 200__ by and between XL Capital Ltd, a Cayman Islands corporation ("XL"), and <<Grantee>> (the "Grantee").
WHEREAS, the Grantee is an employee of XL and/or any of its subsidiaries (collectively called the "Company"); and
WHEREAS, XL regards the Grantee as a valuable employee of the Company and has determined it to be in the interest of the Company to grant to the Grantee an award of Restricted Stock Units under the Company's 1991 Performance Incentive Program;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and for other good and valuable consideration, XL and the Grantee agree as follows:
(a) GRANT OF RESTRICTED STOCK UNITS.
XL hereby grants to the Grantee an award (the "Award") of <<No.of Shares>> Restricted Stock Units, subject to the restrictions and other terms and conditions set forth below (the "Restricted Stock Units"). The Award is granted pursuant to the terms of the Company's 1991 Performance Incentive Program, which is incorporated by reference herein. Any capitalized terms used herein and not defined shall have the meanings given to those terms in the 1991 Performance Incentive Program.
(b) VESTING.
The Award will vest in four equal annual installments, beginning on the first anniversary of the date set forth above; PROVIDED, HOWEVER, that the Award shall vest in full upon an Early Termination (as defined in paragraph (e) below). The portion of the Award, if any, that is not vested immediately following termination of the Grantee's employment shall be immediately forfeited.
(c) DISTRIBUTION OF STOCK.
At the time the Award vests in accordance with paragraph
(b) above, the Company shall distribute to the Grantee a number of Ordinary
Shares, US$0.01 par value per share, of XL (the "Shares") equal to the number of
Restricted Stock Units which vested. Prior to the Company's delivery of the
Shares, the Grantee shall pay to XL an amount of cash equal to the par value for
each of such Shares delivered.
(d) RIGHTS AND RESTRICTIONS.
The Restricted Stock Units shall not be transferable other than pursuant to will or the laws of descent and distribution. Prior to vesting of the Restricted Stock Units and delivery of the Shares to the Grantee, the Grantee shall not have any rights and privileges of a shareholder as to the Shares subject to the Award. Specifically, the Grantee shall not have the right to receive dividends or the right to vote such Shares prior to vesting of the Award and delivery of the Shares.
(e) EARLY TERMINATION.
The Award shall vest in full immediately upon the happening of any of the following events (each an "Early Termination"):
(i) DEATH OF GRANTEE. In the event the Grantee dies while in the employment of the Company.
(ii) TERMINATION OF EMPLOYMENT DUE TO DISABILITY. In the event the Grantee's employment with the Company is terminated by the Company by reason of the Grantee's Disability.
(iii) TERMINATION OF EMPLOYMENT DUE TO RETIREMENT. In the event the Grantee's employment with the Company is terminated due to his or her Retirement.
(iv) TERMINATION OF EMPLOYMENT DUE TO REDUNDANCY. In the event the Grantee's employment with the Company is terminated by the Company by reason of the Grantee's Redundancy. "Redundancy" shall mean termination of employment by the
Company due to its need to reduce the size of its workforce, including due to closure of a business or a particular workplace or change in business process. Whether a termination of employment is due to "Redundancy" shall be determined in good faith by the Committee in its sole and absolute discretion, such determination being final and binding on all parties hereto and all persons claiming through, in the name of or on behalf of such parties.
(v) CHANGE OF CONTROL. In the event there is a Change of Control of the Company.
(f) STATUS OF SHARES.
Upon issuance, the Shares shall rank equally in all respects with the other outstanding Shares of XL and shall be fully paid.
(g) ADJUSTMENTS FOR RECAPITALIZATIONS, ETC.
In the event of stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations, exchanges of shares, spin-off, liquidations, reclassifications or other similar changes in the capitalization of XL, the number of Shares subject to this Award shall be proportionately adjusted by the Board on an equitable basis.
(h) OBLIGATIONS AS TO CAPITAL.
XL agrees that it will at all times maintain authorized and unissued share capital sufficient to fulfill all of its obligations under this Agreement.
(i) WITHHOLDING.
The Grantee agrees to make appropriate arrangements with the Company for satisfaction of any applicable income tax withholding requirements or social security or similar withholding requirements arising out of the Award. Such withholding tax obligations may be satisfied by withholding Shares from this Award; provided that the amount of tax withholding to be satisfied by withholding Shares shall be limited to the minimum amount of taxes, including employment taxes, required to be withheld under applicable law.
(j) REFERENCES.
References herein to rights and obligations of the Grantee shall apply, where appropriate, to the estate or personal representative of the Grantee without regard to whether specific reference to them is contained in a particular provision of this Agreement.
(k) NOTICE.
Any notice or communication to be given to XL under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified or registered mail, postage prepaid, duly addressed to XL Capital Ltd, XL House, One Bermudiana Road, Hamilton HM 08, Bermuda.
(l) GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to the principles of conflict of laws.
IN WITNESS WHEREOF, the parties hereto have duly caused
this Agreement to be executed and delivered on the date first above written.
XL Capital Ltd
By:_________________________________
Exhibit 10.14
XL CAPITAL LTD
Director Stock Option Agreement
AGREEMENT made and entered into as of _____________ __, ____ by and between XL Capital Ltd (the "Company"), a Cayman Islands corporation, and ______________, a non-employee director of the Company on the date hereof (the "Option Holder").
WHEREAS, the interests of the Company will be advanced by granting an incentive to nonemployee directors and by encouraging and enabling them to acquire stock ownership in the Company and assuring a close identity of their interests with those of the Company; and
WHEREAS, pursuant to the provisions of the 1991 Performance Incentive Program (the "Program") of the Company, the Committee (as defined in the Program) has authorized and directed the execution and delivery of this Agreement in the name of and on behalf of the Company;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and for other good and valuable consideration, the Company and the Option Holder agree as follows:
(a) GRANT. The Option Holder is hereby granted an option (the "Option") to purchase 5,000 ordinary shares of the Company (the "Option Shares"). The Option is granted as of ________ __, ____ (the "Date of Grant"), and such grant is subject to the terms and conditions herein and the terms and conditions of the applicable provisions of the Program, which terms and conditions of the Program are incorporated by reference herein. Such Option shall not be treated as an incentive stock option under Section 422 of the Internal Revenue Code of 1986, as amended.
(b) STATUS OF OPTION SHARES. The Option Shares shall upon issue rank equally in all respects with the other ordinary shares of the Company ("Shares").
(c) OPTION PRICE. The purchase price for the Option Shares shall be, except as herein provided, US$_____ per Option Share, hereinafter sometimes referred to as the "Option Price."
(d) TERM OF OPTION. The Option may be exercised only during the period (the "Option Period") which shall commence on the Date of Grant and shall continue
until the tenth anniversary of the Date of Grant. Thereafter, the Option Holder shall cease to have any rights in respect thereof.
(e) NO RIGHTS OF SHAREHOLDER. The Option Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or in equity.
(f) EXERCISABILITY. The Option may be exercised at any time or from time to time during the Option Period in regard to all or any portion of the Option Shares, as may be adjusted pursuant to paragraph (g) below.
(g) TRANSFERABILITY. The option herein granted may be assigned or otherwise transferred only in the following circumstances: (i) by will or the laws of descent and distribution; (ii) by valid beneficiary designation taking effect at death made in accordance with procedures established by the Committee; or (iii) by the Option Holder to members of his or her "immediate family," to a trust established for the exclusive benefit of solely one or more member of the Option Holder's "immediate family" and/or the Option Holder, or to a partnership or other entity pursuant to which the only owners are one or more members of the Option Holder's "immediate family" and/or the Option Holder. Any Option held by the transferee will continue to be subject to the same terms and conditions that were applicable to the Option immediately prior to the transfer, except that the Option will be transferable by the transferee only by will or the laws of descent and distribution. For purposes hereof, "immediate family" means the Option Holder's children, stepchildren, grandchildren, parents, step-parents, spouse, siblings (including half brothers and sisters), in-laws, and relationships arising because of legal adoption.
(h) EXERCISE OF OPTION. In order to exercise the Option, the Option Holder shall submit to the Company an instrument in writing signed by the Option Holder, specifying the number of Option Shares in respect of which the Option is being exercised, accompanied by payment, in such form as is acceptable to the Committee, of the Option Price for the Option Shares for which the Option is being exercised. Option Shares will then be issued accordingly by the Company within fifteen business days, and a share certificate dispatched to the Option Holder within thirty days. The Company shall not be required to issue a fractional Share upon the exercise of the Option. If any fractional interest in a Share would be deliverable upon the exercise of the Option in whole or in part but for the provisions of this paragraph, the Company, in lieu of delivering any such fractional share therefor, shall pay a cash adjustment therefor in an amount equal to the Fair Market Value (as defined in the Program) of a Share multiplied by the fraction of the fractional share which would otherwise has been issued hereunder. Anything to the contrary herein notwithstanding, the Company shall not be obliged to issue any Option Shares hereunder if the issuance of such Option Shares would violate the provisions of any applicable law.
(i) EXPENSES OF ISSUANCE OF OPTION SHARES. The issuance of stock certificates upon the exercise of the Option in whole or in part shall be without charge to the Option Holder. The Company shall pay, and indemnify the Option Holder from and against, any issuance, stamp or documentary taxes (other than transfer taxes) or charges imposed by any governmental body, agency or official by reason of the exercise of the Option in whole or in part or the resulting issuance of the Option Shares.
(j) REFERENCES. References herein to rights and obligations of the Option Holder shall apply, where appropriate, to the Option Holder's legal representative or estate without regard to whether specific reference to such legal representative or estate is contained in a particular provision of this Option.
(k) NOTICE. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or by courier, or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently by similar process give notice of:
If to the Company:
XL Capital Ltd
XL House
One Bermudiana Road
Hamilton HM 08 Bermuda.
Attn: Paul S. Giordano
If to the Optionee:
(l) GOVERNING LAW. This Option shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles regarding conflict of laws thereof.
IN WITNESS WHEREOF, the Company has duly caused this Option to be signed as of the date first above written.
XL Capital Ltd.
By: ___________________________________
Paul S. Giordano
Exhibit 10.15
AGREEMENT
This Agreement is made on 24 December 2003 between WINTERTHUR SWISS INSURANCE COMPANY, a joint-stock company incorporated under the laws of Switzerland ("Winterthur"), and XL INSURANCE (BERMUDA) LTD, a company incorporated under the laws of Bermuda ("XL").
WHEREAS Winterthur and XL are parties to the Second Amended and Restated Agreement for the Sale and Purchase of Winterthur International, dated as of 15 February 2001 ("SPA"), and capitalized terms used herein shall have the same meanings as in the SPA (unless otherwise indicated);
WHEREAS: (i) there has not been delivered the Completion Financial
Information as required by paragraph 3.1 of Part 2 of Schedule 5 to the SPA;
(ii) Winterthur has delivered certain unaudited financial information for the
Operations as at 30 June 2001; and (iii) Winterthur and XL have been unable to
reach agreement as to the Completion Balance Sheet but have been able to reach
agreement as respects certain other matters as specifically set forth below
solely to settle the Purchase Price, the Initial Net Reserves Amount and the
Initial Net Premium Receivable (as defined in SCHEDULE B hereto).
NOW, THEREFORE, Winterthur and XL hereby agree as follows:
1. DETERMINATION OF PURCHASE PRICE AND INITIAL NET RESERVES AMOUNT
1.1. (a) Winterthur and XL agree the following amounts for purposes of determining the amount of the Purchase Price and establishing the Initial Net Reserves Amount and the Initial Net Premium Receivable:
(i) the Pro-Forma Net Asset Value as of 30 June 2001 is US$ 234,995,000;
(ii) the Premium (notwithstanding Clause 3.1.5 of the SPA) is US$ 51,483,700 (after giving effect to the exclusion of certain accident and health business, the net amount is US $31,983,700);
(iii) the Purchase Price is US$ 330,157,700;
(iv) the Initial Net Reserves Amount is US$ 1,509,816,000;
(v) the Initial Net Premium Receivable is US$ 744,266,300; and
(vi) solely for the purpose of determining the Initial Net Reserves Amount as contemplated by SCHEDULE A hereto, the Purchase Price and the Initial Net Premium Receivable, the line items listed on such SCHEDULE A shall be deemed to be the amounts set forth in such SCHEDULE A;
provided, however, that nothing in this Agreement (other than the determination of the Initial Net Reserves Amount and the Initial Net Premium Receivable) shall affect the determination of the Seasoned Net Reserves Amount or the Seasoned Net Premiums Receivable Balance, including, without limitation, determination of the date and/or rate to be used for foreign exchange conversion of any amount in connection therewith.
(b) Winterthur and XL also agree that the Independent Actuary need not be instructed under Clause 4.3.5 of the SPA.
1.2. Except as expressly provided herein, nothing in this Agreement shall affect or be used as evidence with respect to determination of the rights and/or obligations of XL or Winterthur as respects any Specified Claim or any other claim under or related to the SPA provided, however, that XL acknowledges that, upon timely receipt by the parties of the payments referred to in Section 2 of this Agreement. Winterthur shall have no continuing obligation under the SPA to deliver Completion Financial Information (but such acknowledgement is without prejudice to any Specified Claim or such other claim XL may have for breach of such provisions prior to such date). For the avoidance of doubt, this Section is without prejudice to the double claims provisions in Clauses 8.6 and 8.2.7 of the SPA.
1.3. No agreement has been reached with respect to whether or not there has been or the extent to which there has been an adjustment to the Net Asset Value of the relevant Operations pursuant to Clause 3.6 of the SPA or any other adjustment to the Purchase Price to take account of any breach of the SPA by any Seller.
1.4. XL hereby informs Winterthur that, except for the purposes expressly set forth in Section 1.1 above, XL has not agreed to the information on Schedule A.
2. PAYMENTS
2.1. Payment Agreement
Winterthur and XL hereby agree that:
(a) all conditions to release of the Retention Amount and the
Income (these terms and other capitalized terms in this
Section 2.1, not otherwise defined, are used as defined in
the Payment Agreement dated 24 July 2001) are satisfied or
waived; and
(b) Winterthur and XL shall deliver to the Escrow Agent, as soon as possible on or after the date of this Agreement, the Transfer Notice in the form set out in Schedule E hereto to effect to the timely realization and distribution of the Fund to be received no later than noon, Bermuda time, 31 December 2003, as follows:
(i) 74.84232% of the Retention Amount to XL;
(ii) 25.15768% of the Retention Amount to Winterthur;
(iii) 87.42116% of the Income to XL; and
(iv) 12.57884% of the Income to Winterthur.
(c) Receipt of the payments referred to in Section 2.1(b) above and Section 2.2 below by Winterthur or XL as appropriate shall constitute full and final satisfaction of Winterthur and XL's respective obligations and rights in respect of the payment of the Purchase Price, without prejudice to Clause 3.5 of the SPA.
2.2. Payment on Account
Winterthur agrees to pay, so that such payment is received no later than noon, Bermuda time, 31 December 2003, the sum of US$40 million (the "Advanced Amount") to XL pending the seasoning of net reserves set out in the SPA, subject to the following provisions:
(a) In the event that the Seasoned Net Reserves Payment is payable by Winterthur to XL and the total of the Seasoned Net Reserves Payments (the "SNRP Total") is greater than the Advanced Amount, the Advanced Amount shall be deducted from the amount of the SNRP Total and the balance (for the purposes of this Section 2.2, the "Balance") shall be paid by Winterthur to XL in accordance with the provisions for payment set out in Clause 4.3.1 of the SPA. (For the avoidance of doubt, the Balance shall be paid with interest accruing on the Balance and not on the Seasoned Net Reserves Payment as a whole at the rate set out in Clause 4.3.1 of the SPA).
(b) In the event that the Seasoned Net Reserves Payment is payable by Winterthur to XL and the SNRP Total is less than the Advanced Amount, the Seasoned Net Reserves Payments shall not be paid by Winterthur to XL and instead XL shall pay the amount by which the SNRP Total is less than the Advanced Amount in US$ to Winterthur within five Business Days of the agreement or determination of the Seasoned Net Reserves Amount plus interest thereon (from and including the End Date to but excluding the date such payment is made) at a non-compounding rate per annum of 0.5 per cent above Base Rate.
(c) In the event that no Seasoned Net Reserves Payment is payable under the terms of the SPA, XL shall repay to Winterthur within five Business Days of the agreement or determination of the Seasoned Net Reserves Amount an amount in US$ equal to the Advanced Amount plus interest thereon (from and including the End Date to but excluding the date such payment is made) at a non-compounding rate per annum of 0.5 per cent above Base Rate.
(d) In the event that the Seasoned Net Reserves Payment is payable by XL to Winterthur, the Seasoned Net Reserves Amount shall be increased by the Advanced Amount and the aggregate amount shall be paid by XL to Winterthur in accordance with the provisions for payment set out in Clause 4.3.3 of the SPA.
2.3. Limited Recourse Receivables Financing Facility Agreement
In relation to certain amounts owing to Winterthur:
(a) XL shall procure that Winterthur International (Re) repays CHF 127,087,422.75 in cash to Winterthur so that such funds are received no later than noon, Bermuda time, 31 December 2003, which payment shall be deemed to be a payment under the Limited Recourse Receivables Financing Facility Agreement, together with interest from 1 July 2002 at a non-compounding rate per annum of 0.5 per cent above the Base Rate; and
(b) XL Insurance shall procure that Winterthur International (Re) repays CHF 42,362,474.25 in cash, which payment shall be deemed to be a payment under the Limited Recourse Receivables Financing Facility Agreement, together with interest from 1 July 2002 at a non-compounding rate per annum of 0.5 per
cent above the Base Rate to Winterthur simultaneously with the entry by Winterthur and each of WHCL, Winterthur International (Re), XL Insurance Switzerland, XL Insurance America, Inc., XL Select Insurance Company and XL International (Bermuda) Ltd into reinsurance agreements and related claims handling agreements relating to certain Asbestos Liabilities (which agreements shall not amend or vary the terms of the SPA and the rights or obligations of any person under the SPA, including, without limitation, under Clauses 9.1.1 and 9.1.2 of the SPA, shall in no way be prejudiced by the entering into of or the giving effect to such agreements or by the absence or removal of cover under or termination of such agreements) all in a form to be agreed between the parties provided that in the event that such reinsurance agreements and related claims handling agreements have not been entered into prior to the making of the payment to be made under Clause 4.3 of the SPA, such amount shall be repaid in accordance with the provisions of the Limited Recourse Receivables Financing Facility Agreement. The parties agree to use reasonable endeavours to agree and enter into such reinsurance and related agreements prior to 29 February 2004.
2.4. Commutation of the CAT Tower
(a) Winterthur agrees and XL agrees to procure that the commutation agreement (the "Commutation Agreement") in the form set out in SCHEDULE C to this Agreement shall be entered into as soon as possible but in any event prior to 31 December 2003;
(b) Winterthur agrees and XL (on behalf of Winterthur International (Re)) agree that the CHF 19,500,000 million referred to in the Commutation Agreement shall be repaid by Winterthur (together with interest of CHF 605,522) by way of set off against the amount to be repaid by or of behalf of Winterthur International (Re) pursuant to Section 2.3(a) above.
2.5. The parties shall deliver their respective signed counterparts of the Transfer Notice to the Escrow Agent as of the opening of business, London time, on 29 December 2003.
2.6. All payments pursuant to this Section 2 shall be made by wire transfer of immediately available funds.
3. AMENDMENTS TO SPA
Winterthur and XL agree to amend the SPA as follows subject to (i) timely receipt of payments in accordance with Section 2 except for Section 2.1(b); and (ii) timely delivery of the Transfer Notice in accordance with Section 2.5:
3.1. The time limit relating to Specified Claims in Clause 8.2.1(ii) (excluding sub-clauses (a) and (b)) of the SPA are extended from nine months to eleven months.
3.2. The provisions relating to seasoning of premiums as set forth on SCHEDULE B hereto are incorporated into the SPA on the basis that reference therein to "the Agreement of which this Schedule forms part" shall be deemed to be a reference this Agreement; and
3.3. Solely for the purposes of determining the unearned premium reserve as respects the Seasoned Net Reserves Amount pursuant to Clause 4.2 of the SPA, the loss ratio is seventy-one percent (71%) and the definition of "Reserves" in the SPA is amended as set forth in SCHEDULE D hereto.
4. MISCELLANEOUS
4.1. Winterthur and XL shall and XL shall procure that Winterthur International (Re) shall enter into a letter in the form set out in Schedule F (the "SRA Amendment Letter") relating to each of the Sellers Retrocession Agreements as soon as possible but in any event prior to 31 December 2003, and the Sellers Retrocession Agreements as amended shall be the Sellers Retrocession Agreement for the purposes of the SPA. The amendments referred to in the SRA Amendment Letter shall become effective at the same time as the amendments to the SPA referred to in Section 3.
4.2. The parties will use their best endeavours to work together in good faith with a view to agreeing:
(a) a reduction in the "Amount of Cover" as set out in the schedule to each Sellers Retrocession Agreement;
(b) an adjustment to the "Amount of Deductible" as set out in the schedule to each Sellers Retrocession Agreement;
(c) a satisfactory solution to the commutation of the Sellers Retrocession Agreements; and
(d) a satisfactory resolution as to whether there should be an extension in time for seasoning reinsurance receivables.
4.3. Except as expressly provided herein, nothing herein shall affect Winterthur's or XL's rights or obligations under the SPA or any agreement entered into pursuant to the SPA or any Local Agreement, including, without limitation, in respect of any indemnities, Specified Claims, other claims under or in respect of the SPA and the Seasoned Net Reserves Amount, or under any other agreement to which Winterthur and XL are parties or under any Sellers Retrocession Agreement. For the avoidance of doubt and notwithstanding any provision to the contrary therein, nothing herein or any payment made pursuant hereto shall give rise to commutation or other termination or a release of parties to either Sellers Retrocession Agreement, which shall continue in effect.
4.4. Clauses 18.4, 18.8, 18.11 (insofar only as payments required by this Agreement are made after the date on which such payments are to be made pursuant to this Agreement), 18.12, 18.15, 18.16, 18.17, 18.18 and 18.19 of the SPA shall apply to this Agreement as if fully set forth herein (except as respects references therein to other Clauses of the SPA).
IN WITNESS WHEREOF this Agreement has been duly executed.
SIGNED by /s/ CLIVE TOBIN
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on behalf of XL INSURANCE (BERMUDA) LTD.:
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SCHEDULE B
PREMIUM SEASONING - SPA AMENDMENTS
DEFINITIONS
"SEASONED NET PREMIUMS RECEIVABLE BALANCE" means the sum of:
(i) the INITIAL NET PREMIUM RECEIVABLE, being US$ 744,266,300, calculated as follows:
(a) the premiums and insurance balances receivable (net of bad debt provisions) as shown in Schedule A to the Agreement of which this Schedule forms part ("SCHEDULE A") less reinsurance balances payable and funds held under reinsurance agreements as shown in Schedule A; less
(b) 29% of the aggregate of the unearned premium as shown in Schedule A less the prepaid reinsurance premiums as shown in Schedule A; plus
(c) the deferred acquisition costs as shown in Schedule A;
For the avoidance of doubt this is calculated as follows:
US$'000's 1,350,587 - 501,039 - 6,762 - (29% *(824,286-264,556)) + 63,802 = 744,266.
(ii) plus any positive, or, as the case may be, less any negative adjustment calculated as follows:
(a) 71% of the aggregate of:
(i) the unearned premium less the prepaid reinsurance premiums in each case to the extent solely relating to Relevant Operations, as determined in accordance with US GAAP and as identified as at the End Date calculated as at the Effective Time; less
(ii) the unearned premiums as shown in Schedule A less the prepaid reinsurance premiums as shown in Schedule A;
plus
(b) the aggregate of:
(i) the premiums and insurance balances receivable (net of bad debt provisions and, for the avoidance of doubt, net of any commissions) less reinsurance balances payable and funds held under reinsurance agreements (and for the avoidance of doubt, this amount is net of any commissions) in each case to the extent relating solely to the Relevant Operations, as determined in accordance with US GAAP identified as at the End Date; less
(ii) the unearned premium less the prepaid reinsurance premiums in each case to the extent solely relating to Relevant Operations, as determined in accordance with US GAAP and as identified as at the End Date calculated as at the Effective Time; plus
(iii) the deferred acquisition costs in each case to the extent solely relating to Relevant Operations, as determined in accordance with US GAAP and as identified as at the End Date calculated as at the Effective Time
less
(c) US$ 346,858,000 being the aggregate of
(i) the premiums and insurance balances receivable (net of bad debt provisions and, for the avoidance of doubt, net of any commissions) less reinsurance balances payable and funds held under reinsurance agreements (and for the avoidance of doubt, this amount is net of any commissions) as shown in Schedule A; less
(ii) the unearned premium less the prepaid reinsurance premiums as shown in Schedule A; plus
(iii) the deferred acquisition costs as shown in Schedule A.
For the avoidance of doubt item (ii)(c) has been calculated using Schedule A as follows:
USD `000s (1,350,587 - 501,039 - 6,762) less (824,286 - 264,556) plus (63,802) = 346,858
for the avoidance of doubt, each of (ii)(a) and (ii)(b) can be negative as well as positive.
In calculating the Seasoned Net Premiums Receivable Balance, the classification, characterization or provision of any amount shall be consistent with the classification, characterization or provision used in calculating the Initial Net Premium Receivable.
SUBSTANTIVE PROVISION
4.4 DETERMINATION OF THE SEASONED NET PREMIUMS RECEIVABLE BALANCE
4.4.1 Subject to Clause 18.4 from and after Completion and until the
End Date XL Insurance shall make available to Winterthur,
Winterthur's Accountants and Winterthur's Actuary during normal
business hours:
(i) all studies relating to premiums receivable, commissions
or reinsurance premium ceded prepared by or on behalf of
XL Insurance to the extent relating to Relevant
Operations; and
(ii) all auditor's letters to management to the extent
relating to net premiums subject to the Initial Net
Premiums Receivable Balance which have been completed by
or on behalf of XL Insurance during such period.
4.4.2 Within 30 Business Days following the End Date XL Insurance
shall deliver to Winterthur a written statement setting forth in
reasonable detail its calculation of the Seasoned Net Premiums
Receivable Balance (the "SEASONED NET PREMIUMS RECEIVABLE
STATEMENT").
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4.4.3 In order to enable Winterthur, Winterthur's Accountants and
Winterthur's Actuary to review the Seasoned Net Premiums
Receivable Statement, XL Insurance shall keep up-to-date and
make available to Winterthur, Winterthur's Accountants and
Winterthur's Actuary its books, records, contracts and
agreements relating to the Relevant Operations during normal
business hours and co-operate with them with regard to their
review of the Seasoned Net Premiums Receivable Statement, XL
Insurance agrees insofar as it is reasonable to do so to make
available the services of the employees of the relevant
Associated Companies of XL Insurance to assist Winterthur,
Winterthur's Accountants and Winterthur's Actuary to undertake
the matters contemplated by this Clause 4.4. XL Insurance shall
procure that after the preparation of the Seasoned Net Premiums
Receivable Statement, XL Insurance's Accountants and XL
Insurance's Actuary shall give Winterthur, Winterthur's
Accountants and Winterthur's Actuary access to XL Insurance's
Accountants' and XL Insurance's Actuary's working papers and
files (with the right to take copies at Winterthur's expense,
subject to Winterthur entering into an acceptable
confidentiality undertaking) and personnel which or who are (and
only to the extent) relevant to the review of the Seasoned Net
Premiums Receivable Statement by Winterthur, Winterthur's
Accountants and Winterthur's Actuary subject to Winterthur
providing or procuring the provision of a hold harmless
undertaking to XL Insurance's Accountants and XL Insurance's
Actuary.
4.4.4 Within 30 Business Days of receipt by Winterthur of the Seasoned
Net Premiums Receivable Statement Winterthur may give written
notice to XL Insurance stating that it disagrees with the
Seasoned Net Premiums Receivable Statement, together with
reasons for the disagreement in reasonable detail and
quantifying the amount of such disagreement (for the purpose of
this Clause 4.4 the "WINTERTHUR DISAGREEMENT NOTICE"). In the
absence of such notice within such period, the Seasoned Net
Premiums Receivable Statement shall be final and binding on the
parties for all purposes.
4.4.5 If Winterthur gives a valid Winterthur Disagreement Notice
within such 30 Business Days Winterthur and XL Insurance shall
attempt in good faith to reach agreement in respect thereto. If
they reach agreement then the agreed amount shall be finally and
conclusively the Seasoned Net Premiums Receivable Balance for
the purpose of this Agreement and if they are unable to do so
within 10 Business Days of receipt by XL Insurance of the
Winterthur Disagreement Notice then either Winterthur or XL
Insurance may by notice in writing to the other require that the
calculation of the Seasoned Net Premiums Receivable Balance be
referred to the Independent Actuary (an "ACTUARY APPOINTMENT
NOTICE"). Within 10 Business Days of receipt by a party of the
Actuary Appointment Notice each of Winterthur and XL Insurance
shall give written notice to the other and to the Independent
Actuary of its proposed Seasoned Net Premiums Receivable
Balance.
4.4.6 The Independent Actuary shall be a member of the Casualty
Actuarial Society ("CAS") or a Fellow of the Institute of
Actuaries ("FIA") and shall be instructed to independently
determine the Seasoned Net Premiums Receivable Balance in
accordance with the principles and standards of practice of the
CAS or the FIA as the case may be and the American Academy of
Actuaries and to make its determination as soon as is reasonably
practicable. The procedures of the Independent Actuary shall be
determined by the Independent Actuary, but shall:
(i) give the parties a reasonable opportunity to make
written and oral representations to them;
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(ii) require that the parties supply each other with a copy of any written representations at the same time as they are made to the Independent Actuary; and
(iii) permit each party to be present while oral submissions are being made by any other party.
4.4.7 The determination of the Independent Actuary shall be made in
writing and sent to the parties at such time as it shall
determine. The Independent Actuary shall act as an expert and
not as an arbitrator and his or her determination shall be final
and binding on the parties as provided in Clause 4.4.8.
4.4.8 If the Seasoned Net Premiums Receivable Balance as determined by
the Independent Actuary is closer to the amount proposed by XL
Insurance than the amount proposed by Winterthur (in each case
pursuant to the last sentence of Clause 4.4.5) then for the
purpose of this Agreement the Seasoned Net Premiums Receivable
Balance shall be finally and conclusively deemed to be the
amount so proposed by XL Insurance. If the Seasoned Net Premiums
Receivable Balance as determined by the Independent Actuary is
closer to the amount proposed by Winterthur than the amount
proposed by XL Insurance (in each case pursuant to the last
sentence of Clause 4.4.5) then for the purpose of this Agreement
the Seasoned Net Premiums Receivable Balance shall be finally
and conclusively deemed to be the amount so proposed by
Winterthur
4.4.9 The parties shall co-operate with the Independent Actuary and
comply with its reasonable requests made in connection with the
carrying out of its duties under this Agreement. In particular
without limitation XL Insurance shall keep up-to-date and
subject to reasonable notice make available to Winterthur,
Winterthur's Accountants, Winterthur's Actuary and the
Independent Actuary its books, records, contracts and agreements
relating to the Relevant Operations during normal business hours
during the period from the appointment of the Independent
Actuary down to the making of the determination by the
Independent Actuary.
4.4.10 Subject to Clause 4.4.11 nothing in this Clause 4.4 shall
entitle a party or the Independent Actuary access to any
information or document which is protected by legal professional
privilege or any other legal obligation of confidentiality or
which has been prepared by the other party or its accountants,
actuaries and other professional advisers with a view to
assessing the merits of any claim or argument.
4.4.11 A party shall not be entitled by reason of Clause 4.4.10 to
refuse to supply such part or parts of documents as contain only
the facts on which the relevant claim or argument is based.
4.4.12 Each party shall and shall procure that its accountants,
actuaries and other advisers shall and shall instruct the
Independent Actuary to keep all information and documents
provided to them pursuant to this Clause 4.4 confidential and
shall not use the same for any purpose except for use in
connection with the matters contemplated by this Clause 4.
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4.5. SEASONED NET PREMIUMS RECEIVABLE PAYMENT
4.5.1 If the Seasoned Net Premiums Receivable Balance as finally
agreed or determined pursuant to Clause 4.4 is greater than 105
per cent of the Initial Net Premiums Receivable Balance XL
Insurance shall or shall procure that other Purchasers as
appropriate pay to Winterthur or other Sellers as appropriate
within five Business Days of such agreement or determination an
amount in US Dollars equal to 100 per cent of the difference
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between:
(i) the Seasoned Net Premiums Receivable Balance; and
(ii) 105 per cent of the Initial Net Premiums Receivable
Balance, plus interest thereon (from and including the
End Date, to but excluding the date such payment is
made) at a non-compounding rate per annum of 0.5 per
cent above the Base Rate.
4.5.2 If the Seasoned Net Premiums Receivable Balance as finally
agreed or determined pursuant to Clause 4.4 is less than 95 per
cent of the Initial Net Premiums Receivable Balance Winterthur
shall or shall procure that other Sellers as appropriate pay to
XL Insurance or other Purchasers as appropriate within five
Business Days of such agreement or determination an amount in US
Dollars equal to 100 per cent of the difference between:
(i) 95 per cent of the Initial Net Premiums Receivable
Balance; and
(ii) the Seasoned Net Premiums Receivable Balance, plus
interest thereon (from and including the End Date to but
excluding the date such payment is made) at a
non-compounding rate per annum of 0.5 per cent above the
Base Rate.
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Exhibit 10.16
WINTERTHUR GROUP Head Office General Guisan-Strasse 40 CH-8401 Winterthur Telephone +41 52 261 61 10 www.winterthur.com
REGISTERED
Mr. Brian O'Hara
Chief Executive Officer
XL Insurance (Bermuda) Ltd
One Bermudiana Road
Hamilton HM11
Bermuda
John R. Dacey
CFO
john.dacey@winterthur.ch
July 27, 2004
WITHOUT PREJUDICE
Dear Brian,
We would like to thank you for the constructive meeting of last Thursday, 23 July 2004. We set out below certain amendments to the Second Amended and Restated Agreement dated 15 February 2001 for the sale and purchase of Winterthur International and between Winterthur Swiss Insurance Company ("Winterthur") and XL Insurance (Bermuda) Ltd ("XL") (the "SPA") discussed between the parties on the occasion of the said meeting.
We refer to Clause 18.8 SPA, and write to record our and your agreement to the following variations to the SPA and the procedure there recorded for the purpose of permitting each of XL and Winterthur additional time for the preparation and determination of the Seasoned Net Reserves Statement:
1. XL agrees to serve a preliminary draft Seasoned Net Reserves Statement on Winterthur by 31 August 2004. Such preliminary draft shall be provided without prejudice and shall contain or be accompanied by materially the same information or documentation (especially in electronic form) as is available and of a type that will be required to be included in or accompany the Seasoned Net Reserves Statement to be delivered pursuant to Clause 4.2.2 of the SPA.
2. In the period within 90 Business Days following receipt of the preliminary draft Seasoned Net Reserves Statement referred to above, senior executives from our respective organisations shall meet on a without prejudice basis to discuss the preliminary draft Seasoned Net Reserves Statement and whether any disputes over the content thereof should be resolved other than through the procedure specified in the SPA.
3. If XL and Winterthur do not reach agreement in relation to the matters referred to in paragraph 2 above within such 90 Business Day period, XL shall deliver the Seasoned Net Reserves Statement referred to in Clause 4.2.2 SPA. Unless Winterthur serves written notice on XL requiring the delivery of the Seasoned Net Reserves Statement, any such Statement can only be delivered by XL to Winterthur within 30 Business Days of the expiry of the period of 90 Business Days referred to in paragraph 2 above. However, in the event that Winterthur serves written notice on XL requiring the delivery of the Seasoned Net Reserves Statement (which notice can be served by Winterthur at any time after the service of the preliminary draft statement under paragraph 1 above), the Seasoned Net Reserves Statement must be delivered by XL within 30 Business Days following the receipt by XL of the said written notification from Winterthur. The period of time of 30 Business Days following the End Date referred to in Clause 4.2.2 of the SPA for delivery of the Seasoned Net Reserves Statement by XL is extended accordingly. Once delivery of the Seasoned Net Reserves Statement has occurred in accordance with the provisions set out above, the parties shall proceed in accordance with Clause 4.2.4 and subsequent clauses of the SPA.
4. Solely for the purposes of the provisions of Clause 4.2.3 of the SPA and the obligations thereby imposed on XL and the rights thereby conferred on Winterthur (to include its Accountants and Actuaries) the preliminary draft Statement to be served under paragraph 1 above will be treated as if it were the Seasoned Net Reserves Statement delivered under Clause 4.2.2 of the SPA.
5. XL and Winterthur confirm that any amendment to the SPA as effected by this letter shall not affect in any way the calculation of the Seasoned Net Reserves Amount under Clause 4.2 of the SPA except as set forthwith in paragraph 3 above. For the avoidance of doubt this letter shall 1) not in any way affect the economic, financial or other nature of reserve seasoning, including, without limitation, the fact that losses occurring subsequent to June 30, 2004 are not included in the Seasoned Net Reserves Amount and 2) not affect in any way the determination of the date and/or rate to be used for foreign exchange conversion of any amount in connection therewith.
6. The provisions of this letter, including the extension of time referenced in paragraph 3 above, shall apply with equal force and effect in relation to the provisions of SPA relating to the Seasoned Net Premiums Receivable Statement.
7. Save as aforesaid the terms of the SPA shall remain un-amended and in full force and effect.
Kindly confirm your agreement to such variations by returning to us a copy of this letter endorsed with your signature. Each party hereto has asserted various legal rights against the other. Nothing herein shall operate as any waiver of either party's rights in relation to any alleged breach of contract by the other.
Yours sincerely,
/s/ John R. Dacey /s/ Martha Boeckenfeld John R. Dacey Martha Boeckenfeld |
Agreed by XL Insurance (Bermuda) Ltd
/s/ Brian M. O'Hara
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cc: Paul Giordano
Clive Tobin
Jerry de St. Paer
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Exhibit 31
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
XL CAPITAL LTD
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(CHAPTER 98, TITLE 15 U.S.C. SS. 7241)
I, Brian M. O'Hara, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of XL Capital Ltd;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: August 9, 2004
/s/ BRIAN M. O'HARA
-------------------------------------
Brian M. O'Hara
President and Chief Executive Officer
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CERTIFICATION OF CHIEF FINANCIAL OFFICER
XL CAPITAL LTD
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(CHAPTER 98, TITLE 15 U.S.C. SS. 7241)
I, Jerry de St. Paer, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of XL Capital Ltd;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: August 9, 2004
/s/ JERRY DE ST. PAER
----------------------------------
Jerry de St. Paer
Executive Vice President and Chief
Financial Officer
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Exhibit 32
CERTIFICATION ACCOMPANYING FORM 10-Q REPORT
OF
XL CAPITAL LTD
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(CHAPTER 63, TITLE 18 U.S.C. SS.SS. 1350(a) AND (b))
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chapter 63, Title 18 U.S.C. ss.ss. 1350(a) and (b)), each of the undersigned hereby certifies that the Quarterly Report on Form 10-Q for the period ended June 30, 2004 of XL Capital Ltd (the "Company") fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: August 9, 2004 /s/ BRIAN M. O'HARA ------------------------------ Brian M. O'Hara President and Chief Executive Officer XL Capital Ltd Dated: August 9, 2004 /s/ JERRY DE ST. PAER -------------------------------- Jerry de St. Paer Executive Vice President and Chief Financial Officer XL Capital Ltd |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to XL Capital Ltd and will be retained by XL Capital Ltd and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 99.1
XL CAPITAL ASSURANCE INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2004 AND 2003
XL CAPITAL ASSURANCE INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
--------------------------------------------------------------------------------
AS AT AS AT
JUNE 30, DECEMBER 31,
2004 2003
--------- ---------
ASSETS
Investments:
Fixed maturities available for sale, at fair value
(amortized cost: 2004 - $262,008; 2003 - $237,589) $ 259,386 $ 239,629
Short-term investments, at fair value
(amortized cost: 2004 - $4,041; 2003 - $8,812) 4,042 8,814
--------- ---------
TOTAL INVESTMENTS 263,428 248,443
Cash and cash equivalents 52,167 76,854
Accrued investment income 2,264 2,324
Prepaid reinsurance premiums 327,665 291,530
Premiums receivable 6,383 2,712
Reinsurance balances recoverable on unpaid losses 32,146 22,998
Intangible assets - acquired licenses 11,529 11,529
Deferred Federal income tax assets 15,733 13,560
Other assets 10,345 12,703
--------- ---------
TOTAL ASSETS $ 721,660 $ 682,653
========= =========
|
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses $ 33,845 $ 25,009
Deferred premium revenue 364,518 318,547
Deferred ceding commissions, net 34,022 33,738
Reinsurance premiums payable 22,509 33,422
Accounts payable and accrued expenses 13,622 19,482
Current Federal income tax payable 6,754 6,754
Intercompany payable to affiliates 13,188 8,473
--------- ---------
TOTAL LIABILITIES 488,458 445,425
--------- ---------
Shareholder's Equity:
Common stock (par value $7,500 per share at
June 30, 2004 and December 31, 2003; authorized
shares - 8,000 at June 30, 2004 and December 31,
2003; issued and outstanding shares - 2,000 at
June 30, 2004 and December 31, 2003) 15,000 15,000
Additional paid-in capital 239,173 239,173
Accumulated other comprehensive income
(Net of deferred Federal income tax (benefit)
liability of: 2004 - ($952); 2003 - $715) (1,669) 1,327
Accumulated deficit (19,302) (18,272)
--------- ---------
TOTAL SHAREHOLDER'S EQUITY 233,202 237,228
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 721,660 $ 682,653
========= =========
|
See accompanying notes to condensed consolidated financial statements.
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
2004 2003 2004 2003
---------- ---------- ---------- ----------
REVENUES
Gross premiums written $ 57,221 $ 77,886 $ 94,168 $ 111,126
Ceded premiums written (51,514) (70,316) (78,607) (101,150)
---------- ---------- ---------- ----------
Net premiums written 5,707 7,570 15,561 9,976
Change in deferred premium revenue (3,345) (6,041) (9,836) (7,323)
---------- ---------- ---------- ----------
Net premiums earned (net of ceded earned premium for
the six months of $42,472 in 2004 and $31,623 in 2003) 2,362 1,529 5,725 2,653
Net investment income 2,554 1,480 5,049 2,854
Net realized (losses) gains on investments (1,162) 258 (689) 196
Net realized and unrealized gains on credit derivatives 914 711 1,532 971
---------- ---------- ---------- ----------
Total revenues 4,668 3,978 11,617 6,674
---------- ---------- ---------- ----------
EXPENSES
Net losses and loss adjustment expenses (net of ceded losses
and loss adjustment expenses for the six months of
$8,936 in 2004 and $9,872 in 2003) 696 529 1,260 888
Net operating expenses 5,655 3,075 11,894 9,422
---------- ---------- ---------- ----------
Total expenses 6,351 3,604 13,154 10,310
---------- ---------- ---------- ----------
(Loss) Income before Federal income tax (benefit) expense (1,683) 374 (1,537) (3,636)
---------- ---------- ---------- ----------
Current Federal income tax (benefit) (50) -- -- --
Deferred Federal income tax (benefit) expense (507) 446 (507) (1,164)
---------- ---------- ---------- ----------
Total Federal income tax (benefit) expense (557) 446 (507) (1,164)
---------- ---------- ---------- ----------
NET LOSS (1,126) (72) (1,030) (2,472)
---------- ---------- ---------- ----------
COMPREHENSIVE (LOSS) INCOME
Other comprehensive (loss) income (5,627) 1,077 (2,996) 1,017
---------- ---------- ---------- ----------
COMPREHENSIVE (LOSS) INCOME $ (6,753) $ 1,005 $ (4,026) $ (1,455)
---------- ---------- ---------- ----------
|
See accompanying notes to condensed consolidated financial statements.
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2004 2003
---------- ----------
|
COMMON SHARES
Number of shares, beginning of year 2,000 2,000
---------- ----------
Number of shares, end of period 2,000 2,000
========== ==========
|
COMMON STOCK
Balance - beginning of year $ 15,000 $ 15,000
---------- ----------
Balance- end of period 15,000 15,000
========== ==========
|
ADDITIONAL PAID-IN CAPITAL
Balance - beginning of year 239,173 139,154
Capital contribution -- 100,019
---------- ----------
Balance- end of period 239,173 239,173
========== ==========
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance - beginning of year 1,327 2,812
Net change in unrealized appreciation of
investments, net of deferred Federal tax
benefit of $1,667 in 2004 and $847 in 2003 (2,996) (1,485)
---------- ----------
Balance- end of period (1,669) 1,327
========== ==========
|
ACCUMULATED DEFICIT
Balance - beginning of year (18,272) (14,504)
Net loss (1,030) (3,768)
---------- ----------
Balance- end of period (19,302) (18,272)
========== ==========
TOTAL SHAREHOLDER'S EQUITY $ 233,202 $ 237,228
========== ==========
|
See accompanying notes to condensed consolidated financial statements.
SIX MONTHS ENDED
JUNE 30,
2004 2003
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (1,030) $ (2,472)
Adjustments to reconcile net income (loss) to net cash used in
operating activities
Net realized losses (gains) on sale of investments 689 (196)
Net realized and unrealized gains on credit derivatives
excluding cash received and paid (360) (431)
Amortization of premium on bonds 686 479
Decrease (Increase) in accrued investment income 60 (203)
Increase in premiums receivable (3,671) (330)
Deferred Federal income tax assets (507) --
Decrease in unpaid losses and loss adjustment expenses, net (312) (468)
Increase in deferred premium revenue, net 9,836 7,323
Increase in deferred ceding commissions, net 284 9,573
Decrease (Increase) in reinsurance premiums payable (10,913) 20,708
Decrease (increase) in accounts payable and accrued expenses (5,253) 6,147
Decrease in current Federal income tax payable -- (1,164)
Increase (decrease) in intercompany payable to affiliates 4,715 (94)
Other 2,112 95
---------- ----------
Total adjustments (2,634) 41,439
---------- ----------
Net cash (used in) provided by operating activities (3,664) 38,967
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed maturities and short-term investments 132,506 38,284
Proceeds from maturity of fixed maturities and short-term investments 385 26,129
Purchase of fixed maturities and short-term investments (153,914) (70,624)
---------- ----------
Net cash (used in) investing activities (21,023) (6,211)
---------- ----------
Decrease in cash and cash equivalents (24,687) 32,756
Cash and cash equivalents- beginning of year 76,854 44,714
---------- ----------
Cash and cash equivalents- end of period $ 52,167 $ 77,470
========== ==========
|
See accompanying notes to condensed consolidated financial statements.
1. ORGANIZATION AND OWNERSHIP
XL Capital Assurance Inc. and subsidiary (the "Company") is a wholly owned subsidiary of XL Reinsurance America Inc. ("XL RE AM"), which is an indirect wholly owned subsidiary of X.L. America, Inc. ("XLA"). XLA is an indirect wholly owned subsidiary of XL Insurance (Bermuda) Ltd ("XL Insurance"). XL Insurance is an indirect wholly owned subsidiary of XL Capital Ltd ("XL Capital"), a holding company incorporated in the Cayman Islands. XLA is XL Capital's U.S. holding company.
The Company is an insurance company domiciled in the State of New York. The Company is engaged in the business of providing credit enhancement by writing financial guaranty insurance policies on asset-backed structured finance, essential infrastructure project finance, future flow, public finance transactions, and credit default swap obligations. The Company issued its first insurance contract in December 2000.
The Company was formed on September 13, 1999 and became licensed as a financial guaranty insurer in New York upon its merger with an affiliate, X.L. Risk Solutions, Inc. on September 30, 1999.
On February 22, 2001, XL RE AM acquired all the outstanding shares of The London Assurance of America, Inc. ("LAA"). LAA was incorporated in New York on July 25, 1991. Prior to its purchase by XL RE AM, LAA was a New York-domiciled property and casualty insurance company that was licensed in 44 states and the District of Columbia. The business previously underwritten through LAA, together with all the liabilities of LAA, was reinsured effective July 1, 2000 to an affiliate of LAA under a reinsurance assignment and assumption agreement. XL RE AM caused the Company to merge with and into LAA on the day of the acquisition (with LAA as the surviving entity) and for LAA to simultaneously change its name to XL Capital Assurance Inc.
On May 15, 2002, the Company capitalized XL Capital Assurance (U.K.) Limited, ("XLCA-UK"), an insurance company organized under the laws of England. XLCA-UK is a direct wholly owned subsidiary of the Company.
In addition to its New York headquarters and London subsidiary (which has a Madrid branch), the Company maintains branch offices domestically in California and abroad in Singapore.
2. BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiary and are unaudited. The results include the consolidation of XLCA-UK, accounted for as a subsidiary with effect from April 24, 2002. In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the financial position, results of operations and cash flows at June 30, 2004 and for all periods presented, have been made and all significant intercompany accounts and transactions have been eliminated.
Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These statements should be read in conjunction with the Company's December 31, 2003 consolidated financial statements and notes thereto. The accompanying condensed consolidated balance sheet as of December 31, 2003 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results of operations for the three and six month periods ended June 30, 2004 and 2003 are not necessarily indicative of the operating results for the full year.
The preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Any such adjustments are reflected in the condensed consolidated statement of income in the period in which the adjustments are made. The Company's principal estimates and assumptions used to determine the condensed consolidated financial statements are the calculation of gross loss reserves and the fair value of credit default swap instruments.
3. CREDIT DEFAULT SWAPS
Credit default swaps are recorded at fair value, which is determined using a model developed by the Company and is dependent upon a number of factors, including changes in interest rates, credit spreads, changes in credit quality, expected recovery rates and other market factors. The change resulting from movements in these factors is unrealized as the credit default swaps are not traded to realize this value and is included in "net realized and unrealized gains on credit derivatives". Other elements of the change in fair value are based upon pricing established at the inception of the contract. Credit default swaps are considered by the Company to be, in substance, financial guaranty contracts as the Company has the intent to hold them to maturity.
The credit default swap portfolio consists of structured pools of corporate obligations that were awarded investment grade ratings at the respective deals' inception. At June 30, 2004, approximately 84% of the portfolio was rated AAA with the remaining 16% allocated to other investment grade ratings. The weighted average term of the contracts in force was approximately 4.85 years, and the credit default swaps represented approximately 10% of the Company's credit enhancement par exposure at June 30, 2004.
The components of the Company's net credit default swap asset and liability at June 30, 2004 and December 31, 2003 are included in the table below. The net credit default swap asset and liability are included in Other Assets and Other Liabilities, respectively, in the Company's condensed consolidated balance sheet.
(U.S. DOLLARS IN THOUSANDS): JUNE 30, 2004 DECEMBER 31, 2003
ASSETS
Gross credit derivative unrealized gains $ 6,512 $ 4,945
Reinsurance 5,816 4,424
---------- ----------
Net assets $ 696 $ 521
========== ==========
LIABILITIES
Gross credit derivative unrealized losses $ 2,719 $ 4,718
Reinsurance 2,416 4,230
---------- ----------
Net liabilities $ 303 $ 488
========== ==========
|
The components of the Company's net realized and unrealized gains on credit derivatives for each of the six month periods ended June 30, 2004 and 2003 are as follows:
(U.S. DOLLARS IN THOUSANDS): JUNE 30, 2004 JUNE 30, 2003
Net premiums earned $ 1,172 $ 429
Loss reserves and other adjustments -- 111
Net fair value adjustment 360 431
---------- ----------
Net realized and unrealized gains
on credit derivatives $ 1,532 $ 971
========== ==========
|
4. RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). The objective of FIN 46 is to improve financial reporting by companies involved with variable interest entities. This new model for consolidation applies to an entity in which either (1) the powers or rights of the equity holders do not give them sufficient decision making ability; (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties or (3) the equity investment at risk does not absorb the expected losses or residual returns of the entity. FIN 46 requires a variable interest entity to be consolidated by the company that is subject to a majority of the risk of loss from the variable interest entity's activities or that is entitled to receive a majority of the entity's residual returns or both. In December 2003, FASB issued a revision to FIN 46 ("FIN 46-R") which clarified several provisions of FIN 46, superceded the related FASB Staff Positions ("FSPs"), and amended the effective date and transition of the pronouncement, except for certain types of entities. The Company was required to apply the provisions of FIN 46-R to those variable interest entities that are not considered to be special purpose entities as at March 31, 2004 and was required to apply the provisions of FIN 46 or FIN 46-R to those entities that are considered to be special-purpose entities as at December 31, 2003. The adoption of this standard did not have a material effect on the Company's financial condition and results of operation.
5. VARIABLE INTEREST ENTITIES
The Company participates in transactions which utilize variable interest entities in the ordinary course of business. The Company provides financial guaranty insurance of structured transactions backed by pools of assets of specified types, municipal obligations supported by the issuers' ability to collect tax or fee revenue for specified services or projects, and other structured risk obligations including essential infrastructure projects and obligations backed by receivables from future sales of commodities and other specified services. The obligations related to these transactions are often securitized through off-balance sheet variable interest entities. In synthetic transactions, the Company guarantees payment obligations of counterparties, including variable interest entities, through credit default swaps referencing asset portfolios.
The Company only provides financial guaranty insurance of these variable interest entities for fixed premiums at market rates but does not hold any equity positions or subordinated debt in these off-balance sheet arrangements. Accordingly, these variable interest entities are not consolidated.
6. TAX SHARING AGREEMENT
The Company's U.S. Federal income tax return is consolidated with XLA and its subsidiaries. XLA maintains a tax sharing agreement with its subsidiaries, whereby the consolidated U.S. Federal income tax liability is allocated among affiliates in the ratio that each affiliate's separate return liability bears to the sum of the separate return liabilities of all affiliates that are members of the consolidated group. In addition, a complementary method is used which results in reimbursement by profitable affiliates to loss
affiliates for tax benefits generated by loss affiliates. At June 30, 2004 and December 31, 2003, the Company had deferred Federal income tax assets of $15,733,000 and $13,560,000, respectively. Management has concluded that the net deferred federal income tax assets are more likely than not to be realized, therefore, no valuation allowance has been provided.
7. TREATIES AND AGREEMENTS WITH AFFILIATES
On October 6, 1999, the Company entered into a Facultative Quota Share Reinsurance Treaty (the "Treaty") with XL Financial Assurance Ltd. ("XLFA"), a Bermuda financial guaranty insurer, which is 86.8% owned by XL Insurance. The remaining 13.2% is owned by Financial Security Assurance Holdings Ltd., an unrelated company. The Treaty was amended and restated on June 22, 2001. Under the terms of the treaty, XLFA agrees to reinsure up to 90% of the Company's acceptable risks. The Company is allowed up to a 30% ceding commission on premiums written ceded under the terms of the Treaty. On April 22, 2004, the New York Insurance Department approved certain technical amendments to the Treaty in a Second Amended and Restated Facultative Quota Share Reinsurance Treaty between the Company and XLFA (the "Second Amended and Restated Treaty"). The Second Amended and Restated Treaty had an effective date of May 1, 2004.
XL Insurance entered into a reinsurance agreement dated October 6, 1999 with the Company that unconditionally and irrevocably guarantees the full and complete performance of all obligations of XLFA to the Company under the above described Facultative Quota Share Reinsurance Treaty. In connection with the Second Amended and Restated Treaty, XL Insurance entered into another reinsurance agreement guarantee on June 22, 2001.
The Company entered into a Facultative Master Certificate (the "XL Re Treaty") with XL RE AM, a New York insurance corporation with administrative offices in Stamford, Connecticut and the direct parent of the Company. The XL Re Treaty was effective as of November 1, 2002. Under the terms of the XL Re Treaty, XL RE AM agrees automatically to reinsure risk assumed by the Company under financial guaranty insurance policies up to the amount necessary for the Company to comply with single risk limitations set forth in Section 6904(d) of the New York Insurance Laws. The reinsurance provided by XL RE AM may be on an excess of loss or quota share basis. The Company is allowed a 30% ceding commission on premiums written ceded under the terms of the XL Re Treaty.
The Company entered into a Surplus Maintenance Agreement dated February 20, 2001 pursuant to which XL RE AM has agreed to maintain the Company's statutory capital and surplus of at least $75,000,000. On April 12, 2004, the New York Insurance Department approved a three- year extension of this agreement to February 20, 2007.
Effective December 31, 2003, the Company entered into a commutation agreement with XL RE AM whereby the Company assumed business originally ceded to XL RE AM, which resulted in approximately $845,000 of premiums earned in the first quarter of 2004.
Exhibit 99.2
XL FINANCIAL ASSURANCE LTD.
(Incorporated in Bermuda)
CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 2004 AND 2003
2004 2003
--------- --------
ASSETS:
Investments :
Fixed maturities, at fair value
(amortized cost: 2004 - $643,957; 2003 - $542,600) $ 630,672 $543,748
Short-term investments, at fair value
(amortized cost: 2004 - $19,930; 2003 - $40,286) 19,957 40,312
--------- --------
Total investments available for sale 650,629 584,060
Cash and cash equivalents 24,166 26,346
Accrued investment income 5,337 7,420
Deferred acquisition costs 65,163 51,477
Prepaid reinsurance premiums 97,718 98,048
Reinsurance balances receivable 25,041 33,446
Unpaid losses and loss expenses recoverable 9,278 7,745
Amounts due from parent and affiliates 24,054 18,342
Net receivable for investments sold 9,389 --
Derivative assets 7,635 4,826
Other assets 62 52
--------- --------
TOTAL ASSETS $ 918,472 $831,762
--------- --------
|
LIABILITIES, REDEEMABLE PREFERRED SHARES
AND SHAREHOLDERS' EQUITY LIABILITIES:
Unpaid losses and loss expenses $ 42,214 $ 35,899
Deferred premium revenue 402,177 348,719
Reinsurance premiums payable 5,714 6,275
Net payable for investments purchased -- 13
Accounts payable and accrued liabilities 544 1,249
Derivative liabilities 2,416 7,018
Dividend payable on preferred shares 12,970 1,950
--------- --------
TOTAL LIABILITIES $ 466,035 $401,123
--------- --------
REDEEMABLE PREFERRED SHARES:
Redeemable preferred shares (par value of $120
per share; 10,000 shares authorized; 363
issued and outstanding as at June 30, 2004
and December 31, 2003, respectively) $ 44 $ 44
Additional paid-in capital 38,956 38,956
--------- --------
TOTAL REDEEMABLE PREFERRED SHARES $ 39,000 $ 39,000
--------- --------
SHAREHOLDERS' EQUITY:
Common shares (par value of $120 per share; 10,000
shares authorized; 2,057 issued and outstanding as at
June 30, 2004 and December 31, 2003, respectively) $ 247 $ 247
Additional paid-in capital 220,653 220,653
Accumulated other comprehensive income (loss) (13,258) 1,174
Retained earnings 205,795 169,565
--------- --------
TOTAL SHAREHOLDERS' EQUITY $ 413,437 $391,639
--------- --------
TOTAL LIABILITIES, REDEEMABLE PREFERRED SHARES
AND SHAREHOLDERS' EQUITY $ 918,472 $831,762
========= ========
|
The accompanying notes are an integral part of these condensed financial statements.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2004 2003 2004 2003
---------- ---------- ---------- ----------
REVENUES :
Net premiums earned $ 19,978 $ 18,924 $ 39,658 $ 32,112
Net investment income 5,737 3,404 10,877 7,474
Net realized gains (losses) on investments (3,361) 1,731 1,519 2,434
Net realized and unrealized gains on derivative instruments 8,915 13,595 19,820 21,529
---------- ---------- ---------- ----------
Total revenues $ 31,269 $ 37,654 $ 71,874 $ 63,549
---------- ---------- ---------- ----------
EXPENSES :
Losses and loss expenses $ 4,910 $ 5,015 $ 6,202 $ 10,876
Acquisition costs 8,045 8,296 14,237 13,763
Operating expenses 2,131 2,825 4,185 3,590
---------- ---------- ---------- ----------
Total expenses $ 15,086 $ 16,136 $ 24,624 $ 28,229
---------- ---------- ---------- ----------
NET INCOME $ 16,183 $ 21,518 $ 47,250 $ 35,320
========== ========== ========== ==========
COMPREHENSIVE INCOME (LOSS)
Net income $ 16,183 $ 21,518 $ 47,250 $ 35,320
Unrealized gains (losses) (21,913) 2,635 (12,913) 3,014
Less: reclassification for gains (losses) realized in income (3,361) 1,731 1,519 2,434
---------- ---------- ---------- ----------
Other comprehensive gain (loss) $ (18,552) $ 904 $ (14,432) $ 580
---------- ---------- ---------- ----------
COMPREHENSIVE INCOME (LOSS) $ (2,369) $ 22,422 $ 32,818 $ 35,900
========== ========== ========== ==========
|
The accompanying notes are an integral part of these condensed financial statements.
2004 2003
---------- ----------
COMMON SHARES - AUTHORIZED
Number of shares, beginning of year and period 2,057 2,057
---------- ----------
Number of shares, end of year and period 2,057 2,057
========== ==========
COMMON SHARES - ISSUED
Balance - beginning of year and period $ 247 $ 247
---------- ----------
$ 247 $ 247
========== ==========
|
ADDITIONAL PAID-IN CAPITAL
Balance - beginning of year and period $ 220,653 $ 220,653
---------- ----------
$ 220,653 $ 220,653
========== ==========
|
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance - beginning of year and period $ 1,174 $ 6,095
Other comprehensive loss (14,432) (4,921)
---------- ----------
Balance - end of year and period $ (13,258) $ 1,174
========== ==========
|
RETAINED EARNINGS
Balance - beginning of year and period $ 169,565 $ 100,046
Net income 47,250 76,161
Dividends on preferred shares (11,020) (6,642)
========== ==========
Balance - end of year and period $ 205,795 $ 169,565
========== ==========
TOTAL SHAREHOLDER'S EQUITY $ 413,437 $ 391,639
========== ==========
|
The accompanying notes are an integral part of these condensed financial statements.
2004 2003
----------- -----------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income for the period $ 47,250 $ 35,320
Adjustments to reconcile net income to net cash
provided by operating activities:
Realized gains on investments (1,519) (2,434)
Amortization of discount on fixed maturities 2,828 (473)
Net realized gains on investment derivatives (19) (3,999)
Net realized and unrealized gains on credit
derivatives excluding cash received and paid (7,411) (11,217)
Accrued investment income 2,083 (583)
Reinsurance premiums receivable 8,405 (25,755)
Deferred acquisition costs (13,686) (15,310)
Prepaid reinsurance premiums 330 (14,748)
Unpaid losses and loss expenses recoverable (1,533) (3,103)
Amounts due from parent and affiliates (5,712) 3,337
Accounts payable and accrued liabilities (705) (483)
Reinsurance premiums payable (561) (10,021)
Deferred premium revenue 53,458 82,808
Unpaid losses and loss expenses 6,315 13,977
Other assets and liabilities (10) (10)
----------- -----------
Total adjustments 42,263 11,986
----------- -----------
Net cash provided by operating activities 89,513 47,306
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from sale of fixed maturities and
short-term investments 1,872,772 140,526
Proceeds from redemption of fixed maturities and
short-term investments 368,350 3,252,914
Purchase of fixed maturities and short-term
investments (2,332,815) (3,481,384)
----------- -----------
Net cash used in investing activities (91,693) (87,944)
DECREASE IN CASH AND CASH EQUIVALENTS (2,180) (40,638)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 26,346 125,073
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 24,166 $ 84,435
=========== ===========
|
The accompanying notes are an integral part of these condensed financial statements.
1. ORGANIZATION AND BUSINESS
XL Financial Assurance Ltd. (the "Company") was incorporated with limited liability under the Bermuda Companies Act 1981 on October 14, 1998 and is registered as a Class 3 insurer under The Insurance Act 1978, amendments thereto and related regulations ("The Act"). At June 30, 2004 and December 31, 2003, the Company was approximately 85% owned by XL Insurance (Bermuda) Ltd (a wholly-owned subsidiary of XL Capital Ltd); 6% by Financial Security Assurance Inc. (a wholly-owned subsidiary of Financial Security Assurance Holdings Ltd.) and 9% by Financial Security Assurance International Ltd. (owned 20% by XL Insurance (Bermuda) Ltd and 80% by Financial Security Assurance Inc.). The Company is an integral part of a joint venture agreement between XL Capital Ltd and Financial Security Assurance Holdings Ltd.
The Company is primarily engaged in the business of providing reinsurance of financial guaranties on asset-backed and municipal obligations underwritten by XL Insurance (Bermuda) Ltd, Financial Security Assurance Inc. and XL Capital Assurance Inc. (a wholly-owned subsidiary of XL Capital Ltd) and other monoline and multiline insurance companies. This may be in the form of traditional financial guaranty insurance or via a credit derivative execution. The Company's underwriting policy is to provide reinsurance of asset-backed and municipal obligations that would be of a lower investment-grade quality without the benefit of the Company's reinsurance. The asset-backed obligations reinsured by the Company are generally issued in structured transactions and are backed by pools of assets such as residential mortgage loans, consumer or trade receivables, securities or other assets having ascertainable cash flows or market value. The municipal obligations reinsured by the Company consist primarily of general obligation bonds that are supported by the issuers' taxing power and of special revenue bonds and other special obligations of states and local governments that are supported by the issuers' ability to impose and collect fees and charges for public services or specific projects. The Company's reinsurance guarantees payments when due of scheduled payments on an insured obligation. In the case of a payment default on an insured obligation, the Company is generally required to pay the principal, interest or other such amounts due in accordance with the obligations' original payment schedule or, at its option, to pay such amounts on an accelerated basis. The Company conducts surveillance on its exposures to try and ensure early identification of any loss events. In addition, in the normal course of business, the Company seeks to reduce the loss that may arise from such events by reinsuring certain levels of risks in various areas of exposure with other insurance enterprises or reinsurers.
On October 6, 1999, the Company entered into a Facultative Quota Share Reinsurance Treaty ("Treaty") with XL Capital Assurance Inc. ("XLCA"). The Treaty was amended and restated on June 22, 2001. Under the terms of this Treaty, the Company agrees to reinsure up to 90% of XLCA's compliant risks. The Company is subject to ceding commissions of up to 30% on business assumed under the terms of this Treaty.
On December 6, 2000, the Company entered into an excess of loss agreement, which reinsures 100% of net incurred losses in excess of $250 million up to a limit of liability of $100 million. On June 30, 2003, the Company terminated the agreement. On October 3, 2001, the Company entered into an excess of loss reinsurance agreement with XL Insurance (Bermuda) Ltd, which indemnifies the Company up to an aggregate limit of liability of $500 million in excess of defined obligor losses.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The accompanying condensed 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, 2004 and for all periods presented, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These statements should be read in conjunction with the Company's December 31, 2003 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 accounting principles generally accepted in the United States of America. The results of operations for the periods ended June 30, 2004 and 2003 are not necessarily indicative of the operating results for the full year.
The preparation of condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Any such adjustments are reflected in income in the period in which the adjustments are made. The financial statement estimates subject to most uncertainty are estimates for loss reserves and calculation of the fair value of credit default swap instruments.
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities", ("FIN 46"). The objective of FIN 46 is to improve financial reporting by companies involved with variable interest entities. This new model for consolidation applies to an entity which either (1) the powers or rights of the equity holders do not give them sufficient decision making powers or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both.
In December 2003, FASB issued a revision to FIN 46 (FIN 46-R) which clarified several provisions of FIN 46, superceded the related FASB Staff Positions ("FSPs"), and amended the effective date and transition of the pronouncement, except for certain types of entities. However, the Company has applied the provisions of FIN 46 or FIN 46-R to those entities that are considered to be special-purpose entities as at June 30, 2004. The adoption of FIN 46 did not have a material effect on the Company's financial condition and results of operations.
3. DERIVATIVE INSTRUMENTS
Credit derivatives issued by the Company meet the definition of a derivative under FAS 133. The Company has recorded these products at fair value, modeled on prevailing market conditions and certain other factors relating to the structure of the transaction. The Company considers credit derivatives to be financial guaranty contracts, in substance, as the Company intends to hold them to maturity. The Company determines fair value using a model which calculates the difference between the actual remaining present value of installment premiums and an estimated remaining present value of installment premiums under current market conditions. In essence, the model estimates the cost of an offsetting position to the original credit derivatives from other comparable counterparties under the current market environment. The model is dependent upon a number of factors including changes in credit spreads, changes in credit quality, foreign exchange and other market factors.
The Company's credit derivatives portfolio generally requires the Company to meet payment obligations for referenced credits within the portfolio in the event of specific credit events after erosion or exhaustion of various first loss protection levels. These credit events are contract specific, but generally cover bankruptcy, failure to pay and repudiation. The notional exposure of the credit derivatives portfolio as of June 30, 2004 was $4.4 billion. Approximately 96% of the portfolio is rated AAA, with the remainder being split amongst AA, A and BBB respectively. The weighted average term of the contracts in force was 5.26 years.
The net fair value adjustment for the periods ended June 30, 2004 and 2003 was an unrealized gain of $7,411 and $11,217, respectively. At June 30, 2004 and 2003, the Company had a net derivatives asset (liability) of $5,219 and ($5,052), respectively.
4. VARIABLE INTEREST ENTITIES
The Company primarily provides financial guaranty reinsurance or enters into a credit derivative on the senior interests, which would otherwise be rated investment grade. The obligations related to these transactions are often securitized through variable interest entities. The Company does not hold any equity positions or subordinated debt in these arrangements. Accordingly, the Company's interest in these variable interest entities is not significant and therefore, not consolidated.
The Company provides insurance, reinsurance and a liquidity facility to a variable interest entity domiciled in the Cayman Islands. The variable interest entity was established primarily as a pass-through vehicle associated with a Medium Term Note program backed by a portfolio of investment grade bank perpetual securities and zero coupon notes. The variable interest entity had assets of approximately $1.4 billion as of June 30, 2004. The Company's maximum exposure to loss as a result of its insurance and reinsurance agreements with this variable interest entity was $348.9 million as of June 30, 2004. The Company could experience a loss in the event that the underlying assets do not perform as expected.
5. REINSURANCE
The effect of reinsurance on premiums written and earned for the three and six month periods ended June 30, 2004 and 2003 is shown below:
ASSUMED CEDED NET
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Three months ended June 30, 2004
Premium written $ 60,430 $ (7,053) $ 53,377
Premium earned 27,575 (7,597) 19,978
Losses and loss adjustment expenses 5,890 (980) 4,910
Three months ended June 30, 2003
Premium written $ 88,756 $ (19,080) $ 69,676
Premium earned 24,451 (5,527) 18,924
Losses and loss adjustment expenses 6,375 (1,360) 5,015
Six months ended June 30, 2004
Premium written $ 107,497 $ (14,051) $ 93,446
Premium earned 54,039 (14,381) 39,658
Losses and loss adjustment expenses 7,735 (1,533) 6,202
Six months ended June 30, 2003
Premium written $ 127,549 $ (27,378) $ 100,171
Premium earned 44,741 (12,629) 32,112
Losses and loss adjustment expenses 13,977 (3,101) 10,876
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